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How Warren Buffett Identifies the Best Long-Term Stocks

At Berkshire Hathaway’s annual shareholder meeting, Warren Buffett talked about his strategy for finding the best long-term stocks. Here’s what he said.

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Berkshire Hathaway (BRK-B) hosted its annual shareholder meeting in Omaha last month, which was a chance for investors and analysts alike to pick the brain of the world’s greatest investor. As always, Warren Buffett’s answers were candid and insightful. One quote that caught my eye was his strategy on finding the best long-term stocks.

Here’s what he said when asked how to determine a company’s longevity.

“We sort of know it when we see it. It would tend to be a business that for one reason or another we can look out five or 10 or 20 years, and decide that the competitive advantage that it had at the present would last over that period.”


That’s fairly basic. So CNBC asked Buffett’s biographer Roger Lowenstein to expand on his approach to finding the best long-term stocks. Here was Lowenstein’s response.

“His approach is to be really sure of something before he buys it, and one of the ways he exercises that discipline is to sort of almost never sell. Not never sell, because he does sell stocks, but he sort of says to himself, ‘I know I’m almost never going to sell it, I’ve really got to like it before I get into it.’

“It’s not the not selling that makes these so good, it’s that discipline to buy things only when he really, really likes them.”

Approaching a stock like you’re buying a house is a classic Buffett strategy. It’s why he’s had so many long-term winners like Coca-Cola (KO) and Wells Fargo (WFC), two stocks that have been in his portfolio for more than a quarter century. We like to call them “forever stocks”—stocks that you might not necessarily hold “forever,” but that you buy with the expectation that you’ll onto them for the rest of your life.

Characteristics that Buffett looks for in the best long-term stocks include strong cash flow, wide and growing profit margins, and a stock price below the intrinsic value. The latter philosophy is one he adopted from his mentor and Columbia graduate school professor Benjamin Graham, universally known as the father of value investing.

Our own Roy Ward, chief analyst of our Cabot Benjamin Graham Value Investor advisory, also adopted Graham’s value investing philosophy after learning from Graham pupil Wilson Payne while at Babson College more than 50 years ago. Putting his own unique twists on Graham’s value investing philosophy, Roy launched his Benjamin Graham advisory in 1995. The results have been nothing short of jaw-dropping: a return of better than 1,100%, outperforming Buffett and Berkshire Hathaway (and tripling the Dow) over that span!

Today, it’s easy to find what Buffett thinks are the best long-term stocks. All you have to do is look at the largest holdings in the Berkshire Hathaway portfolio. Currently, the five largest stakes are:

Kraft Heinz (KHC)
Wells Fargo
Coca-Cola (still!)
Apple (AAPL)
American Express (AXP)

Now, if you want to know what Roy’s favorite long-term stocks are, you can subscribe to the Cabot Benjamin Graham Value Investor advisory by clicking here. Again—Roy has actually outperformed the Oracle of Omaha over the last 20-plus years!


Chris Preston is Cabot Wealth Network’s Vice President of Content and Chief Analyst of Cabot Stock of the Week and Cabot Value Investor .