Buffett: BV "may be boring"-- but it’s also critical

If business schools could offer just one course, say Berkshire Hathaway executivesWarren Buffett and Charlie Munger, it would not be on stock trading, the efficient market hypothesis, or modern portfolio theory. Rather, B-schools should be encouraging students to learn “the boring, but critically important, discipline of business valuation,” the iconic investors told attendees at the company’s annual meeting on May 5 (as reported by theVictoria Advocate). BV is the “heart of investing and risk management, and without it, you are blind.” Their two key takeaways apply as much to business students as business appraisers:

• In valuing any business, “you must be honest with yourself about which businesses you truly understand and those you don't,” Buffet said. “It is impossible to value a business that you don't truly understand.”

• Wall Street and the accounting profession have made the situation worse by developing “standardized models” to quantify corporate risks, according to Munger. There is no such thing, the pair of partners agreed; when it comes to assessing risk and opportunity, “what matters most is your facts and your reasoning.”