1. What do you think of discounted cash flow (DCF) models? Source: BRK Annual Meeting 2009 Bruni Notes 2009

Munger: Some of the worst business decisions I’ve seen came with detailed analysis. The higher math was false precision. They do that in business schools, because they’ve got to do something.

Buffett: The priesthood has to look like they know more than “a bird in the hand.” You won’t get tenure if you say “a bird in the hand.” False precision is totally crazy.  It only happens to people with high IQs. The markets of mid September last year were [such that] you can’t calculate standard deviations. People’s actions don’t observe laws of math. It’s a terrible mistake to think higher math will take you a long way— you don’t need to understand it, [and] it may lead you down the wrong path.

2. Could you explain your opportunity cost decisions of the past year? Source: BRK Annual Meeting 2009 Bruni Notes 2009

It’s tougher to calibrate A, versus B, versus C in a fast changing environment [Comment: The real cost of any purchase isn’t the actual dollar cost. Rather, it’s the opportunity cost – the value of the investment you didn’t make, because you used your funds to buy something else.]


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