Warren Buffett Was a Quant

From Turnkey Analyst:

I’ve often wondered about the success of Warren Buffett.
Is he a systematic checklist based investor dressed in discretionary stock-picker drag?

Buffett pushes mathematics and quantitative analysis under the bus (see below)

“If you need to use a computer or a calculator to make the calculation, you shouldn’t buy it.”

But we’ve got to remind ourselves who taught the man everything he knows: Ben Graham.

Ben Graham was likely a quant. Heck, there is even a book called “Ben Graham was a Quant,” which outlines the different approaches Graham discusses during his investment career.

Well, one of my students went digging in the archives to see what Buffett really thinks of quantitative tools in the context of investment management.

He found some interesting insights in the 1967 letter to partners.

Quote 1:

Interestingly enough, although I consider myself to be primarily in the quantitative school…the really big money tends to be made by investors who are right on qualitative decisions but, at least in my opinion, the more sure money tends to be made on the obvious quantitative decisions.

Here’s a picture of the full quote:

Source: Buffett Partnership Ltd 1967 Letter to Partners: A copy is here: 1967.10.09

The quote above highlights Buffett’s affinity for systematic decision making, but he allows himself an opportunity to diverge from the model when faced with “really sensational ideas.” In as many words, Buffett is favoring a quantamental approach, but only in extreme circumstances. With Buffett, this seems like a potentially sensible idea; for the rest of the world, I’m not so sure.

Buffett goes on in the piece to say that the problem with quantitative analysis is that “statistical bargains have tended to disappear over the years.”...MORE