This special Warren Buffett Screener is brought to you by Tickrz – but first for a brief introduction of the man himself
Warren Buffett is widely regarded as one of the most successful investors of all time. Since 1965, Buffett and his partner Charlie Munger have compounded Berkshire Hathaway’s book value by 19.2%. Over the same time period, the S&P 500 compounded at 9.7% (including dividends).
Buffett’s investment approach has evolved significantly since he established his first investment partnerships in the 1950s. Buffett is best known as a value investor with a clearly stated philosophy of acquiring great businesses at attractive prices. His current holdings represent some of the highest quality businesses in the world, including, among others, The Coca-Cola Co, The Procter & Gamble Company, IBM, U.S. Bancorp, and American Express. But throughout his career, Buffett has engaged in arbitrage, participated in leveraged buyouts, executed head-spinning derivative strategies and negotiated exclusive equity and debt financing deals with the largest companies in the world.
While the average investor cannot replicate many of the sophisticated strategies Buffett has employed while running Berkshire, a basic value investing strategy is relatively straightforward and easily implemented by even novice investors. Studies by numerous academics and practitioners have demonstrated that simple value approaches outperform the market. For example, in Quantitative Value authors Wes Gray and Tobias Carlisle demonstrate that an annually rebalanced portfolio invested in the top EV/EBIT decile annualized at 14.6% between 1964 and 2011. That’s not quite as good as Buffett’s 19.2% annualized return, but it still handily beat the S&P 500’s annual return of 9.5% over the same period. Alternatively, investors can invest in low-fee value-weighted ETFs or smart beta ETFs that utilize a value approach.
What about business quality? Buffett seeks to own wonderful companies—businesses with strong moats, high returns on equity (ROE), pricing power, and consistently rising earnings. But the average investor just does not have time to study every public company’s business model. Thankfully, quantitative tools can be used to identify high moat businesses.
tickrz's Warren Buffett Screener combines valuation with business quality metrics such as return on equity (ROE), return on invested capital (ROIC) and earnings consistency metrics. Stocks that score well on both valuation and quality rise to the top. Current top ranked names include strong moat businesses such as Dollar General, Foot Locker, AT&T, Wal-Mart, CVS, and AutoNation. Berkshire Hathaway itself ranks #4.
Can the average investor replicate Buffett’s success? Highly unlikely (most professional investors won’t, either). But tools such as tickrz’s Warren Buffett Screener will help investors uncover potentially great, undervalued businesses. These tools can be used as a starting point to help focus your research efforts.
Warren Buffett Screener