A Comprehensive Review of Warren Buffett's Stock Bets

Warren Buffett: The Legendary Investor

Warren Buffett, often referred to as the 'Oracle of Omaha', has built a reputation as one of the most successful investors in history. At the age of 94, he serves as the chief executive officer of Berkshire Hathaway (NYSE: BRKa), a company known for its diverse set of businesses including insurance, railroads, and utilities, while also maintaining a massive investment portfolio.

As of the third quarter of 2024, this portfolio was valued at approximately $266 billion, showcasing some of the most notable investments made under Buffett's guidance. In this article, we will delve into two of the most successful stock picks and two that didn't live up to expectations, as revealed in the Q4 2019 13F filing. For our analysis, we’ll focus on stocks that represented 1% or more of the total portfolio at that time. All references to returns are based on data from the closing trading day of January 6.

Underperformers: The Disappointments

Let's begin with the stocks that didn’t perform as expected. The two biggest disappointments over the past five years from Berkshire Hathaway's portfolio were Southwest Airlines (NYSE: LUV) and Charter Communications (NASDAQ: CHTR). These stocks suffered total returns of -30% and -34%, respectively. Remarkably, they are outliers in Buffett's portfolio, as virtually no other substantial holdings experienced negative returns in this timeframe.

Southwest Airlines' struggle can largely be attributed to the global ramifications of the COVID-19 pandemic. The timing of this analysis coincided with a period just before the pandemic significantly impacted the travel industry. This turmoil affected many airlines, resulting in dismal returns across the board. In fact, among nine notable U.S. airlines, the average return has been about -11%, illustrating the widespread challenges in this sector. Considering these circumstances, it seems unfair to jab Buffett too harshly for this selection, especially after he sold the position by the second quarter of 2020 as it became clear that recovery would be prolonged.

In contrast, Charter Communications' performance offers a different narrative. While Berkshire has continued to hold shares, the investment's allocation has been significantly scaled back. Over these five years, the rise of streaming services has overtaken traditional cable subscriptions, severely impacting Charter's standing. Buffett's investment in what many consider outdated media models has not yielded the expected growth, showcasing the rapid evolution in consumer preferences toward on-demand content.

Success Stories: Buffett’s Top Picks

On a more positive note, let's highlight two of the standout performers from the Berkshire Hathaway portfolio: Apple (NASDAQ: AAPL) and American Express (NYSE: AXP). Apple, the tech giant, has demonstrated remarkable growth with a staggering five-year total return of 237%, significantly outperforming the S&P 500 by about 140%. As a lucrative segment of his investment strategy, Apple has remained a dominant holding for Berkshire, accounting for over 50% of total assets as of Q2 2023.

Since 2019, Apple has reported a 50% increase in revenue and an astounding 127% rise in adjusted earnings per share (EPS). This growth has prompted a considerable increase in its forward price-to-earnings (P/E) ratio of approximately 45% since early 2020, contributing to the company's elevated valuation.

Interestingly, although Buffett hasn’t directly invested in streaming companies, his stake in Apple indirectly connects him to this thriving market via Apple TV+, which launched in November 2019. Today, Berkshire holds a 26% allocation to Apple, making it the largest single investment, with only Amazon (NASDAQ: AMZN) being a minor player in comparison at 0.7%.

Beyond Apple, American Express has also emerged as a top performer, boasting a five-year total return of 160%. Holding the position as Berkshire's second-largest investment with a 15% allocation, American Express has benefited from strong consumer credit trends. The overall U.S. credit card debt has surged by around 26% since the end of 2019, and the company showcases one of the lowest 30-day delinquency rates in the industry, solidifying its position as a reliable investment.

Conclusion: Learning from Buffett's Bets

Warren Buffett’s investment strategy continues to attract attention and admiration worldwide. His ability to identify both winners and losers within his diverse portfolio provides key lessons for other investors. As we look at these case studies, it becomes clear that even the most celebrated investors face challenges from unforeseeable market shifts. Employing a long-term perspective can yield rewarding results, as seen with Apple and American Express, even when some investments fall short.

Frequently Asked Questions

What are Warren Buffett's biggest investment successes?

Some of Warren Buffett's biggest successes include investments in Apple and American Express, with significant positive returns over the past five years.

What factors contributed to the poor performance of Southwest Airlines?

The COVID-19 pandemic had a significant impact on Southwest Airlines, contributing to its negative returns as travel restrictions severely affected the industry.

Why is Charter Communications considered a poor investment?

Charter Communications has struggled due to the rise of streaming services, which have diminished demand for traditional cable subscriptions.

How has Apple performed in recent years?

Apple has experienced a remarkable total return of 237% over the past five years, making it a standout investment in Berkshire Hathaway's portfolio.

What is the outlook for American Express?

American Express has shown strong revenue growth, and with low delinquency rates coupled with rising consumer spending, the outlook remains positive.

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