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$BRK-A Warren Buffett’s Stock Picks Are Skillful, Not Lucky

Posted by: : Paul EbelingPosted on: December 7, 2013 $BRK-A Warren Buffett's Stock Picks Are Skillful, Not Lucky

$BRK-A Warren Buffett’s Stock Picks Are Skillful, Not Lucky


An economic study has found that Warren Buffett is not just a great investor, he is the best investor

An index measuring returns adjusted by price fluctuations shows the billionaire Chairman/CEO of Berkshire Hathaway Inc. (NYSE: BRK-A, BRK-B) has done better than every long-lived US stock and mutual fund.

Looking at all US stocks from Ys 1926 to 2011 that have been traded for more than 30 yrs, a paper published this week by the National Bureau of Economic Research calculated that Mr. Buffett’s Sharpe ratio is 0.76 since Y 1976. That is about twice the stock market’s 0.39.

The ratio is also larger than all 196 US mutual funds that have been around for 30 yrs. The median Sharpe ratio for them is 0.37.

The review of Berkshire’s investments concluded he has been rewarded for his use of leverage, coupled with a focus on cheap, safe, quality stocks.

The study said Mr. Buffett is willing to take on borrowing to finance investment, then picks stocks that have low volatility, are cheap, with low price-to-book ratios and are high quality, meaning they are profitable and have high payouts.

By breaking down Berkshire Hathaway’s portfolio into ownership of publicly traded stocks Vs wholly owned private companies, the study  found the tradable equities performed best.

That suggested to them that Mr. Buffett’s returns are due more to stock selection than to the pressure he puts on companies he has stakes in to improve their management.

Buffett’s performance appears not to be luck, but an expression that value and quality investing can be implemented.

Note: travel back in time and pick one stock in Y 1976, Berkshire would be your pick.


Paul Ebeling


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Paul Ebeling

Pattern Recognition Analyst, equities, commodities, forex
Paul Ebeling is best known for his work as writer and publisher of “The Red Roadmaster’s Technical Report” on the US Major Market Indices™, a highly-regarded, weekly financial market letter, where he enjoys an international audience among opinion makers, business leaders, and respected organizations. Something of a pioneer in online stock market and commodities discussion and analysis, Ebeling has been online since 1994. He has studied and worked in the global financial and stock markets since 1984.

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