Warren Buffett’s 90% Rule

During their latest episode of the VALUE: After Hours Podcast, Huber, Taylor, and Carlisle discuss Warren Buffett’s 90% Rule. Here’s an excerpt from the episode:

Tobias: Before we came on, we were talking a little bit about Buffett’s 90%. Is it 90% confidence interval that firm’s earnings will be bigger in five years’ time? Is that how he characterizes the business will be bigger in five years’ time?

John: Yeah.

Jake: He bought exercise that they do in terms of– [crosstalk]

John: Yeah, it’s a super interesting little simple thought experiment that I thought was really neat. It’s basically like the first test is, is this company 90% likely to have greater earnings in five years or are you 90% confident that this company–? So, it’s companies that obviously within your ability to estimate that or predict that, but are you 90% confident that the company is going to be stronger in five years is how I would think about it.

Tobias: We were talking about some examples of that. Before Amazon, who did you mention before Amazon?

John: Well, we were talking about Dillard’s before we– [crosstalk]

Tobias: Was it Dillard’s? Yeah.

John: Before we turned it on. Yeah.

Tobias: Run us through that thought exercise, the Dillard’s?

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