In Search of Warren Wisdom

So I just came back from my first Berkshire Hathaway (BRK.A Quote) annual meeting weekend. TSC's Chris Edmonds has done an excellent blow-by-blow account, so I will try to focus on some of the sharper insights that I gleaned from the meeting -- ones that I will probably be shamelessly and insufferably recycling in my own client meetings over the next few months.

Right off the bat someone asked Chairman Warren Buffett to talk about valuation: What does it take for a certain unnamed company with a $500 billion market cap to be worth $500 billion? His answer: The company must ultimately achieve a level of $55 billion-ish in net profit in one of the far-out years of the discounted cash flow stream.

And yet we're far from there: For the purposes of scale, note that one of the two-largest profit-generating companies -- GE (GE Quote), with a market cap of $518 billion -- produces only $11 billion in net profit. The other -- the unnamed company whose name rhymes with disco (and the subject of a recent column) -- boasts a $481 billion market cap but a mere $2.5 billion in net profit. ...