S&P has a published screen that follows the Buffett methodology based on Robert Hagstrom’s book “The Warren Buffett Way: Investment Strategies of the World’s Greatest Investor.” The criteria are as follows:
1. Owner earnings (cash flow – capital expenditures) > $50M (changed in February 2006 from $20M).
2. Net margins > 15% for the trailing 12 months.
3. ROE > 15% for previous Q and every year for the last three years.
4. Retained earnings that have grown less than the market cap, on an absolute basis, in the last 5 years.
Over the same time period, a monthly rebalance of this screen would have done ~11.4% vs. ~14% for the 13F method we mentioned in our previous article “How to REALLY trade like Warren Buffett“ . The S&P screen would have been more active, as well as more volatile. So why not just buy what Buffett is actually buying?
Let me know if you have any funds of particular interest that you would like me to take a look at. Blue Ridge, Maverick, Private, and Appaloosa are all on our (lengthy) list. . .