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Two Shares with a Beautiful Track Record of Great Performance

While some might think Warren Buffett’s not the best investor that’s around today, they probably can’t disagree that Buffett has to be among one of the best money managers of our generation.

Fortunately for investors everywhere, Buffett’s never been shy about sharing some of his investing secrets. In fact, some 26 years ago in 1988, he even listed down his criteria for picking investments in his Berkshire Hathaway annual shareholder letters.

And among the criteria, were two important characteristics of a business that investors in the share market might want to take note of: 1) the business should ideally have consistent and growing earning power, and; 2) the business should have good returns on equity while using little leverage.

While I’m certainly not speaking for Buffett, these two characteristics, when combined together, could point to potentially attractive investment opportunities. And as it turns out, here are two shares that happen to meet both criteria over the past six years: ARA Asset Management (SGX: D1R) and Riverstone Holdings (SGX: AP4).

ARA’s the manager of publicly-listed real estate investment trusts like Fortune REIT (SGX: F25U), Suntec REIT (SGX: T82U) and Cache Logistics Trust (SGX: K2LU). There are also other Hong Kong- and Malaysia-listed REITs that are managed by the company. In addition, ARA also manages private real estate funds and provides real estate management and corporate finance advisory services.

Meanwhile, Riverstone’s main business is in the manufacture of latex and nitrile gloves for both cleanroom (i.e. the electronics industry) and healthcare uses. Its main geographical source of revenue comes from Singapore’s northern neighbours, Malaysia and Thailand.

Year

Net income for ARA

Net income for Riverstone

2007

S$34 million

RM23 million

2008

S$37 million

RM24 million

2009

S$48 million

RM30 million

2010

S$64 million

RM40 million

2011

S$68 million

RM39 million

2012

S$73 million

RM40 million

2013

S$74 million

RM58 million

Source: S&P Capital IQ

Year

ROE for ARA*

ROE for Riverstone*

2007

58.4%

17.1%

2008

41.4%

24.4%

2009

47.4%

18.1%

2010

42.6%

21.7%

2011

38.3%

18.2%

2012

34.0%

16.6%

2013

29.3%

20.1%

*ROE = Returns on equity

Source: S&P Capital IQ

Year

TDE for ARA*

TDE for Riverstone*

2007

19.5%

2.1%

2008

25.5%

1.0%

2009

14.5%

0.5%

2010

11.2%

0.1%

2011

0.20%

0.0%

2012

2.05%

0.0%

2013

10.9%

0.0%

*TDE = Total debt to equity ratio; a measure of the amount of debt taken on in the business. The lower the ratio, the lesser the amount of leverage.

Source: S&P Capital IQ

From the first table above, we can see how both ARA and Riverstone have managed to grow their profits steadily through the years. In particular, ARA and Riverstone’s profits have increased at a compounded annual rate of 13.8% and 16.7% respectively.

The second and third tables show how both companies’ returns on equity have remained at a high level despite using very little leverage. This is all the more impressive when we consider that the Straits Times Index (SGX: ^STI) currently has a weighted average return on equity of 16.9% while having a much higher total debt to equity ratio of 75%.

So while I’m certainly not making any recommendations on any of the shares mentioned, the track records of both ARA Asset Management and Riverstone can be said to be things of beauty.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore writer Chong Ser Jing owns shares in Berkshire Hathaway.