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Warren Buffett's investing prowess has spawned countless imitators hoping to strike it rich by following the Oracle of Omaha's techniques.

But few are as disciplined as Pavel Begun.

"I've read pretty much every book about Buffett that's out there," says the partner at 3G Capital Management in Toronto. He's also dissected virtually all of his deals, read through every one of his letters to Berkshire Hathaway BRK.A-N shareholders, and put the principles into practice at his own fund.

So how does Mr. Buffett do it? With Berkshire's recent purchase of Burlington Northern Santa Fe putting the legendary investor in the spotlight again, Investor Clinic asked Mr. Begun to distill the billionaire's investing strategy into a few easily digestible - albeit highly simplified - steps.

We've also consulted articles and books, and used Mr. Buffett's own words where appropriate. A thorough analysis of Mr. Buffett's strategy is beyond the scope of this article, but investors can learn a lot by studying the basics.

1. Buy businesses with a sustainable competitive advantage

Mr. Buffett is interested in companies whose earnings will grow, and at fairly predictable rates, which is why he favours businesses with a large competitive "moat."

Examples include Coca-Cola Co., whose strong brand name gives it an edge, and Geico insurance, which keeps costs low by selling directly to consumers instead of using agents.

2. Don't buy businesses you don't understand

Mr. Buffett didn't get swept up in the tech mania of the late 1990s, and spared his shareholders a lot of pain when the sector collapsed. If you can't understand a business, you can't predict how its earnings will perform.

"He doesn't want to buy something where he doesn't know how the business is going to shake out in 10 to 20 years," Mr. Begun says.

3. Look for consistently high return on equity

ROE is a company's annual profit divided by its book value, or assets minus liabilities. In her 1997 book Buffettology, Mary Buffett, Mr. Buffett's former daughter-in-law, said he demands an ROE of 15 per cent or more - well above the average of 12 per cent for U.S. companies.

"Warren believes that a consistently high return on equity is a good indication that the company's management not only can make money from the existing business but also can profitably employ retained earnings to make more money for the shareholders," she wrote.

4. Beware of debt

Mr. Buffett shuns companies carrying a lot of debt, and not just because it restricts their options. A large amount of borrowed money can artificially boost return on equity, and also signals that the business may not be throwing off enough cash internally to grow.

On the other hand, companies with a strong "consumer monopoly" - that is, they sell a product or service with strong repeat business and brand loyalty - usually generate so much cash that they don't need to borrow.

5. Avoid commodity businesses

The flipside of a company with a wide competitive "moat" is one that sells a product that's available from countless other sources, the only differentiating factor being price.

"He tends to shy away (but not always) from companies whose products are indistinguishable from those of competitors, and those that rely solely on a commodity such as oil and gas," Investopedia.com says.

6. Look for increasing profit margins

A high profit margin is good. One that's high - and rising - is even better. A simple way to calculate profit margin is to divide net income by revenue.

"A high profit margin indicates the company is executing its business well, but increasing margins means management has been extremely efficient and successful at controlling expenses," Investopedia.com says.

7. Think like an owner

Many investors believe the secret to making money is to buy a stock that's shooting up, then sell for a quick profit. Not Mr. Buffett. He wants to buy a part-ownership in a business, and considers the company's earnings as his reward.

If you adopt Mr. Buffett's philosophy, "you will find yourself waiting for the market to go down instead of up, so that you can buy partial interests in publicly traded companies that you have been wanting to own," Mary Buffett wrote.

If earnings rise, the stock will eventually follow.

8. Buy at a discount

Many of Mr. Buffett's greatest investments - Geico among them - were made when the company was experiencing a temporary setback that drove the stock down. As he once observed: "A great investment opportunity occurs when a marvellous business encounters a one-time huge, but solvable, problem."

One measure he looks at is the earnings yield - the per-share profit divided by the share price. This measure - the reciprocal of the price-to-earnings multiple - should be well above the yield on long-term government bonds.

Another of his favourite measures is the free cash flow yield, which is the amount of cash per share the business is throwing off as a percentage of the share price. "He normally buys things right around a free cash flow yield of about 10 per cent," Mr. Begun says

9. Focus on the long-term

Mr. Buffett summarized this principle in his 1996 letter to Berkshire shareholders:

"Your goal as an investor should simply be to purchase, at a rational price, a part interest in an easily-understandable business whose earnings are virtually certain to be materially higher five, 10 and 20 years from now ..."

"You must also resist the temptation to stray from your guidelines: If you aren't willing to own a stock for 10 years, don't even think about owning it for 10 minutes."

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Some of Warren Buffett's biggest holdings by market value:

American Express Co.

Value: About $5.1-billion (U.S.)

Mr. Buffett began investing in Amex in the 1960s and continued to build on that through the mid-1990s and now holds a nearly 13-per-cent stake.

Coca-Cola Co.

Value: About $10.7-billion

He started buying the beverage company's shares in the late 1980s and now owns about an 8-per-cent stake.

Procter & Gamble Co.

Value: About $5.3-billion

Earlier this year, Mr. Buffett sold off part of his stake in the consumer goods producer to fund purchases of preferred shares and fixed-income investments.

ConocoPhillips

Value: About $2.6-billion

Berkshire Hathaway is one of the oil producers largest shareholders. In his letter to shareholders earlier this year, Mr. Buffett admitted he bought the stake at the wrong time, when oil prices were at their highs.