Buffett's Alpha

Andrea Frazzini, David Kabiller, Lasse Heje Pedersen

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Abstrakt

Warren Buffett's Berkshire Hathaway has realized a Sharpe ratio of 0.79 with significant alpha to traditional risk factors. The alpha became insignificant, however, when we controlled for exposure to the factors "betting against beta" and "quality minus junk." Furthermore, we estimate that Buffett's leverage is about 1.7 to 1, on average. Therefore, Buffett's returns appear to be neither luck nor magic but, rather, a reward for leveraging cheap, safe, high-quality stocks. Decomposing Berkshire's portfolio into publicly traded stocks and wholly owned private companies, we found that the public stocks have performed the best, which suggests that Buffett's returns are more the result of stock selection than of his effect on management.
OriginalsprogEngelsk
TidsskriftFinancial Analysts Journal
Vol/bind74
Udgave nummer4
Sider (fra-til)35-55
Antal sider21
ISSN0015-198X
DOI
StatusUdgivet - 2018

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