Apple (AAPL)

Apple products
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Kicking things off is Berkshire’s largest holding, which certainly fits Buffett’s description: Apple has achieved a five-year average return on invested capital of 27.6%.

Berkshire owned 907.6 million shares of the tech giant as of Sept. 30, worth over $161 billion at the current price. In fact, Apple now accounts for well over 40% of Berkshire’s publicly traded equities portfolio by market value.

One of the reasons behind that concentration is the sheer increase in the company’s stock price. Over the past five years, Apple shares have surged more than 500%.

Earlier this year, management revealed the company’s active installed base of hardware has surpassed 1.65 billion devices. But Apple does more than just making smartphones and computers; it has built an integrated ecosystem that encourages customers to get more and more invested.

As a result, business has been growing at a commendable pace. In the September quarter, revenue surged 29% year-over-year to $83.4 billion.

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Mastercard (MA)

Mastercard
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Next up, we have credit card giant Mastercard, which boasts a five-year average return on invested capital of 46.2%.

Buffett trimmed his position in the company by about 6% in Q3. Even so, with 4.29 million shares, Berkshire still has a sizable $1.48 billion stake.

Payments stocks had a rather choppy ride this year because new COVID-19 variants and outbreaks threatened to slow down international commerce — and in turn, transaction volume.

Business is picking up, though. In Q3, Mastercard’s gross dollar volume rose 20% year-over-year. Cross-border volume surged a more impressive 52%.

The company is also returning more cash to investors, which could be viewed as a sign of strength. On Nov. 30, Mastercard announced an $8 billion share repurchase program and boosted its quarterly dividend by 11%.

To be sure, Mastercard trades at over $340 per share at the moment. But you can always get a smaller piece of the company using a popular app that allows you to buy fractions of shares with as much money as you are willing to spend.

Procter & Gamble (PG)

Tide detergent
rblfmr / Shutterstock

Rounding out the list is consumer staples giant Procter & Gamble, with a solid five-year average return on invested capital of 13.5%.

Berkshire held 315,400 shares at the end of Q3, worth around $49.6 million at today’s price. While that’s not a big position by Berkshire standards, something does make P&G stand out: the ability to deliver rising cash returns to investors through thick and thin.

The company offers a portfolio of trusted brands like Bounty paper towels, Crest toothpaste, Gillette razor blades and Tide detergent. These are products households buy on a regular basis, regardless of what the economy is doing.

In April, P&G’s board of directors announced a 10% increase to the quarterly payout, marking the company’s 65th consecutive annual dividend hike.

Buffett makes a good case for stocks like Apple, Mastercard and P&G. However, if you’re reluctant to throw a lot of money at individual companies, you can always build a diversified portfolio automatically just by using your “spare change.”

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Earn a passive income outside the stock market

Lamborghini
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At the end of the day, even the most solid blue-chip companies aren’t immune to stock market volatility and downturns.

But you don’t have to limit yourself to the stock market.

If you want to invest in something insulated from the swings of the S&P 500, take a look at some little-known alternative assets.

Traditionally, investing in exotic vehicles or multi-family apartments or even litigation finance have only been options for the ultrarich, like Buffett.

But with the help of new platforms, these kinds of opportunities are now available to retail investors, too. With a single investment, you can build a fixed-income portfolio spread across multiple asset classes.

Fine art as an investment

Stocks can be volatile, cryptos make big swings to either side, and even gold is not immune to the market’s ups and downs.

That’s why if you are looking for the ultimate hedge, it could be worthwhile to check out a real, but overlooked asset: fine art.

Contemporary artwork has outperformed the S&P 500 by a commanding 174% over the past 25 years, according to the Citi Global Art Market chart.

And it’s becoming a popular way to diversify because it’s a real physical asset with little correlation to the stock market.

On a scale of -1 to +1, with 0 representing no link at all, Citi found the correlation between contemporary art and the S&P 500 was just 0.12 during the past 25 years.

Earlier this year, Bank of America investment chief Michael Harnett singled out artwork as a sharp way to outperform over the next decade — due largely to the asset’s track record as an inflation hedge.

Investing in art by the likes of Banksy and Andy Warhol used to be an option only for the ultrarich. But with a new investing platform, you can invest in iconic artworks just like Jeff Bezos and Bill Gates do.

About the Author

Jing Pan

Jing Pan

Investment Reporter

Jing is an investment reporter for MoneyWise. Prior to joining the team, he was a research analyst and editor at one of the leading financial publishing companies in North America. An avid advocate of investing for passive income, he wrote a monthly dividend stock newsletter for the better half of the past decade. Jing holds a Master’s Degree in Economics and an Honours Bachelor of Science Degree, both from the University of Toronto.

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