Warren Buffett is undoubtedly going to go down in the history books as one of the best investors of all time.
The Berkshire Hathaway (NYSE:BRK-B) CEO is set to release his last letter as the chief executive of one of the most incredible companies of all-time. Indeed, it’s my view that Berkshire Hathaway could amount to one of the most fantastic conglomerates in the history of the world, bringing together disparate companies in varying sectors all with the same proposition for investors – solid market-beating returns over time.
The thing is, even as Warren Buffett looks to pass the mantle on to incoming CEO Greg Abel, the Oracle of Omaha is still likely to put forward an aspiring message to young investors looking to follow in his footsteps. I’ll be reading his upcoming letter with earnest, and I’d imagine he’s going to do what he typically does and talk quite a bit about his picks and why he has chosen to stick with particular companies for so long.
Here are three such holdings I think he’s likely to touch on, as these are some of his past picks I think will continue to stand the test of time.
Coca-Cola (KO)
One of my own personal favorites, Coca-Cola (NYSE:KO) happens to be one of Buffett’s most prolific investments. He started building his position in mid-1988, buying around $593 million of stock at a split-adjusted price of $2.60 per share.
Now, Berkshire’s Coca-Cola position generates well in excess of $1 billion per year of dividend payments, meaning he’s more than doubling his initial investment each and every year from a dividend perspective alone. That says nothing of Coca-Cola’s meaningful rise in value over the decades, making this dividend pick one of his best-timed and most lucrative investments in a broad diversified portfolio.
Buffett’s thinking has long been that picking companies with the best brands, durable competitive advantages (he calls them “moats”) and loyal customer bases leads to long-term value accretion, so long as said company isn’t exorbitantly valued at a given point in time. He’s long viewed buying excellent companies at a reasonable price as a much better long-term bet than buying reasonable companies at an excellent price.
In the case of his Coca-Cola investment this has been true. I anticipate it will continue to be true for many decades, which is why Berkshire still holds 400 million shares of KO stock (or 9.3% of the company’s outstanding float).
Apple (AAPL)
In the world of mega-cap technology companies, Apple (NASDAQ:AAPL) continues to be a darling which rewards long-term investors for their patience and loyalty to a world-class brand.
Now the world’s second-largest company, Apple has ballooned in value, with a valuation multiple that has clearly made more conservative value-focused investors like Warren Buffett nervous. Despite aggressive trimming in nearly every quarter over the past two years, Berkshire still holds 280 million shares in the iPhone maker, amounting to a market value of more than $55 billion at the time of writing.
Whether or not you believe Apple is overvalued or not, Buffett’s purchases in the tech giant which began around a decade ago were undoubtedly well-timed. Buffett was able to pick up shares of Apple stock, which were yielding around 3% and trading at a price/earnings multiple that was less than half of what it is today.
That’s buying excellent companies at reasonable prices in action. Even more impressive is Buffett’s willingness to hold these shares (albeit trimming his position) as multiples expanded. That’s half the battle few talk about, and it’s just as important. He’s been taking profits (in many cases larger than his initial investment) in consecutive quarters, reallocating some of this capital to better opportunities. I only wish to have his foresight as I mature.
Bank of America (BAC)
As far as world-class financial juggernauts are concerned, Bank of America (NYSE:BAC) is a sight to behold.
However, the whole ordeal in which Buffett was able to secure a massive stake in the flailing bank in the depths of the Great Financial Crisis of 2008/2009 is one of those case studies that will continue to be parsed through at business schools around the world for generations to come.
Buffett’s ability to buy low and sell high means that he’s since exited a significant portion of his position in Bank of America, with Berkshire now holding more than 605 million shares of the world-class bank, valued at more than $32 billion.
This massive position is one that may continue to get drawn down over time, but I think that’s just a function of where such stocks have gone in terms of their multiples in recent years. If BAC stock was trading at a fraction of where it is today, you’d bet Buffett would be buying. This is a world-class financial institution with a strong balance sheet, and all the elements Buffett likes.
If Bank of America stock sinks from here due to significant financial strains (what some experts are pointing to as a potential outcome of some red flags in the system), I’d be imitating Buffett and buying.
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