December 6, 2016
Topics - Factor/Style Investing Multi-Style Portfolio Construction
Many famous investors are outspoken about their investment philosophies, and carefully apply them to a select number of securities. In this paper, we seek to apply their wisdom systematically; to ask whether their philosophies applied broadly might still generate “alpha.” 1 1 Close We are not the first to try to demystify successful investment strategies: for other studies see Siegel, Kroner and Clifford (2001) for a range of public and private funds and institutions; Gergaud and Ziemba (2012); Pedersen (2015) for hedge fund managers; Frazzini, Kabiller and Pedersen (2012) for a deeper treatment of Berkshire Hathaway than covered in this article; Hurst, Ooi and Pedersen (2013) for trend-following strategies; and Chambers, Dimson and Foo (2015) for Keynes. Additionally, see Asness et al. (2015) for more background on the styles underlying our analysis.
Our analysis suggests there are many ways to achieve long-run investment success. The takeaway for investors is to identify structural edges and commit to seeing them through inevitable periods of underperformance. As each of our superstars shows, “merely good” edges over time may compound to great long-term performance.
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