Warren Buffett is known to many investors for his successful investment career. But there’s no secret to his success. Buffett, who runs Berkshire Hathaway, shares much of his investing advice openly. Based on the Buffett approach, here are three Warren Buffett shares – stocks held by Berkshire – I would consider as shares to buy now for my portfolio. I also share a couple of UK stocks I have selected using Warren Buffett investing principles.
Long-term franchise
When Buffett bought into Coca-Cola back in the 1980s, it was the largest position in Berkshire’s portfolio at that time. The company has what Buffett calls a moat. Its strong brands help protect it from competition. That matters as it allows the company to charge a premium for its drinks, something known as pricing power. Thanks to its powerful brands, the company is set to retain its competitive advantage in the future. Indeed, Buffett had said before that great brands last forever. While that may seem like a long timeframe, it is clear that great brands can produce returns for shareholders over many decades.
A UK share I would consider for my own portfolio applying the Warren Buffett investing style is Diageo. Like Coca-Cola, it owns brands such as Johnnie Walker and Diageo, which help to give it a business moat. But both Coca-Cola and Diageo face common risks. For example, changing consumer habits favouring healthier drinks could damage their appeal and revenues.
Warren Buffett shares in finance
Given his own financial acumen, it’s understandable that Buffett has a long history of investing in financial services shares. One of the companies in which Berkshire has held a stake for many years is credit card and insurance provider American Express. Like Coca-Cola and Diageo, the company benefits from strong brand appeal.
Buffett likes financial services providers. He is particularly interested in insurers, as they are able to put policyholder premiums to work. That simple but effective business model is one reason why financial services companies can often turn a strong profit. It can be a cyclical business, though. American Express trades 80% higher than a year ago, so I don’t think these Warren Buffett shares are cheap. But like Buffett, I’d be willing to buy American Express shares now and hold them for decades.
A UK-listed financial services company I would consider when applying Warren Buffett investing principles is Prudential. It also has a strong brand. Its customer base of millions of insurance policyholders should help it remain profitable. Just like Berkshire company Geico did in the US, Prudential is extending into new direct sales channels in Asia to help scale its business further. Both American Express and Prudential face risks common to financial services companies, though. For example, an economic downturn could lead to a sharp fall in customer demand and profits.
Insurance giant
Buffett loves insurance companies. The business model is enduring, and the large sums of money involved mean that even a low-margin insurance business can be profitable.
Insurance broker and risk management company Aon has attractive margins and a strong record of growth. That may explain why its shares have joined the Berkshire portfolio. I would consider adding them to my own. One risk is that the recently abandoned merger with rival Willis Towers Watson will reduce the company’s growth outlook.