The Warren Buffett Strategy

The first question one asks when applying the Buffett strategy, using my interpretation of it, is whether the company is a "Buffett-type company." This question has, in effect, been answered above. Thor has a competitive advantage because its product, Airstream, is perhaps the best-known name (and design) in its industry. Also, the company obviously has strong market positions, being the largest in both its primary markets, RVs and midsize buses. Yes, this is a Buffett-type company.

The Buffett strategy likes earnings and wants them to be predictable. Thor's earnings have risen each year for the last 10 years with one dip, which is acceptable.

The strategy likes to see if management has spent retained earnings in a way that benefits shareholders. To figure this out, it takes the total amount of retained earnings over the previous 10 years of $8.55 and compares it with the gain in EPS over the same period of $1.85. Thor's management has proven it can earn shareholders a 21.6% return on the earnings it kept. This is a great return, and it shows that management knows how to put retained earnings to work.

Although a firm may be a Buffett-type company and have good financials, the strategy won't recommend it unless the stock can be bought at a favorable price that allows a strong long-term return.

The strategy uses two analyses to determine an expected rate of return and then averages them. It likes to see the expected annual rate of return in the neighborhood of 15%. The analyses of Thor produces expected rates of return of 11.8% and 16%, for an average of 13.9%. That's not quite 15%, but it's close enough.

Vehicle makers of any kind are not in favor now, given the cost of fuel. But Thor has shown it knows how to make money over the long term, gain market share (which it has done in the past year) and provide excellent rates of return to investors. RVs are bought for long-haul driving; make Thor one of the long-haul investments in your portfolio.

1 What would best describe your stance heading into the coming week of trading? Bullish Bearish Neutral 2 Which of these sectors do you think is set to move up in the coming week? --Choose One--Aerospace and DefenseAirlinesAutomobilesBeverages and Food ProductsBiotechnologyCommercial BanksComputers and PeripheralsConsumer NondurablesEnergy Equipment & ServicesHMOs and HospitalsHomebuildingInsuranceIntegrated OilInternet, Software ServicesInvestment Bankers and BrokersMediaMultiline RetailPharmaceuticalsPrecious MetalsSemis, Semi EquipmentTelecom EquipmentTobacco and AlcoholWireless CommunicationsUtilities 3 Which of these sectors do you think is set to move down in the coming week? --Choose One--Aerospace and DefenseAirlinesAutomobilesBeverages and Food ProductsBiotechnologyCommercial BanksComputers and PeripheralsConsumer NondurablesEnergy Equipment & ServicesHMOs and HospitalsHomebuildingInsuranceIntegrated OilInternet, Software ServicesInvestment Bankers and BrokersMediaMultiline RetailPharmaceuticalsPrecious MetalsSemis, Semi EquipmentTelecom EquipmentTobacco and AlcoholWireless CommunicationsUtilities View the results without voting