According to Profs. Gerald Martin and John Puthenpurackal's study, "Imitation Is the Sincerest Form of Flattery," investors would have earned an average annual return of 24.6% for 30 years, simply by buying what Buffett bought. Better yet, this annual rate of return came from buying the stocks after Buffett had disclosed them in regulatory filings.
Don't cry for Buffett, though. The company through which he made his investments, Berkshire Hathaway (NYSE: BRK-A) (NYSE: BRK-B), generated an even higher return of 27.7% per year! Compare that to the S&P's very respectable 12.8% return in the same period. In an industry where three out of four mutual fund managers fail to beat the market, you could have crushed Wall Street by more than 11%!
To really bring the point home, $10,000 compounded at 24.6% for 30 years becomes more than $7 million. In the words of Mohnish Pabrai, "[a] monkey would have beaten the pants off the S&P 500 by following Warren's buying and selling."
Nothing fancy
Buffett's investing philosophy, as the investing world knows, is to bet big on simple, wide-moat businesses. Over the past three decades, the study showed that an average of 73% of Berkshire's equity portfolio was invested in just 5 stocks. As Buffett has often said, and the study seems to confirm, "Diversification is an excuse for ignorance."
Buffett's home runs include Washington Post in 1973, turning an $11 million investment into $1.3 billion by the end of 2006. Wesco Financial (NYSE: WSC), run by Buffett's longtime friend and business partner Charlie Munger, was also a smash hit, having returned nearly 200 times its investment over the past 31 years. More recent examples of Buffett's success include USG (NYSE: USG) and PetroChina (NYSE: PTR).
Never too late to start
Berkshire's most recent regulatory filing showed that the company purchased roughly 14 million shares of used-car dealer CarMax (NYSE: KMX). Earlier this year, Buffett began scooping up Burlington Northern Sante Fe (NYSE: BNI), subsequently accumulating at least 15% of the company. It's no secret that some Berkshire investments are made by Lou Simpson over at GEICO Insurance, an accomplished investor in his own right. Buffett has repeatedly said that Simpson could go out on his own and earn multiples of his current salary, but chooses to stay at GEICO.
It might be wishful thinking to assume that Berkshire can compound its returns at rates remotely close to those of the past 30 years. A victim of its own fantastic returns, it must deploy far more capital than during its salad days. Yet I believe that Berkshire can still beat the market's annual rate of return for years to come. Fortunately for us, in investing, it pays to be a copycat.
