Warren Buffett’s famous stock portfolio grew to a market value of $ 281.17 billion in late 2020, with an accumulated real price for the entire portfolio of $ 108.62 billion.
Last year, Berkshire earned $ 4.9 billion in realized capital gains and $ 26.7 billion in net unrealized gains from its shares.
In Buffett’s annual letter to shareholders of Berkshire Hathaway (BRK-A, BRK-B), the renowned stock selector shared the 15 common shares that had the highest market value in late 2020.
Berkshire has large stakes in companies such as AbbVie (ABBV), American Express (AXP), Apple (AAPL), Bank of America (BAC), Bank of New York Mellon (BK), BYD Co., Charter Communications (CHTR), Coca-Cola (KO), Chevron (CVX), General Motors (GM), Itochu, Merck (MRK), Moodys Corp (MCO), US Bancorp (USB) and Verizon (VZ).
Buffett excluded Kraft-Heinz (KHC) from the list of the top 15 holdings because it is maintained using a different accounting method. Berkshire has 325,442,152 shares, or 26.6% of the outstanding stock, of the cheese and ketchup maker. He noted that Kraft-Heinz’s GAAP value was $ 13.3 billion on December 31, while the market value on that date was $ 11.3 billion.
Some of the investments were big home runs. For example, Berkshire’s cost to buy 151.61 million American Express shares was $ 1.28 billion, and that investment was $ 18.33 billion at the end of the year. Berkshire’s $ 31 billion investment in 907.56 million Apple shares was worth $ 120.4 billion in late 2020, while its $ 232 million investment in 225 million shares of Chinese electric bus maker BYD was $ 5.89 billion.
Berkshire Hathaway is an expanding conglomerate with a huge portfolio of shares and ownership of companies in sectors and industries such as insurance, manufacturing, services, retail and energy. Some of the companies that Berkshire owns include Benjamin Moore, Brooks, Clayton Homes, Duracell, GEICO, Dairy Queen, Nebraska Furniture Mart and See’s Candies, to name a few.
Last year, Berkshire earned $ 42.5 billion on a GAAP basis, consisting of $ 21.9 billion in operating profits, $ 4.9 billion in realized capital gains, $ 26.7 billion in earnings unrealized net worth of shares held and $ 11 billion in loss on an accounting write-off in some of the subsidiary businesses, mainly because of a “mistake” that Buffett made in 2016 when he “paid too much” for Precision Castparts, a component manufacturer and aerospace metal products.
Buffett emphasized that operating profits “are what counts most”, even when they are not the biggest contributors to net results. Due to a change in accounting rules a few years ago, fluctuations in the value of Berkshire’s equity portfolio have made GAAP net income much more volatile.
With respect to realized and unrealized capital gains or losses from stock investments, Buffett pointed out that these components “fluctuate capriciously from year to year, reflecting fluctuations in the stock market”. To be sure, Buffett and his longtime partner Charlie Munger expect the capital gains from equity investments to be “substantial”.
The famous investor pair also sees the stock portfolio “as a set of companies”.
“We do not control the operations of these companies, but we share their long-term prosperity proportionately,” wrote Buffett. “From an accounting perspective, however, our share of its earnings is not included in Berkshire’s revenue. Instead, only what these investees pay us in dividends is recorded in our books. According to GAAP, the huge sums that investees retain in our name become invisible. “
He added that these unrecorded retained earnings often create “a lot of value” for Berkshire when these companies use those funds to expand their businesses and pay off debt and buy back shares.
“As we pointed out in these pages last year, retained earnings have boosted American business throughout our country’s history. What has worked for Carnegie and Rockefeller over the years has worked its magic for millions of shareholders as well, ”wrote Buffett.
While some investments will disappoint with their retained earnings, others will “show exaggerated results, some spectacularly”.
“In total, we expect our share of the huge pile of profits retained by Berkshire’s uncontrolled businesses (what others would label our stock portfolio) to end up providing us with an equal or greater amount of capital gains. Throughout our 56-year term, this expectation has been met, ”added Buffett.
Julia La Roche is a correspondent for Yahoo Finance. follow her Twitter.
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