Replies to post #478 on Berkshire Hathaway Inc (BRK.B)

[bar1080]

"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 Berkshire's 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."

http://www.econ.yale.edu/~af227/pdf/Buffett%27s%20Alpha%20-%20Frazzini,%20Kabiller%20and%20Pedersen.pdf

[bar1080]

Sunspotter: I disagree that Buffett's method is totally obvious or well known. I learned two things from that Yale paper and I've been investing a very long time, starting at age 19. I've read all the texts associated with Early Buffett. Over the decades I've perused umpteen write-ups about Buffett, and much of what he's written himself.

1) Most commentators have always assumed that Buffett's superior performance was due in part to his successful non-public holdings and his skill in running them. But the article says BRK's private firm performance lagged that of the public holdings. So foremost, Buffett is a great stock picker rather than a great manager.

2) While many investors know that BRK stocks are low PE and rather conservative, they probably assume that BRK has been capitalized in a likewise conservative way. However Buffett's portfolio has been leveraged at an aggressive 1.6:1 . That consistently high leverage since 1976 elevated BRK's performance from very good to the best in the world.

Thanks for posting that.

[bar1080]

The Case Against BRK. BRK vs the Dow, S&P500 and NASDAQ.