Warren Buffett’s reputation for picking winning stocks is well known in the investment community. Through his investment company, Berkshire Hathaway, he has generated an annualized return of nearly 20% since the 1960s, building a massive multibillion-dollar fortune in the process.

With that in mind, it’s no surprise that many investors simply own shares of Berkshire Hathaway or closely follow the group’s regulatory filings to copy the investment decisions of Buffett and his team.

Today, Apple, American Express, Bank of America, Coca-Cola (NYSE:KO), And Chevron are Buffett’s largest holdings.

This suggests that he is most convinced about the future of these companies. So should investors consider adding these companies to their portfolios? Of course. After all, if Buffett is confident, it might be prudent to follow in his footsteps. That said, considering a stock and buying it are two different things. And according to the objectives of the investor and risk toleranceBuffett’s biggest holdings might actually be terrible investments.

Looking closer

Focus on Coca-Cola. Buffett bought back shares in the 1980s and added to his position in the 1990s, but has never sold a stock since. Coca-Cola’s dominance in the soft drink industry has led to 62 consecutive years of dividend increases, turning it into a money-printing machine for Buffett. To put that into perspective, it earned almost $800 million in dividends alone over the last four quarters.

Consumer tastes in sugary drinks have evolved over the past decade. As a result, the company saw demand for its original product Coke drinks suffer. However, this impact was more than offset by investment in sugar-free varieties such as Coke Zero and diversification of the product portfolio into tea, coffee, water and even snacks.

As a result, the group continues to see more than two billion servings of its products sold every day, generating numerous cash flow and profits. So far, it looks pretty promising, especially for dividend investors looking to capitalize on a 3% yield.

However, digging deeper reveals limited growth potential. Coca-Cola products are sold in almost every country in the world. As such, the company suffers from a market saturation problem: there is no room for growth beyond product diversification. And while acquiring and developing new brands offers new opportunities, it’s a strategy that has yielded fairly modest results so far.

In fact, over the past five years, even after accounting for dividends, Coca-Cola stock has only generated an annualized return of 6.4%.

Is it worth buying in the long run?

It is then that the S&P500generated annual gains close to 16%… far from encouraging. And due to its maturity status, this rate of return seems unlikely to change in the future. So, for growth investors, buying Coca-Cola stock doesn’t seem to make much sense.

However, this may not be the case for investors looking for a stable source of income. One of the main advantages of Coca-Cola stock over the S&P 500 is significantly lower volatility, making it potentially attractive to those with a lower risk tolerance.

Whenever you explore Berkshire Hathaway’s portfolio for potential stocks to buy, risk and potential return should be considered. After all, blindly following someone else’s investment strategy probably won’t end well, even if it’s Buffett.