Historically, the ASX 200 index has generated a return of approximately 10% per annum.
This means that if you want to achieve market-beating returns, you're going to need to achieve a return beyond that.
This is easier said than done. A lot of fund managers struggle to beat the market. It is for this reason that Warren Buffett has often suggested that investors should just buy an index fund and settle for that.
But it isn't impossible. In fact, Buffett has a long track record of delivering market-beating returns for Berkshire Hathaway (NYSE: BRK.B).
So, if I were going to attempt to beat the ASX 200 index, I would follow the Oracle of Omaha's investment strategy.
That strategy is quite simply building a diverse portfolio filled with the highest quality companies you can find with sustainable competitive advantages and fair valuations. This has delivered great results for Buffett and Berkshire Hathaway, and I believe it could do the same for others.
But which ASX shares tick the boxes? Three that have been tipped as buys for investors to consider are listed below:
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CSL Ltd (ASX: CSL)
This biotechnology company's shares have been dragged lower over the last 12 months due partly to a slower-than-expected margin recovery and a disappointing clinical trial result.
Analysts at Morgans think investors should be taking advantage of this. The broker has the ASX share on its best ideas list with an add rating and a $315.40 price target.
This suggests that a potential return of almost 15% is possible over the next 12 months.
ResMed Inc (ASX: RMD)
Another high-quality ASX share that remains down meaningfully on a 12-month basis is sleep treatment company ResMed. This has been driven by concerns that weight loss wonder drugs will negatively impact its growth.
Morgans doesn't believe this will be the case. Its analysts "see these products having little impact on the large, underserved sleep disorder breathing market, and do not view them as category killers."
The broker has an add rating and a $32.82 price target on its shares, which implies a potential upside of 14% for investors.
Xero Ltd (ASX: XRO)
Finally, UBS thinks that the recent weakness has created an opportunity for investors to buy this ASX share.
The broker believes that the cloud accounting platform provider can grow its key average revenue per user metric by a compound annual growth rate of 6.5% for the next five years. Though, it concedes that even this may be conservative based on potential price rises and plan upgrades.
UBS has a buy rating and a $141.90 price target on Xero's shares. This suggests a potential upside of 20% for investors from current levels.
