Ever wonder what would happen if you put your money behind Warren Buffett's very favorite stocks? Even if you don't have billions of dollars to invest, you could follow the billionaire investor's moves and adjust the amount of money you put into each company to match your budget.
Today, just five stocks make up almost three-fourths of the value of Buffett's portfolio. Let's imagine that five years ago you invested $25,000 in these particular stocks. In our experiment, you bought $5,000 each of American Express (AXP -0.97%), Apple (AAPL -1.32%), Bank of America (BAC -0.47%), Chevron (CVX 0.01%), and Coca-Cola (KO -0.19%). Let's find out how much you would have now.
Five years or more
First, before revealing those numbers, I just want to note how important it is to invest for the long term. This is a key part of Buffett's investment strategy. And this generally means a minimum of five years. So, as we look at the performance of your Buffett portfolio over five years, we should remember that this could be just the beginning. If we hold on longer, we may stand to gain more.
Now, let's get back to our $25,000 investment. If you'd invested $5,000 five years ago in each of the Buffett favorites mentioned above, today your total investment would be worth $45,500. That represents an 82% increase. This beats the S&P 500's 49% increase over that period.
Apple contributed the most to this performance, climbing 271% over the five years. The others all advanced in the double digits, except Bank of America, which slipped 10%. But your Bank of America loss actually amounted to less than 1% if you consider dividends the company paid to you over that time.
BAC Total Return Price data by YCharts
In our example, I've included stock performance only. Dividend payments limited your Bank of America loss, as mentioned. And dividends have helped you make even more money from your other Buffett investments. All of the stocks I've talked about here offer passive income. Coca-Cola -- one of Buffett's favorite dividend stocks -- climbed 42% over the past five years. But if you add in the dividend payments, the stock offered you a 67% gain over that time period.
Coca-Cola even makes the elite list of Dividend Kings. These are companies that have increased their dividends for at least the past 50 years. This commitment to rewarding shareholders is a sign the company probably will continue along the same path. And that means you can count on it for passive income growth.
Should you jump in now?
So, as we can see from the numbers, an investment in Buffett's favorites would have brought you great returns over the long term. Does that mean you should jump in now? It's always important to look at each stock carefully at a given time. A great bargain five years ago may not necessarily be a great bargain today.
That said, Buffett's core holdings tend to be companies that offer many buying opportunities over time and have what it takes to grow over the long term. So, it's rarely "too late" to get in on these stories.
Still, it's important to choose stocks that are right for you. Buffett advises investing in companies and industries you understand. So, if you don't understand the banking industry but have built up a lot of knowledge about biotech, for example, you may be better off going for a biotech and avoiding Buffett's banking selections.
All of this means, yes, use Buffett as a guide. If you check out his top holdings and they look good to you, you might want to add some of them to your portfolio. But what's more important than following Buffett's exact moves is following his wisdom. If you choose strong companies, buy at fair prices, and hold for the long term, you're likely to win over the long term -- just like Buffett.
