About Contact Portfolio Consulting
Contact

The Lutey Value - Warren Buffet Investing Style

Ā 

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 moatā€”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 criticalā€”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

Invest in the Lutey Value - Warren Buffet Portfolio