The steps to Implement the Lutey Value - Buffet Portfolio

1. Buy High-Quality Businesses

Buffett targets companies with:

• Strong and consistent earnings per share (EPS) growth

• High return on equity (ROE)

• Strong profit margins

• A business model that is easy to understand and defend

These companies typically possess a competitive moat—brand strength, pricing power, cost advantages, or scale.

2. Favor Consistency Over Hype

Rather than chasing fast-growing or speculative firms, Buffett prefers companies that:

• Have grown earnings steadily over many years

• Show improvement over both short-term and long-term periods

• Avoid volatile or cyclical earnings patterns

3. Emphasize Profitability and Capital Efficiency

Key metrics emphasized in the Buffett model include:

• ROE consistently above industry peers

• Strong net profit margins

• Strong operating margins

• Sustainable growth driven by reinvested earnings, not excessive debt

4. Avoid Excessive Debt

Buffett strongly avoids companies that rely on leverage to generate returns. Preferred firms have:

• Lower debt-to-equity ratios than industry peers

• Financial flexibility during recessions

• The ability to self-fund growth

5. Compare Companies to Their Industry

Buffett evaluates firms relative to their industry, not in isolation. The screening approach in the paper explicitly compares:

• EPS performance vs. industry

• ROE vs. industry medians

• Margins vs. industry benchmarks

This helps identify true business superiority, not just absolute strength.

Step-by-Step: How to Implement Buffett-Style Investing

Step 1: Start with a Quality Screen

Filter for companies that meet most or all of the following:

• EPS in the top 75% of their industry

• Positive EPS growth over 1-year, 3-year, and 7-year periods

• ROE above the industry median (both trailing 12 months and multi-year averages)

Step 2: Confirm Financial Strength

Narrow the list to firms with:

• Lower debt-to-equity than peers

• Strong operating and net profit margins

• Evidence of sustainable growth (not one-off earnings spikes)

Step 3: Assess Business Durability

Qualitatively evaluate:

• Business simplicity (easy to explain in one paragraph)

• Competitive moat (brand, cost leadership, switching costs)

• Long-term demand stability

This step is critical—Buffett blends quantitative screens with qualitative judgment.

Step 4: Avoid Overpaying

While Buffett is willing to pay for quality, he avoids:

• Excessively inflated valuations

• Businesses priced for perfection

• Companies whose earnings growth does not justify price

The paper notes that the Buffett model deemphasizes ultra-cheap valuation metrics but still enforces discipline on price vs. fundamentals

Step 5: Build a Concentrated, Long-Term Portfolio

• Hold a focused portfolio of high-quality names

• Rebalance periodically (e.g., annually or quarterly)

• Let compounding work over time instead of trading frequently

A real time $400,000 case study

The Lutey Value 'Buffet' portfolio applied to the SP500 components in real time February 2025. The passing stocks were held with a model $400,000 portfolio in portfolio123.com as a live forward tested study.

The performance of the model is 15.71% over the past 12 months (as of Jan 2026). The red line in the image below represents the growth of the portfolio from the initial rebalance in February 2025 during the last 12 months.