The 28 Stocks in the Buffett Portfolio

Periodically, we take a look at the stock holdings of  Berkshire Hathaway  (BRK.B). Berkshire, of course, is the company run by Warren Buffett, one of the all-time great investors. Each quarter, the company files a 13F form with the SEC, which details the equity holdings of Berkshire and its subsidiaries. 

Based on the company's latest 13F, which disclosed holdings as of Sept. 30, Berkshire owned positions in 28 stocks, which is down from 30 at the beginning of 2004, which in turn was down from 32 the first time we did this piece in 2003. Berkshire has had trouble finding bargains the past few years, whether in equities, bonds, or acquisitions. The latest stocks dropped were  Suntrust Banks  and Zenith National Insurance . (Also missing was  Cadbury Schweppes (CSG), which Berkshire doesn't have to disclose because it owns the local shares in London, not the ADRs that trade in the U.S.)

Below, I list each stock found in the latest 13F, but if you'd like to track and analyze them yourself, click here to create a watch list. After clicking, simply name the portfolio and click continue. (If this link does not work, please register with Morningstar.com--registration is free--or sign in if you're already a member, and try again.) This will allow you to save and monitor these holdings within our Portfolio Manager.

Prospective investors take note: As of Dec. 10, some of the stocks in the portfolio received high Morningstar ratings.  Coca-Cola (KO) and  Iron Mountain (IRM) receive 5 stars, and  First Data  and  Gap (GPS) receive 4 stars.

Berkshire's Portfolio
How does the portfolio look in aggregate? If it were a mutual fund, Berkshire's equity portfolio would rank 10th in size among domestic-equity funds, right on par with  Fidelity Contrafund (FCNTX) and  Dodge & Cox Stock (DODGX), and about one third the size of  Vanguard 500 Index  (VFINX). If you threw in cash, Berkshire's portfolio would rank third. But whereas most funds would spread those assets among a hundred or more holdings, Berkshire concentrates them in just a few dozen stocks.

Most of these 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--buying high-return businesses, focusing on best ideas--and they operate independently of each other. Simpson is one heck of an investor in his own right. 

Market-Timing, Berkshire Style
The first thing to note about Berkshire's equity portfolio is that it has 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. 

Berkshire's Asset Allocation ( % )
Investment Breakdown	1998	1999	2000	2001	2002	2003	Q3 04
Cash	17.5	5.0	5.5	5.7	9.4	24.7	29.3
Bonds	27.4	39.2	33.8	38.8	34.6	20.7	18.0
Publicly Traded Equities	51.3	51.2	39.0	30.5	25.8	27.9	26.9
Operating Businesses	3.8	4.7	21.7	25.0	30.2	26.7	25.9
	100.0	100.0	100.0	100.0	100.0	100.0	100.0

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 such as See's Candies, Shaw Industries, NetJets, and many more. (I also included MidAmerican Energy, which Berkshire effectively controls, even though it doesn't consolidate it for regulatory reasons.) In 1998, 51.3% of these assets rested in publicly traded equities. By the end of the third quarter of 2004, the percentage was 26.9.

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 is now a part of  St. Paul Travelers Companies (STA).) Secondly, two of Berkshire's largest holdings--Coca-Cola and  Gillette --have declined in value since 1998. Finally, the rest of Berkshire has grown rapidly, leaving the equity portfolio behind. Buffett has been on an acquisition tear the past five years, negotiating the purchases of entire businesses rather than buying minority equity stakes through the stock market. The two largest purchases in 2003 were McLane, the former distribution unit of  Wal-Mart (WMT), and Clayton Homes, the mobile-home maker.

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--rose to $27 billion in September 2004 from just $1 billion in 1997. BH Finance will expand and contract as Buffett sees opportunities in the debt markets. Assets here actually peaked at $42 billion in the fall of 2001, and have since fallen as Buffett sees fewer opportunities to profit in the bond markets.   

Warren Buffett: Diversification Be Damned
To analyze the composition of Berkshire's equity portfolio, I put the holdings into Morningstar.com'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 less than 30% for  Fidelity Magellan (FMAGX)--a fairly typical level of concentration for a mutual fund--and 80% for Buffett's friends over at  Sequoia Fund  (SEQUX). Berkshire's top holdings--Coca-Cola,  American Express (AXP), Gillette, and  Wells Fargo (WFC)--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. Volatility can actually help reduce risk because it allows more opportunities for a savvy investor like Buffett to load up on an asset when prices are attractive. 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. If their earnings or share price happen to bounce around a lot in the short term, who cares?

Although Buffett often gets pigeonholed as a value investor, only 4% of Berkshire's portfolio resides in value stocks as Morningstar defines them. Berkshire's largest equity holdings--American Express, Coca Cola, and Gillette--currently reside in the core column of Morningstar's Style Box. Among the growth stocks in the Berkshire portfolio: First Data,  Comcast (CMCSA),  Moody's (MCO), and Shaw Communications . 

Berkshire's Equity Holdings by Style
	Value ( % )	Core ( % )	Growth ( % )
Large Cap	3	72	14
Mid-Cap	0	9	0
Small Cap	1	0	0

Buffett wouldn't care where his stocks fell on the value/growth spectrum. In the Buffett world-view (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. 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.

And diversification across industries? Forget about it. The table below shows that Berkshire's portfolio has almost 80% of its equity assets in just two sectors: consumer goods and financial services. 

Berkshire's Equity Holdings by Sector
	Portfolio ( % )	S&P 500 ( % )
Information	6.62	21.40
Software	0.00	4.48
Hardware	0.00	9.55
Media	6.62	3.68
Telecommunications	0.00	3.69
Service	53.97	46.44
Health Care	1.72	12.94
Consumer Services	4.38	8.90
Business Services	7.02	3.92
Financial Services	40.84	20.68
Manufacturing	39.41	32.15
Consumer Goods	35.24	9.31
Industrial Materials	0.79	12.61
Energy	3.38	7.35
Utilities	0.00	2.88

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 advantages, 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, Premium Members can click the company name to see Morningstar's Analyst Report on the firm. Or click the stock ticker to see the company's data report.  

Further down the list are some intriguing stocks not on many people's radar screens--names such as Iron Mountain, a company that stores paper records for other firms. Most of these smaller holdings are Simpson picks. (Moat and star-rating data are as of Dec. 10.)

1.  American Express  (AXP): Wide Moat, 3 Stars
2.  Coca-Cola  (KO): Wide Moat, 5 Stars
3.  Gillette  : Wide Moat, 2 Stars
4.  Wells Fargo  (WFC): Wide Moat, 3 Stars
5.  Wesco Financial  : Narrow Moat, 3 Stars
6.  Moody's  (MCO): Wide Moat, 2 Stars
7.  Washington Post (WPO): Wide Moat, 3 Stars
8.  Petrochina Company : Narrow Moat, 1 Star
9.  H&R Block (HRB): Wide Moat, 3 Stars
10.  M&T Bank (MTB): Narrow Moat, 3 Stars
11.  HCA  : No Moat, 1 Star
12.  Nike (NKE): Narrow Moat, 2 Stars
13. Shaw Communications  : Not Rated
14.  First Data  : Wide Moat, 4 Stars
15.  Gap  (GPS): Narrow Moat, 4 Stars
16.  Gannett  (GCI): Narrow Moat, 3 Stars
17.  Costco Wholesale (COST): Narrow Moat, 3 Stars
18. USG  : Not Rated
19.  Iron Mountain  (IRM): Wide Moat, 5 Stars
20.  Comcast  (CMCSA): Wide Moat, 3 Stars
21.  Pier 1 Imports  : No Moat, 3 Stars
22.  American Standard Companies  : No Moat, 2 Stars
23.  Torchmark  (TMK): Narrow Moat, 2 Stars
24.  Outback Steakhouse  : No Moat, 3 Stars
25. Mueller Industries  (MLI): Not Rated
26.  ServiceMaster  (SVM): Narrow Moat, 1 Star
27.  Sealed Air  (SEE): Narrow Moat, 3 Stars
28. Comdisco Holding Company : Not Rated

A version of this article last appeared on July 19, 2004.