Warren Buffett points out that no matter how successful a company is, and how good its future prospects look to be, you can get into a lot of trouble as an investor projecting too high a future growth rate for an extended period of time. “There are a lot of managements around who like to think their stocks are worth infinity, but we haven’t found one yet,” Buffett wryly notes.
“The idea of projecting out extremely high growth rates for very long periods of time has caused investors to lose, you know, very, very large sums of money,” Warren Buffett pointed out at the 2004 Berkshire Hathaway Annual Meeting. “There aren’t many companies, just take a look at the Fortune 500, go back 50 years… and look at the companies that were there and how many have really maintained rates much above 10 percent. It’s not an easy hurdle. And when you get up to 15, you know, you’re in the atmosphere and rarified atmosphere…There’s a real danger in projecting out high growth rates. And Charlie and I will very seldom, virtually never, get up into high digits. You can lose a lot of money doing that.”
Hear Buffett’s full explanation
See the complete Lessons From Warren Buffett series
© 2023 David Mazor
Disclosure: David Mazor is a freelance writer focusing on Berkshire Hathaway. The author is long in Berkshire Hathaway, and this article is not a recommendation on whether to buy or sell the stock. The information contained in this article should not be construed as personalized or individualized investment advice. Past performance is no guarantee of future results.