Hey everybody this is Phil Town this is Phil Town this is Danielle Town

we're here for the Invested Podcast where we are talking about how to go out and make high returns with

relatively low risk how did those guys do that imperably possible thing

the Warren Buffett and Charlie Mongers of the world.

How do they do that?

It seems it's impossible.

How do they do that and how can we too?

You know, I don't think I ever told you this, but when Buffett was being investigated back in the 70s by these modern portfolio theory academics, what they supposed was that Buffett was making high rates of return by taking a lot more risk than everybody else because that's how the theory goes right you you go to Las Vegas.

Oh when they were studying his trades. Yeah. Yeah. Yeah. Yeah.

You said investigated and I thought like, oh, so he was being investigated?

Well, by those guys.

Like they were trying to figure out how to understand Buffett, who by that time it had a, you know, well over a 20 year track record of being

very successful in killing the market and not even really ever having a losing year compared

to the market and that's not possible unless according to

modern portfolio theory you're just really lucky and they ultimately ended up

describing him as I think it was we've told you as like a as a lucky monkey but they had to look at his trades and theoretically he's got much more

risk in his portfolio according to the beta of these companies which is the modern portfolio theory view of risk.

The beta is how much does the stock price move around compared to the S&P 500 say?

And they would expect to see Buffett's companies moving a lot more volatility, moving up and

down much more than the market in general, and they found out the exact opposite.

His portfolio was full of companies that moved around less than the market did, that the beta was lower than the stock market.

In other words, by their definition of risk, Buffett was taking far less risk than just putting your money in a mutual fund and hitting returns of 24 to 30 percent, which

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