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Worth pointing to this classic: “The Super-investors of Graham and Doddsville” [0] by Warren Buffett. [0] http://csinvesting.org/wp-content/uploads/2014/10/The

• throw0101a 6y ago
  Two points about Buffett: * over the last few years (15?), he's actually trailed the S&P 500 (IIRC) * 2013 paper "Buffett's Alpha" > Berkshire Hathaway has realized a Sharpe ratio of 0.76, higher than any other stock or mutual fund with a history of more than 30 years, and Berkshire has a significant alpha to traditional risk factors. However, we find that the alpha becomes insignificant when controlling for exposures to Betting-Against-Beta and Quality-Minus-Junk factors. Further, we estimate that Buffett's leverage is about 1.6-to-1 on average. Buffett's returns appear to be neither luck nor magic, but, rather, reward for the use of leverage combined with a focus on cheap, safe, quality stocks. Decomposing Berkshires' portfolio into ownership in publicly traded stocks versus wholly-owned private companies, we find that the former performs the best, suggesting that Buffett's returns are more due to stock selection than to his effect on management. These results have broad implications for market efficiency and the implementability of academic factors. * https://www.nber.org/papers/w19681 https://www.nber.org/papers/w19681
  • sukilot 6y ago
    In other words, Buffett doesn't try to beat the market, he tries to be the market and waits for morons to walk in and lose to it. A bit like running a casino that lets customers set the odds but chooses which bets it accepts. That might be splitting hairs.