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Warren Buffett Is a Growth Investor

By Matt Koppenheffer - Updated Apr 5, 2017 at 7:59PM

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Think you know how the world's greatest investor rolls? You don't know Warren!

Berkshire Hathaway's (NYSE:BRK-A) Warren Buffett is a value investor, right? Everyone knows that.

Well, don't tell Gerald Martin of American University and John Puthenpurackal of UNLV. Earlier this year, the two completed what they call "the first rigorous examination of Berkshire Hathaway's investment performance" -- a paper that not only analyzed Buffett's superior investment performance but also looked at his investing style.

Besides concluding that Buffett's superior investment returns since 1976 were more than just luck -- as if we didn't know that already! -- Martin and Puthenpurackal concluded that Warren Buffett is ... wait for it ... a large-cap growth investor.

The researchers' definition of growth separated value and growth stocks based on the inverse of book value multiples. It then classified value stocks as those with the highest book-to-market ratio, and it pegged those with the lowest as growth stocks. According to the paper, growth stocks accounted for more than 40% of Berkshire's investments, while true value picks made up less than 20% of Buffett's buys.

But let's not get too crazy here. After all, Buffett is still very much a value investor by his own definition -- that is, he only buys stocks that offer a discount to the company's intrinsic value. But what this study does suggest is that if we're looking for Buffett-esque stocks, our best bet is to look for high-quality companies rather than rummage through the bargain bin.

To track down some stocks that might fit the bill, I've enlisted the help of The Motley Fool's CAPS community and its stock screener. I focused my search on stocks that are returning 10% or more on their equity, are trading above book value, and have been highly rated by CAPS community members.


TTM Return on Equity

Book Value Multiple

CAPS Rating (5 max)

Wal-Mart (NYSE:WMT)




Suncor Energy (NYSE:SU)








Altria (NYSE:MO)




Yum! Brands




Sources: Capital IQ (a division of Standard & Poor's) and CAPS as of Dec. 12. Altria and Yum! Brands ROE as of FYE '07.
TTM = trailing 12 months.

These aren't meant to be formal recommendations, but they are a great place to kick off some more research. In fact, let's start by taking a closer look at Oracle.

The anatomy of a growth stock
Because technology isn't Buffett's forte, Oracle is a long shot to ever make it onto his radar. However, just because Warren shies away from this particular industry, that doesn't mean we need to avoid it -- and Oracle definitely fits our criteria.

A true tech giant, Oracle is the world's largest enterprise software company, not to mention one of the largest software companies of any sort. The company became successful by creating a leading enterprise database product. Through a combination of organic growth and savvy acquisitions under CEO and founder Larry Ellison, it has expanded into other software markets, such as middleware and application software.

As with most companies out there, the near-term picture isn't terribly promising. As important as many of Oracle's products are to its customers, growth is a tough proposition when many companies are trying to cut costs. Over the longer term, though, the company's leadership role in key software markets bodes well for further growth, since businesses around the globe look to get more competitive by better use of information and data.

Of course, when you're a leviathan like Oracle, it's hard to escape the cutthroat competition. In its core database market, Oracle has to continually fend off IBM (NYSE:IBM) -- once the grandmaster of the database world -- as well as everyone's favorite software company, Microsoft (NASDAQ:MSFT). Because of the other markets that Oracle has entered, it also butts up against Germany software giant SAP AG, along with a host of smaller companies, such as, CA, and Tibco.

CAPS members, however, seem convinced that Oracle will prevail over this stiff competition and continue to offer compelling returns for investors. Of the 2,535 members who have weighed in on the stock at CAPS, 2,357 expect that it will outperform the S&P 500 index. One of these Oracle bulls, PEG1765, weighed in last month and said: 

Oracle is still the preeminent database out there for large industry and government, it also has a strong consulting team. While Open Source is coming along, enterprise licenses are good, and so long as Oracle continues to work at those, they should maintain their lead, as enterprises like to have reliable, accountable support when software issues rise.

CAPS or bust
But here's the real question: What do you think of Oracle's prospects? Let the community know what you think by heading over to CAPS and sharing your opinion with the 120,000 investors already participating.

Further CAPS Foolishness:

Wal-Mart Stores, Microsoft, and Berkshire Hathaway are Motley Fool Inside Value picks. Berkshire Hathaway is a Motley Fool Stock Advisor recommendation. The Fool owns shares of Berkshire Hathaway. Try any of our Foolish newsletter services free for 30 days.

Fool contributor Matt Koppenheffer owns no shares of any of the companies mentioned. The Fool's disclosure policy thinks Warren Buffett has earned the right to call himself any kind of investor he wants.

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Stocks Mentioned

Oracle Corporation Stock Quote
Oracle Corporation
$77.54 (1.00%) $0.77
Wal-Mart Stores, Inc. Stock Quote
Wal-Mart Stores, Inc.
$129.14 (0.21%) $0.27
Altria Group, Inc. Stock Quote
Altria Group, Inc.
$44.74 (1.18%) $0.52
Berkshire Hathaway Inc. Stock Quote
Berkshire Hathaway Inc.
$442,800.00 (0.62%) $2,742.25
Microsoft Corporation Stock Quote
Microsoft Corporation
$289.16 (2.43%) $6.86
International Business Machines Corporation Stock Quote
International Business Machines Corporation
$131.50 (1.57%) $2.03
Suncor Energy Inc. Stock Quote
Suncor Energy Inc.
$30.85 (1.38%) $0.42

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

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