David Einhorn had an average of 5.5 large-cap stocks in his 13F portfolio between 2008 and 2012. The average value weighted return of these stocks were 23 basis points per month. This is 6 percentage points less than the return of the S&P 500 Total Return Index during the same period. Einhorn’s large-cap picks generated a negative alpha of 4 basis points per month.
We also want to compare the performance of Buffett’s and Einhorn’s top 5 large-cap stock picks. These are more likely to be their highest conviction ideas. Buffett’s top 5 large-cap positions returned an average of 58 basis points per month between 2008 and 2012 and generated a monthly alpha of 43 basis points. David Einhorn’s top 5 large-cap ideas, which included stocks like Apple Inc. (NASDAQ:AAPL) and Microsoft Corporation (NASDAQ:MSFT), returned an average of 31 basis points per month and generated a monthly alpha of 6 basis points.
Our analysis clearly shows that Warren Buffett’s antiquated stock picks not only beat the market and David Einhorn’s large-cap stock picks, they also generated an annual alpha of 5+ percentage points between 2008 and 2012. Warren Buffett is still a better stock picker than most of the star hedge fund managers that are celebrated on the screens or the front pages of the financial news media. If Warren Buffett’s stock picks are so successful, then why did Berkshire underperformed the market in recent years?
There are several factors but our calculations involve only Buffett’s 13F positions. Berkshire Hathaway Inc. (NYSE:BRK-B) still carries a ton of cash in its portfolio and we are pretty certain that you already know cash returns next to nothing. It is also possible that Berkshire’s private holdings didn’t perform as well as his public holdings. Investing directly in Berkshire’s stock may not be the best way of taking advantage of Buffett’s superior stock picking ability after all.