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December 09, 2013 at 09:17 AM
Warren Buffett has been showered with encomiums during his storied investment career.
Now, a new study by researchers at AQR Capital Management and the Copenhagen Business School calls his investment performance the best among all stock and mutual funds that have existed for at least three decades.
Looking at all U.S. stocks from 1926 to 2011 that have been traded for more than 30 years, the study found that between 1976 and 2011, Buffett’s Berkshire Hathaway generated a Sharpe ratio of 0.76, compared with the stock market’s 0.39.
The Sharpe ratio measures risk-adjusted returns.
In a similar vein, Buffett’s Sharpe ratio was higher than the median ratio of 0.37 for the 196 U.S. mutual funds in existence for more than 30 years.
The study’s authors noted that Buffett’s Sharpe ratio was lower than many investors might have imagined. Moreover, adjusting for the market exposure, his information ratio was 0.66.
“This Sharpe ratio reflects high average returns, but also significant risk and periods of losses and significant drawdowns,” they wrote.
