Warren Buffett’s investing strategy is simple: find companies worth investing in forever. Buffett has been quoted as saying he likes to buy stock in businesses that are, “so wonderful an idiot can run them.” On paper it seems like a simple enough strategy. But for value investors, trying to imitate the world’s third-richest man (with a net worth of $72.7 billion) can lead to a pretty steep price tag. Let me explain. Take a look at the top five stocks in Warren Buffett’s portfolio through his holding company Berkshire Hathaway, Inc. (NYSE: BRK-A). Each company, and the industry… Read More
Warren Buffett’s investing strategy is simple: find companies worth investing in forever. Buffett has been quoted as saying he likes to buy stock in businesses that are, “so wonderful an idiot can run them.” On paper it seems like a simple enough strategy. But for value investors, trying to imitate the world’s third-richest man (with a net worth of $72.7 billion) can lead to a pretty steep price tag. Let me explain. Take a look at the top five stocks in Warren Buffett’s portfolio through his holding company Berkshire Hathaway, Inc. (NYSE: BRK-A). Each company, and the industry they operate it, is easily recognizable. Here’s the problem though: Buffett’s popularity and well-known admiration for each of these stocks has led to fairly high valuations. I came to this conclusion by looking at the five-year price/earnings-to-growth, or PEG, ratio of each of these stocks. A PEG ratio takes into account a company’s current price-to-earnings ratio in relation to its projected earnings growth over the next five years. A ratio near or below one is considered fair value and greater than one is overvalued. Buffett’s top five holdings generated a ratio of 2.5. That… Read More