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Buffett's Returns Not Due to Ability to Pick Good Managers



(p. B7) Investors for years have been searching in vain for a formula to replicate Warren Buffett's legendary returns over the past 50 years.

The wait could be over.

A new study that claims to have uncovered this formula was published [in November 2013] . . . by the National Bureau of Economic Research in Cambridge, Mass. Its authors, all of whom have strong academic credentials, work for AQR Capital Management, a firm that manages several hedge funds and other investment offerings and has $90 billion in assets.

The study's authors analyzed Mr. Buffett's record since he acquired Berkshire Hathaway in 1964.


. . .


One factor that is conspicuous in its absence from the formula is anything to account for Mr. Buffett's significant investments in privately owned companies. But that isn't necessary, according to the researchers, because the public companies in which he has invested have outperformed the private ones.

This is somewhat surprising, given that Mr. Buffett has often trumpeted his abilities to pick good managers. Yet the researchers nevertheless find that his "returns are more due to stock selection than to his effect on management."



For the full commentary, see:

MARK HULBERT. "Hulbert on Investing; Can the Buffett Investing Formula Really Be Bottled?" The Wall Street Journal (Sat., Dec. 14, 2013): B7.

(Note: ellipses, and bracketed words, added.)

(Note: the online version of the commentary has the date Dec. 13, 2013, and has the title "WEEKEND INVESTOR; How to Invest Like Warren Buffett; How can investors emulate Warren Buffett's approach?")


The National Bureau of Economic Research (NBER) paper that is discussed above:

Frazzini, Andrea, David Kabiller, and Lasse H. Pedersen. "Buffett's Alpha." NBER Working Paper # 19681, November 2013.






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