I’m always hunting for shares to buy and hold for the long haul. But like the great investor and billionaire Warren Buffett, my buying criteria list is quite demanding. So many companies will not make it into my portfolio.
I learnt from Buffett to look for exceptional businesses. He calls his “wonderful” businesses and he considers himself to be a business picker and not a stock picker.
And that’s an important distinction that reveals his mindset. When he commits to a company by buying some of its shares, he considers himself to be a part-owner of that enterprise. And he holds on to his shares with the same tenacity as if he owned a business outright. Through thick and thin, in good times and in bad.
But such a commitment requires exacting standards in the first place. Buffett won’t buy just any old stock for a long-term investment. He’s known for searching for businesses with an enduring competitive advantage. And that often shows up in a company’s financial and trading record.
For example, a high-quality business will likely be generating better profit margins than many other enterprises. And it will often post better percentage returns against equity and invested capital.
My own strategy aims to follow Buffett’s techniques. Therefore, I’m also searching for a consistent record of multi-year trading with incremental increases in revenue, earnings and cash flow. And looking ahead, I want that pattern of growth to continue into the future, just like Buffett does.
The final piece of the jigsaw puzzle is to focus on valuation. Buffett often looks for a fair price rather than a bargain price. And that makes sense because lower-quality businesses often attract bargain prices.
We could be seeing decent conditions in which to invest right now. There’s been a long period of falling share prices and a lot of negative economic and geopolitical news. And that’s just the type of thing that can drive valuations lower.
I’ve got several stocks on my watch list. Such as fast-moving consumer goods company Unilever and information technology infrastructure business Computacenter. I also like the look of soft drinks maker Britvic. And global luxury goods manufacturer, retailer and wholesaler Burberry.
These stocks and others similar are likely to end up in my long-term diversified portfolio soon. And if there’s a further lurch down in the markets, I’ll almost certainly be pulling the ‘buy’ trigger then. But even if the stock market bottoms near current levels, I think I’m seeing good value in these stocks now. So I’ll start picking them off as soon as spare cash becomes available for me.
Of course, there are no guarantees of a positive long-term investment outcome. And that’s even if I aim to copy Buffett’s methods. But I’m prepared to embrace the risks of share ownership with companies such as these. And I’m optimistic that in 10 years I’ll have been rewarded for my actions now.