Warren Buffett’s most important lessons on investing and portfolio growth, according to Lee Munson

Portfolio Wealth Advisors President and CIO Lee Munson joins Yahoo Finance Live to share his thoughts on Warren Buffett's investment strategies and portfolio growth ahead of the release of Buffett's annual Berkshire Hathway shareholder letter.

Video Transcript

BRAD SMITH: Warren Buffett's shareholder letter on Saturday will certainly detail Berkshire Hathaway's top holdings, including Apple, Bank of America, Chevron, American Express-- the list goes on. Oh, yeah, Coca-Cola-- he's probably sipping one of those right now. Those five companies, yeah, we know they make up about 75% of their holdings. Let's dig into this portfolio a little bit further with Lee Munson, Portfolio Wealth Advisors president and CIO. Lee, what do you expect to hear from the Oracle of Omaha when-- my gosh, at the ripe age of, what, 97, 98?

SEANA SMITH: 92.

BRAD SMITH: 92.

LEE MUNSON: 92.

BRAD SMITH: It's Charlie Munger that is 99, yeah.

SEANA SMITH: You're adding five years to his life.

BRAD SMITH: Yeah, exactly. What do you expect to hear when Warren Buffett takes the stage?

LEE MUNSON: Well, he likes to do these old yarns about that he's just this, like, kind of old homespun guy and how he has a mission at Berkshire Hathaway. But I think that what Wall Street's really looking back is every-- like, I've read every single annual report for 40 years, right? And I reviewed the last 30 years the last night. And it's just, oh, they're the greatest stories of Wall Street that were ever told. And I think that Wall Street, though, is looking for his opinions about things like energy and what he's doing with his energy holdings.

I think I want to hear about what type of firms he's acquiring and in what type of sectors. Remember, this is a guy who has made his money-- number one, I think what everybody has to understand is that he has these cash machines, and he has to get this cash working, right? So, early on, he's very famous for buying See's Candy. And he bought it for a few hundred million. And then what's happened is that it's paid out over a billion dollars in cash flow, and he's used that to acquire other things.

The big one that nobody talks about is Geico. Little known fact, he started pitching stock as a stockbroker just like me, but it was 1951. He was 20 years old. And his first pitch when he became a stockbroker, which he was miserable at, was Geico. And then, basically, in 1980, he bought about half of it in the early '90s. Around '95, he bought the other half. Now the thing you have to remember is that Buffett makes all this money off of insurance. And really interesting to see how much money Geico has been making just because of COVID and all these things.

And that's a little bit inside baseball, but remember, that free float that he has, it basically gives him access to capital at no charge, right? Because he's investing these policyholders' money, the extra float. And then he's really good at investing. So it's just money upon money and upon money. I want to see what he thinks about the general economy, but I'm just going to tell you, you're never going to get that great answer for him because in his mind, he's buying companies for such long-term.

You know, you're going to have to really-- you're not going to get something that is going to give you actionable trades tomorrow. But I have my eye on Berkshire Hathaway Energy, BHE. That's where he puts in all these oil companies that he's been buying. That's why you don't see, like, dozens of oil companies in his stock list because he buys the entire companies and then folds them in. And I want to see what those projections are and see what kind of color that we can get to that.

And come on, every weekend, this comes out. Anybody who's worth anything on Wall Street is going to read that annual letter, right? And for any of the kids out there listening, if you haven't read all of his annual reports for the last 30 years, don't even talk to me because you know nothing, right? But I also think that you have to know when to sell. And so I'm interested in that. Remember, you have to be willing to do new things, even if it blows up. Warren Buffett is not just a one-trick-pony.

Back in 2016, he was in there. He bought all the-- he bought a bunch of airlines. And he said specifically in reports in the '80s, I'll never do it again. In fact, he joked about having a hotline set up, just in case he wanted to buy an airline, and he'd call this number, and they would talk him down. But he did that. Now he blew them out in 2020 for COVID. That didn't work out very well. But in 2016, he also bought Apple, right? And that was something he said I'll never do because I never buy tech companies because I don't understand them.

But lo and behold, he said, oh, Apple's not a tech company. It's a consumer product with-- you can raise prices, and people will take it. So I'm looking for some more information about any new companies he's looking at and what he's trying to look to acquire. I want to see how much cash Berkshire has. So those are the typical things. And it's just you come in Monday, and then it's the beginning of the rest of your life after you've read that annual report.

SEANA SMITH: All right, well, I couldn't sum it up any better. You certainly have made a compelling case that everyone out there should pay attention, should read the shareholder letter that's out tomorrow. Apple-- or Lee, let's talk a little bit more about Apple. You mentioned the fact that Buffett bought that in 2016. Apple now represents about 40% of his portfolio, the top holding there for Warren Buffett right now. From your assessment, just from your point of view, do you view that at all as a risk that he has so much of, that he has such a large holding in Apple?

LEE MUNSON: No, Warren Buffett likes concentrated positions, right? He plows money into things, and that's how you get rich. I'm not concerned about it because he believes that it has this moat, this trust. Now I'm not saying that that means you should go and buy Apple. I mean, you should have gone out and bought Apple in 2016. But, you know, my day-to-day job now is about preserving wealth for clients.

My clients are, like, over 60 and retired. But if you want to create a lot of wealth, you've got to find good companies and you've got to hold them. He paid 11 million for Washington Post and blew it out for, like, over a billion dollars many years later. He bought Coca-Cola once back in 1988 after the '87 crash. And just think about this, he gets $750 million worth of dividends every year from Coca-Cola, and he's up 20 times on it.

So when you're looking at these big concentrated positions, that's just a outgrowth of where his confidence is, where he thinks money should be allocated, and that's what he's all about. And I think it tells you that he feels that he wants to have that money in Apple, but also he's had other big winners where he'll go to sell it. And I'm always looking at when he's going to sell and what he buys with it.

He bought Gillette back in the '80s. It became Procter & Gamble. And it was this huge position that he had, and he blew it all out to buy other stuff. And so you really -- it's not so much how big the positions are, but when you see him start selling it and buying other things, that's the tell. That's like at the poker table, and that's when you really want to pay attention.

SEANA SMITH: Yep. Well, his track record certainly says it all. We, of course, will be closely reading that shareholder letter. We'll have all the angles for you covered here on Yahoo Finance. Lee Munson, always great to have you. Thanks so much.

LEE MUNSON: Thank you.