The LONGRUN Score
The Buffett Way -- Scored Simply
The LONGRUN Score is our proprietary 100-point value investing framework, inspired by Warren Buffett and Charlie Munger's time-tested principles. Each stock is evaluated across 7 factors that define what makes a great long-term investment.
Leadership Moat
20 pts"The most important thing in evaluating a business is figuring out how big the moat is around the castle."
A durable competitive advantage -- or 'moat' -- protects a company's profits from competitors. We evaluate whether a company has pricing power, brand strength, network effects, switching costs, or cost advantages that make it difficult for rivals to erode its market position.
How We Score It
- Profit margins above 25% suggest strong pricing power and moat (8 pts)
- ROA above 15% indicates efficient use of assets, a sign of competitive advantage (6 pts)
- Large market capitalization signals an established, durable business (6 pts)
Passing threshold: 10+ points out of 20
Real-World Example
Coca-Cola (KO) has maintained 25%+ profit margins for decades thanks to its unmatched brand recognition and global distribution network -- a textbook wide moat.
Owner Earnings
20 pts"Owner earnings represent (a) reported earnings plus (b) depreciation, depletion, amortization... minus (c) the average annual amount of capitalized expenditures."
Owner Earnings is the true cash a business generates for its owners after maintaining its competitive position. Unlike reported earnings, it strips away accounting adjustments and focuses on real cash that could be distributed to shareholders.
How We Score It
- EPS above $8 signals strong earnings power (8 pts)
- Net profit margin above 20% indicates cash-generating efficiency (7 pts)
- Payout ratio below 50% shows healthy reinvestment capacity (5 pts)
Passing threshold: 10+ points out of 20
Real-World Example
Apple (AAPL) generates massive owner earnings -- over $100B annually -- while reinvesting conservatively, making it one of the best capital allocators in history.
No Complexity
15 pts"I try to invest in businesses that are so wonderful that an idiot can run them. Because sooner or later, one will."
Simple businesses with straightforward balance sheets and predictable cash flows are easier to understand and value. We penalize complexity through high leverage, poor liquidity, and volatile stock behavior -- all signs of businesses that are harder to predict.
How We Score It
- Debt-to-equity below 0.3 signals minimal financial complexity (7 pts)
- Current ratio above 2.0 indicates strong financial flexibility (5 pts)
- Beta below 0.8 suggests a steady, predictable business (3 pts)
Passing threshold: 8+ points out of 15
Real-World Example
Johnson & Johnson (JNJ) operates a straightforward healthcare business with low debt, strong liquidity, and remarkably stable stock performance -- the definition of 'no complexity.'
Growth of Intrinsic Value
15 pts"It's far better to buy a wonderful company at a fair price than a fair company at a wonderful price."
The best investments aren't just cheap -- they grow their intrinsic value over time. We look for companies with rising revenues, growing earnings, and high returns on equity that compound shareholder wealth year after year.
How We Score It
- Revenue growth above 15% annually signals strong business momentum (7 pts)
- EPS above $6 demonstrates high earnings power (5 pts)
- ROE above 20% indicates the business is compounding intrinsic value (3 pts)
Passing threshold: 8+ points out of 15
Real-World Example
Novo Nordisk (NVO) has compounded intrinsic value at exceptional rates through its dominance in diabetes and obesity care, with revenue growth consistently above 15%.
Return on Equity
10 pts"The best business to own is one that over an extended period can employ large amounts of incremental capital at very high rates of return."
Return on Equity measures how effectively management uses shareholder capital to generate profits. Consistently high ROE (above 15%) indicates a business with durable advantages that can compound wealth over time without requiring excessive reinvestment.
How We Score It
- ROE above 25% is exceptional, earning the full 10 points
- ROE between 20-25% earns 8 points -- excellent capital efficiency
- ROE between 15-20% earns 6 points -- the Buffett benchmark
- ROE below 15% signals declining capital allocation effectiveness
Passing threshold: 6+ points out of 10
Real-World Example
Berkshire Hathaway (BRK.B) has maintained extraordinary returns on equity over decades through disciplined capital allocation and a diversified portfolio of high-ROE businesses.
Undervalued Price
15 pts"Price is what you pay. Value is what you get."
Even the best business becomes a bad investment at the wrong price. We evaluate whether a stock trades at a discount to its intrinsic value by analyzing P/E ratio, price-to-book ratio, and where the price sits relative to its 52-week range -- applying Buffett's 'margin of safety' principle.
How We Score It
- P/E ratio below 10 indicates deep value (6 pts)
- Price-to-book below 1.0 means trading below asset value (5 pts)
- Trading near 52-week low suggests potential upside (4 pts)
Passing threshold: 8+ points out of 15
Real-World Example
During the 2008 financial crisis, Buffett invested $5B in Goldman Sachs when the stock traded at a deep discount -- a textbook undervalued purchase with a massive margin of safety.
Never Speculate
5 pts"Risk comes from not knowing what you're doing."
This bonus factor rewards stocks that exhibit characteristics of real businesses rather than speculative bets. Dividend-paying companies with low volatility and positive earnings are investing, not gambling. This factor is a final check against speculation.
How We Score It
- Dividend yield above 2% shows real shareholder returns (2 pts)
- Beta below 0.8 indicates a non-speculative, stable stock (2 pts)
- Positive EPS confirms a real, profitable business (1 pt)
Passing threshold: 3+ points out of 5 (bonus)
Real-World Example
Procter & Gamble (PG) embodies 'Never Speculate' -- it pays consistent dividends, has low volatility, and has been profitable for over a century. This is investing, not gambling.
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