Conventional wisdom has long held that, in investing, greater risk leads to greater reward. But over the past couple years, new research has turned that idea on its head, and in his most recent Seeking Alpha article, Validea CEO John Reese looks at some of the implications for investors.
“In Betting Against Beta, Andrea Frazzini and Lasse Pedersen found that [Warren] Buffett’s Berkshire Hathaway has beaten the market over the long haul by focusing on low-beta stocks, and using leverage – other people’s money – when buying them,” Reese says. “Most investors can’t use large amounts of leverage, however. Instead, they turn to volatile stocks in search of high return, Pederson and Frazzini said. In doing so, they bid up the prices of those stocks, which has led to high-beta assets underperforming among U.S. equities, 20 international equity markets, Treasury bonds, corporate bonds, and futures.”
Reese looks at research that supports this idea, and he examines 5 low-beta stocks that currently get high marks from his Guru Strategies, which are based on the approaches of Buffett and other investing greats. Among them: Wells Fargo and IBM.
How do Apple, Facebook, Berkshire Hathaway, and other market giants stack up against the strategies used by history’s greatest investors? In his latest column for Forbes.com, Validea CEO John P. Reese takes a look at how 10 market titans fare, and the results might surprise you.
Reese notes that, historically, small stocks have beaten large stocks by a significant margin. Small stocks have an advantage because they can fly under the radar in a way that larger stocks cannot, and they usually come with an added risk premium because they tend to be less stable and more susceptible to bankruptcy. But, he says, that doesn’t mean you should ignore the big guys.
“Mega-cap stocks have advantages of their own,” Reese writes. “Their size and name recognition can give them what [Warren] Buffett would call ‘durable competitive advantages’ over their competitors. They also tend to be less volatile and safer plays during tough times. … And often times the big guys will offer nice dividends or implement major share buyback plans because of their more stable cash flows, making up for the slowing of growth that inevitably occurs when a company gets to be as big as these firms.”
So how do the 10 largest companies by market capitalization score using Reese’s Guru Strategies, which are based on the approaches of Buffett and other great investors? Apple, for one, fares quite well, earning strong interest from Reese’s Buffett- and Peter Lynch-based models. Facebook, on the other hand, misses the mark. To see how the others stack up, click here.
Warren Buffett says that his favorite holding period for a stock is forever. But in his latest column for Canada’s Globe and Mail, Validea CEO John Reese says that good investors, including Buffett, are willing to sell stocks in shorter periods, too.
Whether or not they pay attention to the “barrage of folksy aphorisms” that will be offered at Berkshire Hathaway’s upcoming annual meeting, investors should pay attention to Berkshire’s stock, Michael Brush says.
Less than a month after purchasing Van Tuyl Group, the largest privately held dealership group in
the United States, Warren Buffett’s Berkshire Hathaway is making another bet on the auto industry, with one of its subsidiaries purchasing $560 million worth of Axalta Coating Systems Ltd. shares.
Warren Buffett’s 50th anniversary letter to Berkshire Hathaway shareholders has now been analyzed by a myriad of pundits who have dissected just about every sentence of it. But, given that Buffett offers plenty of his trademark wisdom and wit in the 15-page communique, what are the most essential parts of the letter for investors? There’s plenty to pick from, but we think these two pages stand out.
While oil prices were tumbling in the fourth quarter, Warren Buffett’s Berkshire Hathaway was dumping most of its energy holdings, according to recent regulatory filings.