1998: How do you forecast improvements in price-to-earnings ratios?

CHARLIE MUNGER: Yes, I think he also asked, how do you forecast these improvements in price-earnings ratios.

WARREN BUFFETT: That’s your — that’s your part of the question. (Laughter)

CHARLIE MUNGER: Around here I would say that if our predictions have been a little better than other people’s, it’s because we tried to make fewer of them. (Laughter and applause)

WARREN BUFFETT: We also try not to do anything difficult, which ties in with that.

We really do feel that you get paid just as well — you know, this is not like Olympic diving. In Olympic diving, you know, they have a degree of difficulty factor. And if you can do some very difficult dive, the payoff is greater if you do it well than if you do some very simple dive.

That’s not true in investments. You get paid just as well for the most simple dive, as long as you execute it all right. And there’s no reason to try those three-and-a-halfs when you get paid just as well for just diving off the side of the pool and going in cleanly. (Laughter)

So we look for one-foot bars to step over rather than seven-foot or eight-foot bars to try and set some Olympic record by jumping over. And it’s very nice, because you get paid just as well for the one-foot bars.