Ill take it even farther: Buffet isn't statistically different than average. He just found a strategy that happened to work, was stubborn enough to stick to it through bad times, and used copious amounts of leverage to juice returns.
A really interesting paper called "Buffet's Alpha" talks about this, and was able to replicate his performance by following a few simple rules. They found that he produced very little actual alpha. To his credit, he seems to have been observant enough to stumble into factors(value, quality, and low beta) before anyone else knew they existed, which is his real strength and contribution.
They work at AQR, a firm which is notable for being one of the only successful hedge funds to actually publish meaningful research.
The paper's conclusion is noteworthy:
> The efficient market counterargument is that Buffett was simply lucky. Our findings suggest
that Buffett’s success is neither luck nor magic
but is a reward for a successful implementation of value and quality exposures that have historically produced high returns. Second, we illustrated how Buffett’s record can be viewed as an expression of the practical implementability of academic factor returns after transaction costs and financing costs. We simulated how investors can try to take advan- tage of similar investment principles. Buffett’s success shows that the high returns of these academic factors are not simply “paper” returns; these returns can be realized in the real world after transaction costs and funding costs, at least by Warren Buffett. Furthermore, Buffett’s exposure to the BAB factor and his unique access to leverage are consistent with the idea that the BAB factor represents reward to the use of leverage.
Compared to the S&P 500 going back to 1996, Berkshire Hathaway is up 845% vs 257% for S&P 500. Is this not a statistically significant result? (Or is there another average I should be looking at?)
"He just found a strategy that happened to work, was stubborn enough to stick to it through bad times, and used copious amounts of leverage to juice returns."
I dunno. I find certain entrepreneurs often have life stories where they start making money around pre-teen or early teen years. I find those people to be at the tail ends of the distribution.
A really interesting paper called "Buffet's Alpha" talks about this, and was able to replicate his performance by following a few simple rules. They found that he produced very little actual alpha. To his credit, he seems to have been observant enough to stumble into factors(value, quality, and low beta) before anyone else knew they existed, which is his real strength and contribution.