Part of Warren Buffett’s fortune was made by “exploiting two market mistakes: the tendency for quality companies and low-risk stocks to outperform,” says last week’s Wall Street Journal.

Referring to the recently foiled Kraft-Unilever deal, the article says that both are “high-quality companies with predictable earnings and strong cash flow, whose shares have lower-than-average volatility and move less closely in line with the market than the norm.” And, the article points out, “investors bought into both of their stories last year.”

WSJ explores the factors over the past year that fuel the story of these types of stocks—including depressed bond yields and investors’ penchant for dividend-paying stocks—noting the “overlap between measures of low-volatility, high quality and a secure dividend.”

Ryan Taliaferro, who oversees managed-volatility portfolios at Acadian Asset Management in Boston, argues that “the market was distorted by exchange-traded funds that try to exploit these anomalies” and that stocks in the minimum-volatility index were priced higher than those not in the index. “That felt kind of bubbly,” says Taliaferro.

Two competing explanations for the “longer-run performance record of safe stocks” are pointed out:

• Human behavior: the tendency for investors to gravitate toward get-rich-quick potential;
• Leverage: which can be “added to the safest stocks to bring them up to the same level of risk as the wider market and deliver higher absolute returns.”

According to a paper by AQR’s Cliff Asness and colleagues, the article notes, Buffett’s outstanding investment record is born of the same principles. Once leverage was accounted for, the AQR team found, Buffett’s preference for safe and high-quality stocks “almost completely explain the performance of Buffett’s public portfolio.”