One of the oldest and most successful entrepreneurs on Wall Street will be 92 years old in a few days. Warren Buffett, the owner of Berkshire Hathaway, remains year after year as one of the world’s great fortunes. Specifically, he was ranked seventh on the Forbes Real-Time Billionaires Index in mid-August. How does Warren Buffett invest and how can we replicate his method?
The well-known businessman has amassed a wealth of more than 100,000 million dollars from humble beginnings: when he was almost a child he began to distribute the local newspaper on the streets of his native Omaha. He was then 13 years old and the crisis of 29 had just happened. Another revealing fact happened two years earlier, when he was 11: on his first visit to the New York Stock Exchange, he bought three shares of Cities Service Preferred for himself and another three for his sister Doris.
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What have been Buffett’s latest investments?
Buffett’s moves continue to surprise investors and almost always hit the right key. To celebrate the birthday, the businessman, through Berkshire, increased his positions in some technology and financial firms (he thinks that with the rise in interest rates of the central banks they will benefit in the medium term), according to the data presented to the SEC (the American stock exchange regulator).
Berkshire‘s exposure to technology and around 50% of its portfolio. The boost comes above all from the hand of Apple: his fund has bought a new stake in the second quarter of 2022. His investment in the apple firm – he bought titles for the first time in 2016 – has skyrocketed and is now his largest participation with a difference: more than 150,000 million dollars (5.6% of the shares of the apple firm).
Among finance companies, the Oracle of Omaha has tripled investment in Ally Financial, auto and home finance. In addition, it has increased its stake in Occidental Petroleum by 16% (it now controls 20% of the oil company’s shareholders). It has also increased its participation in another oil company with a lot of weight in its investment portfolio (Chevron), as well as in Amazon, Activision Bizzard (a video game firm pending purchase by Microsoft) and Paramount Global (media and entertainment).
We recently talked about Warren Buffett’s first moves in 2022 with Francisco Lodeiro, director of Academia de Inversión, host of the Value Investing FM podcast and a great follower of the Oracle of Omaha.
And from taking positions to undoing them. Buffett divested from listed companies that in his day were the businessman’s big bets: the automobile group General Motors, US Bancorp (banking) and Kroger (supermarket company). And, already at the end of his operations, he has sold his entire position in the North American telecommunications giant Verizon.
Last year (2021) he divested holdings in pharmaceutical companies. He reduced his position in AbbVie and Bristol Myers Squibb by 20%, and in his best known of those, Merck, by 68%. Despite having been interested in owning a basket of pharmaceutical stocks for decades, he hinted in May 2021 that he did not fully understand them and was uncomfortable holding them.
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Where is Warren Buffett investing?
We have just discussed his latest moves, but where does the businessman put his money? Where is Warren Buffett investing in 2022? Unlike the most prominent billionaires on the Forbes list, Buffett has not strictly built his fortune by founding a company. He has built an empire from investment.
The accounts of his Berkshire Hathaway holding company indicate that he has about 75% of his assets concentrated in five companies: Apple, Bank of America, American Express, Coca Cola and Kraft Heinz.
Warren Buffett Stock
Approximately 66% of the value of the assets of Berkshire, Buffett’s investment vehicle, was concentrated in four listed companies at the end of the first quarter of 2021, according to data from the Securities and Exchange Commission (SEC): Apple (159,000 million dollars ), Bank of America ($42.6 billion), American Express ($28.4 billion), and Chevron ($25.9 billion).
Approximately 66% of the aggregate fair value was concentrated in four companies (American Express Company – $28.4 billion; Apple Inc. – $159.1 billion; Bank of America Corporation – $42.6 billion and Chevron Corporation – $25.9 billion)
The following table lists a selection of companies where Warren Buffett invests.
Buffett’s 7 investment tips
Beyond a wide universe of investment assets, Buffett has followers around the world for his conception of finance. Throughout his career, he has punctuated his business decisions with phrases that have made him famous, like the one he says: “The price is what you pay. Value is what you get.”
And along with his well-known phrases, he has also given investment advice.
1. Reinvest your profits: the entrepreneur recommends whoever earns capital with their investment not withdraw that money, but reinvest it. Buffett himself has followed this maxim since he was young when he and a friend invested in pinball machines. After reinvesting the profits several times, they managed to collect 8 machines. Reinvestment, moreover, is synonymous with taking advantage of compound interest.
2. Avoid unnecessary debt: Avoid unnecessary loans and credit cards. If you need financing for a project, opt for fixed terms and low-interest rates, advises the Oracle of Omaha.
3. Try to live with austerity: Buffett is probably one of the millionaires who lavishes the most on a life far from the luxury that his fortune could offer him if he wanted. He lives in the same downtown Omaha house that he bought in 1958 for $31,500 at the time.
4. Never invest in something you do not understand: the famous businessman advises opting for those companies or projects where we are clear about the business generation model. And he points out that the expectations around a firm are not a reason enough to bet our money. The key: to have your own criteria, to know what is where you want to position yourself and how that business works.
5. Always invest for the long term: Buffett once said, “If you’re not prepared to see your investment drop 50% without panicking, don’t invest in the stock market.” The broad horizons make it possible to neutralize the characteristic volatility of the short term.
6. When it comes to investing, pessimism is your friend and euphoria, is your enemy. In short, be cautious, and have a bias of negativity or prudence so as not to get carried away by emotions that lead to bad decisions.
7. A good business needs good partners. Advice especially for those who invest in joint projects. “Pick associates whose behavior is better than yours,” Buffett warns.
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What kind of investor is Buffett?
We already know where Buffett invests, what his biggest bets are, and his latest investment decisions… but what investment strategy does he follow? The world of investment distinguishes two great strategies: growth investing and value investing. Buffett follows the second current.
value investing
The first step to investing like Warren Buffett is to understand that to see significant returns in your portfolio you will have to be patient. He learned this lesson from his mentor, portfolio manager Benjamin Graham. This academically divided investor into two types: defensive and entrepreneurial.
According to him, investors, as opposed to speculators, are people who are not guided by impulses and put money to work, through assets that offer a higher potential return compared to the lowest possible risk.
That is the basis of value investing: acquiring quality securities at a price below their intrinsic or real value. The difference between the price of a security and its intrinsic value was defined by his professor at Columbia, the aforementioned Graham, as a margin of safety.
Of course, this strategy requires hours of study of the markets to detect opportunities, one of the signs that have made Buffett famous. Within this category is the enterprising investor, whose portfolio has a balance sheet that accepts a somewhat higher risk, but is compensated with an in-depth study of market fundamentals.
Your investment philosophy
The foregoing follows a golden rule for the Omaha businessman: to make money in the stock market, you must avoid losing it. Perhaps an obvious one, but a rule that is often forgotten.
In accordance with this philosophy, the entrepreneurial investor is trained and can put his money to work just like a defensive investor would, relying on professionals. Buffett believes that the best way to do this is with a fund that follows the evolution of the market. For this reason, we now review some funds that invest in the assets that the Oracle of Omaha looks at.
Funds to invest like Warren Buffett
Every year, the financial data and analysis company Morningstar compiles a list of funds that invest in the same companies as the well-known investor.
To prepare its list of funds to invest like Warren Buffett, Morningstar has taken into account the latest movements of the businessman and his investment vehicle, Berkshire: the exit of airlines (last year among his largest positions), the entry of a value Chinese (the electric car manufacturer BYD and a Japanese value: the industrial conglomerate Itochu.
Unfortunately, these are funds that are not marketed in Spain. Therefore, the most direct way to invest like Warren Buffett is to buy stocks. Before, we leave the codes of this list of funds, for those who are interested in consulting them: US19763P2838, US68380H1095, US4166458442, US52470J1007, US47103E8416, US1888501012, US86704B8220, US52469H6365, US0250835024, US0250835024, US0250835024.
There are also exchange-traded funds (ETFs) that follow investment patterns similar to the entrepreneur. Some of them are exposed to his investment company, Berkshire Hathaway. Through the following article, you will know how to incorporate some of Buffett’s current holdings into portfolios.
Invest in stocks that Buffett invests in
A second way to invest like Warren Buffett is to invest in stocks. The securities on the stock market are a clear path for the investor: they allow us to enter directly and bet on the financial asset that interests us, without opting for other additional securities.
Stocks have another main attraction besides being affordable: the possibility of receiving a dividend. This is a common tool used by listed companies to retain their shareholders, who receive a bonus from time to time for the shares they own in that company.
To buy shares there are different online brokers. A broker is an agent or company that executes transactions for the sale of financial instruments, including shares. An option that fits those who want to buy individual titles of the company and not more elaborate instruments.
Of course, it is essential to choose a broker with characteristics that ensure the maximum use of the investment: costs and commissions, security (better regulated and recognized by financial authorities, such as the CNMV), and the minimum amount that they ask to invest… You can consult the best brokers to expand your information and see which one suits you.
To replicate Buffett, the most logical thing is to buy shares of the companies in which he has greater participation. These are: Apple, Bank of America, American Express, Coca Cola and Kraft Heinz. And we can be even more direct by buying shares of Berkshire Hathaway, Buffett’s holding company. The company is listed on the Nasdaq index.