Any doubts regarding Warren Buffett's mastery of investing can now be laid to rest. A recent study by two professors should confirm that Buffett is one heck of an investor -- possibly the greatest of all time. It showed that merely mimicking Buffett's purchases after he made them delivered almost twice the return of the S&P 500 Index during the past three decades.
According to Profs. Gerald Martin and John Puthenpurackal's study, "Imitation Is the Sincerest Form of Flattery," investors would have earned an average annual return of 24.6% for 30 years, simply by buying what Buffett bought. Better yet, this annual rate of return came from buying the stocks after Buffett had disclosed them in regulatory filings.
Don't cry for Buffett, though. The company through which he made his investments, Berkshire Hathaway
To really bring the point home, $10,000 compounded at 24.6% for 30 years becomes more than $7 million. In the words of Mohnish Pabrai, "[a] monkey would have beaten the pants off the S&P 500 by following Warren's buying and selling."
Buffett's investing philosophy, as the investing world knows, is to bet big on simple, wide-moat businesses. Over the past three decades, the study showed that an average of 73% of Berkshire's equity portfolio was invested in just 5 stocks. As Buffett has often said, and the study seems to confirm, "Diversification is an excuse for ignorance."
Buffett's home runs include Washington Post in 1973, turning an $11 million investment into $1.3 billion by the end of 2006. Wesco Financial
Never too late to start
Berkshire's most recent regulatory filing showed that the company purchased roughly 14 million shares of used-car dealer CarMax
It might be wishful thinking to assume that Berkshire can compound its returns at rates remotely close to those of the past 30 years. A victim of its own fantastic returns, it must deploy far more capital than during its salad days. Yet I believe that Berkshire can still beat the market's annual rate of return for years to come. Fortunately for us, in investing, it pays to be a copycat.
Berkshire Hathaway is a recommendation of both the Motley Fool Stock Advisor and Inside Value newsletters. CarMax and USG are Inside Value recommendations. Take a free trial to any of our newsletters here.
Fool contributor Sham Gad is managing partner of the Gad Partners Funds, a value-focused concentrated investment partnership based after the 1950s Buffett Partnerships. He holds no stakes in the securities mentioned. The Motley Fool holds stock in Berkshire Hathaway. The Fool's disclosure policy is worth imitating.