In this Ask The Expert With Larry Swedroe article, Zapp challenges the legitimacy of Modern Portfolio Theory citing Warren Buffett as a rule breaker.  So which is it, Modern Portfolio Theory or Warren Buffett? Heres the question from Zapp:

Other than by taking the self-denigrating stance: I am not an above average investor, how can a person justify support of modern portfolio theory when there is a Warren Buffett in this world?

Answer From Larry Swedroe

That is an easy question to deal with. First, with thousands or millions of investors we should expect some to outperform the market every year and some to do so for many years, randomly. The question is: Is there any more persistence of performance than would be randomly expected. The evidence from hundreds of academic studies is there is not.

Warren Buffett Is Not Your Typical Investor

Another answer to the question is that Warren Buffett is not the typical investor. He is not like a mutual fund manager. He often buys companies and then manages them. He provides them with economies of scale, lower cost of capital and the benefits of his managerial wisdom. And when he takes large positions in companies he often gets a board seat. So perhaps his great returns are more a result of his managerial skills than his investment skills, or some combination of both.

Berkshire Hathaway Performance Versus General Market

When I got this question a few years ago I went to do a simple check on the performance of Berkshire Hathaway for the prior ten year period and then compared it to the five major U.S. asset classes of large, small, small value, large value and real estate. During that period BRK had underperformed all but the asset class of large stocks (as represented by the S&P 500) and had underperformed an equally weighted (20% each) portfolio of the five that was rebalanced annually by several percent.

So we know that Buffett had delivered great returns in the past but we dont know that he will in the future. In fact, during that ten year period BRK underperformed. So now what would you forecast regarding the future?

Who Is The Next Warren Buffett?

The issue is this, we know that there will be some investor who produces Buffett-like returns in the future. The problem is we cannot identify them today. Unfortunately we can only buy tomorrows returns, not yesterdays. And finally, what I tell investors is this: If you look in the mirror and you see Warren Buffett, go ahead and try to beat the market by picking stocks. But there is only one person who when he looks in the mirror sees Warren Buffett. The rest of us should simply accept market returns. If you do so you are virtually guaranteed, if you have the discipline to stay the course, to outperform the vast majority of investors, both individual and institutional.

By the way, What Wall Street Doesnt Want You to Know contains a section called Buffettology or Mythology which addresses your question. Also, Wise Investing Made Simple contains the tale When Even The Best Are Not Likely to Win the Game , which indirectly addresses you question by looking at the results of large institutional investors who have access to the great money managers.