Warren Buffett has built one of the greatest investing records in history by owning high-quality businesses for very long periods.
Of course, we cannot know which ASX shares Buffett would actually buy. He may look at the Australian market very differently from me, and price would also play a major role in any investment decision.
What we can do is look at the types of businesses he has historically favoured and ask which ASX shares appear to share some of those characteristics.
Here are three that stand out to me.
Wesfarmers Ltd (ASX: WES)
One trait I associate strongly with Buffett is a preference for businesses that are relatively easy to understand.
Wesfarmers certainly fits that description in my opinion.
Its portfolio includes consumer businesses such as Bunnings, Kmart and Officeworks, which sell products millions of Australians regularly buy. These are established brands with large customer bases and strong positions in their respective markets.
I think Bunnings is particularly interesting from a Buffett-style perspective. Its scale, brand recognition and store network would be extremely difficult for a new competitor to replicate.
Wesfarmers also has a long history of allocating capital across different businesses. That is another characteristic I would look for when trying to identify a company Buffett might appreciate. Strong management teams can create significant value when they have the discipline to invest heavily in attractive opportunities while avoiding poor ones.
The price still has to make sense, but I think Wesfarmers has many of the business qualities I would expect a Buffett-style investor to value.
Buffett has often invested in companies with powerful competitive advantages.
REA Group is one ASX share I think fits that profile particularly well.
Its realestate.com.au platform has become an important part of the Australian property market. Buyers naturally want to search where the largest number of properties are listed, while sellers and real estate agents want to advertise where the largest audience is looking.
That creates a powerful network effect. As more buyers use the platform, it becomes more valuable to advertisers. That in turn can attract more listings, which helps keep buyers coming back.
Businesses with this type of competitive advantage can potentially protect their market position for a very long time.
REA Group also benefits from a relatively capital-light digital business model, meaning growth does not necessarily require huge spending on physical assets.
For me, those qualities make it the kind of ASX business that deserves a closer look through a Buffett-style lens.
Another Buffett characteristic I would look for is a business with a sustainable leadership position in an industry where replacing an established operator would be difficult.
CSL fits that description for me. The healthcare company has spent decades building its plasma collection network, manufacturing capabilities, scientific expertise and relationships across global markets.
Those assets cannot simply be recreated overnight.
Demand for many of CSL’s therapies is also connected to serious medical needs, giving the business exposure to healthcare demand that can persist through different economic environments.
There is also potential for long-term growth as the company expands production, develops new therapies and reaches more patients around the world.
CSL is more complicated than some classic Buffett investments, but I think its competitive position, global scale and long-term focus give it several qualities he has historically looked for in businesses.
Foolish takeaway
Trying to guess exactly what Warren Buffett would buy is unlikely to get investors very far.
I think the more valuable exercise is studying the qualities behind his investments.
Strong competitive advantages, understandable business models, capable management and the ability to generate attractive returns over many years are all characteristics worth looking for.
Wesfarmers, REA Group and CSL each appear to tick several of those boxes in my view.
