The Business of Value Investing.pdf

Develop a Search Strategy 73

what those returns meant to the individual investor. Over the 31

years covered by the study, the Berkshire Hathaway equity portfolio

beat the benchmark in 27 out of the 31 years, on average exceed-

ing the Standard and Poor ’ s 500 Index by 14.65 percent. This per-

formance should come as no surprise. Here ’ s the incredible part. If

investors had simply bought the same stocks that Buffett was buying

for Berkshire over the same period, they would have earned aver-

age returns of 24 percent during the 1976 to 2006 period. And this

means buying the stocks after Buffett had disclosed them in Securities

and Exchange Commission (SEC) regulatory fi lings. You didn ’ t have

to guess what Buffett was buying. You simply had to wait until his

investments became public information and then make the same

invest ments on your own. What ’ s phenomenal here is the wide

margin of outperformance. An average return of 24 percent versus

11 percent implies that you could have spent some time perform-

ing your own due diligence, and odds are you still would have done

better than the index. Even more impressive, you would have done

better than a vast majority of professional investors. A monkey could

have beaten the socks off the market by copying Buffett!

Interestingly, the study concluded that Buffett ’ s performance

was confi ned to a very small number of carefully chosen invest-

ments. In fact, the study found that Berkshire ’ s fi ve top equity hold-

ings averaged 73 percent of the portfolio ’ s value. Buffett is obviously

a unique individual and a brilliant investor without equal. But he

is certainly not alone is delivering incredible performance num-

bers year in and year out. Aside from the names just mentioned, do

some digging, and you will fi nd some excellent candidates worthy

of imitation.

Where to Look

Fortunately, SEC regulations today make it effortless to fi nd out

what other investors are buying and selling. According to SEC rules,

any money manager with over $ 100 million under management is

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