Can individual investors replicate the strategy used by Warren Buffett? In a recent piece for Brush Up On Stocks, Michael Brush looks at several strategists who try to do just that, including Validea.
Brush talks about the work AQR Capital Management has done in trying to replicate Buffett’s performance, as well as the research Dr. Robert Novy-Marx of the University of Rochester has done in trying to quantify the economic moat concept Buffett is known for. He also notes that Validea’s Buffett-based ‘Patient Investor’ strategy “x-rays” the market for stocks that have a number of Buffett-esque qualities, including a “durable competitive advantage” due to strengths like a powerful brand, pricing power or oligopoly status; solid, stable earnings that are continually expanding; and a good balance sheet and the ability to pay off debt.
Brush also examines Validea’s Benjamin Graham-inspired model, since Graham was Buffett’s mentor. While Validea’s Buffett approach had beaten the market over the long term, this Graham model has performed even better. Using Validea’s system, Brush looks at some stocks currently exhibiting Buffett- or Graham-like qualities.
There’s one other key thing investors trying to emulate Buffett should do, Brush writes. “The Oracle of Omaha loves to say his favorite holding period is ‘forever’,” he says. “In other words, as always, you should be psychologically prepared to sweat out pullbacks in stocks, even stocks that computer models pick as ones that could be favored by investment gurus like Buffett and Graham.”