Warren Buffett and Charlie Munger give their take on projections at the 1995 Berkshire Hathaway annual meeting.
Warren Buffett And Charlie Munger: Projections
Yeah to the extent that the method of estimating future cash.
Flow requires projections. I would say that their projections while they’re logically required by the circumstances on average do more harm than good in America. Most of them are put together by people who have an interest in a particular outcome and the subconscious bias that goes into the process and its apparent precision make it makes at some. Level its fatuous or dishonorable or foolish or what have you. Mark Twain used to say a mine is a hole in the ground owned by a liar and a projection prepared in America by anybody with a commission or an executive trying to justify a particular. Course of action.
Will frequently be a lie. It is not a deliberate lie in most cases. The man has. To believe it himself and that’s the worst kind. So I don’t think we shouldn’t. Projections are to be handled with great care particularly when somebody has an interest in misleading you. Charlie and I think it’s fair to say we’ve never looked at a projection in connection with either security we bought.
Or am or a business we bought. We’ve had them offered to us in great quantities. And the fact. That we had when we voluntarily turned away when people tried to thrust them upon us. I mean it. The very fact that they are prepared. So meticulously. By the people who are selling the businesses or by the executives who are presenting their boards and all of that sort of thing you know. I mean either we’re wrong or they’re wrong. It’s a ritual that that managers go through to justify doing what they wanted to do in the first place. And by 1999 nine cases out of ten I have never and I have never met an executive who wanted to buy something. That said what I had to turn it down because the projections didn’t work. I mean it just never happened. And there will always be somebody that will come up with projections that will satisfy the guy who’s signing his paycheck or will sign the deal that provides the commissions and. They.
Will pass those along to whomever else they need the bankers or the board to approve it. And it is total nonsense. I was recently involved in some. In a situation. Where projections were. A part of the presentation. And I asked that the record of the people who made the projections there are past projections also be presented at the same time.
It was it was a very rude action and it was regarded as apostasy.
But believe me it proved the point anyway. It was a joke. I mean so we’ll leave it at that.