One bit of news that gets quite a bit of publicity every few months concerns what Warren Buffett was buying or selling the previous quarter. What are his new positions? What did he reduce exposure to, or close out completely?
Which makes sense, of course. It’s usually a good idea to know what The Oracle is up to, given his track record. One question that gets tossed around is whether it’s worth buying his picks once they are made public.
There seems to be a lot of disagreement over this issue. Believers say that it takes the guesswork out of investing/trading. After all, you have arguably the best investor of all time doing your homework for you, and let’s face it: Warren Buffett’s homework > your homework.
Others disagree, and seem to have the edge from a reasoning standpoint going into the experiment (in my opinion, of course). They counter that we don’t know the exact date of his trades, which are likely made at a more attractive price compared to what we could buy post-Oracle’s Blessing. The stocks have already received their Buffett bounce and anything more will be minimal at best. Basically, the ship has sailed.
To test this I tracked his major equity purchases going back to 4Q 2009 and determined their returns on the day they were made public, as well as how they performed one, three and six months down the road. I then tracked the S&P 500 over the same time periods as a comparison. The results can be seen below, or by following this link:
While we can’t know Buffett’s returns over the same time periods, it does appear that going with Warren has returned better than the S&P 500 on average over the 1-month and 3-month durations. The advantage falls apart at six months, which could be due to the fact that the next quarter’s 13F is released within the time frame.
Overall it appears there is truth in both arguments, which seems to happen often. Bearing in mind this only used data going back two years, there does appear to be a slight advantage to picking with Warren if using the right time frames. However, it isn’t the holy grail of alpha that some might suggest (or hope).