Warren Buffett isn’t just a great investor.
An index measuring returns adjusted by price fluctuations
shows the billionaire chairman and chief executive officer of
Berkshire Hathaway Inc. (BRK/A) has done better than every long-lived
U.S. stock and mutual fund.
Looking at all U.S. stocks from 1926 to 2011 that have been
traded for more than 30 years, a paper published this week by
the National Bureau of Economic Research calculated that
Buffett’s so-called Sharpe ratio is 0.76 since 1976. That was
about twice the stock market’s 0.39.
The ratio is also larger than all 196 U.S. mutual funds
that have been around for 30 years. The median Sharpe ratio for
them is 0.37.
The review of Buffett’s investments concluded he has been
rewarded for his use of leverage, coupled with a focus on cheap,
safe, quality shares.
The study said Buffett is willing to take on borrowing to
finance investment, then picks stocks that have low volatility,
are cheap — with low price-to-book ratios — and are high
quality, meaning they are profitable and have high payouts.
By breaking down Berkshire Hathaway’s portfolio into
ownership of publicly traded stocks versus wholly owned private
companies, the authors also found the tradable equities
performed best. That suggested to them that Buffett’s returns
are due more to stock selection than to the pressure he puts on
companies he has stakes in to improve their management.
“Buffett’s performance appears not to be luck, but an
expression that value and quality investing can be
implemented,” said Andrea Frazzini and David Kabiller of AQR
Capital Management LLC and Lasse H. Pedersen of Copenhagen
Business School. “If you travel back in time and pick one stock
in 1976, Berkshire would be your pick.”
* * *
“Secular stagnation is a nice academic concept, but
unfortunately it doesn’t fit with the data,” Slok is telling
clients in recent presentations.
Summers attracted attention after he told an International
Monetary Fund conference last month that there is a risk of a
prolonged period of weak economic growth and hiring in the U.S.
Not so, said Slok, Deutsche’s New York-based chief
international economist who used to work at the IMF.
Wealth continues to increase and will eventually spur
growth, the drag of fiscal policy on the economy is lessening
and wages are rising in every industry except construction, he
said. While an aging population will restrain expansion, the
U.S. will remain innovative, he said.
Slok noted work by Harvard University economists Kenneth
Rogoff and Carmen Reinhart that found it takes seven years to
recover from banking and housing crises.
“Add seven years to 2007 and we may be closer to growth
than many people think,” he said.
* * *
U.S. stock and bond movements “greatly influence” those
elsewhere, yet shifts abroad don’t impact American assets.
So says Pierre LaPointe, head of global strategy and
research at Pavilion Global Markets Ltd. in Montreal. The MSCI
USA Index explains about 40 percent of the variance of similar
gauges in Germany, France and the U.K since 2000. The proportion
is lower in Asia and as high as 52 percent in Canada.
By contrast, fluctuations in equities outside the U.S.
explain only 1.4 percent of the variance in the MSCI USA Index.
The same principle is true for fixed income. Since 2000, as much
of 35 percent of the daily volatility in European bonds can be
traced to U.S. bond price action. It’s 63 percent in Canada.
“As major central banks of the world are set on diverging
paths in terms of monetary policy, we find that the U.S. economy
will have the greatest gravitational pull in 2014,” said
LaPointe. “The tapering process in the U.S. will cause a short
pullback in global equities.”
* * *
Central bankers in major economies may find they’re being
The study also said people don’t pay attention to the
official goals and react sluggishly to persistent shifts in
prices, said economists Bharet Trehan and Maura Lynch of the
regional Fed bank.
What they do notice is if the oil price swings, suggesting
households use highly volatile energy prices as a “rule of
thumb for updating their inflation expectations,” the paper
* * *
Central banking is getting more of a feminine touch.
Women now make up 46 percent of central bank employees, an
increase of one percentage point from a year ago, according to
the Central Bank Directory 2014, published last week by Central
Still, only nine percent of 189 central banks are run by
women and only three of the 28 new governors who took the helm
this year are still in office were female. The total number of
central bankers increased 0.8 percent to 474,572 from a year
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