Let Warren Buffett, David Einhorn, George Soros, and David Tepper WORK FOR YOU. If you want to beat the low cost index funds by an average of 6 percentage points per year look no further than Warren Buffett’s stock picks. That’s the margin Buffett’s stock picks outperformed the market since 2008. In this free report, Insider Monkey’s market beating research team identified 7 stocks Warren Buffett and 12 other billionaires are crazy about. The details are below.
Think you’re a better investor than Buffett? Most investors do. That’s why they invest in index funds or try to actively pick large-cap stocks. Don’t make the same mistake. Three decades ago Buffett published an article titled “The Superinvestors of Graham-and-Doddsville” in a Columbia Business School magazine. The article was challenging Eugene Fama’s “efficient markets” hypothesis, telling investors that superinvestors who have been investing in various value stocks have been outperforming the market by large margins. Eight years later Fama confirmed Buffett’s statements in an academic research paper by revising his “efficient markets” hypothesis. Well, Eugene Fama received the Nobel Prize in economics in 2013 for his studies on efficient markets whereas Warren Buffett became one of the richest man on the face of the earth by generating abnormal returns in “efficient markets”.
Another finance icon, John Bogle, turned The Vanguard Group into a mutual fund powerhouse by creating and promoting index funds and passive investing. I understand that you may not have known Warren Buffett 25 years ago but everybody in the finance world knew Buffett 15 years ago. Do you think it was a good idea to invest in an S&P 500 index fund or imitate Buffett’s stock picks in 1999? We already know that Buffett has been killing it before 1999 but “efficient markets” may have eliminated Buffett’s edge in investing by 1999.
Insider Monkey compiled the historical 13F filings of Berkshire Hathaway as well as more than 1100 hedge funds. 13F filings are quarterly filings where hedge funds and financial institutions reveal their portfolio of publicly traded stocks once a quarter. They have 45 days to disclose their end of quarter positions, so some people argue that these filings aren’t “timely”. Well, in our analysis we used even a longer 2-month delay to imitate Warren Buffett’s 13F portfolio.
Our analysis showed that Buffett’s 13F portfolio returned 0.55% per month between 1999 and 2012. That’s 20 basis points higher than the market’s 0.35% average monthly return during the same period. So, Warren Buffett was able to outperform the market by 2.4 percentage points per year. It may sound small but 2.4 percentage points additional return for a $100 billion portfolio means an additional $2.4 billion per year. Buffett tells ordinary investors to stay away from active money managers and invest in index funds. However, he himself doesn’t invest in index funds for the simple reason that his picks, however large they may be, outperform the market by a decent margin.
But wait! Warren Buffett invests large sums of money in stocks like Coca-Cola (KO) and Wells Fargo (WFC) -which is one of the biggest banks in the World– because he literally has tons of money to invest and he can only invest them in the largest stocks. Actually he thinks he can generate much higher returns if he were managing a much smaller portfolio. “I think I could make you 50% a year on $1 million. No, I know I could. I guarantee that,” Buffett said in a 1999 interview. So, instead of doing an exact imitation of Buffett’s portfolio, we can give equal weights to each stock that is in Buffett’s portfolio. This way smaller-cap stocks will be able to contribute more to our overall returns. Buffett’s equal weighted 13F portfolio returned 0.89% between 1999 and 2012. You read that right. Buffett’s equal weighted portfolio outperformed the market by an average of 0.54 percentage points per month between 1999 and 2012. If you had invested in a similar portfolio between 1999 and 2012 you would have outperformed the market by an average of 6.7 PERCENTAGE POINTS PER YEAR.
Do you still think you are a better investor than Warren Buffett? Let me give you one more result from our research before you answer this question. You may be thinking that Buffett’s stock picking ability may have been declining as he is getting older or as more investors imitate his style of investing. You would be wrong. Warren Buffett’s equal weighted portfolio returned 0.78% between 2008 and 2012, vs. 0.29% gain for the market. Buffett was able to outperform the market by an average of 6 percentage points per year more recently. Index investors would have generated much higher returns if they had simply imitated Buffett’s stock picks.
There were 46 stocks in Warren Buffett’s latest 13F portfolio. It may be very expensive to buy 46 stocks even when you are paying $9.99 per trade on TD Ameritrade. That’s why we are going to narrow down this list to 7 stocks by ranking Buffett’s picks based on their popularity among 60+ other billionaire investors who also disclose their holdings quarterly. We are basically asking 60+ other billionaires whether they would bet at least $10 million on any of Buffett’s 46 stock picks. Here are the 7 stocks Warren Buffett and other billionaires are crazy about:
