With Warren Buffett at the helm, growth at Berkshire Hathaway (NYSE:BRK-A) (NYSE:BRK-B) has outpaced the S&P 500 for 39 of the past 48 years. That is a seriously impressive record -- and for investors who want to emulate the Oracle of Omaha, a tough one to repeat. But the basics of Buffett's investment strategy are simple to follow and can be seen in the businesses that Berkshire has invested in over the years. Below are the details of three stocks that make up a large portion of Berkshire's holdings that you can buy right now, along with some details on how they can make your portfolio resemble Buffett's.
Working in your wheelhouse
One of the primary themes in Buffett's investing is choosing businesses with which he is familiar. This allows Buffett to review and inspect a businesses operations more closely than if he was not knowledgeable of how a business makes and uses its money. Buffett has been very vocal about one sector in particular during the economic downturn, with his portfolio backing up his confidence -- financials. While banks and other financial firms can be extremely difficult to understand, three of Buffett's choices are relatively simple for even the novice investor.
First on the list is Wells Fargo (NYSE:WFC), one of the nation's largest banks. Wells is the No. 1 holding for Berkshire in both shares and value based on the firm's 2012 annual report. Now, banks aren't known for being the easiest to evaluate, but Wells Fargo remains the largest conventional bank in the nation, without the added confusion of investment banking operations to complicate things. As a consumer, you as an investor know the main operations of Wells Fargo -- taking in deposits and lending out funds. The more deposits and loans, the more revenue Wells can generate.
As one of the only banks to make it out of the financial crisis largely unscathed, Wells Fargo is positioned well to withstand future economic pressure and continue growing. More recently, the resurgence of the housing market has lead to more opportunities for the bank, and Wells Fargo has been at the forefront of mortgage loans origination, giving it a leading edge on new revenue generation. With its recent earnings release two weeks ago, Wells did note that revenue was slightly down, but it still produced record earnings.
Much like Wells Fargo, U.S. Bancorp (NYSE:USB) is also a conventional bank with standard banking operations. The bank is in the top five of Berkshire's holdings by share count, but drops to within the top 10 in market value. With a lesser footprint than the large banks, U.S. Bancorp has a smaller impact on the mortgage market. However, it was able to build up its commercial lending operations over the past quarter, with a 5.8% rise in revenue from that lending segment. This is a great move for the bank and its investors if the natural limit for new mortgages is coming closer. Developing other segments lead to a 6.8% increase in earnings for USB in the first quarter, another signal of strength for the bank.
American Express (NYSE:AXP), a personal finance company best known for its credit cards, is the No. 3 holding for the Berkshire by share count and No. 5 by market value as of the latest annual report. While it may be a bit more complex than the banks we've covered so far, as a consumer, you still know (and probably have experience with) the business's revenue generator. By lending money and charging interest, AmEx extends itself as a financial firm that grows with consumer spending.
Best known as a top-tier credit card provider, American Express has extended itself to lower-income demographics with its recent partnership with Wal-Mart and their Bluebird card. The company also has other operations that allow additional lending, with both personal and consumer lending. As the economy continues to garner strength, consumer lending will improve, and AmEx is poised to grab more market share.
Invest with the best
While it's unlikely that a lot of us will generate the returns that Buffett has made for Berkshire Hathaway over the years, it's still possible for you to invest like the greats. As an open example of how the Oracle invests, Berkshire's holdings are a great place to start looking for ideas. But remember that the best companies to invest in are the ones that you know and use, with the financials being another good place to start. Remember, investing for the long term like Buffett means investing in solid businesses that will withstand the test of time.
Heading to Omaha
On May 4, Berkshire Hathaway will be holding its epic annual meeting in Omaha, and the Fool will be there to bring you everything you need to know from this "Woodstock for Capitalists." Simply click here to follow along with all of the Fool's coverage.