In recent years, Berkshire Hathaway (NYSE: BRK.A)(NYSE: BRK.B) CEO Warren Buffett has received a lot of criticism for underperforming. S&P 500. Some people have even hinted that the Omaha Oracle may have lost its touch. But go back your analysis of Buffett’s historical performance beyond the past decade and you’ll see how much he’s stood out as a stock picker over the years.
According to the 2019 Berkshire Hathaway shareholder letter, the broad-based S&P 500 has gained an incredible 19.784%, including paid dividends, in the past 55 years. Comparatively, Berkshire Hathaway’s market share per share has totaled (drum roll) 2,744.062% over the same period.
Buffett and his team have absolutely wiped out the market in the long run, and it has done so by buying big business and holding it for long periods of time. Based on the advertised cost of his company’s primary holdings, as of December 31, 2019, Buffett has unrealized capital gains of nearly $ 108 billion from the following five shares. And note that this does not include the dividends Berkshire Hathaway received, which would further increase these earnings.
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Apple: $ 60.97 billion in unrealized profit
If anyone suggests that Warren Buffett has lost his touch, kindly point to his selection of Apple (NASDAQ: AAPL) as central holding. Buffett started buying Apple stock in 2016, with nearly 251 million company shares at a base cost of $ 35.29 billion. Today, Berkshire Hathaway’s stake in Apple is worth more than $ 96 billion. For an additional context, Apple now represents almost 44% of Berkshire Hathaway’s invested assets.
There are two key reasons why Apple remains a great investment for Buffett. First, there is the innovation and brand of the company. Apple has proven time and time again that its products have staying power. Just take a look at the long lines in your stores every time a new product is released, and you’ll understand the power of Apple brands with consumers.
The other reason Apple has been such a fantastic investment is CEO Tim Cook. The Apple CEO has made no secret that he plans to steer Apple away from the products and into high-margin portable devices and services in the future. It has also been a strong advocate of rewarding shareholders, with Apple aggressively repurchasing its own shares and increasing its dividends in recent years.
Image source: Coca-Cola.
Coca-Cola: $ 16.76 billion in unrealized profit
Warren Buffett has also made a penny from Berkshire Hathaway’s oldest beverage and investment company. Coca Cola (NYSE: KO). According to information in Berkshire’s 2019 shareholder letter, Buffett’s cost base at Coca-Cola is approximately $ 3.25 per share. This means that Berkshire Hathaway’s $ 1.28 billion investment is now worth closer to $ 18.1 billion, as of last weekend.
Once again, the key to Coca-Cola’s success has been its ability to brand its products and engage with consumers. Coca-Cola has one of the most recognized brands in the world, and uses a large number of channels to attract consumers. This includes associating their products with vacations (for example, Santa Claus drinking a Coke), advertising at the point of sale, hiring athletes known as ambassadors, and even using influencers on social media as brand ambassadors.
Additionally, Coca-Cola’s geographic reach plays a key role in its success. With the exception of Cuba and North Korea, you can find Coca-Cola products in every country in the world. With more than 20 brands generating $ 1 billion or more in sales, this is an investment that Buffett is unlikely to ever sell.
Image source: American Express.
American Express: $ 12.85 billion in unrealized gains
Another long-standing tenure that has made Buffett a lot of money is the credit services giant. American express (NYSE: AXP). Over the past 27 years, the Omaha Oracle has seen its company’s investment in AmEx grow from $ 1.3 billion to more than $ 14.1 billion, as of last weekend.
One of the reasons American Express has been so important to Buffett is the fact that it is tied to the health of the US and the global economy. As a payment processor, AmEx can charge merchants fees. However, it also acts as a lender, with a line of credit cards used by consumers and businesses. Therefore, when the United States and the global economy are expanding, American Express benefits from a higher volume of purchases that cross its networks, as well as juicier rates and interest income associated with its credit cards.
American Express’ success can also be partially attributed to its clientele. AmEx is well known for its ability to attract richer consumers, who are less likely to change their shopping habits or not pay their bills when there is a problem in the United States or the global economy. Like Coca-Cola, AmEx is a stock that Buffett will probably never sell.
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Bank of America: $ 10.21 billion in unrealized gains
Considering that Buffett is a huge admirer of bank stocks, it should come as no surprise that he has murdered Bank of America (NYSE: BAC) in recent years. Even with a significant pullback in BofA stocks in 2020 due to the 2019 coronavirus disease pandemic (COVID-19), Bank of America has caused Berkshire Hathaway to earn more than $ 10.2 billion in unrealized earnings .
Make no mistake about it, the Bank of America you see today bears no resemblance to the BofA which was an absolute disaster when Buffett bought the company’s preferred stock in 2011. The credit quality of the BofA loan portfolio is substantially higher now than in the past. So, and it’s much better capitalized. It is also one of the largest banks that is most interest-sensitive, meaning that it will greatly benefit once the Federal Reserve begins increasing its federal funds rate in (presumably) 2023.
Bank of America has also excelled in the cost control department. With more of its members than ever using digital banking and / or mobile banking solutions, BofA has been able to reduce its number of physical branches to reduce its expenses. I do not expect Bank of America to lose its status soon as Berkshire Hathaway’s second largest stake.
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Moody’s: $ 6.98 billion in unrealized gains
Last but not least, the credit rating agency and the data analysis company Moody’s (NYSE: MCO) It has delivered huge profits for Buffett. On a percentage basis, Moody’s is Berkshire Hathaway’s top performer, with a gain of over 2,800% (again, excluding dividends). This translates to an unrealized gain of nearly $ 7 billion for the Buffett conglomerate.
One of the most exciting growth opportunities for Moody’s in the short term is its role as a debt securities rating agency. With interest rates dropping around the world, businesses large and small are likely to raise money through debt deals. That will keep Moody’s debt rating operations very busy for the foreseeable future.
Likewise, recent market volatility and the many changes brought about by COVID-19 should boost business for Moody’s research analysis division. The need for queries and actionable data will likely allow Moody’s analytics segment to grow by a double-digit percentage. Like the other names here, Buffett is unlikely to part ways with his stake in Moody’s anytime soon.
