Well, the excess return is only equal to alpha if you had a beta of 1 to the benchmark?

>1) Good stock picking....
I thought the stock picking was not so good,
.80% (the extra over funds) of say U$ 300k is about 3k. Assumming extra time and effort was spent on stock v/s funds, say about 4 hrs per month, that is 3k/48 ~ U$60 per hour return which is on the lower side and with higher risk.

Did I miss something?

MM, just curious why you just use EFA in your international coverage of your benchmark? EFA is for developed stock markets. You are missing the emerging markets. would EFA + EEM be a little better?

moom - yes, you are technically right. i should calculate the beta too but obviously it will be challenging. now that my average cash holding is way above the benchmark, i would assume my beta will be less than 1.

Amit C - it doesn't take 4 hours per month to pick funds. it probably only took me 4 hours altogether in 2007 to pick all funds.

Wei - yes, i was conservative on the emerging markets.

It's pretty easy to compute alpha and beta using Excel as long as you have data on your percent returns in each month.

I would agree with Wei. VEU might be a better foreign benchmarking instrument since it captures emerging markets as well. I am assuming your fund picks most likley had emerging market exposure which would explain their 4.7% excess return above EFA.

What will happen with Berkshire after Buffett is gone?

moon, yes, but then some people will hold me to the higher standard of calculation alpha and beta based on daily results.

Congratulations. However, before you celebrate too much, beating your benchmarks in any given year is not an indicator of systematic success. In other words this could be... good luck playing on your side.

Also, you can also beat your benchmark by accepting a higher degree of risk. While your average return may be higher, the volatility of your portfolio (i.e. your risk) will also be higher. So, while you have beaten your benchmark, it may be that you selected an incorrect benchmark - one that has a lower return and lower risk profile.

It has been repeatedly demonstrated that beating market benchmarks OVER THE LONGHAUL is a very VERY hard thing to do. You may be one of those few unique individuals who are able to do so consistently, but the other explanations are more probable.

Don't forget to take into account the sense of satisfaction and accomplishment that comes from beating the benchmark instead of just investing in the index fund. (Of course such logic would also explain why most people don't invest into index funds, but hey, to each his own!) In any case, nice job dissecting your performance!

2 things:

1) VTI (Vanguard Total Stock Market Index) returned > 5.5% last year, so your actual vs. benchmark in this category seems high; it should be closer to a 1.46% excess return on the individual stocks and .65% on the mutual funds.

2) EEM (MSCI Foreign Emerging Markets) returned about 38% last year; EFA (MSCI Foreign Developed Markets) returned 12%. Averaging these two returns would give a 25% return, which beats your actual performance by 10%.

To conclude, I think your domestic equity performance vs the benchmark is subpar, when calculating the extra volatility of owning individual stocks. I think your performance was inferior to the foreign benchmarks, when they are (properly) calculated to reflect emerging markets.

I think your portfolio would look a lot better if it was simply 50% VTI, 25% EFA, and 25% EEM. You could hold all these funds at Zecco at an absolutely minimal cost.