But my favor reason might be in the below abstract from a top-ranked paper on SSRN: that Warren Buffet et al.’s 31 year track record is not consistent with Efficient Market Theory. See Gerald S. Martin (American/Texas A&M) & John Puthenpurackal (UNLV), Imitation is the Sincerest Form of Flattery: Warren Buffett and Berkshire Hathaway:
We analyze Berkshire Hathaway’s equity
portfolio over the 1976 to 2006 period and explore potential
explanations for its superior performance. Contrary to popular belief,
we find Berkshire Hathaway invests primarily in large-cap growth rather
than "value" stocks. Over the period the portfolio beat the benchmarks
in 27 out of 31 years, on average exceeding the S&P 500 Index by
11.14%, the value-weighted index of all stocks by 10.92%, and a Fama
and French characteristic-based portfolio by 8.56% per year. Although
beating the market in all but four years can statistically happen due
to chance, incorporating the magnitude by which the portfolio beats the
market makes a luck explanation extremely unlikely even after taking
into account ex-post selection bias. We find that Berkshire Hathaway’s
portfolio is concentrated in relatively few stocks with the top five
holdings averaging 73% of the portfolio value. While increased
volatility is normally associated with higher concentration we show the
volatility of the portfolio is driven by large positive returns and not
downside risk. The market appears to under-react to the news of a
Berkshire Hathaway stock investment since a hypothetical portfolio that
mimics the investments at the beginning of the following month after
they are publicly disclosed also earns significantly positive abnormal
returns of 10.75% over the S&P 500 Index. Our evidence suggests the
Berkshire Hathaway triumvirates of Warren Buffett, Charles Munger, and
Lou Simpson possess investment skill unlikely to be explained by
Efficient Market Theory.
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