Berkshire Hathaway and CEO Warren Buffett are in a class of their own. New investors might be amazed by Cathie Wood’s returns, but it is Buffett who is running circles around most investors. The company has achieved an averaged 20% yearly return since 1965.
And even more striking is that the company has done so without much diversification. After decades of looking into historical balance sheets, Buffett and his team have narrowed down their investing focus to three sectors. Right now, the following three sectors make up 82% of Berkshire Hathaway’s total portfolio.
IT — 38.83%
The two tech companies that Berkshire Hathaway owns the most of are Apple (AAPL), and cloud data warehouser Snowflake (SNOW), which is actually the fastest-growing company in Buffett’s portfolio. Of course, there is a huge difference between the two.
The stake in Snowflake, which was made in September 2020, is only $1.45 billion. The roughly 6.13 million shares that Berkshire bought was certainly the action of Buffet’s investing lieutenants. A company that helps businesses seamlessly share data in the cloud is not something Buffett spends his time looking into.
Meanwhile, his stake in Apple was worth a whopping $111.6 billion. Buffett has called Apple his company’s third business.
Financials — 31.21%
If not for the pandemic hitting bank stocks and Buffett selling much of his company’s shares of Wells Fargo (WFC), financials would possibly be Berkshire’s biggest sector. In total, the company owns 14 financial-sector stocks.
Bank of America (BAC) is the largest of these holdings. BofA is also the most interest-sensitive of the large banks, so it will benefit more when the Federal Reserve starts raising interest rates. It is also driving forward with digital banking options and removing certain branches to lower their noninterest expenses. But Buffett’s favorite thing about the company might be its capital-return program, which was at $37 billion before the pandemic.
Consumer staples — 12.13%
Finally, Buffett and his team have more than $35 billion inside five consumer staples stocks. This comes out to around 12.1% of the company’s portfolio and represents a two-decade low. Back in 2001, consumer staples were 46.1% of the company’s portfolio.
The theme with Buffett’s consumer staple shares is that patience earns money. Coca-Cola (KO) makes up the bulk of his shares in this sector, and is his longest-held stock at 33 years.
The attraction of consumer staples is that investors know what to expect. Companies that provide basic goods usually have a predictable cash flow, making them excellent stocks to pay an above-average dividend.
Author: Scott Dowdy