Authors of a new paper, "Buffett’s Alpha", Andrea Frazzini and David Kabiller at AQR Capital Management crown Warren Buffett one of the best investors ever. I welcome this after decades of having to endure the worship of Keynes as the greatest investor. Keynes achieved his reputation, after years of failure, by investing in gold mining stocks during the time in which he used his political influence and notoriety to convince the US and UK to abandon the gold standard. Keynes succeeding through insider trading. Buffett did it the old fashioned way.
Here are excerpts from the paper:
We show that Buffett’s performance can be largely explained by exposures to value, low-risk, and quality factors. This finding is consistent with the idea that investors from Graham-and-Doddsville follow similar strategies to achieve similar results and inconsistent with stocks being chosen based on coin flips. Hence, Buffett’s success appears not to be luck...
Looking at all U.S. stocks from 1926 to 2011 that have been traded for more than 30 years, we find that Berkshire Hathaway has the highest Sharpe ratio among all. Similarly, Buffett has a higher Sharpe ratio than all U.S. mutual funds that have been around for more than 30 years...
We identify several general features of his portfolio: 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).
