According to Forbes, Warren Buffett is worth $127bn.
Most of his wealth has been generated from ‘his’ investment vehicle, Berkshire Hathaway (NYSE:BRK.A).
The American owns approximately 15%, which means — technically — it’s not his company.
But given his long-standing influence over the business – he’s been the chairman and chief executive for 53 years — I’m going to assume the two are the same.
Taking a peek
If Buffett did look at my ISA, he’d probably be surprised how small it is!
At 30 September 2023, company reports show the total cost of Berkshire’s equity investments was $111.4bn, compared to their market value of $318.6bn. This is an unrealised gain of $207.2bn (186%).
I’ve yet to make my first billion.
Even so, there are some similarities with our approaches to investing.
Imitation is the sincerest form of flattery
Firstly, I try not to do too much buying and selling.
Once I’ve chosen a particular stock, I buy it with the intention of sticking with it for the long term. I know there will probably be some bumps along the way but, over an extended period, a quality company should deliver good returns.
As Buffett famously said: “Our favourite holding period is forever“.
And his approach appears to be working. From 1965-2022, Berkshire achieved an annual growth rate of 19.8%.
Of course, there’s no guarantee this will be repeated. But during these 58 years, the value of the company increased by 3,787,464%.
Because I’m loyal to my favoured stocks, my portfolio has a high degree of concentration, which has increased in recent times. That’s because I reinvest any dividends I receive in the same shares.
However, I’m still more diversified than Berkshire, which has 78% of the value of its holdings tied up in only five stocks (see table).
| Stock | Market value at 30 September 2023 ($bn) |
|---|---|
| American Express Corporation | 22.6 |
| Apple | 156.8 |
| Bank of America | 28.3 |
| The Coca-Cola Company | 22.4 |
| Chevron Corporation | 18.6 |
For amateur investors, Buffett is a big fan of tracker funds.
He reckons most people don’t have the time or expertise to consistently pick winners, so they would benefit from seeking to replicate the returns of a particular index, or sector.
I have a stake in an artificial intelligence fund, which has been doing well lately.
Being different gives the world colour
However, apart from their respective values, there are some differences in our portfolios.
I prefer income stocks.
All my holdings are currently yielding more than Berkshire’s highest — Chevron Corporation (4%). Its biggest position is in Apple, which has the lowest yield (0.5%).
Buffett doesn’t disapprove of payouts. But he believes greater returns can be generated if companies reinvest their surplus cash in growing their earnings. It’s therefore not surprising that Berkshire doesn’t pay a dividend.
Also, the company has plenty of cash on its balance sheet (over $30bn) ready to deploy if a suitable opportunity arises.
That’s always been one of my problems. Due to a lack of funds, I’ve never been in a position to act quickly.
The only failure is not trying
I don’t know if the nonagenarian would approve of my stock picks. But I think he’d be happy that I’m investing my spare cash in the stock market.
He once said: “Today people who hold cash equivalents feel comfortable. They shouldn’t. They have opted for a terrible long-term asset, one that pays virtually nothing and is certain to depreciate in value.“
