The Guy Who Beat Buffett AND Cathie

This active ETF is punching way above its weight

When Eddy Elfenbein informed me that his actively-managed ETF, the AdvisorShares Focused Equity ETF (ticker CWS), had beaten both Warren Buffett and Cathie Wood over the last five years, I had to double check it. Not because I don’t trust Eddy, but because that would be pretty impressive considering the fact that he doesn’t invest in stocks like Apple or Tesla.

But he wasn’t kidding. That sonofabitch actually did it. I’m amazed that his fund hasn’t crossed $100 million yet (it’s about to, don’t worry).

Eddy is one of my favorite people on Wall Street. He’s got a razor-sharp wit (follow him on hellsite) and is a super nice guy. We met in 2010 at a financial blogger / sex party on Howard Lindzon’s island off the coast of San Diego. In all that time, I’ve never seen Eddy switch up, chase a fad or change what he’s doing to appease anyone else. Eddy is always Eddy.

Eddy on an episode of TCAF with Michael Batnick and I with our colleague, celebrity advisor Blair duQuesnay

He has a very pragmatic approach to stock-picking that is simultaneously a throwback to simpler times and an antidote to an era of endless choice and potential complexity. He picks his 25 favorite stocks in America and commits to holding them for a full year. He published each year’s buylist on January 1st, allowing anyone who wants to follow him into the portfolio. He built the CWS ETF (CWS stands for Crossing Wall Street, his blog - one of the longest-running in the industry) as a way for investors to piggyback on the picks and not have to trade it themselves. The portfolio is equal-weighted as the year begins, so every holding is approximately 4% of the fund.

And then he does nothing. Literally not a f***ing thing. What a racket 🙂 

No trades, no rebalances, no switches or swaps. He’s just holding. And when the year ends, five names get bounced out to make room for the next five.

That’s it. That’s the whole thing.

And it’s working. Don’t take my word for it. Here’s Eddy’s ETF on a total return basis vs the Berkshire Hathaway B shares and Cathie Wood’s flagship ARK Innovation Fund during the five years beginning December 31st 2018 through the end of this past year:

110% vs 75% vs 45%.

And he did it with a normal amount of volatility - less volatility than the S&P 500 during some of the worst stretches of this time frame.

YCharts has a Stress Test tool available to anyone vetting an ETF to get a sense of what the ride has felt like historically. Below is Eddy’s fund versus the S&P 500 (Total Return) during the inflation drawdown of 2022 and the pandemic panic of early 2020:

According to YCharts data, the CWS has captured 92.76% of the market’s upside during this five year period while capturing only 86.89% of the downside. This kind of upside / downside capture ratio is what allocators look for when selecting managers because it shows an approach that earns its keep in both good markets and bad.

But I haven’t even told you my favorite part yet. Eddy’s portfolio has accomplished this feat using the most boring stocks in the world. He owns the parent company of Orkin - “the Nvidia of pest control” - I told you he was funny. He owns Aflac, the duck insurer. He owns Hersey’s, the chocolatier. It’s hilarious to watch his portfolio of Steady Eddys (pun intended) race the cutting-edge AI plays you hear about on TV every day. And his companies are literally selling disability insurance and Reese’s Pieces.

I tell you all this as a reminder that there are thousands of strategies for investing out there and no one has a monopoly on “how to do it.”

The key for investors is to find the approach they can live it, make sure there’s some theoretical underpinning for why it should work and then accept the fact that there will be long stretches during which the chosen strategy will make them miserable.

That’s it. That’s investing. Disappointment punctuated by the occasional moment of triumph, and then the recognition over long stretches of time that the grass is rarely greener and everything will work out fine if you just stop touching it.

Can you live with that?

Eddy on The Compound and Friends

On the newest episode of The Compound and Friends, Eddy tells me about his 2024 buylist which came out last week and features five new stocks for this year.

You’re going to want to listen to it and take notes. I learned a lot and I also laughed a lot - time well spent is an understatement. Following our discussion, an all new What Are Your Thoughts segment with Michael Batnick and I discussing the coming bank earnings, the outlook for Alphabet, a mystery chart and so much more.

You can grab the audio episode on the podcast of your choice below:

What Are Your Thoughts is also available on YouTube, watch it here: