Warren Buffett and Jeff Bezos have been weighed in their scales and found wanting.

You can apparently build a Warren Buffett robot. But you cannot build a robot that recognizes Warren Buffett.

Neither Amazon nor Mr. Buffett’s Berkshire Hathaway Inc. feature in stock-market indexes built to pick companies worth holding for the long term.

Turns out the Sabermetrics of long-term investing can be as flawed and fluky as, well, Sabermetrics itself. For its effort, S&P weighs ROE, accruals and leverage. Matarin has screens for cash flow, steadiness of growth and corporate governance. And the only things that the two indices agree on is that Berkshire and Amazon don’t make the cut.

Both indexes are global, but have little overlap in membership; only two of the Matarin top 10 holdings are held at all by S&P LTVC (CVS and Cisco Systems)….

Berkshire doesn’t qualify, partially because ROE doesn’t properly capture the returns from its vast stock portfolio. Amazon is ranked as among the worst companies on these measures—put in the bottom 100 of the S&P 500 for quality—arguably because it has prioritized profits in the future, not profits today.

Matarin screens for cash flow and steady growth, knocking out Amazon because its growth, while extremely fast, has been so volatile. Berkshire makes it through this first test. Matarin then adds a value screen, which Amazon would also fail due to its high valuation.

Berkshire is kept out of the Matarin index because of its poor corporate-governance scores: Among other things, it has too few independent directors and a combined chairman and chief executive…. Berkshire suffers from its dismissive attitude to the rest of ESG, too. Matarin insists on an improving ESG score, while Berkshire’s lack of carbon and other disclosures hold it back.

Suffice it to say that the Oracle of Omaha is more than happy to fall on those particular accounts, and probably more than happy to see these Larry Fink Frankensteins fail, since he doesn’t think people should invest in them anyway.

There is also a clash between picking companies with a long-term outlook, and holding stocks for the long term. Both indexes try to fudge this with a rolling three-year holding period, even if a company no longer meets their conditions. But an investor tracking the S&P LTVC index since 2016 still switched stocks more than four times as often as those who just bought a passive fund holding the entire market.

That passive fund, of course, is what Mr. Buffett recommends for most investors most of the time.

Buffett and Bezos Miss Out on Long-Term Money [WSJ]

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