Here’s proof that Warren Buffett’s strategy works and 3 companies to buy now

Widely acknowledged as a genius, Warren Buffett’s success and wealth is off the scale of normal people, so I’ve found a simple way to show how he’s done it.

| More on:
a woman

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

My two favourite Buffett rules are:

  1. Only invest in companies with a sustainable competitive advantage, and
  2. Know your company and its value, and only invest when you have a margin of safety

I often find that people I speak with have trouble relating to Buffett. He’s been investing for so long and is worth so much money that his achievements are outside the mental limits of most normal people, so I set out to find how his investing philosophy and success can be demonstrated to new investors.

Market Vectors Wide Moat ETF

Already available in Australia is the exchange traded fund that tracks an index of the 20 cheapest Buffet-worthy stocks listed on the US sharemarket- just look for the ticker MOAT in your favourite broker website. The ETF includes the likes of Harley Davidson, Google, Twenty-First Century Fox, American Express, and Hersheys.

The companies in the list all satisfy the two rules above; they all have sustainable competitive advantages over their peers (sometimes referred to as a moat) and have been bought at cheap prices based on the investing rules of the ETF.

The performance of the ETF speaks for itself. Since it commenced trading in mid-2012, $10,000 invested in the Wide Moat ETF would now be worth $15,020, versus just $13,568 for the S&P 500, a 15% difference!

Wide Moat Australian Stocks

The same index can, and I’m sure will be, created for Australian stocks in time, but for now investors need look no further than some of Australia’s best companies for the types of stocks that fit the Buffett mould. Here are three:

Carsales.Com Ltd (ASX: CAR) operates the dominant car advertisement website in Australia. It is the go-to destination for car buyers and sellers, with its lead over the competition seemly improving each and every year. Carsales also looks like good value at present with meaningful upside to come from the group’s expansion into Asia and South America starting to gain some traction.

It could be argued that Brambles Limited (ASX: BXB) looks slightly more expensive than Carsales at the moment, but great companies rarely look cheap. The transport and logistics company operates a shipping network of unrivalled size, providing services to many of the largest corporations in the world. The company continues to win new contracts, which further increases its advantage over peers.

Veda Group Ltd (ASX: VED) operates a near-monopoly on credit reporting in Australia. Credit reporting is required for any type of significant loan in Australia and the housing boom has to be helping demand for Veda’s product. Over the medium term, Veda stands to benefit from more refinanced loans at lower interest rates and probably an increase in subscription revenue as more companies spring up to take advantage of the lowest interest rates in 50 years.

Motley Fool contributor Andrew Mudie has no position in any stocks mentioned. You can find Andrew on Twitter @andrewmudie The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

More on ⏸️ Investing

Close up of baby looking puzzled
Retail Shares

What has happened to the Baby Bunting (ASX:BBN) share price this year?

It's been a volatile year so far for the Aussie nursery retailer. We take a closer look

Read more »

woman holds sign saying 'we need change' at climate change protest
ETFs

3 ASX ETFs that invest in companies fighting climate change

If you want to shift some of your investments into more ethical companies, exchange-traded funds can offer a good option

Read more »

a jewellery store attendant stands at a cabinet displaying opulent necklaces and earrings featuring diamonds and precious stones.
⏸️ Investing

The Michael Hill (ASX: MHJ) share price poised for growth

Investors will be keeping an eye on the Michael Hill International Limited (ASX: MHJ) share price today. The keen interest…

Read more »

ASX shares buy unstoppable asx share price represented by man in superman cape pointing skyward
⏸️ Investing

The Atomos (ASX:AMS) share price is up 15% in a week

The Atomos (ASX: AMS) share price has surged 15% this week. Let's look at what's ahead as the company build…

Read more »

asx share price competitions represented by businessmen arm wrestling
Retail Shares

How does the Temple & Webster (ASX:TPW) share price stack up against Nick Scali (ASX:NCK)?

How does the Temple & Webster (ASX: TPW) share price stack up against rival furniture retailer Nick Scali Limited (ASX:…

Read more »

A medical researcher works on a bichip, indicating share price movement in ASX tech companies
Healthcare Shares

The Aroa (ASX:ARX) share price has surged 60% since its IPO

The Aroa (ASX:ARX) share price has surged 60% since the Polynovo (ASX: PNV) competitor listed on the ASX in July.…

Read more »

asx investor daydreaming about US shares
⏸️ How to Invest

How to buy US shares from Australia right now

If you have been wondering how to buy US shares from Australia to gain exposure from the highly topical market,…

Read more »

person reading news on mobile phone
⏸️ Investing

Why Fox (NASDAQ:FOX) might hurt News Corp (ASX:NWS) shareholders

News Corporation (ASX: NWS) might be facing some existential threats from its American cousins over the riots on 6 January

Read more »