Berkshire Hathaway’s (BRK-B) Warren Buffett is an investing legend, so it’s little wonder nearly everyone wants to know his secret. Sadly, Buffett’s success is driven by traits that are probably out of reach for you and me: His focus, intelligence, patience, and nowadays, even his reputation.
Agence France-Presse/Getty Images We can, however, look for stocks that have the characteristics that Buffett looks for at Berkshire Hathaway–and ISI Group’s Pankaj Patel has made it even easier by putting together a screen that creates a portfolio from the characteristics Buffett looks for. Patel explains:
To construct this portfolio we adapt the acquisition criteria of Berkshire Hathaway into a series of quantitative rules. Berkshire Hathaway has a unique long-term focus on stock selection and their impressive performance is well documented. The criteria for our stock selection portfolio are above average return on equity (greater than 15%), long-term debt to equity less than 50%, improving profit margin (operating and net), a market value greater than $250 mil, and a Relative Value factor rank of 8 or 9.
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Stocks that meet his criteria heading into 2014 include Green Mountain Coffee Roasters (GMCR), Regeneron Pharmaceuticals (REGN), Aflac (AFL) and LeapFrog Enterprises (LF).
And before you reject such a screen out of hand, consider: since 2000, buying the stocks that meet these criteria at the beginning of each year would have returned resulted in an annualized return of 20.1% versus the S&P 500′s 3.8% annual gain. The portfolio also would have outperformed in every year except for one–2007.
Maybe not Warren Buffett, but not too shabby either.
Shares of Berkshire Hathaway have gained 0.2% to 117.20 today at 9:30 a.m., while Green Mountain Coffee Roasters has advanced 0.3% to $75.14, Regeneron Pharmaceuticals has risen 0.7% to $279.90, Aflac has dipped 0.1% to $66.29 and LeapFrog Enterprises is up 0.3% at $8.05.
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