How to Invest Like Buffett but via Factors

As the debate continues concerning how quantitative model performance compares to that of active funds, a Bloomberg article from earlier this month discusses the findings of an AQR study that suggest how some quant models could generate returns that approximate those of legendary fund managers.

AQR Capital Management, as described in the article, is a “program-driven investment firm whose founders made their names finding the math behind investment success.” The firm’s study compared the investment results of Warren Buffett, George Soros and others with those of “portfolios automatically tuned to investment styles deemed consistent with their philosophies, and found the computers did a fair job of replicating the humans.”

While the article is quick to point out that the results do not at all detract from the skill of these famous managers, they do imply that “passive strategies that share their logic have a chance at keeping up.” The researchers also emphasize that the analysis comes with caveats, including the fact that the study enjoyed the benefit of hindsight. “These great investors,” it said, “figured it out first, had the ability to stick to their philosophies, and rightly deserve their reputations.”

The AQR report methodology and findings were presented in more detail in a recent article for The Globe and Mail