From the latest filings made by Berkshire Hathaway (NYSE:BRK) in the middle of February, I get a snapshot of what Warren Buffett is invested in. Sure, since the report he may have bought or sold some stocks. But he’s known to be a long-term investor, so even with some tweaks I imagine the portfolio is similar. When looking at the make up of the companies, there’s one large elephant in the room.
What Buffett owns
Buffett holds a large amount of money in just a few firms. The largest holding is currently Apple. The well-known tech stock is modestly down 4% over the past year. However, Buffet has a position in the company worth over $116bn. Given the total size of his pot, this accounts for 38.9%.
This holding dwarfs anything else that he owns, with the next largest amount being 11.19%. This is in Bank of America. Buffett has made many investments in the banking sector over the decades, and continues to like financial services in general. Even though other names aren’t in the top four holdings, he also owns stocks such as Citigroup, American Express and Visa.
Chevron is the next largest stake Buffett has, at 9.78% of the portfolio. Finally, his famous Coca-Cola shares round out the top four, accounting for 8.51%. He made an investment in the firm back in 1988. Of note is the sheer size of dividend income that he gets paid given the amount of the business he owns. In 2022, this added up to $704m!
Let’s talk about diversification
In total, Buffett had 49 stocks in the portfolio when the latest filing was submitted. On the face of it, that’s good diversification. He holds plenty of companies in a variety of different sectors. Therefore, I might assume there’s no problem here.
However, owning this many stocks is irrelevant if not held in equal or similar proportions. You see, 45 stocks account for 32% of the portfolio, but the other four make up 68%!
The problem this can cause is that one stock might underperform and have a disproportionate impact on overall portfolio performance. Let’s use Apple as an example. If the price of the stock drops by 10% and all the other shares stay flat, the portfolio will fall by 3.89%. This is a large fall, considering that only one stock will have moved lower.
Not knocking the great man
For all the Buffett-lovers out there, I’m not trying to discredit him. His returns over decades are better than I could ever hope to achieve. Added to this, his holdings are in very good companies with a positive outlook. They should perform well, helping to generate even more profit for the legendary investor.
Yet the average retail investor is different from this investing billionaire. I feel they’re better off not having such a concentrated portfolio. Rather, owning several stocks and not having a huge amount in any one firm lowers risk and should provide smoother results over time. Diversification is key.
