No. of Recommendations: 3
Paper discussed in the podcast linked in the OP:
Buffett’s Alpha
https://www.tandfonline.com/doi/full/10.2469/faj.v...“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.”
Thinking about Berkshire after Buffett's departure, how about:
- Run a quant fund of the S&P500 re-weighted on value, quality, profitability and other measures.
- Use cheap leverage from insurance float to juice the returns (meaning actually invest much of the float).
- Buffett himself designs the quant criteria (before he leaves, obviously)?
Pros:
- Doesn't need Buffett's investing genius to manage it.
- The S&P500 is $50 Trillion. Top 100 companies are all > $100 billion. Berkshire's size not *too much* of a problem.
- Fairly safe from manager error. A legitimate concern post-Buffett is that Berkshire could make a very large acquisition which turns out badly.
- Liquid if a truly wonderful opportunity does come up (contradicting the point above).
Cons:
- It won't shoot the lights out.
- Got to be more than that...
With leverage, could this scheme achieve a satisfactory, even market beating result?
Terrible idea?
Buffett's plan all along? (lol)
Or they could just take Buffett's advice and create an S&P500 index fund...
