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by Maz Jadallah

In a recent white paper entitled “Imitation is the Fondest Form of Flattery” by Martin and Puthenpurackel the authors analyzed the performance of a portfolio that invests quarterly in Berkshire Hathaway’s top stock investments at the time they are disclosed in their 13F filings – the same process we follow at AlphaClone. Amongst the paper’s key conclusions are the following:


· “Over the period the portfolio beat the benchmarks in 27 out of 31 years, on average exceeding the S&P 500 Index by 11.14%...”


· “Although beating the market in all but four years can statistically happen due to chance, incorporating the magnitude by which the portfolio beats the market makes a luck explanation extremely unlikely…”

Based on the above we thought it would be interesting to see how AlphaClone’s portfolios stack up against a 10% excess return threshold. We ranked all our long-only clone portfolios against the S&P 500 Total Return Index. Here are the results:

10% Excess Return Threshold (Long-only)**

Year

Clone Portfolios

S&P 500TR Return

Beat Index by >10%

2000

1149

-8.9%

495

2001

1309

-11.9%

603

2002

1477

-22.1%

444

2003

1604

28.7%

784

2004

1714

10.9%

738

2005

1852

4.9%

584

2006

2017

15.8%

428

2007

2184

5.5%

579

2008

2245

-37.0%

294

On average, roughly a third of all long-only clones outperform the index by 10% or more annually.Even during the dramatic market downturn last year and with all ranked clones un-hedged, nearly 300 clone portfolios still managed to meet the 10% threshold.

While these are theoretical results based on backtesting various cloning strategies (see our FAQs on cloning to understand more about our cloning rules) and not actual performance results, one can’t help conclude that Martin and Puthenpurackel got it right – imitation can be very flattering indeed.

** Analysis includes only portfolios that are not hedged (long-only). Clone performance based on stock prices that are fully adjusted for dividends and corporate actions and include the effects of both currently active and inactive securities.

Source: Imitation Can Be Very Flattering in Stock Investing