The Warren Buffett Portfolio: Robert Hagstrom on What Wall Street Gets Wrong About Risk

**SPEAKER_1** (0:00)
If you're a QuickBooks customer looking to grow without the growing pains, you need the Intuit ERP, the AI-native ERP that upgrades right from QuickBooks. Learn more at intuit.com/erp.

**SPEAKER_2** (0:15)
Howdy, shoppers. Fire up that propane grill and settle in for a new season of Hulu's hit animated series, King of the Hill. Hank and Peggy are staying active in retirement.

**SPEAKER_3** (0:23)
That's a dog.

**SPEAKER_1** (0:24)
You will not have to lift a finger.

**SPEAKER_2** (0:26)
Bobby and Connie hard launched their relationship. Now that we're dating, it's important your parents know I'm a man. And the alley guys are, well, they're still the alley guys.

**SPEAKER_4** (0:35)
Yup.

**SPEAKER_2** (0:36)
Watch the new season of the Hulu original series, King of the Hill, now streaming on Hulu and Hulu on Disney Plus for bundle subscribers. Terms apply, this has been a paid advertisement.

**SPEAKER_4** (0:45)
It has now been 25 years since Robert Hagstrom wrote The Warren Buffett Portfolio. To celebrate the occasion, he recently published a 25th anniversary edition of the book. On the latest 100 Year Thinkers, we take a deep dive into the book and what all of us can learn from Buffett's approach to building his portfolio. We have included this episode in the Excess Returns feed, but if you want to keep receiving new episodes, you can subscribe to the 100 Year Thinkers on all major podcast platforms or our YouTube channel using the links in this episode description. Thank you for listening.

**Matt Zeigler** (1:09)
You're watching Excess Returns. This is 100 Year Thinkers, which sounds like a really long time until you start really thinking about it. I'm Matt Zeigler, Bogumil Baranowski from Talking Billions is with me as always. We have a special conversation today. We're talking to Robert Hagstrom, 2-1-1, I guess. We're talking about The Warren Buffett Portfolio, this beautiful book, this beautiful man right here.
We're talking about this 25th anniversary edition. Very, very cool. How does it feel, Robert? Do you feel 25 years old again to have a 25th anniversary edition?

**Robert Hagstrom** (1:45)
No, they go by. We were just saying earlier, man, time is flying.
It's just hard to wrap your hands around. I can't believe that book was 25 years ago. That's how quickly this stuff goes by. It's interesting though, when you say 100-year thinkers, that's a long time, but as we get into the conversation, it was Markowitz in 1952 What are we up to? We're up to 78 years since he ran his bakers.
It's almost been a century since he decided to get involved with investing in stock markets and stuff like that. That was 1952 Where are we now, right?

**Matt Zeigler** (2:25)
Well, where are we now is we're still plus 90% of active managers underperforming. We're still swimming in a sea of people who think, okay, volatility isn't risk. Permanent loss of capital is risk. And once you accept that, that standard playbook really shows up as the solution to a problem that maybe doesn't exist. And you know, the ones that does. This is why we're reviewing this book. If you haven't, this is some timeless stuff. Let's go straight into the deep end on Markowitz, a Nobel Prize for defining risk is variance. And Buffett comes out and says, fearing that kind of volatility can lead you to do very, very risky things.
Who's right? Who's right?

**Robert Hagstrom** (3:04)
Well, obviously, you know, I'll side with Warren on this. The bigger issue and-

**Matt Zeigler** (3:10)
You'd have picked the wrong book name if you didn't side with Warren. We'd be in trouble.

**Robert Hagstrom** (3:16)
Yeah, I think what we wrote in the book, and this comes from Peter Bernstein's book, Capital Ideas. So let me give credit where credit was due, which is a great book. And Capital Ideas goes through the advent of modern portfolio theory and things of that nature. He writes about Markowitz. And one of the things when I was doing the research, I was just stunned by the fact that when you go to the very first day, you go, let's start at the beginning of this whole modern portfolio theory and risk is variance and stuff like that. Here's this 22, 23-year-old kid. And he was a kid. I mean, he's a nice boy. I mean, he played the violin. He got good grades. He didn't respect his peers and things of that nature. He's a great kid. But he was a liberal arts major at Chicago, University of Chicago, the only school that he ever applied to.
Wanted to hang around, got involved in the graduate program, the economic graduate program that was at the University of Chicago, and was fishing around for a dissertation topic, and had this fascination about when he was studying economics, how do you think about risk and return in economics?