deutsche goes to lunch with warren

We all know that each year there goes a bid to have lunch or dinner with Warren Buffett, and the proceeds are graciously contributed to a charity. Diehard fans have and are willing to pay up millions just to sit next to Buffett and listen to him. They always come back saying it was all worth it, and why not?; they are the biggest of fans. 

Recently, I came across a report, though, that says $2.7 m that was paid for the lunch was actually worth it for anyone. Bizarre as it sounds, its argument actually is bizarre. 

There are several problems with this argument. First of all, it is stupid, just that. Now we can move on with other.

If someone with just $92,500 to invest should spend that much for lunch, assuming Warren accepts that bid, and also assuming that someone will return with 19% secret, that someone will have no cash to invest any further. Duh!

In 23 years, $92,500 earning 7% annually becomes $438,500. To estimate how much it becomes in real terms, we need annual inflation rates. The report says it becomes $284,000 in real terms, which means it assumes an annual inflation rate of 2%. It's not too much, but the report does not mention about its assumptions. Too bad, aargh!

At 19% annualized rate, $92,500 becomes $5.05 m in 23 years. And assuming the same inflation rate of 2%, at a real return of 17%, the investment value will be $3.4 m, not $3.8 m as the report says. In order to get $3.8 m, the rate of return will have to be about 17.53% annually. Assuming that it is in real terms, for the report misses to mention that, the implied inflation rate is 1.47%. Isn't a bit unfair to use 2% inflation for someone not having lunch, and 1.47% for someone having lunch with Warren? May be the food will have some magical powers to tame the macro. Even when you calculate the nominal, real and inflation rate equations on a compounded (which is more accurate) basis, we note the same shit!

And then. When Warren whispers that secret to 19%, is there an assurance that someone will imbibe the whisper and earn 19% over 23 years? Well, the report assumes that crap.

Finally, that secret whisper isn't 19% as the report notes, rather 20.8%. In the last 50 plus years, Berkshire Hathaway's book value increased by 19%, and its market value per share increased by 20.8% annually. 

It looks like Deutsche not only wrote some stupid report, but also failed to do some homework. What a pity!