Warren Buffett has made his reputation as the World's Greatest Investor by taking the longer view -- buying quality stocks with good earnings power and hanging on through bull and bear markets. During the last few decades, he has parlayed some well-chosen core holdings into an unparalleled performance record -- not to mention an enormous personal fortune.
While the stock has lagged the overall market in the past few years, long-time Berkshire holders are still sitting on impressive gains. Berkshire's book value per share has grown at a compounded annual rate of more than 20% over the last 39 calendar years. If you had invested $10,000 in Berkshire in January, 1968, (the shares closed at $20.50 on the last trading day of that month), your holding would be worth more than $40 million today.
Author Robert Hagstrom tried to compile Buffett's key investing strategies in his 1994 best-seller, The Warren Buffett Way: Investment Strategies of the World's Greatest Investor. With Hagstrom's book as a source, we at S&P have put together a stock screen that picks companies using criteria similar to those that fit the legendary investor's growth-oriented style. S&P updates this screen on a semiannual basis, during February and again in August.
Over the years, the screen has put in a pretty good performance itself. Since its inception on Feb. 13, 1995, through Jan. 31, 2006, the screen had an annualized return of 15.91%, vs. 9.32% for the S&P 500. However, in 2005, the screen stocks underperformed, falling 3.58% vs. the index's 3.00% gain (all results are price appreciation only).
Here's how the screen portfolio has stacked up against the S&P since inception: