Warren Buffett says the best business to own does the same one thing – here are three examples from Oracle’s own portfolio
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Investment is an infamous and loud industry, but Warren Buffett has always managed to get through the confusion with his simple yet powerful advice.
One of Buffett’s most overlooked nuggets of wisdom is focusing on the right type of business.
In a letter to Berkshire Hathaway shareholders, he once wrote that “the best business to own can employ large amounts of incremental capital at a very high rate of return.”
“The worst business to own” continues, “we have to or need to do the opposite: it employs consistently constant capital at a very low rate of return.”
At 94, Buffett recently decided to retire from his longtime post as CEO of Berkshire Hathaway. At the time of his announcement in May, he was ranked fifth in Forbes’ real-time billionaires index, with a net worth of $160 billion.
Here are some great examples of his advice and the actions of Holdings.
Buffett’s biggest holding is Apple, an iPhone manufacturer based in Cupertino, California. Despite a massive sale in 2024 when Berkshire Hathaway dumped around $80 billion in Apple stock, the company still accounts for 22% of Berkshire’s portfolio. It’s more than any other single holding.
The iPhone’s continued popularity, along with solid margin segments for its services and software, makes Apple an attractive investment.
Most importantly, Apple’s Return on Investment Capital (ROIC) currently sits at around 47%. It is exactly the kind of capital efficiency that Buffett described as a characteristic of a major investment. That means that every time Apple reinvests in its business, it earns half of that year. That is Buffett’s investment principle.
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America’s most well-known beverage manufacturer has been in the Berkshire Hathaway portfolio for decades. Buffett began purchasing shares in Coca-Cola (KO) in 1988. His portfolio currently holds around 400 million shares, allowing him to earn over $800 million a year from his shares. And Coca-Cola’s consistent dividend suggests that by effectively adopting capital in investors, it endures Buffett’s saying.
After all these years, KO remains the fourth largest holding in the portfolio, currently accounting for nearly 9% of its assets. Coke maintains its advantage in the global beverage market thanks to the persistent power of brand power, global distribution and consistent demand for its core products.
Coca-Cola’s Roic is around 23%, which is solid, but much lower than Apple’s. Although it does not generate the same margin with reinvested capital, Coca-Cola has proven its strong brand loyalty and stable cash flow for decades. Investors looking for a safe bet can consider adding this classic Buffett stock to their watch list.
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Not only are you looking for Buffett for investment ideas, but you also have many other great resources to help you make the most of your investment strategy. At the same time, many experts have falsely argued that they know what the latest and biggest stocks are.
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