One of the most successful investors in history is Berkshire Hathaway's Warren Buffett.
At the last count the legendary investor had amassed a fortune of US$82.6 billion according to Forbes.
In order to get there Mr Buffett has invested wisely and with a long-term view.
While amassing a similar fortune may be difficult, I believe regular investors can create significant wealth by following his investing principles.
Four key principles that Buffett follows are listed below. I've used these principles to see if CSL Limited (ASX: CSL) would be a share that he would invest in. Here's what I found:
Buffett invests in companies that he can understand.
I don't think CSL is an overly complex company to understand. The company has two segments – CSL Behring and Seqirus. CSL Behring produces therapies for the immunoglobulins, albumin, haemophilia, and specialty markets, whereas Seqirus is focused on influenza vaccines. Given Buffett's investment in Teva Pharmaceuticals, I feel he would be comfortable with CSL.
Buffett looks for companies with a durable competitive advantage.
While CSL is certainly not immune from competition, the quality of its products and its investments in R&D have allowed the company to build a dominant position in many markets. During the first half of FY 2019 CSL spent US$391 million on R&D and opened its world class Global Hub for Research and Translational Medicine in Melbourne. I think this is something that Buffett would find attractive.
Management must be talented and have integrity.
The company has a very talented and experienced CEO in Paul Perreault. Supporting Mr Perreault is a team of over 1,500 R&D experts which are dedicated to developing and delivering new therapies to solve unmet medical needs and save lives. I expect this would get the tick of approval from Mr Buffett.
Don't overpay for shares.
Warren Buffett famously said: "It's far better to buy a wonderful company at a fair price than a fair company at a wonderful price." I have no doubts that CSL is a wonderful company, but whether Buffett would deem 31x estimated forward earnings as fair is difficult to say.
Conclusion.
Overall, I feel that CSL is a company that Warren Buffett would be interested in, though I suspect that he might prefer to get in at a lower level in order to gain a more compelling risk/reward.
However, if you are planning on investing for the long term then I would certainly pick up shares at today's price as I believe CSL is well-positioned to continue its strong form over the next decade and provide investors with market-beating returns.
In addition to CSL, I think fellow healthcare stars Cochlear Limited (ASX: COH) and ResMed Inc (ASX: RMD) would be worth considering with a long-term view.
