Warren Buffett is the most successful and most famous investor of our time.
Through decades of profitable business via his conglomerate Berkshire Hathaway (BRK.A) (BRK.B), Buffett has amassed a fortune of more than $80 billion. During this time, Berkshire has grown to have a market capitalization in excess of $400 billion.
Buffett’s investors – the shareholders of Berkshire Hathaway – have also fared quite well. Buffett lists the performance of Berkshire Hathaway in his annual report each year.
In Berkshire Hathaway’s 2016 Annual Report, the company reported that is has compounded its per-share book value at 19.0% per year and its per-share market value at 20.8% per years since 1965. Such a high rate of return is excellent in any given year, but to maintain this level of performance over fifty years is simply incredible.
Such a high rate of return is excellent in any given year, but to maintain this level of performance over fifty years is simply incredible.
Remarkably, nothing that Warren Buffett has done is outside of the realm of individual retail investors.
The tools and techniques used by Buffett are largely available to the public and can have a tremendously positive effect on the investment returns of investors like you & I.
With that in mind, this article will present 4 simple and accessible tools that you can use to invest like Warren Buffett.
Tool 1 – Warren Buffett’s Own Portfolio
Making money by investing in common stocks can be summarized with the following sentence:
Invest in great businesses with strong competitive advantages and shareholder friendly managements trading at fair or better prices and hold them for the long-run.
To invest in great businesses, you have to find them first.
That’s where Warren Buffett comes in.
Warren Buffett’s stock portfolio is the first resource on this list that can help investors achieve success like the Oracle of Omaha.
But how can individual investors gain access to the investment portfolio of the world’s most successful investors?
One would think that world-class investors like Warren Buffett might keep their portfolio a secret, to reduce competition and increase their competitive advantage.
This is not the case.
Warren Buffett (and other institutional investors with $100 million or more in assets) are required by law to file their stock holdings each quarter. These stock holding reports are called 13F filings.
There are several websites that track Warren Buffett’s portfolio based on his most recent 13F Filing. You can view Warren Buffett’s portfolio at the link below.
Tool 1 Link: Warren Buffett’s Top 20 Stocks & Portfolio Excel Document
There is something very intriguing about Warren Buffett’s portfolio. Look at his Top 7 holdings, which make up about 75% of his portfolio:
- The Kraft Heinz Company (KHC)
- Well Fargo & Company (WFC)
- Apple Inc. (AAPL)
- The Coca-Cola Company (KO)
- American Express (AXP)
- International Business Machines Corporation (IBM)
- Phillips 66 (PSX)
Notice anything interesting?
All 7 of Warren Buffett’s Top holdings are dividend growth stocks with an average dividend yield of about 2.8%.
Most of them have a long track record of raising their dividend payments year after year. One of his top 7 holdings, Coca-Cola, happens to be a member of the Dividend Kings, an elite group of stocks with 50+ years of dividend increases.
You can see the full list of all 20 Dividend Kings here.
Many of Buffett’s other investment holdings, including IBM, are members of the Dividend Achievers list, a group of stocks with 10+ years of consecutive dividend increases.
You can see the full list of all 265 Dividend Achievers here.
While Warren Buffett is predominantly known to be a value investor thanks to his previous history of investing in ‘cigar butt’ stocks, looking at his current portfolio reveals that he is certainly a dividend investor.
And, when the richest investor of our time allocates the wealth of his company and his shareholders in dividend growth stocks, I take notice. Buffett’s observable focus on dividend growth stocks means that Sure Dividend readers can likely benefit from reading his quarterly 13F filings to search for high-quality dividend stocks.
Tool 2 – Warren Buffett’s Shareholder Letters
Warren Buffett has never written a book, although he has written the prefaces to certain editions of Benjamin Graham’s books Security Analysis and The Intelligent Investor.
Instead of writing his own dedicated book on investing strategy, Warren Buffett prefers to share his thoughts on investing through his annual letters to shareholders.
In fact, Warren Buffett’s annual reports hold such investing insights that they are widely read by members of the investment community that are not Berkshire Hathaway shareholders. I have not yet seen a company whose leadership has such a widespread following outside the base of its actual investors.
Buffett’s willingness to share his investing insights through his annual reports started long before he became involved with Berkshire Hathaway.
Warren Buffett ran an investment partnership from 1956 to 1970 before focusing on growing Berkshire Hathaway. You can download his investment partnership letters from 1957 to 1970 at this link:
Tool 2 Link A: Warren Buffett’s Investment Partnership Letters
In 1969, Warren Buffett began running Berkshire Hathaway full-time as his investment holding company. It is from this point onward that the Oracle of Omaha began sharing his investing insights through the Berkshire Hathaway annual letters (rather than his partnership’s annual letters).
Warren Buffett did not publish his shareholder letters from Berkshire Hathaway from 1969 through 1976. Fortunately, they can be found at the link below (with the exception of the 1970 newsletter).
Tool 2 Link B: Warren Buffett’s Berkshire Hathaway Letters from 1969 to 1976
The remainder of Berkshire Hathaway’s annual letters can be found on the corporation’s website. These more recent letters are a fantastic resource for building knowledge on investing and portfolio strategy.
The link for Warren Buffett’s annual letters from 1977 to the present is below:
Tool 3 Link C: Warren Buffett’s Berkshire Hathaway Letters from 1977 to Present
Reading Warren Buffett’s letters to shareholders shows how the greatest investor of our time thinks.
His investing style has changed over time as his wealth has grown. What has not changed is Buffett’s remarkable ability to explain complicated financial topics using simple language and easy-to-understand examples.
Because of his phenomenal communication skills, reading through Warren Buffett’s letters to shareholders provides valuable investing insights that cannot be easily obtained elsewhere.
Tool 3 – Value Line
Value Line is a stock information service that provides 15+ year snapshots of publicly traded stocks.
Each one-page report (called a Value Line sheet) shows relevant per share numbers like earnings per share, revenue per share and dividends per share over a 15+ year period. Value Line notably uses adjusted earnings (rather than GAAP earnings) to show a more realistic representation of normalized earnings power.
In addition, average P/E ratio by year is calculated and a brief summary of each stock’s operations, current events and growth prospects is included as well.
Value Line sheets are one of the most useful investing resources because they pack all of the most useful investing information into a concise one-page format. A new Value Line sheet is published each quarter for every company in Value Line’s coverage universe.
I am not the only one who believes that Value Line is a fantastic resource for individual investors. Warren Buffett has this to say about Value Line:
“I don’t know of any other system that’s as good… The snapshot it presents is an enormously efficient way for us to garner information about various businesses… I have yet to see a better way, including fooling around on the internet, that gives me the information as quickly.”
All of this hype surrounding Value Line is likely making you curious about the contents of a Value Line sheet.
You can see an example of a Value Line sheet for America’s largest corporation, Apple, below.
Source: Value Line
In addition, you can access PDFs of Value Line sheets for four of the most popular dividend growth stocks below:
- Johnson & Johnson (JNJ)
- Colgate-Palmolive (CL)
- Procter & Gamble (PG)
- The Coca-Cola Company (KO)
A service like Value Line is unlikely to come for free.
A 1 year subscription costs $598 (yes, you read that correctly). Unfortunately, Value Line is expensive, although this is certainly a case of ‘you get what you pay for’ – a Value Line subscription may be worthwhile if you are managing a large portfolio.
The good news is, there is a legal and ethical work-around to get Value Line without paying this onerous fee.
To get Value Line for free, you must access it through your library.
Most public libraries in the US have an online subscription to Value Line that is available for use even when you’re not in the library. Yes, you do not actually have to visit your library to take advantage of its Value Line subscription.
You can log in to Value Line through your library’s online portal from the comfort of your own home.
This one tip alone will save you $598 a year.
Call your local public library for specific instructions on how to access Value Line remotely, as each will differ slightly.
It should be noted that much of the work that is done on the Sure Dividend website and in the Sure Dividend newsletters relies on Value Line for financial data. We are able to comfortably recommend this service because we use it on a regular basis and are very happy with the financial information that is provided.
Tool 4 – Annual Reports
“In terms of marketable securities or new offerings, we’ve never bought anything that’s been pitched to us by an investment banker or broker. We read hundreds and hundreds of annual reports every year.”
Reading annual reports is important.
It gives you first-hand information on how a company is doing and what strategy management is pursuing.
Some businesses have fantastic annual reports that are very interesting and well written. Amazon (AMZN) and Nike (NKE) in particular come to mind as having interesting annual reports.
This section will show you (using screenshots) how to find the annual reports of two well-known dividend growth stocks.
The reason why I am showing two examples is that each company’s Investor Relations page is laid out slightly differently, which means that finding a company’s annual report will be slightly different depending on which business you are researching.
The first company whose annual report we will locate is 3M (MMM). First, perform a Google search for ‘3M Investor Relations’.
Then, click through to the 3M investor relations page. In this case, it is the second search result that we are looking for.
The 3M Investor Relations page is navigated using a top menu bar that contains headings like ‘Overview’, ‘Stock Information’, and ‘Financials’.
Mousing over the ‘Financials’ heading shows a subheading for Annual Reports & Proxy Statements – exactly what we are looking for.
Source: 3M Investor Relations
Clicking on the ‘Annual Reports & Proxy Statements’ subheading brings us to a page containing 3M annual reports for 2016 and other previous fiscal years (shown below).
The second company for which I will show a tutorial of finding their annual report is PepsiCo (PEP).
As before, run a Google search for ‘PepsiCo Investor Relations’ and identify the appropriate web page in the search rankings.
As before, the second search result is the page we need to follow.
Like 3M, PepsiCo’s investor relations website is navigated via a horizontal menu bar.
Mousing over the ‘Investors’ tab reveals a subheading titled ‘Annual Reports and Proxy Information’. This is clearly where Pepsi’s annual reports are located.
Source: Pepsi Investor Relations
Occasionally, finding annual reports can be difficult because of poor website layout.
Finding and analyzing annual reports will become much easier over time as you practice this skill and develop expertise in locating and analyzing the investor documents of various companies.
This is a very important investing skill to master because company reports should be your primary source of investing information since they are free of bias and come directly from the business’ management team.
Final Thoughts
Warren Buffett is nothing short of an investing genius.
Since 1965, he has orchestrated annual gains in book value and market price of 19.0% and 20.8% for the shareholders of Berkshire Hathaway.
Berkshire’s long-term performance history can be seen below.
Source: Berkshire Hathaway 2016 Annual Report
On the surface, Buffett’s performance at the helm of Berkshire Hathaway is simply amazing.
However, some research reveals that Buffett invests in a rather similar way – by identifying high-quality businesses trading at fair or better prices and buying them with the intent to hold for the long run.
So how can we find high-quality businesses?
This article showed how we can use Warren Buffett’s own portfolio and annual reports in the search for high-quality businesses, and then use other resources like Value Line and corporate annual reports to determine whether they are trading at fair or better prices.
