Check out the following commentary by Economics Finance blog contributor Jonas Grazulis.
A look at investment performance objectively:
If you are at all interested in investment management, chances are you heard of Warren Buffet and his strong performance record. Most investors envy his record and look at it as an example or even a goal for themselves. I say, we take a look at it objectively and see how it ranks with some other investment managers.
Let us quickly compare the performance of Berkshire Hathaway A Shares and some of the CTAs covered in the referenced article. Based on 1996-2010 data, Berkshire returned a little less than 10 percent on an annualized basis. Such performance is surely nothing to scoff at, seeing how over the time period an invested $100,000 would have turned into almost $400,000. But, I wouldn’t be writing this article to tell you how well Berkshire performed over the last 14 years. So, what if I tell you that over the same period, some of these CTAs would have ended up with portfolios worth more than 400, 600, even $700,000? Now, that is what caught my attention. Many of these managers had much larger annualized returns with even smaller drawdowns. So in fact, they are being less risky on a standard deviation basis than something like Berkshire or the S&P, yet producing larger returns. I have the utmost respect for Warren Buffet, his investment style and genius overall, but will I let him manage my money anytime soon? Probably not; simply because while he is very good at what he does, there may be people that are better. I welcome you to check out the article “Beating Warren Buffett: Can Your Investment Manager Beat Warren Buffett’s Berkshire Hathaway’s Stock Performance over the past 10 years?” by Daniels Trading and expand your horizon of investment opportunities.
I leave you with one of my favorite quotes from this short paper. “Morning Star calculates that the average annual return of 6,176 mutual funds was 3.72% for the ten year period covered and the annual return for the S&P 500 was -3.06% with a total return for the period of -26.91% for these same ten years. Yes, you read correctly: the average annual return over the past ten years for 6,176 mutual funds was a meager 3.72%.”