One of the most successful investors in history is Berkshire Hathaway's Warren Buffett.
At the last count the legendary investor had amassed a fortune of US$80.5 billion according to Forbes. In order to get there Mr Buffett has invested wisely and with a long-term view.
While amassing a similar fortune may be difficult, I believe regular investors can create significant wealth by following his investing principles.
Four key principles that Buffett follows are listed below. I've used these principles to see if SEEK Limited (ASX: SEK) would be a share that he would invest in. Here's what I found:
Buffett invests in companies that he can understand.
SEEK operates an eponymous online job listings portal in the ANZ market and several equivalents in international markets. The latter includes the growing Zhaopin business in China. I feel SEEK's business model is one of the simplest models out there and something which Mr Buffett would be comfortable investing in.
Buffett looks for companies with a durable competitive advantage.
While there are a number of competitors, SEEK is easily the most dominant player in the ANZ market. In FY 2020, the company recorded 35 million monthly visits and had 15 million user profiles. Unsurprisingly, with such large numbers, the company commands the highest volume of job ads in the region. I believe this gives SEEK a durable competitive advantage and expect it to remain the dominant force in the region for a long time to come.
Management must be talented and have integrity.
SEEK is led by chief executive officer Andrew Bassat. He co-founded the company with his brother back in 1997. Mr Bassat is a highly regarded executive and has helped turn the company into what it is today. I believe Warren Buffett would be a fan of his management style.
Don't overpay for shares.
This is where it gets a little tricky. As well as being impacted by the pandemic, SEEK has been investing heavily in its future growth over the last few years. This has narrowed its profit margins materially and means its shares are trading on sky high earnings multiples. In light of this, I think investors should focus on its sales instead, which came in at $1,577.4 million in FY 2020 and means its shares are trading at 5.2x sales. This is notably lower that Carsales.Com Ltd (ASX: CAR) and REA Group Limited (ASX: REA). Furthermore, SEEK is aiming to grow its sales to $5 billion by FY 2025, though acknowledges that the pandemic may push this back a touch. If it delivers on this target, its shares are likely to be worth considerably more in five years.
Conclusion.
Overall, I think SEEK ticks all the boxes for a Buffett investment.
I expect its shares to generate strong returns for investors over the 2020s, which could make it a great buy and hold option for investors today.
