Many financial advisors strongly recommend that investors diversify their portfolios. They subscribe to Sir John Templeton's principle that “diversification is an essential safety factor, because we must have the humility to admit that we may be wrong.”
However, Warren Buffett doesn't seem to like diversification very much.Buffett owns about 68% berkshire hathaway's $361 billion portfolio is invested in just four stocks. why?
buffett's big 4
Berkshire owns more than 905 million shares. apple (NASDAQ:AAPL) It is worth more than $152 billion. This one stock accounts for a whopping 42% of Berkshire's portfolio. This percentage was even higher last year, until Buffett (or one of his two investment managers) reduced Berkshire's position in Apple slightly in the fourth quarter of 2023.
american bank (NYSE:BAC) It ranks as Berkshire's second-largest holding. The conglomerate's 1.03 billion shares have a current value of nearly $36.4 billion, or just over 10% of its total portfolio.
american express (NYSE:AXP) Berkshire ranks just behind Bank of America in third place. Buffett's company owns about 151.6 million Amex shares, valued at more than $33 billion. That's enough to make up just over 9% of Berkshire's portfolio.
coca cola company (NYSE:KO) Claim 4th place. Berkshire's 400 million shares in the food and beverage giant are worth about $23.4 billion. Coca-Cola accounts for 6.5% of the conglomerate's portfolio.
Why Buffett invested so much in these stocks
It is important to note that Berkshire Hathaway owns over 40 stocks, in addition to Apple, Bank of America, American Express, and Coca-Cola. But there are several reasons why Buffett invested so much of Berkshire's money in these four stocks.
Most importantly, he believes in their business. At Berkshire Hathaway's annual shareholder meeting last year, Buffett said Apple was “a better company than any other company we own.” Leadership is also important. At the same meeting, Buffett said, “I like Bank of America, and I like the management team.''
In a letter to Berkshire shareholders earlier this year, Buffett listed AmEx and Coke among the stocks he expected to “keep around indefinitely.” He explained, “When you find a really great business, stick with it.”
Buffett didn't always invest that heavily in these stocks. However, Coca-Cola and American Express are his longest-serving positions. The stock's value has risen significantly over the years, making it a larger part of Berkshire's portfolio. In his latest letter to shareholders, Buffett even noted that Berkshire's share of AmEx's profits in 2023 “significantly exceeds the $1.3 billion cost of the old acquisition.”
Berkshire has only owned Apple and Bank of America since 2016 and 2017, respectively. But since then, Apple's stock price has soared more than sixfold. BofA isn't a huge winner, but it does generate a lot of dividend income for Berkshire.
Should we follow Buffett's lead?
In 1998, Buffett summed up his philosophy on diversification to a group of students at the University of Florida: You have a need, and you will make a lot of money. ”
Should you follow Buffett's lead and invest a large amount in a small number of stocks, but only if you can meet two criteria he specified?
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Thoroughly understand the underlying business.
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Find a “nice business”.
It's important to note another often-overlooked statement by this legendary investor. “If you are not a professional investor, if your goal is not to manage your money in a way that will give you a much higher return than the rest of the world, then I believe: ” Extreme diversification. ”
As it turns out, Buffett thinks the same way as many financial advisors. Diversification is good for most investors.
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Bank of America is an advertising partner of The Motley Fool's Ascent. American Express is an advertising partner of The Ascent, a Motley Fool company. Keith Speights has held positions at Apple, Bank of America, and Berkshire Hathaway. The Motley Fool has positions in and recommends Apple, Bank of America, and Berkshire Hathaway. The Motley Fool has a disclosure policy.
Originally published by The Motley Fool Why Warren Buffett has 68% of Berkshire Hathaway's $361 billion portfolio invested in just four stocks.
