AQR Capital Management, LLC
Two Greenwich Plaza, 3rd Floor
Greenwich, CT 06830
Institutional Affiliation: AQR Capital Management
NBER Working Papers and Publications
|November 2013||Buffett's Alpha|
with Andrea Frazzini, Lasse H. Pedersen: w19681
Berkshire Hathaway has realized a Sharpe ratio of 0.76, higher than any other stock or mutual fund with a history of more than 30 years, and Berkshire has a significant alpha to traditional risk factors. However, we find that the alpha becomes insignificant when controlling for exposures to Betting-Against-Beta and Quality-Minus-Junk factors. Further, we estimate that Buffett's leverage is about 1.6-to-1 on average. Buffett's returns appear to be neither luck nor magic, but, rather, reward for the use of leverage combined with a focus on cheap, safe, quality stocks. Decomposing Berkshires' portfolio into ownership in publicly traded stocks versus wholly-owned private companies, we find that the former performs the best, suggesting that Buffett's returns are more due to stock selection than...
Published: Andrea Frazzini & David Kabiller & Lasse Heje Pedersen, 2018. "Buffett’s Alpha," Financial Analysts Journal, vol 74(4), pages 35-55.