At the 2011 Berkshire Hathaway Annual Meeting, Warren Buffett and Charlie Munger reminded everyone why they’re value investing legends. In their signature no-nonsense style, they talked about what really matters when evaluating a business—and it’s not the slick projections investment bankers love to push.
Buffett put it plainly when asked about forecasting growth: “Growth is part of the investment equation, and obviously, we love profitable growth.” But it’s not the end-all. Sure, they’d love to scale a company like See’s Candy into new territories, or see Coca-Cola keep growing across its 200-country footprint.
But, as Buffett noted, even a slow-growth company like Lubrizol can be attractive “if the price is attractive relative to the earning power.” That’s classic Buffett—don’t chase growth for its own sake, chase value.
And then Charlie Munger added: “I’ve always regarded those projections as doing more harm than good.” He was talking about those long, fancy spreadsheets with projections going ten years into the future—something business schools love and Buffett and Munger essentially laugh at.
“We make rough projections in our head all the time,” Buffett added. “But we sure don’t want to listen to anybody else’s projections.” It’s that internal compass—developed through decades of experience—that they trust, not the output of some Excel wizardry.
Buffett even told a story about buying Scott Fetzer in the ‘80s. After the company was shopped around to 30 buyers—none of whom were Buffett—he sent a simple letter with an offer and made the deal directly. The kicker? The banker who didn’t contact them still pocketed millions in commission. “Charlie, with his usual tact,” Buffett recalled, “said I’ll pay you $2 million if you don’t show me the book.” Classic Munger—dry, sharp, and brutally honest.
They extended the same skepticism to Lubrizol’s management projections. When Dave Sokol offered Buffett a set of financial forecasts that went out to 2015, Buffett passed: “I don’t want to look at the other fellow’s projections.” His reason? “I’ve never seen a projection from an investment banker that didn’t show the earnings going up over time, and believe me, the earnings don’t always go up.”
Buffett summed it up with one of those lines that sticks: “Don’t ask the barber whether you need a haircut.” If someone’s trying to sell you something, of course their numbers will look rosy.
So for anyone learning the ropes: yes, business schools might make you grind through endless forecasts and discounted cash flow models. But as Munger quipped, “At least until you’re out of school, you have to pretend to do it their way.” Then you can do it the Berkshire way.
You can find the 2011 Berkshire Hathaway Afternoon Session here:
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