Here’s why Warren Buffett can help you identify tomorrow’s blue chips

Warren Buffett is undoubtedly one of the greatest investors of all time.

Having turned a mere $10,000 into what has since become around $63 billion, his track record for investing in world class companies is something we can only aspire to. As he once said, “I always knew I was going to be rich. I don’t think I ever doubted it for a minute.”

While I can only dream of one day finding even a fraction of the success that he has, Buffett’s buy-to-hold method of investing is the one I believe will help me become rich in the future.

However, even the greatest investors get it wrong from time to time, and there’s one thing Buffett might be doing that is constraining him from even greater gains. Who knows, maybe he’d be worth more than $100 billion if only he didn’t restrict himself from some of the world’s greatest businesses.

Here are three of Buffett’s most memorable quotes that I want you to consider…

“I’ve never swung at a ball while it’s still in the pitcher’s glove.”

“If we can’t find things within our circle of competence, we don’t expand the circle. We wait.”

“It’s far better to buy a wonderful company at a fair price than a fair company at a wonderful price.”

The three quotes included above highlight just how selective Buffett is.

The focus on companies within his ‘circle’, such as The Coca-Cola Company and Gillette has seen him miss out on making a fortune from other companies like Google and Amazon, which he did not bother to try to understand.

In other words, I believe he could have made greater gains if he expanded that circle occasionally to potentially find the blue-chip stocks of tomorrow.

3 blue-chips of tomorrow, to buy today

Sure, such a strategy does introduce new risks in that the company may not have a proven track record, but the potential gains can also be far greater.

Just take a look at locally-listed REA Group Limited (ASX: REA) as a perfect example. Investors who bothered to understand the company’s true potential and bought shares 10 years ago would now be sitting on a remarkable 4,630% gain. In other words, an initial $10,000 investment would now be worth $473,000 – and that’s not even including dividends paid along the way.

While investors have missed the boat on the big gains from REA Group, there are a number of other companies which are still looking very attractive. Investors willing to step outside their ‘circles of competence’ could instead look towards companies like Greencross Limited (ASX: GXL)Shine Corporate Ltd (ASX: SHJ) or Yellow Brick Road Holdings Ltd (ASX: YBR), which are all headed by strong management teams and offer significant growth potential.

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Motley Fool contributor Ryan Newman owns shares in Shine Corporate, Yellow Brick Road Holdings Ltd, Google Inc. (A shares) and, Inc.

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