Warren Buffett’s Alpha 1977-2009: Chart of the Day

Warren Buffett. We could jot down the nearly endless list of descriptives that would just begin to protray his followers’ feelings towards him. But it’s time consuming, so let’s just put this as a constant: He’s The Man.

We know.

Warren Buffett

But let’s just explore this a bit further. Ordinary investors follow every step Warren Buffett makes. But so do the seasoned professional money managers. They even invest their clients’ funds in Berkshire Hathaway stock. Everybody knows that if they had invested $1000 with Warren Buffett back in the day, they would have been a zillionaire today. We can’t go back in time and invest in Warren Buffett’s investment vehicle, Berkshire Hathaway stock, but we can invest today. But does it make sense to invest in BRK today? Can Warren Buffett generate alpha today, like other smaller hedge fund managers like David Einhorn, Bill Ackman, or Dan Loeb?

Your source for free real-time insider trading data, Insider Monkey, analyzed the returns of Warren Buffett’s Berkshire Hathaway between 1977 and 2009. We ran hundreds of regressions to calculate Warren Buffett’s alpha(skill) for every single month, using both 5-year and 10-year historical performance data. The results based on 10-year data are smoother but paints the same picture as the results based on 5-year data. Contrary to the general perception, Buffett has not had any alpha for the past 10 years. Let us repeat that: Buffett, no alpha, for the past decade. You would have been better off if you had invested your money with David Einhorn. (Technical note: We used Carhart’s four factor model and French’s factor returns to calculate Buffett’s alpha).

Warren Buffett had a phenomenal annual alpha of 19% between 1956 and 1968. Our current analysis shows that his alpha was more than 30% between 1977 and 1981. During the 80′s and 90′s, his annual alpha declined but was still better than 12%. For the ten years leading to mid-2003, his annual alpha stayed around 12% per year. Since then, it started a steep decline; by the end of 2004 it was (still a respectable) 6% per year.  Between 2005 and 2008 Buffett’s alpha averaged only 3% per year. Finally, in the ten years ending in 2009, it went virtually to zero. (For regression results and Buffett’s style drift, visit Insider Monkey)

One might argue that Warren Buffett’s alpha cannot be perfectly extracted from the stock performance of Berkshire Hathaway. The recent poor performance and lackluster alpha may be a result of a decline in the “Warren Buffett premium” present in Berkshire stock. Nevertheless, investing in Berkshire Hathaway stock is the only way for many investors to tap into Buffett’s investment know-how, but they just can’t achieve abnormal returns by simply buying Berkshire stock anymore.

blog comments powered by Disqus
Insider Monkey Headlines
Insider Monkey Small Cap Strategy
Insider Monkey Small Cap Strategy

Insider Monkey beat the market by 52 percentage points in 24 months Click to see monthly returns in table format!

Lists

10 Cities with High Demand for Nurses

6 of the Worst Greeting Card Messages Ever Crafted

6 Ways to Make Money in ArcheAge and Build Your Empire

10 Foods To Eat To Lower Cholesterol Levels

The 10 Most Hated Television Characters of All Time

The 30 Worst Halloween Costume Ideas Ever Brought to Horrible Life

10 Vocational Skills in Demand Today with Jobs Waiting to be Filled

10 Best Places to Visit in Central and South America

The 10 Greatest Empires in History Which Nearly Conquered the World

The 6 Cheapest Boarding Schools In America 2015

5 Clear Reasons LoL is Better than DotA, Continues to Rule MOBAs

The Only 9 Teams with a Chance to Win the Super Bowl

The 15 Most Common Phobias in America that Induce Fits of Panic

Top 6 Least Expensive Tourist Destinations in 2014

Jim Goetz, Peter Fenton, Jim Breyer: Top 6 Venture Investors for 2014

Top 15 Billionaires in 2014

5 Pitfalls To Avoid When Buying a Franchise

Top 20 Medical Schools in the US – 2014 Rankings

4 Business Strategies that Turned Jamie Oliver into the World’s Richest Chef

6 Qualities That Make You A Good Team Player

10 High Paying Seasonal Jobs in America this Holiday Season

The 10 Busiest Shipping Lanes in the World

5 Most Valuable Brands in China

The 10 States with Highest Substance Abuse Rates Crippling Their Populace

The Top 10 Things to Do Before You Die That Will Echo for Eternity

The 10 Best Selling Items on Etsy

Top 10 Things to Do in Tokyo, the Greatest City in the World

10 Mistakes on Social Media that Can Harm You and Will Probably Get You Canned

The 10 Best Cities to Find Jobs in 2014

The 10 Most Controversial Songs Of All Time to Hit (and get Banned from) the Airwaves

The 20 Biggest IPOs in US History

The 10 Best Places to Visit in Mexico that Are Beautiful and Safe

7 Bad Habits that Age You Beyond Your Years

The 40 Best Fortune Cookie Sayings That Will Leave You Bemused, Befuddled, or Beguiled

10 Foods to Eat Before a Workout to Make Every Drop of Sweat Count

The 5 Best Documentaries On Netflix You Must See

The Most Heartwarming and Inspirational Story Of This Halloween Season, It Will Make You Cry and Jump For Joy

10 Best Party Songs of All Time to Bring the House Down With

5 New World Order Conspiracy Theories that Will Strangle the World

The 10 Highest Rated Movies of 2014

The 10 Largest Container Shipping Companies in the World

The 10 Largest Armies in the World: Who Should We Be Afraid Of?

Best Warren Buffett Quotes on Money You Need to Hear

The 10 Highest Suicide Rates by Profession

The 20 Most Underrated Movies of All Time

The 10 Fastest Growing Companies in America

The 10 Biggest Outlet Malls in USA

The 5 Most Popular Rap Songs of All Time

The 10 Countries that Eat the Most Meat

The10 Most Expensive Countries to Fly To

Subscribe

Enter your email:

Delivered by FeedBurner

X

Thanks! An email with instructions is sent to !

Your email already exists in our database. Click here to go to your subscriptions

Insider Monkey returned 47.6% in its first year! Wondering How?

Download a complete edition of our newsletter for free!