Thanks to Will for passing this along.
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The article above concludes with the paragraph:
“These two factors—the low-beta nature of the portfolio and leverage—pretty much explain all of Mr Buffett’s superior returns, the authors find. Of course, that is quite a different thing from saying that such a long-term performance could be easily replicated. As the authors admit, Mr Buffett recognised these principles, and started applying them, half a century before they wrote their paper.”
The things that I—and probably many of you—may have an issue
with is that they define the investments as “low-beta.” Sure, things like
Coca-Cola and other investments may have ended up being low beta stocks, but
that wasn’t necessarily obvious beforehand. Beta is backward-looking, and being
able to judge that things like Coca-Cola, The Washington Post, Cap Cities,
American Express, etc. would have the runways and success they had that made them
end up being low beta stocks beforehand is much different from looking at past
volatility when making large, initial purchases. And this doesn't just apply to
the public stocks. Buffett and Munger’s skill in providing private businesses a
good home and promising not to sell has also gone a long way in Berkshire’s success,
as was building the world’s best insurance operation to get access to the low
cost float, as the article does mention. All in all, to the use words of Charlie
Munger, it was a lollapalooza.
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Link to paper: “Buffett’s
Alpha”