The Warren Buffett Stock Strategy: Berkshire Hathaway Inc. (BRK.B)

Page 1 of 2

Warren BuffettWarren Buffett and Berkshire Hathaway Inc. (NYSE:BRK.B)’s stock choices are always interesting. Whether it be from his managers or his direct purchases.

There are a lot of books about Warren Buffett and how he selects stocks. This is both good and bad because there are good books, and just as many bad books.

His annual Berkshire Hathaway Inc. (NYSE:BRK.B) letters provide qualitative information but never anything concrete. It’s left up to you to comb through his words and put bits and pieces together to come up with a firmer picture.

It really is a shame that Buffett does not write his own book.

Analyzing the Strategies of Gurus

I bring this up because I like to reverse engineer the strategies of the gurus and other well known value and investing master minds to see how it works.

Here are some gurus I’ve looked at previously:

How Peter Lynch averaged 29% annual returns

Quant Master – James O-Shaughnessy’s 5 Minute Investing Strategy

Guru Growth Investor Martin Zweig

I have also written extensively on Graham. Here are a couple:

Graham Investing Checklist

Calculating Graham Net Net Stocks

Who Really Knows How Buffett Chooses Stocks?

For all the books and articles out there, there is no clear guideline on how Buffett and Berkshire select stocks. The key difference between Buffett and other gurus is that he has never clearly stated his process or checklist.

As strange as it might sound, Buffett is like my mother.

Growing up, when I asked her how much salt I needed to put into the stew, she would answer the way most mothers or good cooks do.

“Just enough” she would say with a knowing smile.

In the same way, Berkshire Hathaway Inc. (NYSE:BRK.B) and Buffett make a lot of decisions based on instinct and pattern recognition which is something he can’t truly quantify and something that you and I have trouble grasping.

He doesn’t run spreadsheets (unfortunate because I would beg him to endorse mine haha) or perform valuation calculations. And because of this, many value investors and authors have sought out to come up with their own ideas on how Buffett chooses stocks.

How Buffett Chooses Stocks to Invest In

This AAII article from 1998 goes into great detail of the types of companies that Buffett likes to invest in. It’s 4 pages of full text so if you don’t want to read it, I’ve grabbed the most important section from the paper. Aside from the obvious Buffett mantra of invest in businesses, it discusses in good detail, the selection criteria for Buffett stocks.

The Warren Buffett Stock Picking Approach

Buffett’s Philosophy and style

Investment in stocks based on their intrinsic value, where value is measured by the ability to generate earnings and dividends over the years. Berkshire Hathaway Inc. (NYSE:BRK.B)’s Buffett targets successful businesses—those with expanding intrinsic values, which he seeks to buy at a price that makes economic sense, defined as earning an annual rate of return of at least 15% for at least five or 10 years.

Universe of Stocks

No limitation on stock size, but analysis requires that the company have been in existence for a considerable period of time.

Criteria for Initial Consideration

Consumer monopolies, selling products in which there is no effective competitor, either due to a patent or brand name or similar intangible that makes the product unique. In addition, he prefers companies that are in businesses that are relatively easy to understand and analyze, and that have the ability to adjust their prices for inflation.

Page 1 of 2
Comments
Insider Monkey Small Cap Strategy
Insider Monkey Small Cap Strategy

Insider Monkey beat the market by 52 percentage points in 24 months. Our beta is only 1.2 (don't click this link if beating the market isn't important to you).

Lists

The 10 Largest Pharmaceutical Companies In the World

The 10 Most Expensive Android Apps

The 9 Most Expensive Designer Bags in the World

The 7 Most Expensive Real Estate in the World

The 10 Most Expensive eBay Items Ever Sold

The 10 Most Expensive iPhone Apps

The 9 Most Expensive Designer Shoes in the World

The 10 Most Expensive Cigarette Brands

The 10 Most Expensive Law Schools in the US

The 10 Best Wall Street Movies

The 10 Most Expensive Golf Clubs Ever Sold

The 10 Most Expensive Golf Memberships

The 10 Best Disney Characters Ever Created

The 8 Best Foods for Gaining Weight

The 10 Most Expensive Colleges in the World

The 7 Most Memorable Ad Campaigns of All Time

The 7 Most Expensive High Schools in the World

The 10 Electric Vehicles with the Longest Range

The 10 Cities with the Worst Drivers in the World

The 10 Most Expensive Dresses Ever Created

10 Islands to Visit Before You Die

10 Famous Celebrities Who Needed Rehab

The 15 Countries with the Largest Oil Reserves

The 10 Most Overused Excuses in the World

The 5 Best iOS Apps You Can’t Get on Android

5 Companies Damaged By Social Media Blunders

The 10 Most Legendary Blues Songs

The 10 Most Lawless Places in the World

4 Reasons China is a Threat to the US

The 17 Most Sugary Drinks in the World

The 10 Most Ruthless Rulers in History

The 10 Greatest Generals in History

Top 8 Travel Destinations for 2015

The 10 Safest Dog Breeds for Children

The 10 Most Stolen Vehicles in the US

The 7 Most Expensive Celebrity Weddings

The 10 Best LoL Teams in the World

Top 10 Worst Marketing Campaigns Ever Produced

Top 5 Diets that Help You Lose Weight

The 10 Best Ways to Stay Awake

7 Artists That Switched Musical Genres

The 10 Most Expensive Cities to Live in New Jersey

The 10 Best High Schools in New York

The 10 Countries With the Least Gender Inequality

The 6 Biggest Musician-Manager Feuds

The 10 Countries with the Cheapest Gas Prices

The 7 Most Theatrical Bands of All Time

The 8 Worst Band Breakups of All Time

The 10 Most Important South American Leaders

The 7 Most Successful Casting Show Winners

Subscribe

Enter your email:

Delivered by FeedBurner

X

Thanks! An email with instructions is sent to !

Your email already exists in our database. Click here to go to your subscriptions

Insider Monkey returned 47.6% in its first year! Wondering How?

Download a complete edition of our newsletter for free!