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Creating a Portfolio Like Warren Buffett: A High-Return Investment Strategy by Jeeva Ramaswamy

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CHAPTER 17

Stock Research Checklist—Institutional

As an investor, you need to find the undervalued stocks that are being ignored by the Wall Street analysts. This does not necessarily mean that highly followed companies are not good investments, though. When you find the small- and mid-cap companies that are ignored by Wall Street, their stocks might be selling for bargain prices, and that kind of entry price can lead to higher investment returns.

Is the Company not Followed Closely by Wall Street Analysts?

Warren Buffett and Peter Lynch are two great investors who are very interested in finding under-followed companies rather than widely followed companies. When Warren Buffett ran his partnership, he invested in under-followed companies, which generated great returns for his partnership because the entry prices were very low. For example, he invested in Sanborn Maps with the stock priced at $45 but the company portfolio alone was worth $65 per share; the map business was thrown in for free. The company was under followed and no one noticed the bargain price because the institutions and investing public are always busy chasing hot sectors and highly followed companies. Buffett bought enough shares to gain seat on the board, where he pressed the company to liquidate its portfolio. The company agreed to use portfolio proceeds to buy out stockholders and Buffett made a 50 percent profit.

When Warren Buffett attended a Columbia Business School event with Bill Gates in late 2009, he was ...

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