A recent academic study shows what many people have long believed. That Warren Buffett’s stock picks for Berkshire Hathaway have beaten the market by a commanding margin. The study by Gerald S. Martin and John Puthenpuracakal entitled, “Imitation is the Sincerest Form of Flattery: Warren Buffett and Berkshire Hathaway” examines Buffett’s stock picking ability from 1980-2003. They find:
Ruling out the major alternate explanations to Berkshire’s investment performance leaves us with the potential explanation that Warren Buffett is an investor with superior stock-picking skills that allows him to identify undervalued securities and thus obtain risk-adjusted positive abnormal returns. Consistent with this explanation, we find a significant positive stock price reaction around the announcement that Berkshire has acquired a stock suggesting that Berkshire’s investments are viewed as positive information signals by the stock market.
With Buffett shying away from open-market stock market purchases, except for takeovers, there has been little for Buffett-followers to grab hold of recently. Buffett’s biggest investment at the moment seems to be a bearish bet against the U.S. dollar. Some commentators have noted that Buffett has been on the losing end of this trade during 2005. It should not be surprising that in light of this and scandals at Berkshire subsidiary Gen Re, the stock of Berkshire Hathaway has been weak with the stock down some 5.6% (as of Oct. 11) since the beginning of the year.