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Published: October 9, 2009
"Using a form filed with the government that's
available to everyone, we've found ways to beat the market by as
much as 10% a year."
Investment analyst Mebane Faber told me that recently (in so
many words), over dinner with my good friend and mentor Van
Simmons.
Mebane ("Meb" for short) is a relatively unknown young analyst,
but he's doing fantastic work...
Last week, I told you about his simple investing system that
didn't lose money for 35 years. (It's from his book, The Ivy
League Portfolio.) What's more, it beat the market with less
risk. And astoundingly, you only have to look at your portfolio
once a month -- 12 days a year. It's simple, but incredible...
the mark of a great idea.
Last night, he explained another simple but incredible idea...
"Big investors -- those with over
$100 million -- have to disclose
their investment holdings in
government filings called 13Fs," Meb
explained. "The information is
backward looking... But I've studied
it, and it turns out it can be
extremely valuable."
One thing Meb does is "clone" the
big hedge-fund managers, like George
Soros, David Einhorn, and Seth
Klarman. Through these government
filings, he can use these gurus'
expertise without paying them big
fees.
Meb explained that "mining" these
government forms to copy the best
portfolios works best with
investment managers who hold stocks
for a long period of time...
investors like the world's
second-richest man, Warren Buffett.
Let's take a closer look at how you
could use Meb's ideas to "clone"
Warren Buffett's portfolio out of
the government filings...
The 13F filings are quarterly. To
keep it simple, Meb takes Buffett's
top-10 holdings and equally weights
them in his portfolio. Three months
later, when the new 13F filings come
out, he changes the portfolio.
Meb said, "It turns out that a
simple portfolio that invests in
Buffett's top 10 stock holdings,
equal-weighted and rebalanced
quarterly, beat the market by 10% a
year from 2000 through 2008."
(A recent academic paper, called
Imitation is the Sincerest Form of
Flattery, corroborates Meb's
research. It used a similar strategy
from 1976 to 2008, and it beat the
market by 11% per year.)
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"Mining" these 13F forms turned out to be so valuable, Meb
created a way to backtest these ideas automatically. He and his
partner Maz Jadallah founded
AlphaClone and made
his program available to the public... for way too cheap (with a
free 14-day trial and a "Guest Pass").
Now, you can easily backtest the performance of a portfolio that
simply follows the stock ideas of the biggest and best money
managers as soon as their portfolios are available through
government filings.
If you're interested in picking your own stocks, or you'd like
to see how you could have performed if you'd followed the best
hedge-fund managers in the business, give AlphaClone a try.
And keep an eye out for Mebane Faber. This young analyst keeps
delivering original, simple ideas. -- Dr. Steve Sjuggerud
Editor
Daily
Wealth Editor's Note: This
article originally appeared in
Daily Wealth. |
