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Home » Business » Warren Buffett Billion-Dollar Bet: 67.3% of Portfolio Anchored in 4 Key Stocks

Warren Buffett Billion-Dollar Bet: 67.3% of Portfolio Anchored in 4 Key Stocks

As Buffett has said, diversification is a protection against ignorance. He doesn't believe diversification is always necessary when it comes to building a portfolio.

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Warren Buffett Billion-Dollar Bet

Warren Buffett Billion-Dollar Bet: Investing too much money in a single stock can lead to wild swings in your wealth. Personal finance experts recommend diversifying your portfolio.

A change in the business, the sector, or governmental regulations could completely wipe out the value of your portfolio.

As Buffett has said, diversification is a protection against ignorance. He doesn’t believe diversification is always necessary when it comes to building a portfolio.

Buffett believes you don’t need to own more than a few good companies if you know how to analyze a business, its industry, and its stock.

1. Apple (40.1%)

Berkshire Hathaway’s equity portfolio is dominated by Apple (NASDAQ: AAPL).

Since the start of 2016, Buffett has accumulated shares almost every quarter, resulting in a position equivalent to over 1 billion shares.

The position has been trimmed a few times since then, including each of the last two quarters, but Berkshire still owns nearly 800 million shares.

Due to Apple’s share repurchase program, Berkshire’s stake in Apple hasn’t declined nearly as much despite Buffett’s sales.

Apple has reduced its share count by over 18% since the start of 2019. That’s part of the reason Buffett loves the stock so much.

In spite of Berkshire’s sale of over 20% of its shares, Apple’s stake in Berkshire has only fallen to about 5.1%. Apple just added $110 billion to its stock repurchase authorization.

In Berkshire’s 2023 shareholder meeting, Buffett called Apple “a better business than any we own,” praising Apple’s capital return program and steady cash flow.

Cook’s ability to leverage the popularity of the iPhone into a growing services business has been a key driver of Apple’s profit margin growth.

Buffett told investors it’s “extremely likely” Apple will remain Berkshire’s largest holding despite Berkshire’s recent sales. It builds a bigger moat around Apple’s business and ensures more predictability for its revenue.

2. Bank of America (10.6%)

In 2011, Buffett committed $5 billion to the bank in exchange for preferred shares paying 6% dividends. The deal also included a warrant to purchase 700 million shares for $7.14 each.

In 2017, Buffett exercised the warrant, resulting in a 6.8% stake in the business. He added shares in 2018, 2019, 2020, and 2023, resulting in a 13.1% stake.

Despite the recent rise in interest rates, Bank of America’s balance sheet has a larger portion of long-term bonds than most of its peers.

Therefore, due to the Federal Reserve’s interest rate hikes over the past 18 months, it has been earning lower interest rates on its holdings while paying higher interest rates. This is reflected in its net interest income, which decreased 3% year over year in the first quarter.

As interest rates eventually fall, Bank of America’s fortunes should turn around.

Investors could benefit from the Fed’s higher-for-longer rhetoric in the near term.

Despite hardships, Bank of America has demonstrated considerable staying power.

After suffering major setbacks during the 2008-09 financial crisis, the bank has recovered to become one of the country’s largest retail banks.

In 2023, Buffett continued to buy Bank of America amid rising interest rates, showing he still sees potential in the company.

3. American Express (9.7%)

Like Apple, American Express has repurchased a hefty number of shares almost every year since Buffett began buying shares in the early 1990s.

In his most recent letter to shareholders, Buffett said he plans to maintain Berkshire’s stake in Amex indefinitely.

The American Express payment network is owned by the company, unlike other credit card issuers.

The company collects a small percentage from merchants for each purchase made on its network, where banks heavily rely on the interest customers pay on their balances.

In the first quarter, 76% of total revenue came from payment processing and annual fees charged to cardholders.

As a result of shifting demographics among cardholders, Amex’s revenue comes largely from interest charged on balances.

Due to Amex’s long-standing focus on high-income individuals and small businesses, most of its cardholders spend more than average and pay their credit card bills in full every month.

Consumer cards, however, make up the majority of spending, so they provide it with strong protection against economic slowdowns and rising inflation rates, since individuals with higher incomes are less likely than lower-income households to change their spending habits during those times.

The business model of American Express makes it more vulnerable to big changes in consumer spending, but its credit card users make it more protected against defaults.

The business model of American Express appeals to Buffett since he is a perma-bull on the U.S. economy.

4. Coca-Cola (6.9%)

It is one of Berkshire Hathaway’s longest-held equity positions. Buffett purchased Coca-Cola in 1988 and 1989.

Berkshire owns 9.3% of the company today.

Buffett would consider Coca-Cola a classic Buffett investment due to its strong brand and major cost advantages.

It has a sustainable competitive advantage that enables it to maintain a much wider gross margin than its competitors.

Despite high inflation, Coca-Cola’s brand strength has been instrumental to its recent success.

Despite foreign exchange headwinds due to hyperinflation in some markets, prices/mix increased 13 percent year over year in the first quarter, resulting in 3% growth in net revenue.

In the meantime, the company is leveraging its global scale to improve operating efficiency and optimize its supply chain.

Despite making meaningful progress in improving operating margins in the first quarter, there is still room for improvement.

Besides its global presence, Coca-Cola’s existing relationships with retailers make it easier for it to introduce new products and enter new markets.

According to Buffett, Coca-Cola stock is still a great investment nearly 90 years later. He wishes he had advised his grandfather to buy it back then.

Also Read: Top 10 Indian Blue Chip Stocks to Buy in 2024: Uncover Benefits, Risks, and More

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