Warren Buffett, the renowned CEO of Berkshire Hathaway, has long been admired for his investment prowess. With a portfolio worth nearly $292 billion, his picks continue to attract the attention of investors seeking winning stocks. While replicating Buffett’s success is not feasible, there are two investments in his portfolio that stand out as no-brainer buys, regardless of one’s investment preferences.
First on the list is Amazon, which Berkshire Hathaway added to its portfolio in 2019. Currently, the company holds 10 million shares of Amazon. Two compelling reasons to consider investing in Amazon are its dominance in the retail space and its leading position in cloud computing. According to eMarketer, Amazon holds a staggering 40% of the U.S. e-commerce market share, far surpassing its closest competitor, Walmart, with a mere 7.4%. In the third quarter of 2020, Amazon’s North American revenue reached $95.5 billion, marking an 11% increase. Impressively, the company’s total operating income surged by 55% to $15.3 billion. Additionally, Amazon’s cloud computing business, Amazon Web Services (AWS), experienced a 19% rise in sales to $27.5 billion during the same quarter. With a 31% market share, AWS leads the cloud computing industry, and experts predict further growth fueled by the expansion of artificial intelligence. Although Amazon’s stock may not be cheap, with a price-to-earnings ratio of 45, its dominance in the U.S. e-commerce and cloud computing markets makes it an enticing investment opportunity.
The second investment on Buffett’s list is the Vanguard S&P 500 ETF. While some readers may not expect an exchange-traded fund (ETF) to make the cut, the Vanguard S&P 500 ETF deserves recognition for several reasons. Most notably, Buffett himself recommends that most investors own an index fund. S&P 500 index funds track the performance of the largest 500 publicly traded companies on U.S. stock exchanges, allowing investors to benefit from overall market growth, regardless of specific sector performance. Buffett emphasized this point at the 2020 Berkshire Hathaway annual meeting, stating, “In my view, for most people, the best thing to do is to own the S&P 500 index fund.” Interestingly, Berkshire Hathaway’s portfolio even includes 43,000 shares of the Vanguard S&P 500 ETF. The appeal of S&P 500 index funds lies in their consistent outperformance of actively managed funds. Data from Morningstar reveals that over the past decade, only 29% of actively managed funds have surpassed their passive indexed counterparts. Moreover, the Vanguard S&P 500 ETF boasts an incredibly low expense ratio of just 0.03%, making it an affordable choice for investors. Many, including myself, have experienced the benefits of this ETF, as it has been a significant portion of our portfolios for years. For those looking to follow in Buffett’s footsteps, heeding his advice to invest in an index fund and hold it for the long term may prove to be a wise decision.