Wells Fargo & Co (WFC), The Coca-Cola Company (KO) & More: Why Warren Bufffett Will Always Outperform You

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Warren BuffettWarren Buffett, investor extraordinaire and CEO of Berkshire Hathaway Inc. (NYSE:BRK.A), will always outperform you. He has a seventy year headstart on you, an Ivy League business degree, studied with two masters of investing (Graham and Dodd), and has the power to broker deals that you couldn’t dream of, like those Goldman Sachs warrants he bought a few years ago. Depressing, no?

According to Malcolm Gladwell, mastery of an activity requires an investment of 10,000 hours. At just three hours a day Buffett would have easily mastered investing, since he started at age 11.

What’s a retail investor to do?

One could just buy Berkshire Hathaway Inc. (NYSE:BRK.A), a proxy for several industries: insurance, housing, fast food, transportation (specifically the railroads), media, and his five top-performing non-insurance companies: BNSF, Iscar, Lubrizol, Marmon Group and MidAmerican Energy, thus creating in one fell swoop a fairly diversified portfolio. Making it a core holding wouldn’t be a bad idea at all, but your portfolio needs something besides insurance.

It might surprise new investors that Berkshire Hathaway Inc. (NYSE:BRK.A) has no yield, with no plans to offer one either, something Buffett himself has declared. Buffett prefers to plow profits back into the business or buy back shares at a reasonable price, which the company did in 2012 to the tune of $1.3 billion.

However, even mighty Berkshire Hathaway Inc. (NYSE:BRK.A) hasn’t managed to keep up with the S&P 500′s gains in the last four years. As Buffett points out in his Letter to Shareholders from 2012,

For the ninth time in 48 years, Berkshire’s percentage increase in book value was less than the S&P’s percentage gain (a calculation that includes dividends as well as price appreciation. In eight of those nine years, it should be noted, the S&P had a gain of 15% or more.

Should you buy Berkshire? I think anyone can buy Berkshire Hathaway Inc. (NYSE:BRK.A) and sleep soundly at night; this underperformance in 2012 is rare for the company. Succession issues have been laid to rest after Mr. Buffett’s cancer diagnosis last year, assuring shareholders that there was a plan at the ready.

“Every Storm Runs Out of Rain”

Buffett mentioned the title of Gary Allan’s country song as his approach to capital expenditures, outlaying $9.8 billion on plant and equipment improvements in 2012. He decried CEOs who don’t know what to do with cash from record profits.

But not the CEOs of his four favorite companies and largest stock holdings: Wells Fargo & Co (NYSE:WFC), The Coca-Cola Company (NYSE:KO), American Express Company (NYSE:AXP), and International Business Machines Corp. (NYSE:IBM). Berkshire doesn’t report its share of these company’s earnings on its balance sheet ($2.8 billion), but does report dividends, which amounted to $1.1 billion in 2012.

Berkshire still continues to buy more of his “Big Four,” as he calls them. If you would rather not buy Berkshire Hathaway Inc. (NYSE:BRK.A) for whatever reason, all four of these companies would be good alternatives.

Buy what you know

The Coca-Cola Company (NYSE:KO) is Buffett’s favorite beverage and second biggest position, at 19% of his portfolio. However, Americans are consuming less soda, and this was mentioned at their latest disappointing earnings release with a drop in revenue of 2.57% from the year-ago quarter. Despite selling off, it recovered its losses within several trading days, showing its strength as a stock. It did meet earnings expectations of $0.63 per share, after all.

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