Buffett began as Graham's student, hunting cheap balance sheets. The fortune came after he changed his mind: it is far better to buy a wonderful company at a fair price than a fair company at a wonderful price. SageRanks's Buffett mode goes looking for the wonderful company.
Early Buffett was pure Graham, buying "cigar butts": beaten-down businesses with one last free puff of value left in them. It worked, but it did not scale, and it meant owning a parade of mediocre companies. Under the influence of his partner Charlie Munger, and with lessons from See's Candies, Buffett made the leap that defined him. He stopped looking for statistical bargains and started looking for great businesses he could hold forever, even if the entry price was merely fair rather than cheap.
Buffett's central idea is the economic moat: a durable advantage that protects a business from competitors the way a moat protects a castle. A moat can be a beloved brand, a low-cost position, a network that grows more useful as it grows, or switching costs that lock customers in. Whatever its source, the test is the same over time.
"The most important thing is trying to find a business with a wide and long-lasting moat around it, protecting a terrific economic castle."
The clearest fingerprint of a moat is pricing power: the ability to raise prices without losing customers. That shows up in fat, stable gross margins and in a high return on the capital the business employs, sustained year after year rather than for a single lucky quarter.
Buffett reads a business through a handful of durable signals:
The Buffett lens is at its best on durable franchises: consumer staples, strong brands, payment networks, businesses whose product people buy again and again. Its risks are the mirror image. In a euphoric market even a wonderful company can be bid up past any fair price, and a moat that looks permanent can erode when technology shifts. A high return on equity can also be manufactured with debt rather than earned through quality, so the number needs context. And the margin rule has a famous exception: cost leaders such as Costco and Walmart run thin margins yet enjoy enormous moats, so a margin screen can unfairly punish them.
Buffett mode ranks companies on two numbers only: return on equity, its heaviest weight, and gross margin. Beta is not among them: we removed volatility from this mode because Buffett rejected it as a measure of risk, which the methodology page has said all along while this page said the opposite. The mode flags any company that breaks the bars we set for it: return on equity below 15% or gross margin below 15%. Those bars are ours, not his. There is no price ceiling, because Buffett was willing to pay up for quality, and we say so honestly. We are equally honest that the gross-margin bar can dock a genuine cost-leader moat. The full weighting sits on the methodology page.
See which companies pass Buffett's screen today →