A Warren Buffett Stock Screen: Blending Benjamin Graham with a dashing of Philip Fisher

Saturday, Jan 21 2012 by
12
A Warren Buffett Stock Screen Blending Benjamin Graham with a dashing of Philip Fisher

With the recent news of his investment in Tesco (LON:TSCO), we thought we'd take a look this week at a Warren Buffett stock screen using the Stockopedia Premium data-set. Buffett's approach is a highly fundamentals-focused one which blends both Graham-esque value investing principles with an emphasis on the calibre of the business franchise. In essence, it looks for simple, understandable companies that have a monopoly position and pricing power (for example, through strong brand recognition), so as to ensure consistent profits and a good return on equity, but where there is significant unrecognized value.  

Background

Referred to as the "Sage of Omaha", Warren Buffett is arguably the most successful living investor, delivering consistently market-beating profits for investors in his Berkshire Hathaway group. Buffett studied under Benjamin Graham at the Columbia Graduate Business School. At the age of 25 in 1956, Buffett started an investment partnership which delivered a compound return over the next 13 years of 29.5%. In 1965, Buffett closed the partnership and used his capital to purchase a controlling interest in Berkshire Cotton Manufacturing, a well established but struggling textile company. This company merged with Hathaway Manufacturing, and also bought interests in two insurance companies in 1967. The combined company was renamed Berkshire Hathaway. Over the last 44 years, this investment vehicle has averaged an astonishing 20.3% annual growth in book value!

Investment Strategy

Although he has not written a book, Warren Buffett has laid out his investment philosophy in numerous Berkshire Hathaway shareholder letters, as well as speeches and interviews over the years (see below). The following summary is based on the analysis of Buffett provided by Robert Hagstrom in his excellent book “The Essential Buffett: Timeless Principles for the New Economy”. Hagstrom argues that Warren Buffet’s investment methodology is a hybrid mix of the strategies put forward by two 1930s style investment advisers, Ben Graham and Philip Fisher. Indeed, Buffett himself has indicated that "I'm 15 percent Fisher and 85 percent Benjamin Graham", although Hagstrom notes that this was in 1990 and that Buffet has probably moved closely towards Fisher since then:

"From Graham, Buffett learned the margin of safety approach - that is, use strict quantative guidelines to buy shares in companies that are selling for less than their net working capital... From Fisher, Buffett…

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As per our Terms of Use, Stockopedia is a financial news & data site, discussion forum and content aggregator. Our site should be used for educational & informational purposes only. We do not provide investment advice, recommendations or views as to whether an investment or strategy is suited to the investment needs of a specific individual. You should make your own decisions and seek independent professional advice before doing so. Remember: Shares can go down as well as up. Past performance is not a guide to future performance & investors may not get back the amount invested. ?>


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3 Comments on this Article show/hide all

Budlab 22nd Jan '12 1 of 3
1

This is an informative article about Warren Buffett's investing style. Readers may also like a new book about 70 of Warren Buffett and Charlie Munger's businesses. MOATS : The Competitive Advantages of Buffett and Munger Businesses explains the "competitive advantages" of 70 selected businesses purchased by Warren Buffett and Charlie Munger for Berkshire Hathaway Incorporated. This is a very useful resource for investors, managers, students of business around the world. It also looks at the sustainability of these competitive advantages in each of the 70 chapters.

The MOATS book introduction audio mp3 file: http://www.frips.com/moats.mp3

audio file of Wells Fargo, WFC chapter from MOATS book:
http://www.frips.com/wfc.mp3

audio file of the Johnson and Johnson chapter from MOATS:
http://www.frips.com/jnj.mp3

audio file of the Costco chapter in MOATS http://www.frips.com/costco.mp3

audio file of the American Express chapter: http://www.frips.com/axp.mp3

The IBM Chapter from MOATS. Why did Buffett buy into a technology services
company after so many years? http://www.frips.com/ibm.mp3

Here is a 1 min : 32 sec audio file of Warren Buffett talking about an
economic castle and its moat http://www.frips.com/wbmoat.mp3

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Steven Dotsch 23rd Jan '12 2 of 3
3

Great article!

Us mortals can only aspire to a stellar investment performance as those of Buffett and Munger's.

Steven Dotsch - Manging Editor - Dividend Income Investor.com

Book: Guide to Dividend Investing
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emptyend 15th Nov '13 3 of 3
2

I note with some interest that Buffett has just disclosed the purchase of nearly $4bn of ExxonMobil stock...which is an 0.91% stake.

In the same article I note with considerable interest that the Berkshire Hathaway portfolio contains only 43 stocks - which is an absolutely remarkable level of focus for a $93bn portfolio!

Five of the 43 are now oil and gas stocks - and they comprise 7.9% of the portfolio value.

I wonder if institutional investors in the UK will take note and reverse their underweight sector position?

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