Buffett, beta and the case for a few big bets (1993 letter)

Over the past few weeks, I have been speaking to a bunch of candidates for our equity analyst role - mostly finance graduates, most of them fresh out of college. And nearly every one of them mentioned CAPM (capital asset pricing model) and beta like they were some sort of sacred scrolls. But when I probed deeper—"What is beta actually measuring? How does it relate to risk?"—they were stumped. For them, beta is just a number you plug into a DCF (discounted cash flow) model. CAPM is a formula you use because someone told you that is how you calculate the cost of equity. Not one of them paused to ask what these ideas actually meant.

This article was originally published on April 10, 2025.