How to Invest like Warren Buffett: Inflation Proof Stock Portfolio! - YouTube

Hi everyone, this is Victor here. In this video, I’m going to talk about how  

to invest like Warren Buffett. Specifically,  I will talk about his $300 billion-plus  

inflation-proof stock portfolio. I will talk about  the 3 main rules to invest like Warren Buffett. 

To give you some context, at the time of  making this video, the US inflation rate is at  

a 40-year high. The Russia-Ukraine crisis is  causing oil and gas prices to reach new highs.  

The global supply chain issues are still  ongoing and are increasing all prices from  

raw materials to chip components to shipping  costs. And the US Fed injected too much money  

into the US economy through the Quantitative  Easing Program that started in 2020. Now,  

the US Fed is expected to raise its interest rates  aggressively going forward in other to tame the  

high inflation rate in the US. As a result, the  US stock market—especially growth stocks—is in a  

large correction at the time of making this video. Warren Buffett’s Berkshire Hathaway is one  

of the few companies that still performs  well when the US inflation rate is high.  

For example, Berkshire Hathaway stock has  outperformed the S&P 500 by a large margin  

in the past 1 year as well as in the past 2 years. In this video, I will talk about Warren Buffett’s  

inflation-proof stock portfolio and how to invest  like Warren Buffett. I will cover these topics: 

First, Warren Buffett’s inflation-proof  stock portfolio. I will explain why  

Warren Buffett’s Berkshire Hathaway and his $300  billion-plus stock portfolio are inflation-proof. 

Second, why Berkshire Hathaway is Beating the  S&P 500 and Cathie Wood’s ARK ETFs. We will  

compare Warren Buffett’s stock portfolio  with Cathie Wood’s ARK Innovation ETF. 

And third, the 3 main rules  to invest like Warren Buffett. 

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Before talking about Warren Buffett’s Berkshire  Hathaway and his inflation-proof stock portfolio,  

I want to give you some context first. At the time of making this video,  

the US stock market is in a large  correction for several major reasons.  

First, the US inflation rate is at a 40-year  high because of the global supply chain issues  

and because the US Fed injected too much money  into the US economy in the past 2 years since the  

pandemic started in 2020. Second, many large  fund managers have rotated their investments  

from high-growth stocks to value stocks, energy  stocks, banks, utilities, consumer staples and  

even real estate income trusts REITs that would  perform better when inflation rate is high. Third,  

the US Fed is expected to raise its interest  rates aggressively going forward to tame the  

high inflation rate in the US. And forth, the  current Russia-Ukraine crisis is causing oil  

prices to reach over $120 a barrel. Higher oil  and gas prices always lead to a higher inflation  

rate in the US because oil and natural gas are  large contributors to consumer prices in the US. 

Here is the interesting thing part about Warren  Buffett’s inflation-proof stock portfolio. 

Warren Buffett has around 47 stocks in  his $300 billion-plus stock portfolio. 

His top 4 holdings are Apple,  Bank of America, Coca-Cola,  

and American Express. These top 4 holdings make  up 72% of his $300 billion stock portfolio. 

If you look at Buffett’s top 15 holdings  here, most of these companies benefit  

a lot when inflation is high, especially  banks and oil and gas companies. 

For example, Apple, the largest and most  profitable tech company in the world,  

can often pass higher chip component costs to  consumers by increasing the prices of iPhone,  

iPad, Mac and iOS services. Bank of America, US Bancorp and Bank of New  

York Mellon Corp benefit a lot when interest rates  are increasing. Banks tend to earn higher interest  

margins from consumer loans, business loans, and  commercial loans when interest rates are high. 

American Express, one of the largest credit  card companies in the US, also benefits when  

the US inflation rate is high. American Express  card members would still use their Amex cards to  

buy things even when prices are higher, so  they can earn higher rewards and cashback. 

Coca-Cola, the largest soft drink company in  the world, can often pass higher inflation  

costs to consumers by increasing the prices  of Coke, Sprite and other soft drinks. 

Chevron and Occidental Petroleum benefit the  most when oil and natural gas prices are high  

because they can earn higher profits. Kroger, one of the largest supermarkets  

in the US, can pass higher inflation costs to  consumers by increasing the prices of groceries. 

In my opinion, all these businesses  I mentioned are inflation-proof.  

They still benefit even when the US inflation  rate is at a 40-year. They can often pass higher  

costs to consumers, and consumers will  still buy their products and services. 

So why is Berkshire Hathaway beating the S&P  500 and even ARK ETFs? Let me explain here. 

In addition to Berkshire’s $300 billion-plus  stock portfolio, Berkshire runs some of  

the largest insurance businesses in the US,  including GEICO, Berkshire Hathaway Primary  

Group and Berkshire Hathaway Reinsurance Group. Warren Buffett explains that Berkshire Hathaway  

has the 4 most important businesses that  contribute the most value to Berkshire. 

He said this in the latest  2021 shareholder letter: 

“Operations of our “Big Four” companies account  for a very large chunk of Berkshire’s value.  

Leading this list is our cluster of insurers.  Berkshire effectively owns 100% of this group,  

whose massive float value we earlier described.  The invested assets of these insurers are  

further enlarged by the extraordinary amount of  capital we invest to back up their promises.” 

“The insurance business is made to order for  Berkshire. The product will never be obsolete,  

and sales volume will generally increase along  with both economic growth and inflation.” 

In addition to Berkshire’s insurance business, the  other three most important businesses are the 5.6%  

ownership in Apple which is worth around $145  billion at the time of making this video,  

BNSF Railway which is one of the largest  railroad companies in North America,  

and Berkshire Hathaway Energy. In my opinion, all these Big Four businesses  

are inflation-proof because they can often pass  higher inflation costs, higher material costs  

and higher shipping costs to their customers. He wrote: “The insurance business is made to  

order for Berkshire. The product will never be  obsolete, and sales volume will generally increase  

along with both economic growth and inflation.” Berkshire’s BNSF Railway and Berkshire Hathaway  

Energy are essential services for many businesses  and customers in North America. Based on my  

understanding, these two businesses can pass  most of their inflation costs to their customers. 

If we look at Berkshire’s latest 2021  annual report, you can see Berkshire’s  

Insurance underwriting, Railroad, Utilities and  Energy businesses all reported higher earnings  

compared to the previous year. This suggests  Berkshire’s most important businesses, insurance,  

railroad, energy, and utilities  are generally inflation-proof. 

I believe this is one of the main reasons  Berkshire Hathaway has outperformed the S&P  

500 by a large margin in the past 2 years. Another reason is that most of Berkshire’s  

manufacturing, service and retailing businesses  have already recovered from the pandemic.  

This is why you can see Berkshire’s earnings from  manufacturing, service and retailing in 2021 had  

already recovered from 2020 and 2019 levels. Berkshire Hathaway has also outperformed  

Cathie Wood’s ARK Innovation ETF  in the past 2 years since the  

beginning of 2020 when the pandemic started. The main reason is that Warren Buffett mainly  

invests in well-established companies that  are already profitable with durable economic  

moats and with outstanding CEOs. Many  of these businesses are inflation-proof. 

In comparison, Cathie Wood mainly invests in  disruptive companies that would take years  

to become profitable. Many of these disruptive  companies are still losing a lot of money every  

quarter. These companies are always impacted  the most when the inflation rate is high  

and when interest rates are expected to increase. For example, if we look at ARK Innovation ETF  

here, you can see ARK mainly invests  in disruptive companies such as Tesla,  

Teladoc, Roku, Zoom, Coinbase, and Exact Sciences.  Most of these businesses are not profitable yet.  

Many of them are still losing a lot of money every  quarter. This is why Ark ETFs have underperformed  

substantially since the beginning of 2021. Surprisingly, Warren Buffett’s Berkshire Hathaway  

has outperformed Cathie Wood’s ARK ETFs since  the beginning of 2020 when the pandemic started. 

To be fair, ARK ETFs would perform well when  the inflation rate is low and when interest  

rates are expected to stay low, but we are in  a very high-inflation rate environment now. 

Going forward, as long as the US inflation  rate remains high well above the US Fed’s  

2% target inflation rate, I believe Warren  Buffett’s Berkshire Hathaway will likely  

outperform the S&P 500 and Cathie Wood’s  ARK ETFs over the next two years. The main  

reason is that Buffett has invested in many  businesses—such as GEICO, Apple, BNSF Railway,  

Berkshire Hathaway Energy, banking and oil and  gas businesses—that are generally inflation-proof. 

Here's the important question:  How to invest like Warren Buffett? 

The first important rule is to “see stocks  as businesses for long-term investing.” 

In a CNBC interview, Buffett said this explaining  why it is important to see stocks as businesses. 

“I have no idea what the stock  market’s going to do tomorrow  

or next week or next month or next year.” “If you own your stocks as an investment—just  

like you’d own an apartment, house or  a farm—look at them as a business.” 

“If you’re going to try to buy and sell them based  on news or something your neighbor tells you,  

you’re not going to do well. Find a  good bunch of businesses and hold them.” 

Then he said: “You will not make  

money trying to sell stocks daily or weekly.” In the most recent 2021 Shareholder letter,  

Buffett explained the importance of investing in  businesses with durable competitive advantages  

with a first-class CEO. He also said he  and Charlie Mungers are not stock-pickers,  

but rather they are business-pickers. He wrote: “Berkshire owns a wide variety  

of businesses, some in their entirety, some  only in part. The second group largely consists  

of marketable common stocks of major American  companies. Additionally, we own a few non-U.S.  

equities and participate in several joint  ventures or other collaborative activities.” 

“Whatever our form of ownership, our goal is to  have meaningful investments in businesses with  

both durable economic advantages and a first-class  CEO. Please note particularly that we own stocks  

based upon our expectations about their long-term  business performance and not because we view them  

as vehicles for timely market moves. That point  is crucial: Charlie and I are not stock-pickers;  

we are business-pickers.” “I make many mistakes. Consequently,  

our extensive collection of businesses includes  some enterprises that have truly extraordinary  

economics, many others that enjoy good economic  characteristics, and a few that are marginal.  

One advantage of our common-stock segment is  that – on occasion – it becomes easy to buy  

pieces of wonderful businesses at wonderful  prices. That shooting-fish-in-a-barrel  

experience is very rare in negotiated  transactions and never occurs en masse.  

It is also far easier to exit from a mistake  when it has been made in the marketable arena.” 

When we are investing in stocks, it is  important to see them as businesses because  

stocks are essentially pieces of businesses  that we own. Stocks are actual ownerships of  

businesses. Stocks are not stock tickers for us  to trade every day, every week or every month. 

If you are a business owner, it would not make  sense for you to invest in a business today  

and sell your business the next day, or sell  it the next week, or sell it the next month. 

If you are a business owner and you like to  invest in businesses, you would want to invest  

in wonderful businesses that have great economic  moats at a fair price or an undervalued price.  

Then, you would want to keep your business for  many years, let it grow over time, and hold it as  

long as it continues to be a profitable business. Buffett suggests that we should see stocks  

as businesses we invest in for the  long term, similar to how we invest  

in an apartment, a house or a farm. Again, he said: “You will not make  

money trying to sell stocks daily or weekly.” In his 1988 Shareholder Letter, Buffett wrote:  

“In fact, when we own portions of outstanding  businesses with outstanding managements,  

our favorite holding period is forever. We are  just the opposite of those who hurry to sell and  

book profits when companies perform well but who  tenaciously hang on to businesses that disappoint.  

Peter Lynch aptly likens such behavior to  cutting the flowers and watering the weeds.” 

The second most important rule is to invest  in wonderful businesses that have durable  

competitive advantages and a first-class CEO. Buffett wrote: “Whatever our form of ownership,  

our goal is to have meaningful investments  in businesses with both durable economic  

advantages and a first-class CEO.” This means we have to look for outstanding  

businesses that have durable economic moats that  can protect the business from most competitors.  

Also, it is equally important to  look for businesses that are run by  

outstanding CEOs that are shareholder-oriented. For example, I believe Google and Microsoft  

are two outstanding businesses with large  economic moats run by two outstanding CEOs. 

Personally, I have had shares in Google  and Microsoft for many years already. 

Google has a very large economic moat because it  is almost impossible for competitors to compete  

with Google search engine and YouTube. Google  search engine and YouTube are the two largest  

search engines in the world. Google also owns  the Android Operating System that is on most  

smartphones. When you buy a smartphone, you  either choose an iPhone or a smartphone that  

runs Google’s Android Operating System. Microsoft also has a very large economic  

moat because the company owns Windows that is  on almost all personal computers except Macs.  

Microsoft also owns Office 365 that is consisted  of many other very popular office applications,  

Microsoft Azure which is one of the top  3 public cloud providers in the world,  

and Xbox game consoles. In my opinion, it is  almost impossible for competitors to replace  

Microsoft’s Windows OS, Office 365 applications,  Microsoft Azure, and Xbox game consoles. 

Another example is this. In Buffett’s 2021 shareholder letter,  

Buffett praised Apple’s CEO, Tim Cook, for doing  an outstanding job running Apple and returning  

a large amount of capital to Apple shareholders  through dividends and share buybacks every year. 

Buffett invested about $36 billion in Apple  between 2016 and 2018. Under Tim Cook’s  

management, Buffett’s stake in Apple is now worth  $145 billion at the time of making this video. 

Personally, I have had Apple  shares for many years already. 

In my opinion, it is not easy to know  whether a company has a first-class CEO  

or a mediocre CEO because we do not get to  meet the CEO in person and interview the CEO. 

However, I believe a first-class  CEO is very shareholder-oriented.  

A first-class CEO would know how to increase  the intrinsic value of the business by building  

excellent products and services and by  building economic moats around the business  

without diluting existing shareholders’  ownerships and without using too much debt. 

If the CEO is doing an outstanding  job, the company’s yearly business  

performance would reflect it. Also, it is important to stay within  

your circle of competency and only invest  in the businesses you understand the most. 

For example, if you know a lot  about oil and gas businesses,  

it would not make sense for you to invest in  tech companies you do not understand at all. 

Buffett always stays within his circle  of competencies by investing in banks  

and oil and gas businesses because he  understands these businesses the most. 

The third most important rule is to  invest in stocks at wonderful prices.  

This means you will want to invest in a stock  only when it is undervalued, so there will be  

a good margin of safety to reduce risks. The stock price does not tell us anything  

about the business. The stock price only  tells us what price Mr. Market is willing  

to sell to you today or what price Mr.  Market is willing to buy from you today. 

For example, if we look at Google’s  stock price, you may think it is very  

expensive because it is traded at $2,500  per share at the time of making this video,  

but this price does not tell you anything about  Google’s business. The stock price only tells  

you that Mr. Market is willing to sell you a piece  of Google’s business for $2,500 per share today,  

or Mr. Market is willing to buy your piece of  Google’s business for $2,500 per share today. 

Here is the important part you will want to know. The stock price does not always reflect the  

intrinsic value of the business because Mr.  Market can be very irrational from time to time.  

Mr. Market can be very pessimistic today and very  optimistic the next day, next week or next month. 

At the time of making this video, Mr. Market  is extremely pessimistic and fearful because of  

the Russia-Ukraine crisis and the high inflation  rate in the US. This means many stocks are likely  

traded below their intrinsic business values. I learned this from studying Warren Buffett for  

many years: the Intelligent investor would want  to buy a piece of a wonderful business only when  

the stock is traded below its intrinsic value. I always use this intrinsic value calculator  

to estimate a business’ intrinsic value before  buying the stock. If you want this intrinsic  

value calculator, you can download it in  my Patreon Blog in the video description. 

For example, I used this intrinsic value  calculator and estimated Google’s fair intrinsic  

value to be around $3,621/share. Under the worst-case scenario,  

I estimated Google’s intrinsic  value to be around $2,950/share. 

In comparison, Morningstar estimated Google’s  fair value to be around $3,600/share. 

This means I believe Google is undervalued by  around 30% at the time of making this video. 

Here is the key takeaway: If you want to invest like Warren Buffett,  

see stocks as businesses for long-term  investing; invest as though you are  

buying the whole business; stay within your  circle of competency, and invest in a group  

of wonderful businesses at wonderful prices. Now, all these are only my opinions and my  

analysis based on my research. They are  not financial advice. You will need to  

do your own research and do your extra due  diligence first before investing in anything. 

Thank you for watching this  video and supporting our channel. 

This is Victor from the Intelligent Investor  Channel, and I will see you in the next video.