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22-08-2012, 07:13 PM
I'd like to share the key findings of a paper which empirically analyses the world's most successful investor and reiterates the basics of value investing.
As in the abstract
Berkshire’s returns can thus largely be explained by the use of leverage combined with a focus on cheap, safe, quality stocks. 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.
and somewhere in the text
He buys stocks that are “safe” (with low beta and low volatility), “cheap” (i.e., value stocks with low price-to-book ratios), and high-quality (meaning stocks that profitable, stable, growing, and with high payout ratios).
And:
Leverage of 1.6x from the insurance float, while
Never having to sell when times are bad, with
Very little momentum, and finally
A small company effect that Buffett can't exploit
I recommend reading the entire paper
http://www.econ.yale.edu/~af227/pdf/Buff...dersen.pdf
So a robot could duplicate the performance: which could be why the good people at AQR wrote the paper...
http://dealbreaker.com/2012/08/cliff-asn...n-buffett/
As in the abstract
Berkshire’s returns can thus largely be explained by the use of leverage combined with a focus on cheap, safe, quality stocks. 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.
and somewhere in the text
He buys stocks that are “safe” (with low beta and low volatility), “cheap” (i.e., value stocks with low price-to-book ratios), and high-quality (meaning stocks that profitable, stable, growing, and with high payout ratios).
And:
Leverage of 1.6x from the insurance float, while
Never having to sell when times are bad, with
Very little momentum, and finally
A small company effect that Buffett can't exploit
I recommend reading the entire paper
http://www.econ.yale.edu/~af227/pdf/Buff...dersen.pdf
So a robot could duplicate the performance: which could be why the good people at AQR wrote the paper...
http://dealbreaker.com/2012/08/cliff-asn...n-buffett/