What if Warren Buffett picked your stocks for you?
Do you spend hours trying to figure out which stocks to buy only to sell those same stocks when the market goes down. Sound familiar? Remember that stocks represent actual businesses in the real world, they are not simply pieces of paper that trade around or a series of bits and bytes on a computer screen. Let's face it, you probably never knew anything about those companies in the first place and therefore you had no conviction of whether to buy or sell when the market became manic depressive.
A serious investor spends more time, than you or I likely have, researching the best businesses to allocate capital to. Even if you have the time and the aptitude to thoroughly research businesses, you are still left in the unenviable position of competing against some of the smartest people around. That is a harsh reality, but don't feel bad, far less than half of professionally paid money managers beat beat their respective benchmarks in any given year and less than 10% outperform over any period longer than 5 years. This means that you are probabilistically better off simply holding a benchmark market index fund.
But, what if there was a way to still have a good chance at beating a market benchmark such as the S&P 500 by tapping into the wisdom of some of the greatest investors of all time? Do you think you might have more confidence in the stocks you hold?
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Lucky for you, every fund deploying more than $100 million is required to report their equity holdings in their funds each quarter to the Securities Exchange Commission (the SEC) on a 13F reporting form. If you want to do your own research, you can look up the holdings of funds directly at the SEC website or you can look at a number of third party sites that track the filings for you.
One such site is Guru Focus, which we have used for years to research stocks, read articles by community members, and run screens in addition to looking up 13F reporting.
So, instead of spending hours trying to analyze a business, what if you had simply bought the stocks, for example, that Warren Buffett reports every quarter on behalf of his company Berkshire Hathaway?
The following is an overview and backtest of a strategy that seeks to emulate The Oracle's portfolio based on the company's 13F reporting requirements.
We execute this strategy by simply taking an equally weighted basket of Warren Buffett's top 20 holdings and consistently re-balancing our portfolio every quarter to roughly equal what Warren is doing with his portfolio. It is important to note that we won't get the exact same prices or deals that he does while he moves billions of dollars around the capital markets, but we are only trying to get a similar result to the Oracle of Omaha.
Let's take a look at how this strategy would have worked going back nearly 16 years to 2001.
Again, we simply buy the top 20 holdings of Berkshire Hathaway each quarter and then rebalance when the Oracle does. The below chart plots our performance against the S&P 500 Total Return index. ( Total Return = price return + dividends received ) The light turquoise colored line shows the result of letting Buffett pick stocks for you and the gray color on the chart shows the performance of indexing the S&P 500, which is a generally accepted measure of the performance of the stock market in the United States over a given time period.
source: whalewisdom
The full backtest report is available to view here.
As you can see in the chart above, copying an equal weight version of Warren Buffet's portfolio would have nearly doubled the cumulative total return of the S&P 500 and outperformed by 2.6% annualized over the period 2001 through 2017. The chart is displayed in Total Return (price appreciation + dividends) Over this time period a strategy following Warren Buffett would have turned $10,000 into apx. $40,000. Compared to a $10k investment in the S&P 500 which would have turned into apx. $26,000.
If you're like me, you are excited by the outperformance but probably left wondering how to implement this type of portfolio without getting bogged down in trading fees and spending hours tracking, building, and maintaining the account. If you've done any investing in the past, you know that there are fees for each trade which would usually cost around $10 per trade. In this example, running a 20 stock portfolio would cost about $200-400 in trading fees each year to track and maintain depending on the amount of portfolio turnover each quarter.
Thanks to innovation in the financial-tech industry, there is now an easy way to track portfolios such as Warren Buffett's in the real world without paying very much in trading fees all with the ease of clicking one button.
Let me introduce you to Motif Investing, a financial tech company that is working to democratize access to investing. They have created a platform that allows you to invest in Motifs or groups of stocks and/or ETFs (exchange traded fund) for the cost of 1 trade ($9.95)
You'll need to open an account with them first as you would with any broker before you can buy the Warren Buffett model portfolio or any other of the thousands of motifs on the platform.
We want to be clear that we have no direct relationship with MotifInvesting.com, we simply love the product they have created because it has allowed us to run various portfolios efficiently and at low cost. The only benefits we get from you signing up on the platform are a credit on our own trading fees as well as a $1 'Creator Royalty' credit each time you purchase a portfolio that we created.
Here's a little more on how this works. If you want to invest alongside Warren Buffett or any other of the Gurus we follow at 13F Investor:
1. Sign up for Motif Investing. (the portfolio is visible without signing up if you choose to simply view it and use a different brokerage company)
2. Follow our link to the Warren Buffet 13F model portfolio that we created.
3. Click buy in order to purchase the whole portfolio for $9.95 ( the usual cost of buying only 1 stock or ETF on other platforms)
4. Re-balance the portfolio each quarter automatically. You'll get a notification from Motif if a portfolio that you own is updated by the creator.
Pretty easy?
Disclaimer: We are not your investment advisor. We are an informational blog seeking to educate investors on ways to manage their own money. Due to regulations, we do not give any specific individual investment advice. YOU are absolutely responsible in every way for deciding what to invest in and should consult an investment advisor if and when you feel you need to.
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