In a white paper by Martin and Puthenpurackel entitled "Imitation is the Fondest Form of Flattery", the authors highlighted that a replicated portfolio based on public disclosures by Berkshire Hathaway beat the broader market by eleven percentage points annualized since 1976. The authors concluded that:
"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..."
So in our first article in our "Does Cloning Work?" series we decided to apply the annualized 10 percentage point rule to our clone universe. We found that; ["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."]
How is our clone universe performing in 2009? Just taking our Top 10 Holdings strategy as an example; our of 246 clone portfolios, 64% is outperforming the S&P 500 year to date return of 5.3% and 43% (almost half!) are beating the index by ten percentage points or more returning better than 15.3% year to date (as of 6/8/09) - which means that imitation continues to be very flattering.
