Buffett vs. Lynch

Published on: Feb 15 2017

This article dives into detail to answer the question whether Peter Lynch or Warren Buffett is the better stock picker. It argues that Buffett isn’t really a stock picker. He profited from different factors, such as value and quality. Buffett benefited from leverage. He also didn’t have to deal with investor outflows the way a mutual fund manager has to.

Roughly 66% of Warren Buffett’s out-performance can be explained by systematic exposure to various factors over time, leaving 34% of the out-performance unexplained. Presumably this is alpha or stock-picking skill. On the other hand, approximately 40% of Peter Lynch’s Buffett’s out-performance can be explained by systematic exposure to various factors over time, leaving 60% of the out-performance unexplained. Thus we can conclude that the majority of Lynch’s performance was due either to stock picking skill or dumb luck (highly unlikely as we’ll discover later on in this article).

 

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