10 Crucial Things Warren Buffett Loves About His Favorite Stocks

You may be able to put together a successful portfolio using some unique rules that even Warren Buffett uses when buying stocks.
Last updated Sept. 28, 2022 | By Jenny Cohen | Edited By Ellen Cannon
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Warren Buffett invests in different types of companies, from banks to tech to food and drinks. But while there may be companies from various sectors in Buffett’s portfolio, they have things in common that make them attractive. 

The characteristics that make these stocks stand out in Berkshire Hathaway’s portfolio may also be good things when it comes to investors adding to their personal portfolios.

If you want to grow your wealth, here are some crucial things to help you pick your favorite stocks, according to Buffett’s stock picking.

He uses its products

WDnet Studio/Adobe bottles of Coca-Cola drink from the Coca-Cola Company

Buffett is known for being a fan of Coca-Cola (NYSE: KO), not only as a stock but also as a drink. In fact, he once said he drinks five cans of it a day. 

Knowing a company’s product because you like it and use it on a regular basis could be a sign of its success as well as your familiarity with the company.

He understands the company

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Sometimes, companies may try to get fancy or complicated with what they do or the services they provide. Perhaps it’s just a complicated company. 

Do your research to figure out the inner workings of a company and get a better idea of what it does. But if it’s still confusing, it may be a good idea to walk away and invest your cash somewhere else.

It has good profit margins

jirsak/Adobe profit margin

It doesn’t matter how much a company brings in if it doesn’t make a profit. Spending money to make money and ending up in the red on your balance sheet anyway may be a bad sign. 

Perhaps the company isn’t being managed well or is simply burning through cash with nothing to show for it. Instead, find reliable investments that are more likely to give you a return on your investment.

Management is trustworthy

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There are some shady characters in the financial industry who may not have the best intentions when it comes to managing a company. Or there simply may be incompetent managers. 

Learning who is managing a company is an important part of researching an investment.

The price tag is reasonable

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Just because a company has a high stock price doesn’t mean it’s a great investment. Check out the stock prices of different companies you may be interested in and see which ones can fit into your portfolio in an affordable way.

For example, Buffett has Apple stock in Berkshire’s portfolio, which is trading at around $150, and Citigroup, trading at around $50. While one may be more than the other in terms of cost, either could be a sensible price tag depending on company fundamentals.

Has great management

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You can’t just find lazy ways to boost a bank account, especially if you rely on a lazy manager to run a company. Instead, look for companies that have a great manager in charge of operations. 

Perhaps it’s a CEO or an owner who knows the ins and outs of a company and can find different and innovative ways to make a profit. Or a manager who will stick with plans that help a company remain successful.

Doesn't require major ongoing capital investment

tippapatt/Adobe business investment concept

A company that has to keep adding to its capital investment may mean that it's not managing its money well. 

Companies use capital to invest in things that create value for the business, such as new products. They also need capital to cover day-to-day operations. But if a company needs to raise capital regularly, that may be a concern for investors.

Offers good returns over many years

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Buffett first bought Coca-Cola for Berkshire Hathaway’s portfolio in 1988. His first investment in Apple was in 2016, and it currently makes up around an estimated 40% of Berkshire Hathaway’s portfolio. 

These are stocks that have given Buffett good returns over the years, which is why he continues to invest and then reinvest in them to keep them in his portfolio.

Products or services are unique

vladdeep/Adobe smartphone with Activision Blizzard logo

A good company to invest in may be one that provides a special product or service in a unique space without much competition. Standing out compared to other companies is a good way to make money not only for a business but also for shareholders. 

Activision Blizzard (NASDAQ: ATVI), for example, is a leader in the video-game sector. In the Berkshire Hathaway portfolio, it provides diversity among energy companies and banks.

It uses economic moats

I Viewfinder/Adobe Apple store shop at the iconsiam

An “economic moat” is something that keeps a company competitive and makes it stand out against other businesses in a sector. The competitive edge creates a moat to protect the business from outside forces. 

Apple, for example, launched the iPad and iPhone as products that could hold their own and be a competitive advantage compared to other companies.

Bottom line

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If you’re ready to invest in stocks using Buffett’s crucial things to pick good stocks, choose the best online brokerage or research financial advisors in your area to help you get started. 

Buffett became a billionaire by investing in other companies, but he had to choose the right ones. And that requires a lot of hard work.

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Author Details

Jenny Cohen Jenny Cohen is a freelance writer who has covered a bit of everything, from finance to sports to her favorite TV shows. Her work has been featured in The Wall Street Journal, USA Today, and FoxSports.com.