Copying Warren Buffett; does it pay off?
Investors look for return and some of these investors try to beat the market. Mimicking a highly regarded investor may seem like an easy strategy to follow to earn excess returns without taking additional risk. Warren Buffett is probably the first investor people would choose to mimic because of his exceptional performance over his career who has built up to a capital of over 80 billion USD. This research looks into the strategy of mimicking Berkshire Hathaway’s buy and sell transactions one quarter after the actual transactions made in the period starting medio 2014 up until ultimo 2017. The returns are tested before the transaction and compared with two periods after the transaction, namely the first year after the transaction and from the transaction up until now. This is compared with four relevant benchmarks on the Capital Asset Pricing Model using a cross-sectional approach and a panel data analysis. I found outperformance on the short term, which is one year, using the cross sectional approach. However, I found no evidence of excess returns using this strategy with the panel data analysis, but I found no evidence of underperformance either. On the long term I found no abnormal returns using either of the approaches. Therefore, similar results can be expected when investing in just a broadly diversified index fund with less risk and less transaction costs.