Interesting short article in the Journal today about the Wisdom Fund - a mutual fund established in 1999 that attempts to track every move that Investing God Warren Buffett makes. Turns out it's harder than you might think to be a copycat.
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'Wisdom Fund' Aims
To Imitate Berkshire's Holdings
By JANE J. KIM
Staff Reporter of THE WALL STREET JOURNAL
April 28, 2005; Page D2
Some 20,000 investors will descend on Omaha this weekend for the annual Berkshire Hathaway Inc. meeting. They will eat rare T-bone steaks at Gorat's, Warren Buffett's favorite steakhouse, and buy jewelry at Borsheim's, where Mr. Buffett shops, and try to glean nuggets of investing wisdom from Mr. Buffett himself.
While legions of investors fashion themselves Buffett disciples, one portfolio manager, Douglas Davenport of Atlanta, says he is the only professional investor who is truly mimicking Mr. Buffett's investments. His mutual fund, the Wisdom Fund, was dubbed the Berkshire Fund when it was launched in 1999, but was forced to change its name after Mr. Buffett's attorneys complained.
In recent years, it has gotten much tougher to ape Mr. Buffett's investments. For one, Mr. Buffett has taken to buying whole companies, and stocks now constitute a smaller proportion of Berkshire's holdings. Mr. Buffett also has worked hard to keep Berkshire's other common-stock transactions secret by asking the Securities and Exchange Commission for confidential-filing status, which enables money managers to keep parts of their holdings secret for up to one year, on the theory that that helps limit severe swings in share prices as zealous investors dive in or out of the stocks. Mr. Buffett hasn't always won these battles: In 2003, the SEC denied an appeal by Berkshire to keep two of its securities purchases a secret instead of disclosing them in the standard quarterly filing called a 13F.
Mr. Davenport's goal is not only to own the stocks that Berkshire Hathaway owns but also to own them in exactly the same proportions. If Mr. Buffett is holding a lot of cash, Mr. Davenport tries to do the same. In cases where Berkshire buys entire companies, Mr. Davenport buys the publicly traded equivalent. Assets in the fund were about $50 million as of March 31.
To track Mr. Buffett's every move, Mr. Davenport scours news sources, Berkshire's annual reports, shareholder letters and quarterly filings. He also monitors various Web sites run by value-investing devotees -- such as VInvesting.com and GuruFocus.com -- that may pick up changes in his publicly traded holdings.
Last week, on VInvesting.com he found out that Berkshire bought a stake in Anheuser-Busch Cos. hours before it was reported in the media. He says he waited until the next day, when the stock had settled down, to buy a small position. Several years ago, he bought Mohawk Industries Inc. as a proxy for Berkshire's acquisition of Shaw Industries Inc. Since then, the stock has roughly tripled.
"I have always said that Warren Buffett is my research analyst," he says. The Wisdom Fund is majority owned by Sir John Templeton's family members.
With the array of resources devoted to shadowing Mr. Buffett, Mr. Davenport figures there is only a lag of two to three weeks between the time Berkshire makes a move and when he is able to replicate it. The Wisdom Fund has beat the market in recent years, although it has lagged behind Berkshire's stock. Through March 31, the Wisdom Fund posted three- and five-year annualized returns of 5.15% and 6.93%, respectively, compared with the annualized gains in Berkshire Hathaway's Class A share price of 6.93% and 8.74%.
Mr. Davenport owns only one share of Berkshire, which gets him an invitation to the annual meeting. This year, he has decided to skip it. He has promised to help his son move back from college.
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