Investing Like Buffett and Soros Could be Within Reach

New research shows that “ordinary” investors may be able to emulate the extraordinary tactics of legends such as Warren Buffett or George Soros by using factor-based strategies. This according to Validea CEO John Reese in last week’s issue of  The Globe and Mail.

The study, conducted by AQR Capital Management, compared returns for “superstar investors to portfolios it constructed with a small set of buy and sell signals that tracked the investing styles of Mr. Buffett, Mr. Soros and others. It managed to get results that were pretty close to the real thing.”

This is reflected in a surge in the interest around quantitative strategies and exchange-traded funds, “an easy way for investors to track specific styles such as value, momentum or low-volatility,” Reese writes.

AQR created a portfolio that tracked Buffett’s style and found that, if run over a 40-year period, it would return within 4 percentage points per year of Buffett’s actual results over the same period. The firm also analyzed Soros’ Quantum Fund which generated 20 percent annually from 1985 to 2004 and created a hypothetical portfolio based on similar investments. Again, the results were very close.

While the findings, Reese explains, are in no way meant to minimize the success of these investing behemoths, he says that “factor-based investing is evolving rapidly and the AQR research, as well as that of others, is providing long-term data to support the view that certain types of factors, and the integration of factors, can drive long-term performance.”