We may never see another investor with the skill and impact of Warren Buffett. The legendary investor took over a struggling textile company, Berkshire Hathaway, in 1965 and turned it into a massive conglomerate with holdings in insurance, healthcare, finance, automotive, consumer goods, and more.
Now 94, Buffett plans his well-deserved retirement from Berkshire at the end of the year. And when he departs, he will leave a legacy that will be difficult to duplicate: compounded annual gains of 19.9% since 1965, nearly doubling the gains of the S&P 500 (^GSPC 0.57%). Buffett led Berkshire to an overall gain over 60 years of 5,502,284%, while the S&P 500 gained only 38,054% in that period.
Buffett's philosophy is relatively simple: Buy stocks in well-established companies that are consistent leaders in their field with reliable earnings, good management, a strong competitive moat, and ideally a reliable dividend. Buffett is also a master of buy-and-hold investing, and tends to hold on to his positions for years, if not decades.
If you want to invest like the Oracle of Omaha, you can't go wrong with two stocks that are in the Berkshire portfolio: Amazon (AMZN 1.13%) and Pool Corp. (POOL 1.08%).
Image source: The Motley Fool.
1. Amazon
Amazon is one of the biggest companies in the world, with a market capitalization of $2.4 trillion. As a member of the "Magnificent Seven" cohort of stocks, Amazon certainly fits the definition of a Buffett stock, as it has excellent management and a massive competitive edge with its e-commerce business and Amazon Web Services (AWS) cloud computing.
But even so, it took Buffett a while to recognize Amazon for what it was. He had a chance to invest in Amazon in 1994 -- three years before its initial public offering -- but turned it down, seeing Amazon as merely an online bookstore.
Berkshire didn't open a position in Amazon until 2019, and said "we missed it" by not opening his position earlier. But to be honest, Buffett's not the only person who failed to see Amazon for what it would be become.
Today, AWS is the crown jewel. Yes, the e-commerce brought in $92.88 billion in revenue in the first quarter, but it's also a very expensive business to run. E-commerce expenses were $87 billion, leaving operating income of only $5.84 billion.
Meanwhile, AWS generated $29.26 billion in revenue, but expenses were only $17.72 billion. That left operating income of $11.5 billion from AWS, representing the lion's share of Amazon's profits for the quarter.
AWS will continue to drive Amazon stock higher, which proves that even Buffett can get it wrong sometimes. But he's investing now and reaping the profits.
2. Pool Corp.
Pool Corp. is a wholesale distributor of pool equipment, parts, and supplies. It sells and installs new pools, and sells replacement parts, fencing, pool care products, and hot tubs. The company claims to have 125,000 wholesale customers (customers who buy in bulk to operate their own pool-related businesses, or to sell to individuals).
The company has 445 sales centers in North America, Europe, and Australia, and its product line includes more than 200,000 items.
Pool Corp. is a new position for Berkshire, as it bought the stock for the first time in the third quarter of 2024. But in digging into the company, you can see why it caught Buffett's eye.
One thing that Buffett looks for in a company is consistent earnings and a solid business plan. In Pool Corp., you have both. The company says it gets 14% of its business from new construction and 22% of its revenue from renovations and remodeling. The rest -- 64% -- comes from maintenance and repair fees.
In short, every time Pool Corp. sells and installs a pool, the company has a leg up on performing the day-to-day maintenance and repair -- and selling the products that come with it. That built-in revenue stream is intriguing for any investor.
Pool Corp. issued guidance for 2025 for earnings between $11.10 and $11.60 per share, as well as a consistently growing dividend that provides a yield of 1.7%.
Pool Corp. stock is down 14% so far this year, as higher interest rates slow major installation projects. But as Pool Corp. has a built-in revenue stream and a solid dividend yield, this may be an ideal time to buy the stock at a discounted price and hold it for a long time.
