It has more than doubled the returns of the index over the last 10 years, one of the most difficult in more than a century.
In 1988 he bought Coca-Cola when it seemed to be in trouble after the “New Coke” fiasco and the emergence of rivals in the sector.
By 2011 he had made $9.2bn on his original investment, the stock having made 766 per cent in the meantime.
It is well known that he is a value investor, seeking out companies that are under-appreciated by the market that he can buy for less than they are worth.
What exactly this means is less well known – there are many ways you could implement a "value philosophy" – but how does Buffett judge value differently from other investors in a way that allows him to produce such exceptional results?
It is tempting to assume that Buffett is as successful as he is because he has some special ability and talent that others cannot replicate.
However, he has long spoken of the debt he owes to his teachers and the inspiration he received from Benjamin Graham in particular.
According to the man himself, he applies simple principles that all investors could make money from if they learned and applied them.
One investor who has put this to the test is Keith Ashworth-Lord, manager of the ConBrio Sanford Deland UK Buffettology fund.
Ashworth-Lord set up the fund in March 2011, intending to apply "the master’s" principles to the UK markets.
The fund has been extremely successful so far, making 54.48 per cent while the FTSE All Share has made just 23.03 per cent – less than half as much.
Performance of fund vs sector and index since Mar 2011
Source: FE Analytics
He says there are four key things that he and Buffett look for in a company.
Growth prospects
"The first thing is businesses that have reasonable growth prospects and entrenched positions with enduring finances," Ashworth-Lord said.
"So you’re not looking for growth companies: explosive growth is difficult to maintain anyway."
"A lot of companies with explosive growth end up going wrong. I look for markets with growth in them and companies with pricing power in those markets, because that’s one of the hallmarks of enduring finances."
"You want to be in a business with pricing power, because if you have an inflationary space, you do not want the company to be crucified by price rises they cannot match."
"I look for businesses with a competitive advantage that comes from the skill of their employees, proprietary technology or owning a piece of their customer’s minds."
Performance of stocks vs index over 1yr
Source: FE Analytics
RWS Holdings is one company Ashworth-Lord holds that fits the bill in terms of employee skill, the manager says. The company provides services relating to patents.
Rotork, which manufactures valve and gearbox parts, is an example of a company with proprietary technology, while Diageo is one with the "ownership of its customers' minds", through the strength of its brands.
High profitability
"I don’t necessarily mean operating margin but what return is generated on capital invested," Ashworth-Lord said, "so ROE and marginal ROE (what the return on equity has been in the last year)."
"The marginal number often tells you where the average number will be going in a few years."
Domino’s Pizza and Games Workshop are companies Ashworth-Lord holds up as examples. The latter company has gross operating margins of 80 per cent, he points out.
"It’s the nearest thing to legalised drug-dealing," he said of its business model, which sells models, paints and games.
Performance of stock vs index over 1yr
Source: FE Analytics
The stock has done particularly well over the past year and outpaced the FTSE All Share, making 32.88 per cent.
Free cash-flow
"I place a big emphasis on free cash-flow," Ashworth-Lord continued. "I like to see companies that spew out cash; I use cash-flow as my main valuation metric. It gives them the freedom to do whatever they want, be it return capital to shareholders or something else."
"The other added advantage is they have strong balance sheets, for obvious reasons, which is something else I look to find."
At the heart of the valuation process is estimating future cash-flows from the investment and discounting it for an expected rate of return.
The details of how exactly Buffett does this are not public knowledge, but the basic principles are simple.
"I use a discounted cash-flow valuation metric, looking to buy a dollar for 75 cents or less," Ashworth-Lord said.
James Halstead and Latchways are two companies he highlights in this regard.
Management
"The glue that binds is the management," Ashworth-Lord said. "I used managers that act with an owner’s eye and have a sizable proportion of wealth in their business."
This is something that Buffett has long emphasised: managers who are owners act like they are owners, and plan for the longer-term with the interests of shareholders at heart rather than the short-term targets which can motivate many management teams.
Ashworth-Lord says that Tom Kirby of Games Workshop is an example of what he looks for, having bought a large number of shares with his own money rather than acquiring them through options in his contract.
Ashworth-Lord sold Renishaw after the company decided to stop seeing individual investors over the summer.
"I agonised over that decision and there’s no doubt Renishaw is a world leader, but I just wasn’t comfortable with that," he said.
Ashworth-Lord says it is not easy to find companies that meet all these demanding criteria.
"There aren’t that many good companies around," he said. "We will never own more than 30 to 35 of the 3,000 listed companies in the UK and only about 60 will ever get on my radar."
One company he has bought over the past 12 months is AG Barr, despite the failure of its merger with Britvic.
Ashworth-Lord says he was angry that the deal was scuppered by the delay as the OFT considered it, and it was a great opportunity to create a rival to Coca-Cola and an international success story such as Diageo.
However, on its own terms it is still a company worth holding.
"It’s a real Buffettology company," he said. "It ticks all the boxes."
