Three stocks Warren Buffett has owned since 2000

Warren Buffett has significantly outperformed the S&P 500 benchmark since becoming Berkshire Hathaway’s CEO in the mid-1960s. The Oracle of Omaha and his team aim to buy stakes in wonderful companies and, ideally, keep them indefinitely. Three stocks among the core holdings Buffett oversees in Berkshire Hathaway’s 44-stock, $387 billion investment portfolio have been fixtures for more than two decades.

Berkshire Hathaway’s purchase price for these three stocks is so low that Mr. Buffett’s company generates respective returns on the purchase price of 60%, 33% and 34% each year. For more than half a century, Warren Buffett has outperformed Wall Street. Based on annualized total returns (including dividends) since the mid-1960s, he has virtually doubled the return of the benchmark S&P 500 (19.8% vs. 10.2%, as of December 31, 2023).

On a total return basis, this outperformance is even more pronounced – a total return of approximately 36,000% for the S&P 500 compared to a return of nearly 5,000,000% for Berkshire’s Class A shares (BRK.A), as of the closing bell on June 26, 2024.

Buffett’s ability to run in circles around Wall Street’s widely followed stock index is the result of a laundry list of factors that includes:

– A desire to buy into companies that have well-defined competitive advantages.

– Focus on companies that have strong, proven management teams.

– Fill Berkshire Hathaway’s portfolio with cyclical stocks that will benefit from disproportionately long periods of economic growth.

– Concentrate Berkshire’s 44-stock, $387 billion investment portfolio on a handful of Buffett and his team’s best ideas.

– Having plenty of cash on hand to take advantage of Wall Street’s inevitable price falls.

But perhaps the most defining characteristic of Warren Buffett’s investment philosophy is his desire to own large companies for the long term. While the average stock holding period is less than a year, the Oracle of Omaha and his top investment assistants, Ted Weschler and Todd Combs, want to keep what they consider wonderful companies “indefinitely.

Although you’ll find plenty of holdings in Berkshire’s 44-stock portfolio that have been fixtures for years, only three stocks have been owned continuously since 2000.

Coca-Cola

When it comes to tenure in Berkshire Hathaway’s closely watched $387 billion investment portfolio, beverage company Coca-Cola reigns supreme. Mr. Buffett’s company has continuously owned shares of Coca-Cola since 1988 – and with a cost basis of $3.2475 per share, it generates a dividend yield of nearly 60% each year.

The great thing about stocks like Coca-Cola is that they provide a basic necessary good or service. No matter how well or badly the US economy and/or stock market performs, consumers still need drinks. This leads to a consistent and predictable operating cash flow year after year.

On a more company-specific basis, Coca-Cola has operations in all countries, except North Korea, Cuba and Russia (the latter has to do with its invasion of Ukraine). This virtually unrivaled geographic diversity allows the company to reap the rewards of steady operating cash flow in developed countries, while enjoying needle-moving organic growth in emerging markets. In total, Coke has more than two dozen brands globally that generate over $1 billion in annual sales.

Branding and marketing are additional reasons why Coca-Cola has been a phenomenal long-term investment. Kantar’s annual Brand Footprint report notes that Coca-Cola has been the world’s most selected brand from retail shelves by consumers for 12 consecutive years. The company’s marketing team has leaned on digital channels to engage its younger consumers, and can still rely on its rich history and well-known brand ambassadors to connect with its mature audience.

With Berkshire Hathaway collecting $776 million in annual dividends from its stake in Coca-Cola, there is absolutely no incentive to sell this position.

American Express

A second stock that has been part of Warren Buffett’s investment portfolio at Berkshire Hathaway for more than three decades is American Express. “AmEx”, as it is more commonly known, has been a steady holding since 1991.

AmEx is the embodiment of the prototypical Buffett investment. It is a financial stock (Buffett’s favorite sector) with a well-known brand, a rock-solid management team and is cyclical.

Although the Oracle of Omaha and Berkshire’s brightest investment minds know that the recession in the United States is a normal and inevitable part of the economic cycle, they realize that downturns are short-lived. Nine of the 12 US recessions since the end of World War II were resolved in less than 12 months. Buffett loves to buy brand-name companies like AmEx and let them thrive during long periods of economic expansion.

The not-so-subtle secret to American Express’ success is that it can benefit from both sides of the transaction aisle. It is the clear number 3 payment processor by credit card network purchase volume in the U.S., allowing it to generate predictable fee revenue from merchants. At the same time, it is also a lender (via credit cards), helping the company to generate annual fees and net interest income from its collective cardholders. As the US and global economy fires on all cylinders, this ability to double dip will come in handy.

Additionally, AmEx has historically done a fantastic job of attracting higher-income individuals as cardholders. High-income earners are less likely to change their spending habits or fail to pay their bills during minor economic shocks.

Finally, Berkshire Hathaway’s annualized return on the cost of its stake in American Express (based on a cost basis of $8.49 per share) is a staggering 33%! In other words, Berkshire practically doubles its initial investment in AmEx based on dividend income alone every three years.

Moody’s

The third company Warren Buffett has owned continuously since 2000 is the credit rating agency Moody’s. Berkshire Hathaway has been a shareholder since Dun & Bradstreet assigned Moody’s in September 2000.

Moody’s long-term outperformance is a reflection of at least one of its two core business segments firing on all cylinders at any given time.

Moody’s is best known for its Investors Service segment, which provides credit ratings for corporate and sovereign debt. More than a decade of historically low lending rates spurred companies and government agencies to issue debt. This kept the fuel burning for Moody’s front-and-center business segment.

But starting in March 2022, the Federal Reserve implemented its most aggressive rate hike cycle in four decades. As interest rates rise, the willingness to raise capital through debt issuance became less appealing. As demand for corporate debt ratings has waned, the growth potential has shifted to Moody’s Analytics.

The company’s analytics segment provides various risk management, financial assessment and compliance solutions to its clients. In an environment where a couple of predictive tools suggest that a US recession is on the way – e.g. the historic decline in the US M2 money supply – risk management tools are a hot commodity.

Not to sound like a broken record, but Berkshire Hathaway is raking in the dividend income with Moody’s too. Although new investors in Moody’s stock would only generate a return of 0.8%, Berkshire’s cost basis of around $10.05 per share provides a dividend yield of around 34%! Being able to triple Berkshire’s initial investment in Moody’s every three years means there is no incentive for Warren Buffett to leave this position.

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