Warren Buffett Investing

Warren Buffett Investing Strategy

9 min read

I’m unsure what to say if you’re on an investing blog and don’t know who Warren Buffett is. Buffett is our generation’s greatest stock investor. His company, Berkshire Hathaway (NYSE: BRK), has a market cap of nearly $800 billion. Buffett has over $117 billion net worth, making him the sixth wealthiest person in the world. In the truest sense, he is a value investor known for his frugality. Warren Buffett’s investing is followed closely by many due to his success.

Buffett was born on August 30, 1930, in Omaha, Nebraska. His birthplace has garnered him the nickname the ‘Oracle of Omaha’ and is the city where Berkshire Hathaway is headquartered.

Buffett learned much of his investing strategies from noted value investor Benjamin Graham.

He is also partnered with another noteworthy investor and the vice-chairman of Berkshire Hathaway, Charlie Munger. 

When it comes to Warren Buffett investing, he’s the real OG. Market leaders everywhere look to him.

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Warren Buffett Value Investing

What is value investing? The investing strategy looks at a stock’s price when it is lower than the company’s intrinsic value. It is, quite literally, buying low and selling high, although Buffett himself does not sell very often.

If you look at Buffett’s portfolio, nothing will blow you away. He doesn’t take many risks or invest in industries or companies he doesn’t understand. 

One of the biggest advantages that Buffett has had is time. His portfolio is a living example of the old saying, ‘time in the market beats timing the market.’ Sure, Buffett has made some bad investments; who hasn’t?

He considers buying stocks in a company as taking part ownership rather than a vehicle for capital gains. Buffett believes that if the company can make money in the long–-term, the stock price and the market will catch up. 

But not all of us have the same time advantage in the market. Buffett notoriously did not become a billionaire until he was 50. It is said that 99% of his fortune was made after he was 50. So, is Warren Buffett’s investing good? Or is he just invested long enough for his stocks to all rise?

Honestly, it’s probably a little of both. Much of his success involves choosing the right stocks in the right industries at the right time. The other ingredient for the recipe of success is staying invested for decades. 

What Does Buffett Look for in a Stock?

Buffett has a checklist of several characteristics before investing in a stock.

While many of us act rashly by buying when a stock has dropped or on specific company news, Buffett bides his time.

He is known to be patient and picky about which stocks he ultimately buys. With his track record, it’s hard to argue against anything he does regarding investing! Here are a few investing tips Warren Buffett uses for what he looks for in a stock.

1. Does the Company Make Money?

Specifically, is the company profitable? Scanning the Warren Buffett investing portfolio, you won’t find many pre-revenue growth stocks. Buffett loves profitable companies with a long history of success and a strong ROE or Return on Equity. Why is ROE important? It is one of the leading indicators of how much shareholders make on their investments. 

2. Good Profit Margins?

Along with making money, Warren Buffett investing asks if the company is making a good profit. Profit margins are a key metric in determining a company’s sustainable profitability.

When looking at profit margins, Buffett looks at the history of the stock. Not only are profit margins a good sign, but if the company can grow its profit margins, it means management is putting in the work to continue to grow the business. 

3. Does He Know the Company?

A very important part of the WarrenBuffett investing style is to know the company and the sector. Investing in things you don’t understand can lead to mistakes.

Buffett does not invest in SaaS companies or cryptocurrencies but has plenty of other value sectors in his portfolio.

Understanding what you invest in is important for knowing what could go right and, more importantly, what could go wrong. 

Is the Stock Cheap?

Most importantly, the Warren Buffett investing style is a noted frugal investor. The stocks Buffett invests in generally do not trade at high multiples. When he looks to buy a stock, it needs to be cheaper than the company’s intrinsic value.

This is the crux of value investing and why Buffett has seen such high returns on his investments. Remember, the stock price is different from the stock’s value.

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What Stocks Is Warren Buffett Investing In?

Finally, what we’ve all been waiting for—the Warren Buffett investing stocks list. Buffett has made some pretty legendary investments over the years, and I’ll talk about a few of his best.

Looking at Buffett’s portfolio can be, well, boring. You won’t find any high-risk lottery tickets here, just solid and profitable American companies. Without further ado, here are the best investments that Buffett currently holds.

1. Apple (NASDAQ: AAPL)

It should come as no surprise that the world’s most valuable company makes up a major part of his portfolio.

Buffett bought a 5% stake in Apple in 2016 for $36 billion. This investment has ballooned to over $120 billion in the six years since.

Buffett owned 887 million shares at the end of 2021, making up 4 million in his investments.

He also makes nearly $800 million in annual dividends from his investment. Berkshire Hathaway is now Apple’s largest shareholder outside of ETFs and index funds. 

2. Bank of America (NYSE: BAC)

Buffett owns over 1 billion shares of Bank of America, a stock he only recently invested in. Berkshire used to own a ton of Wells Fargo (NYSE: WFC), but Buffett traded those in for Bank of America in 2020. Was it a good trade-off? It’s hard to say.

Most big banks sympathize with each other as the broader financial sector ebbs and flows. Still, with a 1.92% annual dividend yield, Buffett makes about $1 billion in dividends from his Bank of America position each year.

3. Coca Cola (NYSE: KO)

Most young investors will find this investment boring, but Coca-Cola has been a Buffett staple since the late 1980s. Buffett’s stake is valued at over $22 billion, and his 400 million shares are his third-largest position.

Berkshire Hathaway now owns just under 10% of the company. Since 1994, Buffett has earned at least $22.71 per share in annual dividends from Coca-Cola. You do the math on why Coca-Cola is one of his best investments and continues to be a pillar in his portfolio. 

4. Kraft-Heinz (NYSE: KHC)

Kraft-Heinz is another so-called ‘boring’ investment, an American foundational company. The returns from Kraft-Heinz have not been as epic as those of his other positions, but he still makes a 4.07% dividend yield on his 325 million shares. Sure, he’s made billions in dividends from the position over the years, but the performance of Kraft-Heinz since Buffett bought the stock likely puts this in his ‘misses’ category. 

5. Verizon (NYSE: VZ)

A position that Buffett added in 2021, Verizon has a strong 4.99% dividend yield for its stock. Berkshire owns more than 158 million shares, paying a pretty penny in yearly dividends. Verizon is another boring company, but time and dividends can help any investment compound. 

Does Warren Buffett Invest in Bitcoin?

It might seem like a funny question, but weirder things have happened. To answer the question, no, Buffett owns no Bitcoin or other cryptos. Buffett has previously referred to cryptos as rat poison. He shares a similar distaste for gold as well.

The closest thing you will see to cryptos or digital assets for Berkshire Hathaway is owning shares of fintech companies. Buffett recently invested in a Brazilian crypto-friendly bank called Nubank. He also owns a position in StoneCo (NASDAQ: STNE), which deals with digital payments. 

Final Thoughts: Warren Buffett Investing

At 91 years old, Warren Buffett has learned a thing or two about investing. He is a core value investor focusing on strong American brands to carry his portfolio. While you might not agree with the stocks he buys, there are tenets of his investing that are universal. 

We should always look at profitable companies that can continue to earn profits in the future. Investing in companies we understand and know is crucial to understanding our investments. Do we all understand SaaS cloud computing companies, or are we just chasing gains? Finally, and perhaps most importantly, stay invested for as long as possible.

Nobody embodies ‘time in the market’ more than Buffett. If we have learned anything from Warren Buffett’s investing, it’s to buy great companies and hold them for as long as possible. 

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