Tuesday, December 27, 2005

The important and knowable

I don't think about the macro stuff. What you really want to in investments is figure out what is important and knowable. If it is unimportant and unknowable, you forget about it. What you talk about is important but, in my view, it is not knowable. Understanding Coca-Cola is knowable or Wrigley's or Eastman Kodak. You can understand those businesses that are knowable. Whether it turns out to be important depends where your valuation leads you and the firm's price and all that. But we have never not bought or bought a business because of any Macro feeling of any kind because it doesn't make any difference. Let's say in 1972 when we bought See's Candy, I think Nixon put on the price controls a little bit later, but so what! We would have missed a chance to buy something for $25 million that is producing $60 million pre-tax now. We don't want to pass up the chance to do something intelligent because of some prediction about something we are no good on anyway. So we don't read or listen to in relation to macro factors at all. The typical investment counselor organization goes out and they bring out their economist and they trot him out and he gives you this big macro picture. And they start working from there on down. In our view that is nonsense.

If Alan Greenspan was on the one side of me and Robert Rubin on the other side and they both were whispering in my ear exactly what they were going to do the next twelve months, it wouldn't make any difference to me what I would pay for Executive Jet or General Re or anything else I do.

Excerpt from "Buffett Talk to MBA Students at Florida University 1998"

  • Focus on the company's economics, management and price instead of what the economist forecast for the next year


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