The track record of master investor Warren Buffett inspires envy: 40-plus years of greater-than-20% annualized returns. That performance helped him build a fortune of more than $60 billion -- among the world's largest -- while doing something he loves.
Can you replicate that success? Perhaps not. But a number of money managers have approximated it by investing the same way Buffett has for decades -- and that's something you can do.
The blueprint
Of course, Buffett has always tried to keep his methods and ideas under wraps. But page 25 of the 2006 Berkshire Hathaway annual report reveals a Willy Wonka-like glimpse into the inner workings of his empire. That's because Berkshire needs your help.
See, as the company's cash hoard has grown, Buffett has needed to add bigger and bigger businesses to the portfolio in order to keep returns high. But businesses that meet Buffett's high standards are difficult to find. So he's asked his shareholders to keep their eyes peeled. Buffett wrote that he's eager to hear from any company that meets the following five criteria:
- At least $75 million in pre-tax earnings.
- Consistent earning power.
- Good returns on equity while employing little or no debt.
- Management in place.
- Simplicity (if there's lots of technology, we won't understand it).
A master list for the master
Now, Buffett, for his part, is looking for private businesses he can buy whole-hog. But because none of us is likely to make a multibillion-dollar acquisition anytime soon, here are five publicly traded names that pass Buffett's sniff test:
|
Company |
Industry |
EBT* |
5-Year EPS Growth |
ROE |
Long-Term Debt |
Insider |
|---|---|---|---|---|---|---|
|
Buckle |
Retail apparel |
$156 |
27% |
30% |
$0 |
48% |
|
Catalyst Health Solutions |
Health care services |
$76 |
17% |
15% |
$0 |
8% |
|
Logitech |
Computer storage |
$330 |
27% |
32% |
$0 |
7% |
|
Syntel |
Data processing |
$87 |
13% |
35% |
$0 |
46% |
|
Systemax |
Computer retail |
$98 |
59% |
21% |
$0.5 |
69% |
*Earnings before taxes, in millions. Data from Capital IQ, a division of Standard & Poor's.
While these are all promising businesses, the story doesn't end here. That's because Buffett also named a sixth criterion: an offering price.
Price may be the most important criterion of all. If you know anything about Buffett, then you know that he made his fortune not simply by buying great companies, but by buying great companies at great prices.
Pay for greatness
So what would Buffett pay for these five stocks? It's hard to say. The master keeps his specific valuation methods close to the vest. That said, I'm sure all five of these stocks are on the radar of Fool co-founders David and Tom Gardner in their Motley Fool Stock Advisor investing service.
And that's not surprising. Like Buffett, David and Tom seek shares of great companies at great prices. And like Buffett, their track record is impressive. Stock Advisor is beating the market since the service's 2002 inception.
If you'd like to look at the stocks David and Tom are recommending today, join Stock Advisor free for 30 days. There's no obligation to subscribe, and you'll immediately have access to more than 100 recommendations that deserve your consideration. Click here for more information.
This article was first published May 7, 2007. It has been updated.
Tim Hanson owns shares of Berkshire Hathaway. The Fool also owns shares of Berkshire. Berkshire Hathaway is a recommendation of both Inside Value and Stock Advisor. Like Rudie, the Fool's disclosure policy can't fail.
