FYI: That is, the secret sauce of Warren Buffett’s equity selection. According to an award-winning paper, “Buffett’s Alpha,” the Oracle of Omaha plays it safe. Berkshire Hathaway’s (BRK.A) companies—both publicly traded and private—have been of high quality. They have been steadily, consistently profitable, with high cash flows and low debt. Consequently, their stocks’ prices have been relatively stable.
That doesn’t square with posting record gains during a prolonged bull market. Assuming more risk does not necessarily lead to higher returns, particularly during sell-offs, but it certainly should apply when stocks perform well over the very long haul, as they have during Buffett’s tenure at Berkshire. With Buffett’s equity portfolio, the usual rules of risk and return have been inverted.
Regards,
Ted
https://www.morningstar.com/articles/911993/we-see-stock-market-anomalies-but-we-do-not-yet-un.html
