Warren Buffett the Trader

An analysis of Berkshire Hathaway’s quarterly SEC Form 13F filings during 1980-2006 (2,140 quarter-stock observations) reveals that:

  • Berkshire Hathaway tends to invest in large firms with low book-to-market ratios and large accounting accruals, while avoiding firms with high asset growth and poor past returns.
  • Holdings are concentrated and tilted toward banking, business services, insurance and publishing. The number of stocks held ranges from 5 to 95. The average numbers of stocks held during the 1980s, 1990s and 2000s are 22, 12 and 33, respectively.
  • The median holding period is one year, with approximately 20% (30%) of stocks held for more than two years (less than six months).
  • Over the 1980-2006  sample period, Berkshire Hathaway’s annualized abnormal return from stock holdings (adjusted for market, size, book-to-market and momentum factors) is 7.2%. These returns are substantially independent of those for well-known pricing anomalies, suggesting that Warren Buffett has unique insights regarding future returns.
  • A value-weighted (equal-weighted) portfolio that mimics Berkshire Hathaway’s holdings, reformed quarterly based on company filings, generates an annualized abnormal return of 6% (6.6%) over the entire sample period.
  • When Berkshire Hathaway announces an increase in a stock position, the average market-adjusted return for the stock is 0.7% to 0.9% over the next five days and two weeks, respectively. The immediate price reaction therefore tends to be very incomplete.
  • Net stock sales by insiders (officers, directors, and major stockholders) of companies in which Berkshire Hathaway has a position tend to decrease when Berkshire Hathaway increases its positions, indicating shared private information-

from CXO Advisory

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