Individual Gurus

Does Warren Buffett consistently keep Berkshire Hathaway in market-beating form? If so, how does he do it? In his annual letters to stockholders, he includes company performance and benchmark data and describes in general terms how he goes about investing. He sometimes shares his thoughts on the current state of and prospects for the U.S. equity market. Using the annual performance data in Warren Buffett’s 2012 letter to Berkshire Hathaway shareholders for 1965 through 2012 (48 years) and the investing approach described in his letters of 1977 through 2012, we find that: More…

Each year, Forbes calculates the performance of columnist recommendations assuming: (1) equal initial investments in each stock pick when published; (2) 1% trading friction for each purchase; and, (3) matching benchmark investments in the S&P 500 Index for each pick with no trading friction. Because matching benchmark investments are spread across the year, the benchmark performance is not the same as the annual performance of the S&P 500 Index. In his column for the February 11, 2013 issue of Forbes, Ken Fisher reports the performance of the recommendations made in his column during 2012, as follows: “For 2012 my picks would have done 1.7 percentage points better by year-end than the same amounts put into the S&P 500…” Using the data in the 15 annual performance summary columns for 1998 through 2012 (columns for 1996 and 1997 are apparently unavailable online), we find that: More…

In his 2013 book The Little Book of Market Myths: How to Profit by Avoiding the Investing Mistakes Everyone Else Makes, author Ken Fisher, chairman and CEO of Fisher Investments, “covers some of the most widely believed market and economic myths–ones that routinely cause folks to see the world wrongly, leading to investment errors.” His hope is that “the book helps you improve your investing results by helping you see the world a bit clearer. And I hope the examples included here inspire you to do some sleuthing on your own so that you can uncover still more market mythology.” Some notable points from the book are: More…

As of the end of 2012, we are not adding any more forecasts to the Guru Grades database.

We have revised and expanded the project description and findings as a preliminary Guru Grades report, based on 6,459 graded forecasts from 68 gurus.

We will finalize the report after grading 126 pending forecasts during 2013. Adding this small number of additional grades should not materially affect preliminary results.

Is Warren Buffett’s track record explicable and replicable? In the August 2012 draft of their paper entitled “Buffett’s Alpha”, Andrea Frazzini, David Kabiller and Lasse Pedersen model Warren Buffett’s exceptional investing performance based on replicating the exposure of the publicly traded holdings of Berkshire Hathaway to six factors. Four of the factors are those commonly used to explain stock returns: market return, size, book-to-market ratio and momentum. The other two factors are betting-against-beta (buy low beta and avoid high beta) and quality (profitable, growing, dividend-paying). Using monthly stock returns and balance sheet data for a broad sample of U.S. stocks and quarterly Berkshire Hathaway SEC Form 13F holdings during 1976 to 2011, along with open-end active mutual fund performance data during 1980 through 2009, they find that: More…

In a series of emails, Jim Rohrbach, president of Investment Models, Inc., expressed disagreement with the findings of “Jim Rohrbach’s Technical Timing Approach” and requested removal of the review. So that readers can assess the basis of his request, here are the verbatim  emails, with raw links replaced by descriptive links: More…

A subscriber suggested review of the Arora Report trading performance. According to the offeror, this performance derives from application of the “ZYX Change Method”, which “is the culmination of over a quarter of a century of experimentation in developing fundamental, technical, and quantitative models as well as implementing gray boxes to execute the models in a variety of market conditions. …The method consists of six screens to be applied in a specific order and trade management guidelines.” In describing the performance data, the offeror states: “Every closed trade since inception in 2007, without exception, is included in the following performance record. …Typically, these stocks have enough liquidity to easily enter or exit large sizes.” Using the data for all 211 closed trades and other information on the Arora Report site available as of the end of May 2012, we find that: More…

A reader suggested a review of the stock market commentary of Mark Hulbert, editor of the Hulbert Financial Digest, which tracks the recommendations of a wide range of investing newsletters. He is also a regular columnist at MarketWatch. Because Mark Hulbert uses his Hulbert Stock Newsletter Sentiment Index (HSNSI) as a principal quantitative tool in formulating his market outlook, we evaluate the usefulness of that index in predicting stock market returns rather than his qualitative commentary. HSNSI “reflects the average recommended stock market exposure among a subset of short-term market timers tracked by the Hulbert Financial Digest.” Mark Hulbert presents HSNSI as a contrarian signal for future stock returns; when HSNSI is high (low), he views the outlook for stocks as generally bearish (bullish). Using a sample of 275 values of HSNSI over the period July 2002 through May 2012 (generated by searching MarketWatch.com for “HSNSI” and its predecessor “HSSI”) and contemporaneous daily closes of the S&P 500 Index, we find that: More…

Was John Maynard Keynes, famous for contributions to macroeconomic hypotheses, a superior investor? In their March 2012 paper entitled “Keynes the Stock Market Investor”, David Chambers and Elroy Dimson evaluate the investment philosophy, strategies and performance of John Maynard Keynes based on his discretionary trading for the King’s College endowment (and, by similarity, for his own account). A key performance measure they apply is buy-and-hold abnormal return (BHAR), defined for each security as the geometric difference between the security’s cumulative total return over a specified interval and the cumulative beta-adjusted return on the market over the same interval. They combine BHARs for individual securities by averaging (equal weighting). Using King’s College endowment annual investment reports (including lists of holdings) and transaction records (567 buys and 387 sells) for portfolios managed at Keynes discretion for fiscal years 1924 through 1946 (ending in August), along with associated security prices/dividends and estimated UK market index levels, they find that: More…

As suggested by readers, we evaluate here Douglas Kass’ outlooks for the U.S. stock market since mid-2006 as extracted from his Seabreeze Partners blog. Douglas Kass is founder and President of Seabreeze Partners Management, Inc., which “specializes in the management of alternative investment products.” He writes regularly for TheStreet.com (apparently the source of blog articles) and appears frequently on CNBC. The table below quotes forecast highlights from the cited source and shows the performance of the S&P 500 Index over various numbers of trading days after the publication date for each item. Grading takes into account more detailed market behavior when appropriate. Red plus (minus) signs to the right of specific forecasts indicate those graded right (wrong) based on subsequent market behavior, while red zeros denote any complex forecasts graded both right and wrong. We conclude that: More…