

Warren Buffett thinks projections are useless - eoghan
http://contrast.ie/blog/warren-buffett-on-projections/

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junklight
I fully agree projection _figures_ are guesses, likely to show the situation
in a good light, and as much use as a guide to the future as a random line
drawn on a bit of paper.

BUT

that is not all that makes up a projection. The interesting and useful
information is what assumptions have gone into making the projections, what
understanding of the market is present etc. etc. By questioning the creator of
the business plans about all of this you can rapidly find out if they
understand their business, their market place and their competition.

(I'm not sure how this scales - but for small companies it's critical
information. However it certainly works in some situations - IDC are
projecting that Microsoft and Nokia will once again be a dominant force in
mobile phones, reading the article their assumption seems to be that,
Microsoft and Nokia have been dominant in the past and therefore, despite a
changing market and any damage they have seemingly done to their own
companies, they will be again. Having identified it I can now evaluate that
assumption on it's own merits. With a small company this may well be more
hidden. Another great example comes to mind: the work song nano cluster
episode of Big Bang Theory when Sheldon points out that Penny's business plan
will result in her earning considerably less than minimum wage)

Projections are not useless - they tell you what people are thinking and how
well they understand key things needed to make it succeed. Just don't treat
them as actual predictions of the future.

------
ahrens
Projections based on pure guesses are useless as information, but useful as a
clue to the insights of the entrepreneur. However, projections based on real
hard data, beta test growth, virality, those things can be valuable. It all
depends on how the entrepreneur arrived at the conclusions.

~~~
eoghan
Buffett's point is that a projection prepared by a person wishing to sell his
business, no matter what data went into the projection, will be inherently
biased and is to be treated with skepticism. Buffett would much rather see
said data himself. If he can understand it and the business, he'll make his
own projections. If he can't, he certainly won't rely on the person with an
interest in making the projection look good.

