Version 1.0, published Oct 22, 2026: 1 criterion, 5 sources, 1 of the 1 measures backed by peer-reviewed research.
Buffett & Munger-style Quality, applied to ETFs
In the tradition of Warren Buffett & Charlie Munger, this seat reads 1 criterion from ETFIQ data, version 1.0 of Oct 22, 2026. Durable, high-return businesses?
Bio
Warren Buffett was born in 1930. He read the first edition of Benjamin Graham's *The Intelligent Investor* early in 1950, at 19, and later wrote that Graham influenced his life more than any man except his father. In January 1951 he was introduced to GEICO and soon put 65% of his $9,800 net worth into its shares. From 1954 through 1956 he worked at Graham's firm, Graham-Newman Corporation, as one of what he later called a group of four there.
His investment partnership, Buffett Partnership Ltd., bought its first Berkshire Hathaway shares in December 1962, when Berkshire was a struggling New England textile maker. By April 1965 it owned 392,633 of 1,017,547 shares, and at a board meeting in early May 1965 it took control.
Buffett met Charlie Munger, a Los Angeles lawyer who had grown up in Omaha, in 1959. Munger was Berkshire's vice chairman when he died in a California hospital on Nov 28, 2023.
Buffett explained Berkshire to its owners in annual letters, signing his last annual letter on Feb 22, 2025.
Berkshire publishes its own record. From 1965 through 2025, the per-share market value of Berkshire stock rose at a compound 19.7% a year, against 10.5% for the S&P 500 with dividends included. The 1965 and 1966 figures are for years ending Sept 30, and 1967's covers the 15 months to Dec 31.
On May 3, 2025, Buffett said he would propose Greg Abel to the board as chief executive. The board voted unanimously on May 4 to make Abel president and CEO from Jan 1, 2026, with Buffett staying on as chairman. Abel signed the shareholder letter dated Feb 28, 2026, as CEO.
Philosophy
Buffett began as Graham's student in method as well as admiration. In the 1950s he bought what he later called cigar butts: mediocre companies priced so low that one last puff of value was nearly free. He wrote that the decade was by far his best for relative and absolute performance, and that Graham had taught him the technique.
The change came from two sources. The first was scale. Buffett concluded that cigar-butt buying worked with small sums and stopped working with large ones, and that a cheap but mediocre business makes a poor base on which to build a large, lasting company. The second was Munger. Buffett credits him with the blueprint on which Berkshire was built: stop buying fair businesses at wonderful prices and buy wonderful businesses at fair prices. In his 1989 letter Buffett listed the bargain-purchase habit among the mistakes of his first 25 years and said Munger had seen the point early while he learned slowly.
As early as 1977 Buffett set out four tests for a stock Berkshire would buy: a business it can understand, with favorable long-term prospects, run by honest and competent people, available at a very attractive price. GEICO is a case he returns to often: a car insurer whose cost advantage over the industry's giants he saw in 1951. The approach keeps Graham's demand for a price below value, but it judges value by what a good business will earn over many years rather than by what its assets would fetch today.
Buffett has also argued, for most people, against trying to do any of this. His 2013 letter set out instructions for the money he will leave in trust for his wife: nearly all of it in a very low-cost S&P 500 index fund and the rest in short-term government bonds. He wrote that he expected this to beat most investors who pay high-fee managers. In 2007 he made a ten-year bet that an S&P 500 index fund would beat a set of hedge-fund portfolios picked by the counterparty. At the end of 2017 the index fund had compounded at 8.5% a year; the five funds-of-funds had returned between 0.3% and 6.5% a year.
Read together, the letters set out two positions that fit together: that a few investors willing to study businesses closely can buy wonderful companies at fair prices, and that everyone else should own the whole market cheaply and leave it alone. In ETFIQ's reading, both rest on the same arithmetic of costs and the same distrust of trading.
Munger's own words are mainly in talks later collected in *Poor Charlie's Almanack*. This seat cites Munger through Buffett's account of him and through Berkshire's record.
Key works
- Berkshire Hathaway annual letters to shareholders, on berkshirehathaway.com from the letter for 1977. Buffett signed them through the letter for 2024 (dated Feb 22, 2025); the letter for 2025 is Greg Abel's. - Warren E. Buffett, "The Superinvestors of Graham-and-Doddsville," *Hermes*, Columbia Business School, Fall 1984; reprinted as an appendix to the 2003 revised edition of *The Intelligent Investor*. - Warren E. Buffett, preface to the fourth edition of *The Intelligent Investor* (reprinted in the 2003 revised edition). - Charles T. Munger, *Poor Charlie's Almanack: The Wit and Wisdom of Charles T. Munger*, ed. Peter D. Kaufman (Donning, 2005; Stripe Press edition, 2023). A collection of his talks.
What we cannot know
Berkshire publishes its per-share results, not a separate record for Buffett's own stock picks, so how much of the 1965 to 2025 figure came from security selection rather than insurance float, leverage and the operating businesses cannot be split out from public figures.
Source quality
Strong. Nearly five decades of published shareholder letters, Berkshire's SEC filings and Buffett's own essays. Munger's part rests mainly on Buffett's account of him.
In Warren Buffett’s words
“It's far better to buy a wonderful company at a fair price than a fair company at a wonderful price.”
The Buffett & Munger-style Quality seat
Buffett & Munger-style Quality is one seat of the IQ Investment Committee. It applies Warren Buffett's own letters to Berkshire Hathaway's shareholders to ETFIQ data.
What the investor published
In ETFIQ’s words, with the source of each. Sourced to Warren Buffett's own letters to Berkshire Hathaway's shareholders.
The first test of a business is a high return on the capital it employs, without leaning on debt. (Warren E. Buffett, Berkshire Hathaway 1979 letter to shareholders (Berkshire Hathaway Inc., as published at berkshirehathaway.com/letters, 1979))
Look for good returns on equity with little or no debt, and earning power shown consistently. (Warren E. Buffett, Berkshire Hathaway 1982 letter to shareholders (Berkshire Hathaway Inc., as published at berkshirehathaway.com/letters, 1982))
A wonderful company at a fair price, rather than a fair company at a wonderful price. (Warren E. Buffett, Berkshire Hathaway 1989 letter to shareholders (Berkshire Hathaway Inc., as published at berkshirehathaway.com/letters, 1989))
A business is worth the cash it will produce, discounted at an appropriate interest rate. (Warren E. Buffett, Berkshire Hathaway 1992 letter to shareholders (Berkshire Hathaway Inc., as published at berkshirehathaway.com/letters, 1992))
Research behind the measures
Peer-reviewed research on how each measure is taken. It never adds a criterion, and where it weakens one the criterion says so.
Clifford S. Asness, Andrea Frazzini and Lasse Heje Pedersen (2019), Quality Minus Junk, Review of Accounting Studies 24(1), 34-112 (doi:10.1007/s11142-018-9470-2). Quality, defined as profitable, growing and safe, earns significant risk-adjusted returns in the US and 24 other countries; quality stocks cost more, but not by much, and returns are highest when quality is cheap.
Dennis C. Mueller (1986), Profits in the Long Run, Cambridge University Press (book) (doi:10.1017/cbo9780511664731). Among the 1,000 largest US manufacturers from 1950 to 1972, differences in profitability persisted; persistently profitable firms had high market shares and differentiated products.
Andrea Frazzini, David Kabiller and Lasse Heje Pedersen (2018), Buffett's Alpha, Financial Analysts Journal 74(4), 35-55 (doi:10.2469/faj.v74.n4.3). Berkshire Hathaway's alpha against the usual factors disappears once low-risk (betting against beta) and quality (quality minus junk) are controlled for: its returns read as modest leverage applied to cheap, safe, high-quality stocks.
Robert Novy-Marx (2013), The Other Side of Value: The Gross Profitability Premium, Journal of Financial Economics 108(1), 1-28 (doi:10.1016/j.jfineco.2013.01.003). Gross profits over assets predict returns about as well as book-to-market, though profitable firms look more expensive; controlling for profitability improves value strategies.
Srinidhi Kanuri and Robert W. McLeod (2016), Sustainable Competitive Advantage and Stock Performance: The Case for Wide Moat Stocks, Applied Economics 48(52), 5117-5127 (doi:10.1080/00036846.2016.1170938). From mid-2002 to mid-2014, annually rebalanced portfolios of Morningstar's wide-moat stocks beat the S&P 500 and the Russell 3000 with positive factor-adjusted alphas, and lost less in 2007 to 2009.
K. Stephen Haggard (2026), Economic Moats and Stock Performance: Is Warren Buffett Wrong?, The Journal of Investing 35(3), 104-115 (doi:10.3905/joi.2026.1.381). Across 5,304 US stocks, wide-moat firms beat no-moat firms but not the broad market, and after controls for size, age, exchange and sector the wide-moat premium turns negative.
Compare and model modes
In compare mode funds are ordered by the seat’s score, and ties break on the share meeting both quality tests, highest first.
In model mode: In each sleeve, the fund with the largest share of its weight in companies meeting both quality tests.
How the seat is tested
The cases this seat must pass before it ships, with the result each must give.
Mostly durable, high-return companies: Supports. Two thirds of the measured weight meets both tests: a clear majority.
A large minority of quality companies: Mixed. Under half meets both tests, but more than 30%: a large minority.
Near the line, not on it: Mixed. A fifth meets both tests, and with the weight within the band on them, 35% of the fund is on or near the lines, failing neither.
Few quality companies: Challenges. Under a tenth of the measured weight is on or near the lines: whatever the typical holding reads, the seat Challenges.
Too little of the fund measured: Not enough data. Under 70% of the weight could be measured, so the seat says nothing.
MOAT: any result but Challenges. A fund whose index (Morningstar Wide Moat Focus) picks companies for durable competitive advantages.
QUAL: any result but Challenges. A fund whose index (MSCI USA Sector Neutral Quality) picks companies on quality measures.
ARKG: any result but Supports. Mostly companies that do not yet earn a profit; 52% of its weight can be measured on both quality tests, under the 70% floor, so the seat reads Not enough data, never a pass. Figures read on Oct 22, 2026.
IWM: Challenges. The Russell 2000: of the 79.0% of its weight measured, 2.9% meets both quality tests and 4.1% meets them or sits within a point of the line. A fund this far under 30% Challenges. Figures read on Oct 22, 2026.
Changes to this seat
Version 1.0, Oct 22, 2026: First version: the share of the fund meeting both quality tests, with a one-point band for measurement.
Where to next
Scope
Every ETF ETFIQ covers.
Before this seat publishes: Not published until the ETF adaptation is signed off and the nightly look-through publishes for US funds, with the share of weight that meets each test.
Source strength: Strong: the investor’s own books, letters or memos. Buffett's own letters to Berkshire's shareholders. They set the bar for quality in words; every number here is ETFIQ's reading of them, labelled.
Lenses apply publicly known investing principles to ETFIQ data. No investor named is affiliated with or endorses ETFIQ. Not investment advice.
Sources
The published work each criterion is sourced to
| Source | What it provides | Read | Spec |
|---|---|---|---|
| Warren E. Buffett, Berkshire Hathaway 1979 letter to shareholders | A high earnings rate on equity capital without undue leverage as the primary test of managerial economic performance | Berkshire Hathaway Inc., as published at berkshirehathaway.com/letters, 1979 | document ↗ |
| Warren E. Buffett, Berkshire Hathaway 1982 letter to shareholders | The acquisition criteria: businesses earning good returns on equity while employing little or no debt, and demonstrated consistent earning power | Berkshire Hathaway Inc., as published at berkshirehathaway.com/letters, 1982 | document ↗ |
| Warren E. Buffett, Berkshire Hathaway 1987 letter to shareholders | Fortune's test of economic excellence, which he quotes: an average return on equity over 20% in ten years and no year worse than 15% | Berkshire Hathaway Inc., as published at berkshirehathaway.com/letters, 1987 | document ↗ |
| Warren E. Buffett, Berkshire Hathaway 1989 letter to shareholders | A wonderful company at a fair price rather than a fair company at a wonderful price | Berkshire Hathaway Inc., as published at berkshirehathaway.com/letters, 1989 | document ↗ |
| Warren E. Buffett, Berkshire Hathaway 1992 letter to shareholders | The value of a business as the cash it will produce, discounted at an appropriate interest rate | Berkshire Hathaway Inc., as published at berkshirehathaway.com/letters, 1992 | document ↗ |
Definitions and method
a return of at least 15% on equity plus debt in the last fiscal year: net income with after-tax interest added back; a financial company on equity, unrealized gains on equity securities set aside; within a point of the line sits within the band. ETFIQ’s reading. Sourced to: Warren E. Buffett, Berkshire Hathaway 1979 letter to shareholders (Berkshire Hathaway Inc., as published at berkshirehathaway.com/letters, 1979); Warren E. Buffett, Berkshire Hathaway 1982 letter to shareholders (Berkshire Hathaway Inc., as published at berkshirehathaway.com/letters, 1982); Warren E. Buffett, Berkshire Hathaway 1987 letter to shareholders (Berkshire Hathaway Inc., as published at berkshirehathaway.com/letters, 1987).
the same return at 15% or more in each of the last five fiscal years; within a point sits within the band. ETFIQ’s reading. Sourced to: Warren E. Buffett, Berkshire Hathaway 1982 letter to shareholders (Berkshire Hathaway Inc., as published at berkshirehathaway.com/letters, 1982); Warren E. Buffett, Berkshire Hathaway 1987 letter to shareholders (Berkshire Hathaway Inc., as published at berkshirehathaway.com/letters, 1987).
How much of the fund sits in companies that earn a high return on their capital, year after year? Measure: the share meeting both quality tests. Of the fund's measured weight, the share in companies that meet both of the Buffett seat's tests (a return of at least 15% on equity plus debt in the last fiscal year, and in each of the last five): 100 times the weight passing over the weight measured. Each weight is in percent of the fund's positive non-cash weight, to one decimal. Null where under 70% of that weight is measured. Supports where the share meeting both quality tests at or above 60%. Challenges where the share meeting both quality tests or within the band below 30% and the share meeting both quality tests below 60%. Mixed between. Threshold: ETFIQ’s figure, because the investor published none. Supports where 60% or more of the fund's measured weight meets every test; Mixed where 30% or more meets them or sits within the band, failing none; Challenges below. 60% is a clear majority and 30% a large minority: ETFIQ's lines, the same on every seat read holding by holding. The 15% return is ETFIQ's reading of the letters; the nearest figure Buffett prints is Fortune's test he quotes, no year worse than 15%. Buffett gave no looser line, so the band is ETFIQ's and narrow: a point, for the tax rate assumed on the interest added back and a single year read against a round line. Printed with: the share meeting both quality tests or within the band: Of the fund's measured weight, the share in companies that meet both of the Buffett seat's tests or sit within the band on them (within a point of 15%), failing neither: 100 times the weight passing or near over the weight measured. Each weight is in percent of the fund's positive non-cash weight, to one decimal. Null where under 70% of that weight is measured. Weight: 100%; required. Sourced to: Warren E. Buffett, Berkshire Hathaway 1979 letter to shareholders (Berkshire Hathaway Inc., as published at berkshirehathaway.com/letters, 1979); Warren E. Buffett, Berkshire Hathaway 1982 letter to shareholders (Berkshire Hathaway Inc., as published at berkshirehathaway.com/letters, 1982); Warren E. Buffett, Berkshire Hathaway 1987 letter to shareholders (Berkshire Hathaway Inc., as published at berkshirehathaway.com/letters, 1987). Research, supports the measure: Clifford S. Asness, Andrea Frazzini and Lasse Heje Pedersen (2019), Quality Minus Junk, Review of Accounting Studies 24(1), 34-112. Profitable, stable companies earned more than junk companies at similar prices; this criterion reads quality company by company. Research, supports the measure: Dennis C. Mueller (1986), Profits in the Long Run, Cambridge University Press (book). Profitability persists, which the five-year test reads. Research, context, not a test of the measure: Andrea Frazzini, David Kabiller and Lasse Heje Pedersen (2018), Buffett's Alpha, Financial Analysts Journal 74(4), 35-55. Berkshire's returns come from cheap, safe, quality stocks; the seat reads quality and scores no price. Research, weakens the measure: Robert Novy-Marx (2013), The Other Side of Value: The Gross Profitability Premium, Journal of Financial Economics 108(1), 1-28. Gross profitability beats earnings-based ratios as a quality signal, so net income on capital is the weaker form. Research, context, not a test of the measure: Srinidhi Kanuri and Robert W. McLeod (2016), Sustainable Competitive Advantage and Stock Performance: The Case for Wide Moat Stocks, Applied Economics 48(52), 5117-5127. Tests Morningstar's moat ratings, not this measure. Research, context, not a test of the measure: K. Stephen Haggard (2026), Economic Moats and Stock Performance: Is Warren Buffett Wrong?, The Journal of Investing 35(3), 104-115. Tests Morningstar's moat ratings, not this measure.
Each criterion reads one ETFIQ measure against two thresholds. Each holding is read on the seat's tests, and the state comes from the share of the fund's measured weight alone: Supports where 60% or more meets every test, Mixed where 30% or more meets them or sits within the band, failing none, Challenges below, and Not enough data where under 70% of the weight could be measured. Nothing else softens or lifts it. The weights. One criterion decides the seat: the share of the fund's measured weight meeting both tests. Each holding is read on these tests, and the seat counts the weight meeting every one; each is listed below with the criteria.
What this cannot tell you
How to check any of this
This seat’s criteria, thresholds, weights and cases are in the committee file, the same file the committee reads.
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