The capital asset pricing model (CAPM) is widely used within the financial industry, especially for riskier investments. The model is based on the idea that investors should gain higher yields when investing in more high-risk investments, hence the presence of the market risk premium in the model's formula.
Is CAPM used today?
Despite its issues, the CAPM formula is still widely used because it is simple and allows for easy comparisons of investment alternatives. For instance, it is used in conjunction with modern portfolio theory (MPT) to understand portfolio risk and expected return.
What is CAPM and it example?
Like all sensible value investors, Buffett values stocks based on the present value of all future cash flows, and then buys at significant discount. But Buffett does in fact think about the inputs differently than the "traditional" capital asset pricing model (CAPM).