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2015: What characteristics make a company's earnings predictable?
AUDIENCE MEMBER: Hi, Warren. Hi, Charlie. Great to be here. This is my first time here, incredibly lucky to have my question answered.
So my question is this: can you name at least five characteristics of a company that gives you confidence to predict its earnings ten years out in the future? And can you also use IBM as a case study, how we check all those boxes?
WARREN BUFFETT: Charlie, what are your five? (Laughter)
CHARLIE MUNGER: We don’t have a one-size-fits-all system for buying businesses. They’re all different, every industry is different, and we also keep learning. So what we did ten years ago, we hopefully are doing better now. But we can’t give you a formula that will help you.
WARREN BUFFETT: Now, if you’re looking at the BNSF railroad as we were in 2009 or if you’re looking at Van Tuyl in 2014, there are a lot of things that go through our minds. And most of the things that go through our minds are things that will stop us from going further.
I mean, there’s — the filters are there. And there are a lot of things that, if we see it in a business, including, maybe, who we’re dealing with, will stop us from going on to the next layer. But it’s very different in different businesses.
We are looking for things where we do think we’ve got some reasonable fix on how it’s going to look in five or ten years, and that does eliminate a great many businesses. But it’s not the same — it’s not the same five questions at all.
Certainly, when we’re buying a business where we’re going to have somebody that’s selling it to us continue to run it for us, you know, a very big question is, you know, do we really want to be in partnership with this person and count on them to behave in the future when they don’t own the business, as they behaved in the past when they do own the business. And that stops a fair number of deals.
But I can’t give you five — we don’t have a list of five. Or if we do, Charlie has kept it from me. (Laughter)
WARREN BUFFETT: You want anything more?
CHARLIE MUNGER: No.