Buffett on Your Income Snowball: Why 8/10 Is Still Not Quite Enough

Well, looking at this portfolio feels a bit like looking in the mirror on a good day. You’ve even named it the "Snowball Fund," a concept I’ve been mighty fond of ever since I was a boy in Omaha packing a handful of wet snow to roll across the lawn.

You aren’t swinging for the fences with the latest internet fad or some digital token that produces nothing. Instead, you're buying businesses that make diapers, pipe natural gas, and farm salmon. I like that. You’re focused on an 18-year horizon and letting those dividends reinvest. You’ve got a stated goal of income generation, and you’ve built a portfolio that does exactly what it says on the tin. But even a well-packed snowball can hit a rock or melt a little if the weather changes. Let’s sit down with a Cherry Coke and see what you actually own here, because while I admire your discipline, I see a few places where you might be paying too much for yield or leaving yourself without an umbrella.

You’ve built a highly concentrated, pure-income machine. Across the board, your strategy sits at roughly 96% income-focused assets, with nearly 87% of your capital planted firmly in North America. You’ve got broad market funds, real estate, healthcare, and consumer staples making up the lion's share of your holdings. I’ve always said that diversification is protection against ignorance, so the fact that your top three holdings make up over 51% of your wealth tells me you’re playing to win and you know what you want.

Your anchor is solid: putting over 22% into a dividend growth fund like DGRO is a fine way to capture American business without having to pick the winning horses yourself. I also see you holding AbbVie at about 13%. They’ve got a wonderful moat with those patents, and with the news this week that they’re putting nearly $11 billion in cash to work to acquire Apogee Therapeutics, they are aggressively defending that immunology franchise. Good businesses deploy capital when it makes sense.

But speaking of deploying capital, let’s talk about your cash reserves. You’re sitting on just 4.2% in cash. Now, idle money earns you nothing—it’s dead weight—but it also happens to be the only thing that lets you swing when Mr. Market gets depressed and starts giving away wonderful businesses at bargain prices. My late partner Charlie Munger always used to remind me that the big money isn't in the buying or the selling, it's in the waiting. Right now, with rates where they are, your wallet is a bit too thin to take advantage of a truly fat pitch.

🚩 The Interest Rate Tug-of-War

You have over 17% in real estate and another 5% in utilities. You own Realty Income and American Electric Power because they pay you like clockwork. But remember, when you buy businesses strictly for their yield, you are competing with the U.S. Treasury. With the Fed holding rates steady in that 3.5%–3.75% neighborhood recently, those capital-intensive REITs and utilities have to work an awful lot harder to make their dividends look attractive compared to a risk-free bond.

🚩 Paying Twice for the Same Cow

You’ve got over 22% in DGRO and another near 12% in VYM. Both are broad-market dividend ETFs. While one focuses on growth and the other on high yield, I’d bet my bottom dollar they own a lot of the exact same big, boring cash cows. You are overlapping your exposure and paying two management fees to hold essentially the same slice of corporate America.

🚩 Capital Eaters

You love dividends, but you have to watch out for businesses that require massive capital just to stand still. Your midstream energy pipelines (ONEOK) and your utilities and telecom towers (American Tower) are incredibly capital-intensive. If inflation lingers or the cost of borrowing stays elevated, those "Scale Advantage" moats you're relying on get awfully expensive to maintain, which can threaten that snowball of cash flow you love so much.

I’m giving this portfolio an 8 out of 10. It is incredibly refreshing to see an investor who knows their exact time horizon, understands the power of compounding, and avoids the temptation to gamble. Your businesses have real economic value. But to get from good to great, you need a little fine-tuning.

Here is what I would suggest you do:

1. Build the Dry Powder: Let some of those dividends pool into cash until you hit somewhere around 10% to 15%. You need a war chest for when the market inevitably panics.

2. Consolidate the Funds: Pick either DGRO or VYM as your core engine. Take the capital from the one you sell and use it to either bolster your cash or buy a wonderful standalone business when the price is right.

3. Check the Payout Ratios: Go through Realty Income, ONEOK, and your other high-yielders and make sure their dividends are comfortably covered by free cash flow, not just debt.

Keep rolling that snowball. Time is the friend of the wonderful business, and the enemy of the mediocre. See you at the annual meeting.