The Bufferoo portfolio: What Buffett would buy in Australia

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Australia's market has a small club of shares Warren Buffett might buy, analysts at Credit Suisse said in the wake of the storied investor's maiden acquisition Down Under.

"Berkshire's fantastic track-record of investing in the U.S. reveals a focus on large, quality companies at a reasonable price," Credit Suisse said in a note last week, creating a "Bufferoo" portfolio of Australian stock picks suited to his style.

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According to Credit Suisse, Bufferoos are stocks included in the ASX 100 that trade on less than 20 times price-to-earnings and four times price-to-book, have stable returns-on-equity average at least 12 percent and earnings per share growth of at least 4 percent a year.


The analysts said they had to relax the valuation hurdle of Buffett's usual U.S. picks because that tends to be higher in Australia. The theoretical Bufferoo portfolio also only has one "trade" a year, on June 30, with the number of stocks included each year varying from just two in 2005, 2006 and 2013 up to the highest level of nine in 2011.

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"It is a concentrated portfolio of quality companies at reasonable valuations," Credit Suisse said. For the current financial year, there are just four Bufferoos: Ansell, Challenger, Caltex and Lend Lease. "The recent market sell-off allows investors to buy these companies that now trade on 14 times price-to-earnings, down from 16 times just three months ago."

Interestingly, there's one stock that doesn't make the Bufferoo cut: Insurance Australia Group (IAG), which became Berkshire Hathaway's maiden acquisition in Australia earlier this year with the purchase of a 3.7 percent stake.

But has the Bufferoo lived up to the Buffett legend?

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Credit Suisse thinks it's done pretty well: "The portfolio has kept up with the Aussie market over the last 14 years and even outperformed more recently. Not bad for working one day a year," it said.

That compares, however, to an estimated 20 percent per annum for Berkshire's U.S. holdings, according to Credit Suisse.

"It seems Buffett has suffered from Dull Returns Outside The U.S. (DROTUS)," Credit Suisse noted, citing his median return on non-U.S. investments was an "uninspiring" around 8 percent a year, in line with market benchmarks outside the U.S.

—By CNBC.Com's Leslie Shaffer; Follow her on Twitter @LeslieShaffer1