Capital Asset Pricing Model (CAPM)

In Kyle’s corpus, CAPM appears entirely as a foil — the academic-finance idea that Charlie Munger and Berkshire Hathaway deliberately ignored. In Charlie Munger: Academic Economics, Munger names it directly as a descendant of Efficient Market Theory: “not one ounce of attention to the descendants of that idea, which came out of academic economics and went into corporate finance and morphed into such obscenities as the Capital Asset Pricing Model, which we also paid no attention to.” His sharpest jab is at CAPM’s equation of volatility with risk and return: “you’d have to believe in the tooth fairy to believe that you could easily outperform the market by seven percentage points per annum just by investing in high-volatility stocks.”

The Efficient Market Theory page carries the same framing — CAPM is cited there as the “descendant” of EMT that Berkshire ignored “in its hard form,” the practical contrast being Buffett and Munger’s view that an investor needs only to value a business and think about market prices, not beta or modern portfolio theory.

Context: The Capital Asset Pricing Model, developed by William Sharpe, John Lintner, and others in the 1960s, prices an asset’s expected return as the risk-free rate plus its beta (sensitivity to market movements) times the market risk premium. It treats price volatility (beta) as the measure of risk — the assumption Munger and Buffett reject, since they define risk as the chance of permanent loss of capital, not short-term price fluctuation.

Where this appears

• Charlie Munger: Academic Economics — Munger calls CAPM an “obscenity” descendant of efficient-market theory that Berkshire paid no attention to, mocking the idea of outperforming via high-volatility stocks.
• Efficient Market Theory — CAPM listed as the academic-finance descendant of EMT that Berkshire ignored, alongside the price-vs-value lesson Buffett draws from Graham.