Lasse Heje Pedersen’s presentation on the award-winning ”Buffett’s Alpha” paper

Article by Matti Ilmanen, Board Member of the CFA Society Finland

Lasse Pedersen presenting to CFA Society Finland members.

CFA Society Finland hosted Lasse Heje Pedersen, featuring his 2018 Graham and Dodd award-winning paper on “Buffett’s Alpha.” The December 4th, 2019 event took place in a seminar room dedicated to Finnish long-distance runner Paavo Nurmi, who won 9 Olympic golds and set 22 world records in his time. Needless to say, sports loving people as Finns are, the room is one of the better ones in Finland. Luckily, the event rose to the occasion, as the audience of forty investment-minded people gathered to listen to a prized analysis of how the greatest investor of all time does it. 

Lasse is a finance professor at Copenhagen Business School and NYU Stern School of Business. In his not so free time, he is also a principal at AQR Capital Management, a leading global investment manager. He has won the Bernácer Prize as the best EU economist under 40 years of age due to his accomplishments in the academic field. In addition, Lasse has published in all leading financial journals and in most, if not all, of them has won the award given to the best papers.

But to the main message: how has Warren Buffett done it? In short, he knew the benefits of value, low-risk and quality investing long before gentlemen like Fama and French manifested it into public knowledge. With the help of Graham and Dodd he was able to analyze the intrinsic value of the firms and invest into ones that are undervalued. In Buffett’s own words “Whether we’re talking about socks or stocks, I like buying quality merchandise when it is marked down”. He utilized leverage by collecting insurance premiums with the inherent liabilities to be paid much later.

Mr. Pedersen with Matti Ilmanen.

It was our privilege to host Lasse and remind ourselves of the following: even with this world of fake news and crazy valuations, one is encouraged to analyze things deeply, manage risks and trust in long-term positive outcomes. And if you have the brilliance of Lasse, please share your findings with others!