The ASX stock that beat Buffett

RELATED QUOTES

SymbolPriceChange
BRK-A188,900.00+3,260.00
COH.AX57.38+0.230
CSL.AX67.855+0.325
RHC.AX45.18-0.140
^AXJO5,449.20+28.90

The outstanding investment track record of Warren Buffett and the stellar returns for long-term shareholders in his company Berkshire Hathaway (NYSE:BRK.A) are well known. Had you owned Berkshire Hathaway stock since Buffett began running the company in 1964, your per-share gain in book value is a monstrous 513,055% (as of December 2011), which equates to a 19.8% compound annual gain in book value!

If your investment timeframe only stretches back to 1999 however, then there was no need to open an overseas broking account and buy Berkshire Hathaway shares as there was a stellar stock you could have purchased right here on the ASX. Ramsay Health Care (RHC.AX) just reported a 12.3% increase in core net profit after tax (NPAT), continuing its long and impressive run of increased profits. Ramsay’s results presentation included a slide highlighting that from 1998 to 2012, the company returned a Compound Annual Growth Rate (CAGR) in core NPAT of 23%. This is an outstanding performance that rivals Buffett over the same time frame.

So both companies, whether your measure is book value or core NPAT, are impressive but the share price performance over the last 14 years is dramatically different. While both stocks have handily outpaced their respective index benchmarks, the share price appreciation since April 1999 of Ramsay has far outstripped that of Berkshire. Ramsay’s share price has gained 1,996%, while Berkshire’s 102%. Of course time is often the friend of the long-term investor and had you owned Berkshire Hathaway stock since 1990, then your total return increases to 1,989%.

The healthcare sector has been a great place to look for market-beating, quality stocks. Keeping April 1999 as the starting point, the S&P/ASX 200 Index (^AXJO) (XJO.AX) is up 61%. Meanwhile other healthcare stocks which also outperformed this index include: Blood plasma products producer CSL Ltd (CSL.AX) up 1232%, bionic ear developer Cochlear (COH.AX) up 543%, and diagnostics provider Sonic Healthcare (SHL.AX) up 211%.

Foolish takeaway

Attaining Buffett’s investment record may be beyond the reach of most investors, however buying high quality businesses with strong balance sheets, plenty of free cash flow and an ability to repurchase stock or pay healthy dividends is certainly a great start.

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More reading

The Motley Fool’s purpose is to help the world invest, better. Click here now for your free subscription to Take Stock, The Motley Fool’s free investing newsletter. Packed with stock ideas and investing advice, it is essential reading for anyone looking to build and grow their wealth in the years ahead.  This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson. Motley Fool writer/analyst Tim McArthur does not own shares in any of the companies mentioned in this article.

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