The 32 Stocks in the Buffett Portfolio
We analyze the equity holdings of Berkshire Hathaway.
Of the many SEC filings pounced on by investment junkies, the 13F filings of Berkshire Hathaway (BRK.B) rank right up there. Berkshire, of course, is the holding company run by Warren Buffett, one of the all-time great investors. And a 13F is a form required by the SEC detailing the equity holdings of large institutional investors, including insurance companies like Berkshire Hathaway. These 13Fs, then, give us a periodic peek inside of Berkshire's equity portfolio.
And it's one massive portfolio. If it were a mutual fund, Berkshire's equity portfolio would rank seventh largest among domestic-equity funds, right on par with Vanguard Institutional Index (VINIX) or Fidelity Contrafund (FCNTX), and about half the size of Fidelity Magellan (FMAGX). But whereas most funds would spread those assets among a hundred or more holdings, Berkshire concentrates them in just 30-odd stocks.
I list these stocks below, but if you'd like to track and analyze these stocks yourself, use this link. (You just need to register on Morningstar.com if you haven't already--otherwise the link won't work--and name the portfolio. Registration is free.) This will automatically dump Berkshire's stock holdings into a watch list portfolio that you can save and monitor within our Portfolio Manager.
Most of these 30 stocks aren't Buffett's picks. Many of them are holdings of Lou Simpson, who manages the equity portfolio at Geico, Berkshire's big auto-insurance subsidiary. Buffett and Simpson share similar investment styles--buy high-return businesses, focus on your best ideas--and they operate independently of one another. Simpson's one heck of an investor in his own right. As Buffett regularly points out in his shareholder letters, Simpson's portfolio has outperformed Buffett's over the past several years. Simpson is even slotted to take over asset allocation at Berkshire when Buffett dies or retires.
Market-Timing, Berkshire Style
The first thing to note about Berskhire's equity portfolio is that it's been shrinking, both in absolute terms and relative to other investments. Buffett has bought very few stocks over the past six years, which isn't surprising given his negative view of stock-market valuations during and after the bubble. As he wrote in Berkshire's 2002 shareholder letter: "Despite three years of falling prices, which have significantly improved the attractiveness of common stocks, we still find very few that even mildly interest us. That dismal fact is testimony to the insanity of valuations reached during The Great Bubble. Unfortunately, the hangover may prove to be proportional to the binge."
Instead of stocks, Buffett's been buying bonds and entire operating businesses.
|Berkshire's Asset Allocation ( % )|
|Investment Breakdown|| |
|Publicly Traded Equities||72.9||51.3||51.2||39.0||30.5||25.8|
To arrive at these percentages, I added up the dollar values of Berkshire's cash, bond, and equity holdings, as well as the total assets of the companies that Berkshire owns outright: companies like See's Candies, Shaw Industries, NetJets, and many more. (I also included MidAmerican Energy, which Berskshire effectively controls, even though it doesn't consolidate it for regulatory reasons.) In 1997, 72.9% of these assets rested in publicly traded equities, or about $36 billion. By 2002, the percentage had shrunk to 25.8%, or $28 billion.
Besides his aversion to stock valuations, what accounts for the dropping equity percentage? First of all, Berkshire has sold its large stakes in Walt Disney (DIS), Freddie Mac (FRE), and Travelers over the past six years. (Travelers merged with Citigroup (C) in 1998.) Secondly, two of Berkshire's largest holdings-- Coca-Cola (KO) and Gillette (G)--have declined in value since 1997. Coca-Cola has shed 34% over that time, and Gillette is down 40%. Finally, the rest of Berkshire has grown rapidly, leaving the equity portfolio behind. Buffett has been on an aquisition tear the past five years, negotiating the purchase of entire businesses rather than buying minority equity stakes through the stock market.
If I had included assets from Berkshire Hathaway Finance, the tilt away from equities would be even more dramatic. BH Finance is where Buffett trades bonds using proprietary trading techniques--techniques Buffett won't disclose. The division's assets--mainly government bonds, mortgage-backed bonds, and assorted loans--have risen to $34 billion in 2002 from just $1 billion in 1997. (Assets here peaked at $42 billion in the fall of 2001.) BH Finance will expand and contract as Buffett sees opportunities in the debt markets. Obviously he's seen more opportunities there over the past six years than in the equity markets. Very nice timing, indeed.
Berkshire Under the X-Ray
To analyze the composition of Berkshire's equity portfolio, I put the holdings into Morningstar's Portfolio X-Ray tool. Here's a bird's-eye summary.
About 90% of Berkshire's equity portfolio resides in its top 10 names. That compares with 30% for Fidelity Magellan--a fairly typical level of concentration for a mutual fund--and 75% for Buffett's friends over at Sequoia Fund (SEQUX). Berkshire's top holdings--Coca-Cola, American Express (AXP), Wells Fargo (WFC), and Gillette--dominate the portfolio. (These are all Buffett stocks, by the way, not Simpson picks.)
Buffett has never been a fan of spreading his bets. Diversification may reduce volatility, but it doesn't necessarily reduce risk (the two concepts are often confused). Buffett argues that the best way to reduce risk is to focus on companies you know extremely well and companies that boast strong competitive positions.
And diversification across industries? Forget about it. The table below shows that Berkshire's portfolio has 80% of its equity assets in just two sectors: consumer goods and financial services.
|Berkshire's Equity Holdings by Sector|
Portfolio ( % )
|S&P 500 ( % )|
While Buffett often gets pigeonholed as a value investor, only 2% of Berkshire's portfolio resides in value stocks as Morningstar defines them:
|Berkshire's Equity Holdings by Style|
Value ( % )
|Core ( % )||Growth ( % )|
Buffett wouldn't care where his stocks fell on the value/growth spectrum. In the Buffett worldview--and in the Morningstar Rating for stocks, which is heavily influenced by Buffett--the distinction between value and growth stocks doesn't enter the picture. Any company is a potential value, whether it's growing rapidly or not.
Besides not caring about the distinction between growth and value, Buffett also lets his winners ride: He doesn't sell stocks when they get expensive (and move eastward across the style box). Rather, he sells them when he no longer feels comfortable with the underlying businesses. For each of its top eight holdings, Berkshire's cost basis is far below the current market value, so selling any of them would trigger large capital-gains taxes. As long as the underlying businesses are healthy, Buffett is unlikely to sell and give up this "interest-free loan" from the government.
The Complete Holdings
Finally, here's a complete list of Berkshire's holdings, ranked from largest position to smallest. We also list each company's economic moat, which our stock analysts assign based on their opinion of a firm's competitive advantage, as well as the stock's current Morningstar Rating, which is based on the difference between the stock's current price and our fair value estimate. For more information on each stock, Premium Members can click the company name to see Morningstar's Analyst Report on the company. Or click the stock ticker to see the company's Quicktake report.
Further down the list are some intriguing stocks not on many people's radar screens. Stocks like GATX (GMT), a leaser of railroad cars; Dover (DOV), an outstanding industrial firm that pursues a Buffettlike acquisition strategy of buying solid companies and leaving them alone; Iron Mountain (IRM), a company that stores paper records for other firms; and Dun & Bradstreet (DNB), which possesses a valuable corporate database. Most of these smaller holdings are Simpson picks.
1. Coca-Cola KO: Wide moat, 4 stars
2. American Express AXP: Wide moat, 3 stars
3. Gillette G: Wide moat, 3 stars
4. Wells Fargo WFC: Wide moat, 3 stars
5. Wesco Financial WSC
6. Washington Post WPO: Wide moat, 3 stars
7. Moody's MCO: Wide moat, 4 stars
8. H&R Block HRB: Wide moat, 4 stars
9. M&T Bank MTB: Narrow moat, 2 stars
10. First Data FDC: Wide moat, 5 stars
11. Nike NKE: Narrow moat, 3 stars
12. Iron Mountain IRM
13. SunTrust Banks (STI) Narrow moat, 3 stars
14. Gap GPS: No moat, 1 star
15. Gannett GCI: Narrow moat, 3 stars
16. Shaw Communications SJR
17. American Standard ASD
18. Comdisco Holding Co. (CDCO)
19. Costco COST
20. Great Lakes Chemical GLK
21. GATX GMT
22. Sealed Air SEE: No moat, 1 star
23. Dover DOV
24. Torchmark TMK
25. Outback Steakhouse OSI
26. Mueller Industries MLI
27. Dun & Bradstreet DNB
28. PNC Financial Services PNC: Narrow moat, 3 stars
29. USG USG
30. Jones Apparel JNY: No moat, 3 stars
31. Best Buy BBY: Narrow moat, 3 stars
32. Zenith National Insurance ZNT
Haywood Kelly, CFA has a position in the following securities mentioned above: BRK.B. Find out about Morningstar’s editorial policies.