Warren Buffett is best known for the incredible returns he has achieved over his investing career. He’s also quite popular for the valuable information he’s given to retail investors over the years.
Anytime Buffett does an interview or puts out a statement, investors listen. Not only is it well thought out, but it’s relatively easy to understand.
Because his strategy is so simple and his advice is so helpful, he’s one of the best investors to follow and learn how to invest.
Warren Buffett started out strictly as a value investor. Over the years, though, he has transitioned to a growth investor of sorts. He still appreciates value, but he doesn’t mind buying a stock that isn’t undervalued, as long as it’s reasonably priced and offers exceptional return potential.
So if you want to invest like Warren Buffett, here are the four most important qualities to look for in a successful long-term investment.
A dominant company with a major competitive advantage
One of the main similarities that all of the best-performing stocks have in common is they are all dominant stocks in their industries with major competitive advantages.
Both Apple and Shopify have not only been highly dominant companies, but they’ve dominated in industries with explosive growth.
So if you’re looking to buy stocks like Warren Buffett, these are the kinds of companies you’re looking for.
Warren Buffett likes companies he sees with long-term potential
Another important quality that Warren Buffett likes are businesses that he can see continuing to dominate long-term. For investors, this means analyzing whether you think that industry will continue to grow into the future and whether you think the company can continue to find ways to innovate.
This is crucial, especially if you’re making a long-term investment. Shopify, for example, is a stock in an industry that’s just beginning to grow; e-commerce, while now rapidly growing in popularity, still has a lot of room left for innovation.
So looking out 10 or 20 years from now, as long as management continues to execute, Shopify should be able to remain the dominant stock atop a growing industry.
Therese are exactly the types of businesses Warren Buffett wants to find before making a long-term investment.
A competent management team
It’s no surprise then that one of the most important qualities to Warren Buffett is a management team he has confidence in. And while he has the capabilities to meet managers face to face, for retail investors, there are still plenty of ways for you to evaluate management.
The first thing I would suggest is reading past earnings reports and listening to conference calls. In addition to learning about the company and its operations, listen to how management sets goals and plans for the future.
Does management generally meet the guidance they set for themselves? How has the company performed in the past?
This is a great way to analyze management as well as the business. And if you like what you see, you can move on to the final step, which is analyzing the stock’s value.
Warren Buffett wants a stock with a fair price
In the past, Warren Buffett was more of a value investor. Over time, however, he has employed more of a value/growth hybrid strategy.
This means Buffett, rather than buy fair companies at wonderful values, would prefer to buy wonderful companies as long as they have fair valuations.
If you’re buying the stock for the longterm and it’s reasonably valued today, the stock is a buy. As long as it has all of the qualities above, then it should continue to outperform the market. Therefore, you don’t necessarily need to buy the stock undervalued.
Of course, you can always find high-quality stocks that happen to be undervalued. It’s just not a prerequisite to making terrific long-term investments.
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Fool contributor Daniel Da Costa has no position in any of the stocks mentioned. David Gardner owns shares of Apple. Tom Gardner owns shares of Shopify. The Motley Fool owns shares of and recommends Apple, Shopify, and Shopify.