Fascinating experiment…we all know what an iconic investor Warren Buffett is. When it comes to putting together a stock portfolio, why not just follow his picks? How have they even done anyway?
Here’s one study: if you owned Buffett’s top 10 stock picks and rebalanced each quarter, you would have earned about 9% (from 2000 according to Morningstar). You would also have outperformed 98% of mutual funds in existence.
But (you knew there was going to be a “but”) – you would have underperformed the US stock market in 7 of the last 9 years (through 2015). But #2: you also would have had significant drawdowns during market pullbacks, as you’d expect from any all stock portfolio. But #3: you probably would have felt like you were “missing out” on the hot stocks, the latest tech names, and the phenomenal stories that grab the headlines like biotechs.
Human nature makes it hard to handle those “buts”.
What we can learn from these numbers, though, is that any solid long-term strategy for investing will have periods of performance that make you want to change what you are doing. This is true of all investing strategies.