Warren Buffett is widely regarded as the greatest investor of all time. With a track record spanning over half a century and a legendary reputation for long-term success, it's no wonder investors across the globe want to learn from the Oracle of Omaha's approach.
Of course, we can't say for certain what Buffett would buy on the ASX for Berkshire Hathaway (NYSE: BRK.B), but by studying his investment philosophy, we can make a good guess at what kind of Australian shares he might consider if he were building a portfolio here.
So, what exactly would Warren Buffett look for in ASX shares?
Warren Buffett loves moats
Buffett is laser-focused on companies that have a sustainable competitive advantage — what he calls an economic moat. This could come in the form of strong branding, proprietary technology, network effects, or high switching costs that make it hard for customers to leave.
On the ASX, companies like CSL Ltd (ASX: CSL) and Cochlear Ltd (ASX: COH) spring to mind. These are global healthcare leaders with decades of R&D, customer trust, and high barriers to entry. Buffett would likely appreciate their dominance in niche but essential markets.
Strong and predictable cash flows
Warren Buffett doesn't like uncertainty when it comes to profits. He prefers businesses that generate reliable, recurring cash flows — even better if they distribute a portion of those returns to shareholders.
ASX shares like Woolworths Group Ltd (ASX: WOW) and Transurban Group (ASX: TCL) might appeal here. They generate steady income from supermarket and toll road operations — two industries with consistent demand.
High return on equity
Berkshire Hathaway's leader often highlights return on equity (ROE) as a key metric. He wants to see that management is using shareholder capital efficiently and generating attractive returns without excessive debt.
A company like REA Group Ltd (ASX: REA) — the operator of realestate.com.au — may tick this box. It earns high margins, has a dominant position in property classifieds, and has delivered strong returns over the long term.
Simple businesses
Buffett once quipped that "If you don't understand it, don't buy it." He famously avoids businesses he doesn't understand, no matter how exciting they seem. He's drawn to simplicity and predictability.
For example, Brainchip Holdings Ltd (ASX: BRN) has consistently destroyed shareholder wealth in recent years while promising to change the world with its AI technology. Investors that avoided this dud are now richer than those that didn't.
Fair valuations
Warren Buffett is a value investor at heart. While he's happy to pay a fair price for a great business, he doesn't chase hype or overpay for growth. He looks for quality companies trading at sensible valuations relative to their earnings and long-term prospects.
Right now, some high-quality ASX shares are trading at more attractive prices after recent pullbacks — and Buffett may well see that as an opportunity. ASX shares like Treasury Wine Estates Ltd (ASX: TWE) and Accent Group Ltd (ASX: AX1) spring to mind.
Buffett once said:
It's far better to buy a wonderful company at a fair price than a fair company at a wonderful price.
Foolish takeaway
We can't know with certainty what Warren Buffett would buy on the ASX, but his principles are clear: strong businesses with sustainable moats, reliable earnings, high returns on equity, and honest, capable management — all bought at a fair price.
