As a value investor, Warren Buffett loves to buy quality assets on the cheap. But there’s one beaten-down asset he won’t be picking up anytime soon: Bitcoin.
The price of the world’s largest cryptocurrency dropped more than 35% over the past two months to around $41,700. That could be an opportunity for curious investors standing on the sidelines.
Plenty of investing icons, such as Cathie Wood and Kevin O’Leary, have been proponents of Bitcoin. But Buffett, arguably the most famous investor of our time, is not a fan.
“I don’t have any bitcoin. I don’t own any cryptocurrency; I never will,” the billionaire told CNBC last year. He earlier explained to Yahoo Finance that when you buy crypto, “you don’t have anything that is producing anything.”
In other words, Buffett likes assets with clear, material use. Take a look at the top three holdings of his company Berkshire Hathaway.
Apple is by far Buffett’s largest holding, accounting for more than 40% of Berkshire’s portfolio by market value.
One of the reasons behind that concentration is the sheer increase in the tech giant’s stock price. Over the past five years, Apple shares have surged more than 480%.
Earlier this year, management revealed that the company’s active installed base of hardware has surpassed 1.65 billion devices, including over 1 billion iPhones. But the company does more than just making smartphones and computers; it has built an ecosystem.
While competitors offer cheaper devices, many consumers don’t want to live outside Apple’s network of highly compatible products and services. That means, as inflation spikes, Apple can pass higher costs to its global consumer base without worrying as much about a drop in sales volume.
The business has been growing at a commendable pace. In the September quarter, revenue surged 29% year-over-year to $83.4 billion.
After a multi-year bull run, Apple trades at $172 per share.
Bank of America (BAC)
As the second-largest holding in Berkshire’s portfolio, Bank of America has served Buffett quite well.
The stock is up 49% year to date — not bad for a traditional blue-chip company outside the tech sector.
While Bank of America doesn’t produce goods in the same way Apple does, its important role in our financial system gives the stock inherent value.
Bank of America offers a wide range of banking, asset management and other financial and risk-management products and services to consumers, small and middle-market businesses and large corporations.
And while many businesses fear rising interest rates, banks love them. So it shouldn’t come as a surprise that in today’s environment, banks can return a lot of cash to shareholders.
Bank of America bought back $9.9 billion of its common stock in Q3. In June, the company raised its quarterly dividend rate by 17% to 21 cents per share.
At the current share price, the bank offers an annual dividend yield of 1.7%.
American Express (AXP)
American Express shares are up a solid 36% year to date, though in the past month, they’ve pulled back around 10%.
Berkshire owns 151.6 million shares of the company, worth approximately $24.5 billion. That makes the credit-card giant its third-largest holding.
Just like Bank of America, American Express provides an essential service. While Bitcoin’s use as currency is still quite limited, Amex’s payment products and services cater to a broad range of consumers and small and large businesses.
And the business is commonly considered inflation-proof. American Express makes most of its money through discount fees; merchants are charged a percentage of every Amex card transaction. As the price of goods and services increases, the company gets to take a cut of larger bills.
In Q3, the company’s revenue jumped 25% year-over-year to $10.9 billion.
Berkshire also owns shares of competitors Visa and Mastercard, but Buffett is clearly betting on American Express as those other two positions are much smaller.