
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.
betting against beta; leverage; market efficiency; quality; value, Betting against Beta, Quality, Portfolio Management, Equity Portfolio Management Strategies, Market Efficiency, Leverage, Value, jel: jel:G12, jel: jel:G23, jel: jel:G11, jel: jel:G22, jel: jel:G14
betting against beta; leverage; market efficiency; quality; value, Betting against Beta, Quality, Portfolio Management, Equity Portfolio Management Strategies, Market Efficiency, Leverage, Value, jel: jel:G12, jel: jel:G23, jel: jel:G11, jel: jel:G22, jel: jel:G14
| selected citations These citations are derived from selected sources. This is an alternative to the "Influence" indicator, which also reflects the overall/total impact of an article in the research community at large, based on the underlying citation network (diachronically). | 89 | |
| popularity This indicator reflects the "current" impact/attention (the "hype") of an article in the research community at large, based on the underlying citation network. | Top 1% | |
| influence This indicator reflects the overall/total impact of an article in the research community at large, based on the underlying citation network (diachronically). | Top 10% | |
| impulse This indicator reflects the initial momentum of an article directly after its publication, based on the underlying citation network. | Top 10% |
