Warren Buffett might have the all-time most extraordinary investment track record when all is said and done. His holding company, Berkshire Hathaway, has beaten the S&P 500 by a wide margin for decades.
Berkshire is a holding company with dozens of private businesses and investments. However, investors follow the company's massive $371 billion stock portfolio the closest. Despite holding 51 stocks, just six make up over 80% of the portfolio's value. What does this mean, and how can investors apply Warren Buffett's wisdom to their investment strategy?
The sensational six and their history
Berkshire Hathaway, one of the world's largest corporations, has over 80% of its stock portfolio in just six companies. Here they are:
| Company | Position Size (% of Berkshire portfolio) |
|---|---|
| Apple | 47.5 |
| Bank of America | 9.3 |
| American Express | 8.2 |
| Coca-Cola | 6.4 |
| Chevron | 4.4 |
| Occidental Petroleum | 3.8 |
Data source: CNBC. Table by author.
While each stock has risen to the top of Berkshire's portfolio, they all have unique stories explaining how that came to be. Here's a look at each.
Apple: A big winner
Buffett first bought iPhone maker Apple (AAPL -0.35%) in 2016. It's worked out very well for Berkshire. The stock has returned roughly 700% since the beginning of that year, with reinvested dividends along the way. That outsized return helps explain the stock's massive weighting in Berkshire's portfolio today.
Bank of America: Revisiting a past mistake
We all make mistakes. Berkshire bought Bank of America (BAC -0.21%) in 2007, just before the financial crisis. By 2010, Buffett had bailed on the bank's shares. However, he would eventually come back to the stock, building a new position starting a decade later. It's remained in the portfolio since and is Berkshire's second-largest holding today.
American Express and Coke: Buy and hold
Warren Buffett is famous for having a long-term mindset, reflected in his ownership of Coca-Cola (KO) and American Express (AXP -0.62%). Berkshire bought these two stocks in 1988 and 1991, respectively, and has let them grow, repurchase shares, and pay dividends for decades. Given each company's brand recognition with consumers, it's hard to see Berkshire selling these stocks anytime soon, if ever at all.
Chevron and Occidental Petroleum: Long-term bets
Lastly, energy is a popular theme in Berkshire's business. The company owns private assets in oil and gas, including pipelines and utilities, but has also amassed large stakes in Chevron (CVX 0.37%) and Occidental Petroleum (OXY -0.15%). Buffett has bought most of the shares in these companies over the past four years as part of a bet on long-term oil prices, though he's sold some of Berkshire's Chevron stock over time.
Image source: Getty Images.
Four essential takeaways for investors
No investor gets it right every time, even Buffett. Time will tell whether Berkshire's most significant holdings continue to perform, but Buffett's actions hint at his general investment philosophy. You shouldn't mindlessly copy his stock picks, but incorporating some of his beliefs can help you invest to the best of your ability.
1. Buy quality
Buffett is famous for saying that his No. 1 rule is never to lose money, and that his second rule is remembering the first one. Buffett has done very well investing in blue chip stocks at reasonable valuations, letting proven winners grow and create steady returns for investors. He doesn't chase speculative, unprofitable stocks. He embodies the tortoise, not the hare.
2. Think long term
Buffett has stated that a long time horizon is critical to successful investing. Berkshire doesn't always hold stocks for very long. However, recognizing and selling when you pick wrong is far different from selling an excellent investment to realize a profit. As Buffett has with Coca-Cola and American Express, you can hold the right stocks for decades.
3. Invest in durable industries
It's hard to invest for a long time if the companies you hold aren't around. You'll notice that Berkshire's portfolio focuses on the economy's fundamental pillars, like consumer spending, finances, and energy. These industries have been around for decades, even centuries. Disruptive growth stocks can add a spark to a diversified portfolio, but remember, they haven't proven their staying power yet.
4. Don't sell your winners
The size of Berkshire's Apple investment jumps off the page when you see it. It's for good reason. Berkshire's total Apple position is worth over $176 billion. That's an enormous amount of money for a single investment -- even for Buffett.
However, it didn't start that large. It's grown as the stock has appreciated so much over the past eight years. So why not sell? Buffett has stated that he believes Apple is better than any other business Berkshire owns. In other words, he doesn't want to sell it to buy something inferior.
