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A Study of Buffett's Long-Term Outperformance

August 26, 2012 | About:

Below is a study of the long-term success of Warren Buffett and Berkshire Hathaway. The conclusion of the report is not exactly shocking:

"We find that Berkshire’s portfolio of publicly-traded stocks outperform private companies, suggesting that Buffett’s returns are more due to stock selection than to a direct effect on management."

Buffett's Alpha - Frazzini, Kabiller and Pedersen

About the author:


Rating: 3.9/5 (18 votes)


Geneexpert - 3 years ago
Alpha beta shapie and etc. Buffett does not use these stuff. Any MBA graduate can make simple things complicated.
Sdnarra - 3 years ago
Let me summarise:

1) He picks safe, less volatile and steadily growing stocks.

2) He uses leverage of about 1.4-1.6 to 1.

3) He borrows at a next to nothing(if not negative) real interest rate, due to the float and berkshires historically AAA pristine credit rating.

4) He operated in an era where there was an average annual stock market appreciation of 10 plus % a year.

5) He used depreciation and other such tax loopholes very shrewdly in his private companies and managed to offset taxes even on dividends etc. from his stock portfolio.

6) He is a better investor than he is a business manager based on the returns tested backwards.

7) He has been using this successful formula for 50 yrs. A helluva long time to compound.

AlbertaSunwapta - 3 years ago
The numbers are new but Buffett himself has highlighted all these concepts many times over the years. i.e. we want management in place, value and growth are two sides of the same investment coin, market participants can behave irrationally, everyday he thinks about what can go wrong, float can be cheap, li'l Abner shouldn't have sold after his stock doubled, return on assets is everything, great companies' share prices can suffer from resolvable problems,...

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