So what strategies does Buffett deploy when picking stocks? For starters, he looks for companies with solid financial performance managed by seasoned and savvy executives. Buffett also favors companies with histories of above-average earnings growth. His holdings in American Express and Coca-Cola are good examples of that. Here’s a list of additional attributes Buffett looks for when buying stocks . . . Simple Businesses -- Buffett likes to keep things simple – and he likes his companies to do the same. Again and again, Buffett has railed against the kinds of companies that seem too complicated or that are difficult to valuate. His avoidance of internet and technology companies during the dot.com bubble is the most famous manifestation of Buffett’s “keep it simple” dictum. Buffett jokingly calls himself a techno-phobe but, in reality, he shies away from technology and telecom stocks. He likes to base his stock picks on, among other things, what a company will look like 10 years down the road. Technology companies, he says, are much too volatile and risky for that kind of analysis. The 10-year rule also applies in a backward sense – Buffett will only consider companies with a good 10-year track record. Most technology companies haven’t been around that long and, for their lack of seasoning and earnings history, tend to fall of Buffett’s radar. Return on Equity – Another key criteria for Buffett is a company’s return on equity (ROE). Again, he favors a 10-year plan where he can predict ROE ten years out. Companies that can’t be accurately gauged don’t make it into the Buffett portfolio. Buffett also favors companies that don’t need much capital. Such companies, he has said, generate significantly higher returns on equity. Cash on the Barrel – The Buffet Way is long on companies that have deep pockets. Companies that have what Buffett refers to as ample cash flow are companies that have plenty of financial resources both to pay their bills and keep growing. Low Debt – Companies that can limit and manage their debt are high on Warren Buffett’s priority list. Insurance companies (he owns both Geico and General Re) are particular favorites in this regard. With the Buffett Way, low debt equals significant room for growth. Buffett’s emphasis on low debt is grounded in reality. With limited debt, earnings growth is based on shareholders' equity as opposed to borrowed money. Emphasis on Value – Historically, targets investments in undervalued companies with good long-term growth potential. Identifying such companies isn’t easy but Buffett has mastered the technique. In a nutshell, Buffett favors stocks that are unjustifiably low based on their intrinsic worth. He bases his calculations intrinsic worth by analyzing a company's fundamentals. As with most bargain hunters, Buffett targets companies that are good revenue producers and are capably managed, though underpriced. Buffett is also famous for his aversion to reading stock market tea leaves. That’s not what he is about. Quite simply, he selects stocks solely on the basis of their overall potential as a company. Once added to his portfolio, Buffett will hang on to such stocks for years - - even decades. Buffett could care less if other investors ever get around to recognizing the stock market’s value. His only concern is that his companies earn money - - and lots of it. The “Big Six” There are other highly-visible cues to take from the Sage on his investing philosophy. In fact, Buffett's investing criteria are outlined in his yearly reports to shareholders. They are: 1. Large purchases (at least $50 million of before-tax earnings). 2. Demonstrated consistent earning power (future projections are of no interest to him, nor are "turnaround" situations). 3. Businesses earning good returns on equity while employing little or no debt. 4. Management in place (he can't supply it). 5. Simple businesses (if there's lots of technology, he won't understand it). 6. An offering price (he doesn't want to waste time or the seller's by talking, even preliminarily, about a transaction when the price is unknown). Source: Berkshire Hathaway annual report Buffett has said candidly that, if a company falls within these criteria, don't call an investment banker, call him. For Buffett, It’s All About Businesses . . . Not Stocks Buffett can be a bit of a contrarian, sliding away from his own investment philosophy from time to time. Some Buffett watchers were surprised by his modest investments in struggling companies like Level 3 Communications, a fiber optics network operating in the red, and The Williams Cos., an energy group. Buffett is known for preferring old economy companies and firms that are already in the black. As I've said, he doesn't like technology companies because he says that he doesn't understand technology. Buffett invests in companies like Gillette because he loves the fact that millions of men grow whiskers every night. But the investments were not a complete surprise to true Buffett aficionados. Buffett said that if markets fell significantly he would use it as a buying opportunity – and he did. In the end, Buffett’s investment philosophy is also attractively simple. He believes that investors should be buying a business, not simply a stock. Buffett's annual report is nothing if not readable--quite famously so—and is perhaps the best window into the way Buffett's mind works. One of his annual reports contained what is probably as clear a one-paragraph summary of Buffett's investment philosophy as can ever be stated: "Whenever we buy common stocks...we approach the transaction as if we were buying into a private business. We look at the economic prospects of the business, the people in charge of running it, and the price we must pay. We do not have in mind any time or price for sale. Indeed, we are willing to hold a stock indefinitely so long as we expect the business to increase in intrinsic value at a satisfactory rate. When investing, we view ourselves as business analysts--not as market analysts, not as macroeconomic analysts and not even as security analysts." Thus the Buffett paradox. On the one hand, this paragraph is so steeped in old-fashioned values--largely vanished from trading-obsessed Wall Street--that one can immediately understand why Buffett has followers. On the other hand, it’s clear that Buffett's investing style just isn't that difficult to understand. It’s nothing more than a balanced four-legged stool: Buffett cares about the future prospects of the business. He wants to know that management has both integrity and drive. He doesn't want to overpay for the stock. And whether the shares go up or down, he won't sell so long as the fundamentals remain the same. Pretty simple, right? Well, that's the point . . .