What strategies does Warren Buffett employ when picking stocks?

For starters, he looks for companies that exhibit solid financial performance and are managed by seasoned and savvy executives. Buffett also favors companies that have historically demonstrated 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.

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Again and again, Buffett has railed against the kinds of companies that seem either too complicated or difficult to valuate. His avoidance of Internet and technology businesses during the Dot-Com bubble is the most famous manifestation of Buffett's "keep it simple" dictum.

Buffett jokingly calls himself a technophobe, but he actually does shy 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 appraisal 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 off his radar.

Return on Equity

Another of the 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. He 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 Buffett Way is long on companies that have deep pockets. Businesses that have what Buffett refers to as ample cash flow are those 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, Buffett has targeted 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, he favors stocks that are unjustifiably low based on their intrinsic worth. He calculates intrinsic worth by analyzing a company's fundamentals.

As with most bargain hunters, Buffett focuses on companies that are good revenue producers and are capably managed, though underpriced.

The Oracle of Omaha 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. The man couldn't care less whether or not 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.

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