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Here's a Portfolio Idea: Invest in Warren Buffett’s 10% Club

Barchart - Tue May 24, 9:58AM CDT
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Like most investors, Berkshire Hathaway’s (BRK.B) equity portfolio has lost some of its steam in 2022. It is currently valued at $337.6 billion. It was $363.6 million at the end of March. 

While the company’s top holding remains Apple (AAPL), which accounts for 38.6% of Berkshire’s portfolio, the number of stocks held where the company owns at least 10% stands out to this casual observer. 

Berkshire has at least a 10% ownership stake in 12 of its 176 equity portfolio companies. Apple is not one of them. Berkshire only -- I say only in jest -- owns 5.6% of Apple. Of course, it’s worth $130.4 billion. 

I like to put together unique portfolios for readers. 

I would suggest Warren Buffett’s 10% club is just that. And the best part is you’ll probably make good money over the long haul by creating an equal-weight version of the 10% club, rebalancing between 2-6 times per year. 

Here’s why. 

You’ve Got an Interesting Mix

The 12 stocks in the 10% club represent seven out of the 11 sectors in the S&P 500, including health care, consumer staples, communication services, financials, energy, technology, and consumer discretionary. 

The following table lays out the 12 stocks and their position within the Berkshire portfolio.

CompanySector

Market 

Value

% of 

Portfolio

CompanySector

Market 

Value

% of Portfolio
Davita (DVA)Health Care$3.4B1.0%American Express (AXP)  Financials$24.1B7.1%
Kraft Heinz (KHC)Consumer Staples$12.7B3.8%Bank of America (BAC)Financials$37.0B11.0%
Liberty Sirius XM Group (LSXMA)Communication Services$816.6M0.2%Moody’s (MCO)Financials$7.3B2.2%
Liberty Sirius XM Group (LSXMK)Communication Services$1.7B0.5%Verisign (VRSN)Technology$2.1B0.6%
Paramount Global (PARA)Communication Services$2.3B0.7%HP (HPQ)Technology$4.2B1.3%
Occidental (OXY)Energy$9.4B2.8%RH (RH)Consumer Discretionary$556.4M0.2%

The first thing you’ll notice about the 12 stocks is that some of the holdings are vital pieces of the Berkshire portfolio -- BAC, AXP, KHC, and OXY -- while others don’t make nearly as meaningful a contribution to the $337.6-billion portfolio.

However, as Berkshire’s portfolio grows in size, the number of positions where it owns more than 10% of the company will most certainly rise. More importantly, the influence Berkshire might have on these companies will likely increase simultaneously. 

Now, Warren Buffett has never been one to lean on its most significant holdings publicly, but once he’s no longer CEO, Greg Abel might decide to take a more active position in its investment holdings. I have no evidence this would happen. I’m merely speculating about the future. 

You Would Have Done Okay Over the Past 3 Years

With a bit of help from Barchart.com’s performance reports, I found that over the past three years through May 23, the 10% club averaged a cumulative return of 49.2%. Just two stocks -- Paramount Global and Verisign -- delivered negative returns over the three years. The SPDR S&P 500 ETF Trust (SPY) had a three-year return of 44.2%, 500 basis points less than the 10% club. 

Of the 12 stocks, RH had the best performance, up 201.14% over the past three years. The next best-performing stock was Davita, up 117.1%.

I’d stopped following the operator of dialysis centers after it settled a class-action lawsuit in October 2020 for $135 million. Since then, it’s had its ups and downs, gaining about 10% since the settlement. So, most of the gains came before its legal troubles heated up. 

Despite all the bad press, Buffett hung in there on Davita. He’s likely to be rewarded for his patience, although the company and former CEO Kent Thiry still face antitrust legal troubles from the U.S. Department of Justice. So, it’s not out of the woods just yet.    

The Bottom Line on Joining the 10% Club

As I said previously, I can see the number of companies where Berkshire owns more than 10% continuing to rise. As new companies are added or drop out, you make the necessary changes and rebalance. 

For this reason, if you were to create such a portfolio, even as a simulation and not real money, I’d be inclined to limit your rebalancing to twice a year, say June and December. That keeps the trading costs down and reduces the amount of work involved. 
Or, you could make things easy on yourself and buy Berkshire stock instead, letting the pros take care of things. As time passes, Berkshire becomes more like a large mutual fund every day, only without the annual management fees. 

What’s not to like?