Warren Buffett is one of the best investors of our time. By reviewing Warren Buffett’s Berkshire Hathaway’s current stock portfolio, we can get a sense of which businesses to best invest in to build great wealth in the long run.
Warren Buffett advice: Buy wonderful businesses
Warren Buffett has a steadfast focus on buying wonderful businesses. The stock market is a convenient medium for investors like you and me to buy and become part-owners of businesses.
In the short run, stock prices are determined by a voting machine on the stock market. In the long run, stock prices follow the fundamentals of the underlying businesses.
When buying wonderful companies, Warren Buffett primarily cares about the value he pays. Secondarily, he loves dividends. However, it’s not a determining factor for him whether a stock pays a dividend or not.
In summary, investors should seek to buy wonderful businesses at great valuations. Moreover, ideally, these stocks would pay dividends.
As of the end of 2019, Berkshire Hathaway’s largest common stock holdings were Apple, Bank of America, Coca-Cola, American Express, and Wells Fargo.
So, Buffett is a fan of technology. He’s also a big believer in the U.S. economy. This is why American banks make up a big part (24%) of Berkshire’s stock portfolio.
Banks are a core part of Berkshire’s stock portfolio. Our top Canadian banks should be a core part of Canadians’ stock portfolios as well. Particularly, TD Bank stock is a wide-moat company that offers value, dividends, and exposure to the U.S. economy.
Warren Buffett advice: Buy index funds for broad market exposure
Warren Buffett suggests investors not interested in stock picking to invest in index funds that have broad market exposure.
By investing in a broad market ETF that exposes you to the TSX index, investors are betting on the inevitable comeback of the Canadian economy.
SPY offers greater diversification and exposes you to the U.S. economy, which typically enjoys greater growth than the Canadian economy.
If you can stomach greater risks, investors should consider mid-cap ETFs like the iShares S&P U.S. Mid-Cap Index ETF that has a ticker of XMH. It gives exposure to the S&P MidCap 400 CAD Hedged Index.
In general, mid-cap stocks offer higher growth than large caps and lower risk than small caps. Therefore, buying a basket of mid-cap stocks through XMH in this market crash should allow investors to generate extraordinary long-term total returns.
