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While many look to Warren Buffett's holdings to find the best stocks to buy, it turns out his holdings' rivals could be the better picks.
Buffett is known not only for value investing, but also buying shares only of companies that operate in prosaic, easy-to-understand businesses. That's why the holdings of Berkshire Hathaway Inc. (NYSE: BRK.A, BRK.B) are spectacular.
But in this look at how to find more stocks to buy that deliver - and even beat - the gains of Buffett's most popular holdings, some of the best bets could be companies that share a market with Berkshire's big winners.
Take a look.
Legendary investor Warren Buffett is set to become one Goldman Sachs Group Inc.'s (NYSE: GS) largest investors without shelling out one penny.
Impressive as that is, what's even more striking is how the guru investor brokered the Goldman deal to his distinct advantage.
The savvy CEO of Berkshire Hathaway Inc. (NYSE: BRK.A, BRK.B) amended terms of warrants--a type of security that gives the holder the right to purchase securities from an issuer at a certain price within a certain time frame-issued to Berkshire during the 2008 financial meltdown.
At the time, Buffett's investment in Goldman was gutsy. It was viewed as a vote of confidence in the bank as the country faced economic crisis.
The warrants originally gave Berkshire the right to buy $5 billion worth of Goldman common shares at $115 each any time before Oct. 1. Thanks to the new $1.5 billion deal inked Tuesday, Buffett's company will receive 9.2 million shares.
According to data from Bloomberg News, that makes Berkshire the ninth-largest shareholder in Goldman.
The Oracle of Omaha said in a press release, "We intend to hold a significant investment in Goldman Sachs, a firm that I did my first transaction with more than 50 years ago. I have been privileged to have known and admired Goldman's executive leadership team since my first meeting with Sidney Weinberg in 1940."
Berkshire's windfall from the investment surpasses $3 billion, making it one of Buffett's most profitable wagers in recent history.
Goldman also benefits. The investment bank avoids a flood of sell-side shares that would have been dilutive. It also gets to include the revered name of Warren Buffett to its shareholder roster.
"We are pleased that Berkshire Hathaway intends to remain a long-term investor in Goldman Sachs," Goldman's CEO Lloyd Blankfein said in a statement.
If you want to know how to invest like the best, a good place to start is with Warren Buffett.
He now ranks fourth on Forbes' Richest Billionaires list, with a new worth of $53.5 billion.
Part of the reason for his success: He was never swept up in the euphoria of Wall Street crowds.
Behind the small-town-boy-turned-mogul story is a keen mathematical mind that has been honed into a highly successful stock-picking machine. Buffett began under the mentorship of the late Benjamin Graham, the father of value investing. Buffett perfected his skill through countless hours of studying annual reports of virtually every American publicly traded company over the last five decades.
Now the Oracle of Omaha's Berkshire Hathaway empire consists of some of the most recognized U.S. brands.
Buffett's "Big Four" investments - American Express Co. (NYSE: AXP), The Coca-Cola Co. (NYSE: KO), International Business Machines Corp. (NYSE: IBM) and Wells Fargo & Co. (NYSE: WFC) - represent the kind of businesses Buffett trusts his money to.
"The four companies possess marvelous businesses and are run by managers who are both talented and shareholder-oriented," Buffett wrote in his 2012 Berkshire Hathaway shareholder letter. "We much prefer owning a non-controlling but substantial portion of a wonderful business to owning 100% of a so-so business."
By taking a closer look at Buffett's career, and his favorite investments, we pinpointed three key factors to Buffett's investment formula that separate him from the common investor.
These factors, employed at key moments in Buffett's decision-making process, reveal a sophisticated formula for stock selection, as well as exploiting opportunities when other investors overreact.
Warren Buffett's shareholder letter to Berkshire Hathaway Inc. (NYSE: BRK.A, BRK.B) investors was full of the Oracle of Omaha's market wisdom and one-liners, plus some hints about what Berkshire will pursue in 2013.
Here's a look at what Buffett discussed in the March 1 letter.
At $28 billion, the famed ketchup maker is valued at a rich 23x earnings. And Buffett won't even control management. Given Warren's long and storied history of value investing and a hands-on style, this purchase is bizarre. Unless...
Investment guru Warren Buffett isn't sweating the debt ceiling as much as he is some of the country's other issues.
Buffett this weekend said the $16.4 trillion in debt the country has collected is not the number on which everyone should be focused.
"It is not a good thing to have it going up in relation to GDP, that should be stabilized, but the debt itself is not a problem," the CEO of Berkshire Hathaway (NYSE: BRK.A) told CBS' "Sunday Morning" this weekend.
Buffett said the country's debt is a "lower percentage of GDP than it was when we came out of World War II. You've got to think about in relation to GDP."
Here's why debt-to-GDP is what Buffett watches.
Many investors have heard of the Bakken oil field in North Dakota and Montana, but most are unaware of how important this formation is becoming to the U.S. economy.
More germane to investors is the fact that there is still a lot of money to be made from Bakken oil in the months and years ahead.
Just ask Warren Buffett.
He spotted the potential of Bakken oil well ahead of most and bought a non-energy company that would benefit greatly from the boom. Three years ago he bought Burlington Northern Santa Fe (BNSF) Railway Co. for $26 billion.
That railroad is now one of the main beneficiaries of the Bakken oil boom. (And people thought he just had always wanted to own a train set!)
"We're the 1,000-pound gorilla in the oil markets," BNSF CEO Matt Rose told Bloomberg News. "Crude by rail is going to be really strong for us. It's been a real benefit to us to replace some of that lost coal business."
The Bakken oil formation isn't just an investing opportunity; it's transforming the U.S. energy landscape.
Warren Buffett has made billions since the financial crisis by investing in U.S. banks, including Bank of America (NYSE: BAC),
The Oracle of Omaha has even guaranteed the safety of U.S. banks.
"The banks will not get this country in trouble, I guarantee it," Buffett told Bloomberg News. "Our banking system is in the best shape in recent memory."
Buffett, CEO of Berkshire Hathaway (NYSE: BRK.A, BRK.B), says U.S. banks are safe because they have increased capital ratios, sold risky assets, cut unnecessary jobs and bolstered their balance sheets.
But while the U.S. banking system might be in better shape than it was five years ago, it is nowhere near fixed. And banks could cause another crash.Here's why.
However, Buffett expects a deal to be reached shortly after that deadline, and he is not concerned with going over the infamous fiscal cliff.
"The fiscal cliff does not enter into my long-term investment decisions... and it wouldn't surprise me if we go past January 1," Buffett said on CNBC's Squawk box Wednesday morning. "[If that happens] I don't think the world will come to an end."
Buffett is in the minority with that sentiment, as investors have been fretting over the fiscal cliff since the election and will continue to do so until Washington finalizes a deal.
After pointing out that no one, with the possible exception of Grover Norquist, ever turned down a good investment opportunity because the tax rate on the capital gain would be too high, Buffett argued, "So let's forget about the rich and ultrarich going on strike and stuffing their ample funds under their mattresses if - gasp - capital gains rates and ordinary income rates are increased. The ultrarich, including me, will forever pursue investment opportunities."
Imposing a minimum tax rate on high incomes, "...will block the efforts of lobbyists, lawyers and contribution-hungry legislators to keep the ultrarich paying rates well below those incurred by people with income just a tiny fraction of ours," Buffett said. "Only a minimum tax on very high incomes will prevent the stated tax rate from being eviscerated by these warriors for the wealthy."
While Buffett was unsparing in his criticism of those earning the highest incomes, he also suggested modifications to President Obama's plan to raise taxes on incomes over $250,000. "I support President Obama's proposal to eliminate the Bush tax cuts for high-income taxpayers," Buffett wrote. "However, I prefer a cutoff point somewhat above $250,000 - maybe $500,000 or so," recognizing that, in some parts of the country (not Omaha), $250,000 barely covers a middle-class lifestyle.
The CEO of Berkshire Hathaway (NYSE: BRK.A, BRK.B) remains confident that the U.S. is in better shape than other regions and he still believes the stock market is the best place for your money.
But with so much global uncertainty still swirling around, Buffett isn't ready to go on a buying spree.
Asked what investors should do, here's what Buffett had to say.
And now may be the right time to bolster your defenses with exchange-traded funds (ETFs) that buy stocks of companies with so-called "wide moats."
Of course, famed investor Warren G. Buffett originally coined the term to describe companies with distinct competitive advantages over other firms in its industry.
The Oracle of Omaha says he is always looking for "economic castles protected by unbreachable moats."
Indeed, Buffett's Berkshire Hathaway Inc. (NYSE: BRK.A, BRK.B) is chock full of wide-moat companies that consistently rake in high returns on invested capital, propelling their shares higher year after year.
The idea is to buy -- when they are cheap -- shares of companies that have dominant positions in their industries and are likely to maintain their superiority for decades, not months or years.
For example, Berkshire has held positions in The Coca Cola Co. (NYSE: KO) and Exxon Mobile Corp. (NYSE: XOM) for decades, patiently reaping the rewards from their wide moats.
"A company that has a greater duration of competitive advantage is simply worth more," Paul Larson, chief equity strategist at investment research firm Morningstar Inc. (Nasdaq: MORN) told MarketWatch.
So what gives one company a wide moat while others try to scrape by on the leftovers?
Here's what gives them the upper hand...
Berkshire CEO Warren Buffett along with other iconic investors such as George Soros this week revealed their second-quarter stock moves - and you may be a little more than surprised to see what they've been up to.
The two billionaire investors disclosed their most recent investments in 13F filings, which are released by the U.S. Securities and Exchange Commission 45 days after the close of a quarter.
While Buffett has stepped back a bit from the business as he anticipates retirement, the Berkshire Hathaway holdings show he's still the driving force behind the firm's investing success.
"Buffett continues to hold sway over a meaningful amount of the equity portfolio--something we don't anticipate changing too significantly in the near to medium term," wrote Morningstar analyst Greggory Warren.
In one corner was the Oracle of Omaha, Warren Buffett; in the other, the 42nd President of the United States, Bill Clinton.
Speaking at the 25th anniversary dinner of the Economic Club of Washington, Buffett said that it is unlikely the U.S. economy will fall into another recession. He said the chances of that happening are "very low."
Buffett, who blames both political sides for the budget deficit, once again called for raising taxes and cutting spending.
"The problem is the Democrats don't want to talk about what expenditures they would cut and the Republicans don't want to talk about raising revenues," he said.
Buffett said "the big question" remains what's ahead for the euro.
"We've got this system where they're half in and half out," said Buffett, who is currently auctioning off a lunch with himself this week on eBay for charity. "They have to reconcile these things."
Reflecting on the Eurozone he said there is the possibility the U.S. will feel a "spill over" effect from Europe - which some would argue has already happened.