Why Warren Buffett thinks companies do not need economists | Watch
Billionaire investor and Berkshire Hathaway Chairman Warren Buffett believes you don’t need an economist to make decisions about buying stocks or companies.
Answering questions about the economy and US interest rates at the 2015 Berkshire Hathaway shareholders meeting, Buffett stated that neither he nor his partner Charlier Munger could predict what is happening right now.
We can’t predict the economy, we focus on business performance: Buffett
“I can assure you that I don’t remember us making or turning down an acquisition based on macro factors, whether it was See’s Candies or Burlington Northern (we bought it at a bad time)… General economic conditions just don’t play out because we don’t know what’s going to happen in the next 12 months. 24 months, 30 months…” he said.
The Oracle of Omaha further explained: “We know we don’t know what it (the economy) is going to look like. But if we’re going to keep a business for 100 years, it doesn’t really make a difference. What we need to do is figure out what the average profitability of the business can be over time and how strong the competitive mode is…that kind of thing.”
“We think any company that has one economist has too many employees,” he added, then turned the attention to Munger by joking: “Charlie, do you have anything rude that I didn’t say?” To take back a joke, “Well, that would be hard to top.”
Warren Buffett’s investment mantra: Hold for the long term
Over the years, Buffett has been very vocal about his investing mantra. He buys stocks to stockpile and holds them for the long term. For this reason, he sees short-term economic outlook and forecasts as unnecessary when making stock decisions.
He expressed similar thoughts about using economic forecasts when making investment decisions in an interview with Yahoo Finance in 2019.
“There’s always something different going on. That’s one reason why economic forecasts don’t come into our decisions. My partner, Charlie Munger, and I have never made a decision based on economic forecasting in 54 years. We make business forecasts for what individual businesses will do over time and compare that to what we have to pay for them,” he said.
He added that decisions are not based on good tendencies or panic because economics is not a hard science. “There are so many variables. So, in the sciences, if an apple falls from the tree, you know that it’s not going to change over the centuries because of any political development or 400 variables. But when you get into economics, there are so many variables, and the reality is that in business you have to expect good times and bad times,” he added.
Economic factors are short-term, while company health is a better factor to consider, he said, adding, “We’ll have good years, bad years, break years, and maybe one year we’ll have a disastrous year. We care a lot about the price. We don’t care about the next 12 months.”
