A study released by the National Bureau of Economic Research in December demonstrated that, as measured by the Sharpe ratio, Warren Buffett, Chair and CEO of Berkshire Hathaway (NYSE:BRKA)(NYSE:BRKB) might just be the best investor on the planet. Or, at least, the best money manager among funds that have been around for 30 or more years.
The Sharpe ratio measures the risk-adjusted performance of an investment and can be used as a way to gain insight into where the returns are coming from in a portfolio. Two portfolios with the same returns could have very different Sharpe ratios if one made risky bets and got lucky, and the other made safe bets that produced superior returns. A high Sharpe ratio is arguably the Holy Grail of investing: low risk, high reward.
The average Sharpe ratio for all mutual funds that have been in existence for 30 or more years is 0.37. The Sharpe ratio for the S&P 500 is 0.39, meaning that your typical mutual fund’s risk-adjusted returns are a little below the index at large. Buffet’s Berkshire Hathaway logs an impressive Sharpe ratio of 0.76. All this is just a long-winded way of saying that when it comes to stocks, Buffett knows how to pick ‘em, and any investor would be wise to review his choices and consider if they have a place in their own portfolio. Here are some of the highest dividend-yielding stocks that make up 1 percent or more of his portfolio.