Be Like Buffett — A Beginner’s Guide To Quality Investing: Next plc, Brooks Macdonald Group plc, Telecom Plus plc, Rotork plc & Elementis plc

Starting off in the big wide world of investing can be a daunting task for people new to the game. There is no shortage of information out there, and thanks to the World Wide Web, it is at our fingertips.

While all of this information can often be helpful, it can sometimes cause an overreaction in share prices, and worse still, it can cause investors — both new and, well, not so new — to forget their investment thesis and dump their holding, only to see the price increase over the coming days, weeks and months.

Believe me, I know how hard it can be to sit on your hands when your portfolio is in the red – just look how the housebuilders sold off on the news of the removal of tax relief on mortgage interest charged to landlords announced in the Budget, only to recover strongly on Thursday.

Learning From The Master

There won’t be many readers that don’t recognise the name Warren Buffett, one of, if not, the most successful investors of modern times. I often wonder whether it could be possible to invest like him, but do it with UK traded shares that exhibit traits – or more to the point, qualities — that the master himself uses to buy shares in a company with a view to holding it forever.

However, with thousands of shares out there, it can be difficult to have the time, patience and knowledge to hunt for the stocks that you want. With that in mind, I’ve used Stockopedia to screen all of the shares in the market, and come up with a list of shares that fit the criteria for their Buffetology-esque Sustainable Growth Screen. This screen tries to work out whether the qualifying stocks are reasonably valued for the expected growth in earnings. The strategy forecasts:

Sustainable earnings growth — the higher that growth rate is, the more likely it is that the company has a durable competitive advantage;

Low debt and a growing earnings yieldreturn on equity and return on capital employed.

The thesis being that this should highlight businesses that show consistently high returns — not a flash in the pan

Remember, we want to hold these shares over the long term – we are not looking to trade!

What Shares Qualify?

Out of the thousands of shares in the market, less than 1% qualify for this screen – this is rather interesting in itself. Out of the qualifying 14 stocks, I have chosen 10 as a nice round number. 

As you will see from the below chart, I have invested around £1,000 including all costs into each company. Whilst this is not a real-money portfolio, I believe that it does represent a new investor just starting out in the market.

Share Number of Shares Cost £
Next 13 987.35
Brooks Macdonald 600 995.55
Telecom Plus 101 995.66
Rotork 439 997.87
Elementis 398 998.41

You may well recognise some of the names in the above table. Some are sitting around all-time highs, others have taken a bit of a bath recently. I not bothered about the short term here, though. I’m in it for the long term. Indeed, I’m looking at holding these shares for at least five years.

Coming Up Next

In my next article, I will add the final five shares to the table and dig a little deeper into the reasons why they occupy a place in this quality portfolio of mine.

Over the coming months, I will review this portfolio and compare its performance to the FTSE 100, my chosen benchmark.

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Dave Sullivan owns shares in Next. The Motley Fool UK has recommended Elementis and Rotork. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.