When you listen to Warren Buffett speak, you can always take away a few words of wisdom.
In fact, if most of us had the opportunity to have listened to him between 1964 and 2025, as his Berkshire Hathaway returned more than 5.5 million percent, cumulatively, most of us wouldn’t be worrying about money today.
If you listen to the billionaire often enough – as we do – the message is always a simple one.
You just need to buy and hold sizable, growing companies with consistently strong business models that are easy to understand.
He’s looking to buy great stocks when everyone else is too afraid to buy. He looks for:
- Simple companies that are easy to understand
- Companies with predictable and proven earnings
- Companies that can be bought at a reasonable price
- Companies with “economic moat,” or a unique advantage over its competition.
“I look for companies that have a business we understand; favorable long-term economics; able and trustworthy management; and a sensible price tag. We like to buy the whole business or, if management is our partner, at least 80%. When control-type purchases of quality aren’t available, though, we are also happy to simply buy small portions of great businesses by way of stock market purchases. It’s better to have a part interest in the Hope Diamond than to own all of a rhinestone,” he noted.
Here are some of his top criteria for spotting opportunities.
No. 1 – Simple Businesses that He Understands
While not easily quantifiable, an investor must fully understand a business before investing in it. If you have a problem explaining it to yourself in simple terms that even a child can understand, or if it’s just too complex, you may want to avoid the investment.
As the billionaire explains, “What an investor needs is the ability to correctly evaluate selected businesses. Note that word “selected”: You don’t have to be an expert on every company, or even many. You only have to be able to evaluate companies within your circle of competence. The size of that circle is not very important; knowing its boundaries, however, is vital.”
No. 2 – Predictable and Proven Earnings
“If the company has operated with consistent earnings power and if the business is simple and understandable, Buffett believes he can determine its future earnings with a high degree of certainty. If he is unable to project with confidence what the future cash flows of a business will be, he will not attempt to value the company. He’ll simply pass,” as pointed out in The Warren Buffett Way.
No. 3 – Can the stock be bought at a reasonable price?
Buffett’s goal has always been to identify stocks that can earn above-average returns, and then buy the stock at prices below current value. In fact, as Buffett noted in 1988, “Great investment opportunities come around when excellent companies are surrounded by unusual circumstances that cause the stock to be misappraised...”
No. 4 – Does the company have an economic moat?
If I handed you $1 billion, could you duplicate your favorite company? Or, if I handed you $100 billion could you dethrone Coca-Cola, Google, or Apple’s market share with the iPhone.
If you could not dethrone a company, that company has a strong moat, including Coca-Cola, Harley Davidson, Apple, Facebook, McDonald’s, Disney, Google or Amazon.
To quantify how much economic moat a company may have, we begin testing profit margins of the companies. If a moat exists, the business should be able to raise prices without losing market share. Otherwise, margins would decrease in a price war.
Read in Behind the Markets: New gold price target
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Written by Ian Cooper