Warren Buffett discusses EU and Monetary Union in 2011
Mr Buffett is arguably one of the most successful investors of his generation; put simply, his success is due to focusing on companies with the highest rates of returns, and compounding his returns to own even more shares in these types of companies. Here are three companies with a return rate of over 15 percent as well as some favourites from the business tycoons’ own portfolio which are said to soon see exponential growth, possibly earning investors millions.
The Berkshire Hathaway CEO commented: “The best business to own is one that over an extended period can employ large amounts of incremental capital at very high rates of return.”
Generally, these types of investments are kept in the company for a long period of time, in order to “spread out” the high risk that high returns carry, but it is worth noting that with every investment made there is capital at risk.
This American home improvement franchise is an investing giant with consistent returns of around 30 percent, largely due to the well-recognised brand, merchandising and management that has been praised on multiple levels.
Within the last five years, Home Depot has returned over $55billion (£39billion) to shareholders in the form of dividends and share repurchases, and even though their growth has dropped recently they are still one of the best long-term share investments according to Mr Buffett’s “best business” criteria.
Mr Buffett reached his first $1million in 1962 and has been reinvesting it ever since (Image: GETTY)
The drop in growth has been largely due to a low number of customer transactions in the last quarter, which is still keeping the company well afloat with a 5.8 percent growth rate and an expected up-turn coming soon.
The stock currently has a total yield of 3.8 percent – split with 2 percent in dividends and 1.9 percent buyback yield – and the share price of around $335 (£242) has been less volatile over the last three months than 75 percent of US stocks.
Some of the most sought-after stocks in the current market are in the tech industry as it continues its unprecedented growth of 27 percent, a category in which Apple is one of the frontrunners and unlike Home Depot, its stock prices are a lot more affordable.
Over the last five years Apple investors have seen a return rate of 26 percent, far outperforming rivals like Nokia and Sony which only saw 12 percent and seven percent respectively.
The customer loyalty to this brand is almost unheard of and the exclusive iOS experience has many coming back for more, year after year, as it slowly becomes a status icon and makes it increasingly difficult to switch to their rivals.
The company is also looking to break into emerging markets in India and Mexico, providing slightly more stability and a positive outlook for their long-term growth trajectory.
Apple has returned an estimated $29billion (£20billion) to shareholders in the most recent quarter as their revenue made an astounding 36 percent leap to $81.4billion and a comfortable $21billion in cash flow.
The stock yield is far more in favour of buybacks, with over 3 percent yield in comparison to their dividend yield of 0.6 percent and stock prices sitting around $180 (£130).
Technology stocks and shares have been on the rise for a while and expect to continue this trend (Image: GETTY)
Another tech giant, further proofing the industry’s high earning potential for investors, Microsoft has seen a solid return rate of 20 percent over the past five years.
Despite it’s slowing tech, this company still has a monopoly-like hold on the tech industry thanks to Windows and Microsoft Office – both of which are directly opposing Apple’s iOS software.
Microsoft also saw a far bigger leap in net income in the last quarter, rising 47 percent to $16.5billion with a 21 percent increase in revenue as well. The company’s Cloud services alone saw a 35 percent jump, largely due to the demand from its popular cloud computing service Azure.
These stocks offer some “middle-ground” for investors, being both mildly volatile as well as relatively cheap stock prices of around $277 (£200).
So with these top stocks in mind, where is Mr Buffett putting his own money?
This S&P 500 company has recently joined the ranks of Dividend Kings after providing 50 consecutive years of increased dividends.
The pharmaceutical company is expecting a flurry of new rivals as biosimilar companies gain approval to begin producing their own products in America starting in 2023, however this is not expected to hit the company’s shares too bad and current stock prices sit around $100 (£72).
It may come as a surprise to some that Mr Buffett and Berkshire Hathaway only added this online retail goliath to their portfolio in late 2019 and even admitted that he had underestimated Jeff Bezos’ creation.
Post-pandemic the company is expected to have a slowing in revenue growth, which isn’t surprising nor should it impact investors too much as the explosive growth they experienced in 2020 was largely due to the circumstances of the pandemic.