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

Page 1 of 2

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.

Page 1 of 2
blog comments powered by Disqus
Insider Monkey Headlines
Insider Monkey Small Cap Strategy
Insider Monkey Small Cap Strategy

Insider Monkey beat the market by 52 percentage points in 24 months. Our beta is only 1.2 (don't click this link if beating the market isn't important to you).

Lists

On the Move: The 10 Fastest Growing Businesses in 2015

Fast Money: The 10 Highest Paying Fast Food Restaurants

Mixing It Up: The 14 Best Music Mashups of 2014

Rito Pls Buff: The 10 Least Played Champions in LoL Season 4

10 Covers of Popular Songs that are Better than the Originals

Must See TV: The 9 Most Anticipated Shows of 2015

The 15 Biggest Box Office Bombs of All Time

10 Things The World Can’t Stand About Americans

Picture Perfect: The 6 Smartphones with the Best Cameras

The 10 Best Countries To Work In the World

A Profitable Day At The Track: 5 Tips For Betting On Horses

Tearing You Apart: 6 Bad Habits That Ruin Relationships

Learning on the Job: The 6 Biggest Mistakes Parents Make

Shopaholics Rejoice: The 12 Biggest Malls in the World

Fright Night: 10 Horror Movies Based on True Stories

Mach Mania: The 10 Fastest Jets in the World

Military Heavyweights: The 10 Countries with the Most Tanks

All In: The 7 Richest Poker Players in the World

Abracadabra: The 10 Best Magicians in the World

The 10 Richest Asian Countries in the World in 2014

Eyes in the Sky: 10 Things You Need to Know About Drones

Rising Stars: The 6 Best Silicon Valley Startups

Military Muscle: The 5 Most Advanced Armies in South America

All that Glitters: The 7 Most Luxurious Jewelry Brands in the World

5 Things You Didn’t Know About ISIS but Should

Empowering Your Money: The 5 Best Energy Stocks to Invest In

The 11 Best Android Apps You Can’t Get on iOS

The 10 Most Important International Conflicts in 2014

Mood Enhancers: The 20 Most Uplifting Songs of all Time

Lover Beware: The 8 Countries that Cheat the Most

Breath of Fresh Air: The 25 Countries with the Best Air Quality on the Planet

Singles Beware: The 8 Worst Mistakes Made on First Dates

Healthy and Happy: The 10 Countries with Lowest Healthcare Costs

The 6 Best Company Team Building Activities to Build Workplace Camaraderie

Ships Ahoy: The 10 Busiest Shipping Ports in the World

10 Productivity Tips to Save You Time and Help You Do More With Less

Grab a Bite: The Most Popular Fast Food Restaurants in America

Friday Night Thirst: The 10 Most Popular Cocktails in the World

The 6 Greatest Unsolved Mysteries We May Never Figure Out

7 Useless Products You Never Should’ve Bought

The 5 Reasons Why You’re Single and Miserable

The 7 Most Addictive Foods in the World We Can’t Stop Eating (Even Though We Should)

5 Amazing Places You Can Swim with Dolphins

The Top 7 Most Livable Countries In The World

The 10 Most Expensive Baseball Cards Ever Pulled From A Pack

The 5 Easiest Second Languages to Learn for English Speakers

Silver Spoon: The 6 Richest Families in the World

The 20 Countries with the Largest Prison Populations in the World

The Top 10 Richest Actors in the World

The 10 Best Airline Stocks to Invest In Before They Fly Too High

Subscribe

Enter your email:

Delivered by FeedBurner

X

Thanks! An email with instructions is sent to !

Your email already exists in our database. Click here to go to your subscriptions

Insider Monkey returned 47.6% in its first year! Wondering How?

Download a complete edition of our newsletter for free!