Article: The Economist, The Secrets of Buffett's Success
Interesting article in this week's Economist about a study of how Warren Buffett has managed to make such successful investments over a long period of time, and stock-picking has very little to do with it. It comes down to two simple factors:
1) He concentrates on stocks with low betas (ie, low risk, low return stocks). According to the article, these stocks perform better on a risk-adjusted basis than high flying stocks. (Possibly, I guess, because investors who are looking to get rich quick overlook them, so they are in less demand.)
2) He leverages his portfolio (ie, borrows money to buy more stock). His source of funds is not loans or bonds, but insurance premiums, which gives him an extremely low funding cost.
This makes a lot of sense, especially if you read Buffett's annual shareholder letter, which always describes with glee the free float he gets from his insurance businesses. (Letters are available here, and well worth reading).
Now that I know the secret, I just have to get hold of a massively successful insurance company.