A new NBER working paper (abstract; PDF) analyzes Warren Buffett‘s Berkshire Hathaway and the drivers of its stock market success. Beyond benefiting from Buffett’s ability to buy low and sell high, Berkshire has also been able to borrow cheaply:
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 to his effect on management. These results have broad implications for market efficiency and the implementability of academic factors.
What is altruism? Warren Buffett recently proposed a surtax on the very wealthiest Americans, including himself to help reduce the federal deficit. (This is a mild version of Obama’s perfectly reasonable proposal to tax family incomes above $250,000, i.e., fewer than 2% of families.) Buffett is being altruistic—the tax will reduce his net income. I always thought altruism was desirable, yet I’ve seen Buffett lampooned in the press.
I suppose one can argue that he’s really doing this to preserve the value of Berkshire Hathaway stock. (The same argument might apply when I donate blood—perhaps I do it because it makes me feel good, not to help others.) But: it’s a pretty sorry state of the world when someone offers to reduce his circumstances in order to help his country and is mocked.
That’s my phone number. It has been for the past eight years and presumably will be for the next eighty. Until they make the Google Chip for my brain. Initially it lived inside a Blackberry. I vaguely remember ordering it online from a company that sold Blackberries to deaf people. I’m not deaf.
For some reason they gave me a Connecticut area code even though I live in New York. I always tell people it’s my “Greenwich office.” Greenwich is famous for all the hedge funds there. It’s a joke. I hate Connecticut. Too many roads have the same name and all run parallel to each other. You drive on them for hours until you finally realize you’re simply never going to arrive at your destination. Every house is bigger than the next in Connecticut. It makes me feel anxious and jealous.
I see little kids riding bicycles outside these mega-mansions. I hate them. Then I hate myself for hating little kids. There’s nothing good about Connecticut.
Except my phone comes from there somehow. Read More »
Peter Buffett, son of the investment giant Warren Buffett, admits that he won the “ovarian lottery.” But perhaps the best part of this genetic jackpot is that his dad didn’t pressure him to get involved at Berkshire Hathaway. Instead, the Buffett heir was encouraged to pursue his own interests, like composing music and philanthropy. This […] Read More »
Who will succeed Warren Buffett as CEO of Berkshire Hathaway?
That’s still up in the air, but we can tell you the two people who won’t be running Berkshire:
1. The discredited David Sokol
2. Peter Buffett, Warren’s son.
Peter Buffett, at 53, is the youngest of three Buffett kids, and he’s the star of our latest Freakonomics Radio podcast, “Growing Up Buffett.” (you can download/subscribe at iTunes, get the RSS feed, listen live via on the media player at the top, or read the transcript here) He’s a musician, author, and philanthropist, and we spoke to him for an upcoming hour-long radio program called “The Church of Scionology.” It’s about family business, and takes a hard look at what happens when the scion of a family takes over upon the founder’s departure. We mine the academic literature on the topic and talk to people around the world about the ins and outs of family business. Read More »
A group of 40 American billionaires, led by Bill Gates and Warren Buffett, has publicly vowed to donate at least half of their wealth to philanthropic causes. Gates and Buffett, through their project The Giving Pledge, hope to persuade the 400 richest Americans to join them. If successful, the duo could generate an unprecedented $600 billion for charity (Americans as a whole donate about $300 billion a year). A laudable example of pure altruism, right? German shipping tycoon Peter Krämer thinks not Read More »
The Times (of London) recently reported that “The F.B.I. has been forced to transfer agents from its counter-terrorism divisions to work on Bernard Madoff‘s alleged $50 billion fraud scheme.” This might lead you to ask an obvious counter-question: Has the anti-terror enforcement since 9/11 in the U.S. helped fuel the financial meltdown? That is, has […] Read More »
This week many of you will receive tax rebate checks from the I.R.S. Yes, that $600 you are receiving is meant to help kick start the economy. The government tried the same thing in 2001, sending out $300 checks. But this time, there’s a difference — not all of us are getting a check. In […] Read More »