Warren Buffett's claim of 50% IRR on 1 million USD
If WB started over today and managed only 1 million USD, do you think he can get his so-claimed 50% IRR on investing in public stocks?
https://finance.yahoo.com/news/warren-buffett-fri…
Let's also assume WB plays fair like everyone else and must use an anonymous account so when he buys/sells stocks the market doesn't recognize it's him so there is no Buffett halo effect. He's the same as an average Joe.
Does he have what it takes or was he just lucky in the past (when markets were far more inefficient)?
I did the math. See below for proof.
Warren buffet claim: 50%
Adjustment for humility: -10%
Adjustment for GOAT status: 25%
Estimated return: 65%
Hope this helps.
Thing is, what are we assuming here? I'd argue that Warner Brothers (WB, see what I did there) played a non-trivial part in making markets more efficient, or at least in his niche, and his style. Has certainly popularized investing. Do we assume that if Warner Brothers were to start over, he'd be playing in the world where WB never existed so markets might be less efficient, or at least, there'd be less laggards hunting for deep value picks?
Cuz if you assume that, then you can't blame WB for playing in a time when shit was inefficient and thus attribute most of his returns to luck (playing in the right time). He had the vision to know what philosophy would work for him, and he helped to popularize this shit immensely and contribute to more efficient markets in a small way. It's easy to say that we all could've done the same if we were investing in the 60s, but truth be told, we don't know if we'd even pursue investing careers or do the same things WB did if we were born in that era, because investing was NOT hot, it was not a sexy career, it did not pay more than other jobs, and there were no resources to educate yourself. Etc
The guy was doing things like buying companies that made maps and maximizing value. I don't know if other people were doing that in the 60s. Has similar shades to Jobs/Gates, were able to get good at something before it became popular, then took off once it became popular.
Could he do that again today, maybe, there's a lot of people investing though so a lot of stones have already been turned over.
Highly unlikely. Even with the whataboutism of Buffett not being a stock picker, it’s highly likely that other people would have done similar things (Charlie Munger for instance was +15% IRR vs the DJIA for 15 years before joining up with Buffett) and more or less took Buffett’s place. I mean maybe public markets would have been marginally more inefficient but we’re talking max a couple hundred bps and that’s probably pushing it.
So no, I highly doubt Warern Buffett can start over today and run an investment shop that clips a 50% IRR. Could probably still do well though.
If Ben Graham had done something outside of finance then that’d probably be more impactful but even then someone would’ve figured it out eventually.
Is Warren Buffett even a good investor? Seems like he rode the value and quality factor for years and had a ton of drawdowns. Compare this with a PM / analyst at a good platform that can make alpha every year with less vol. not sure Buffett even in prime would compare favorably with a top quartile pod investor today
agreed, I work at a MM and it’s common to hear senior ppl say things like “Warren Buffet couldn’t get a job here.”
Agreed. Way more impressed by a PM that can make 3-4 gross on market neutral than Buffett investing in the 70s/80s. Much harder gain and more real alpha vs beta and factor risk
it's apples to oranges here.
yeah, consistent 3-4 gross on market neutral with limited factor exposure is impressive. hard game, let's not downplay that.
but Buffett during the 70s/80s wasn't even focused on maximizing returns, so not surprising the stockpicking was less interesting. he was running more $ and taking low risk by investing out of insurance vehicles. no shorts, which limits how much risk you take on the long side. his game was S&P returns + a few points of long alpha + 0-5% from underwriting profits every year from the float. he simply wasn't going for home runs anymore, just trying to stay rich over a multi decade period.
contrast that with his hedge fund returns in the 50s/60s - over 30% gross annualized over 10 years vs. hsd return for the index. yeah, he had factor exposure, but would still take a 20x multiple of money over 10 years.
Crazy but maybe not Warren Buffet doesn’t invest like a HF. Stupid comment.
kind of feel this is like when people say an athlete isn't good because they are boring. Buffett doesn't have the crazy blow ups, but that's probably why he's considered the best.
Warren Buffet should focus on getting BFOCX from going to the shitter.
Buffett spams long-dated naked puts
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