'Don’t ask the barber whether you need a haircut': Warren Buffett on developing insight

Warren Buffett advised investors not to trust forecasts from people who have a financial interest in making those projections.

Legendary American investor Warren Buffett's famous words during Berkshire Hathaway’s 1994 annual meeting “Don’t ask the barber whether you need a haircut" was one of his best pieces of advice to investors.

Buffett has always held that "experts" or agents have vested interests when it comes to business which is why it is important to do one's own research. "Don’t trust forecasts or projections, especially from someone who has a financial interest in making those projections," he had said.

The chairman and CEO of Berkshire Hathaway urged investors to develop their own insight whether buying a stock or a house or a business.

At the 1994 annual meeting, Buffett's longtime partner Charlie Munger told the audience that they were once offered a thick book of $2 million worth of projections during the process of buying a business.

“Don’t ask the barber whether you need a haircut.”
- Warren Buffett

Warren and Charlie discuss the importance of developing your own insights rather than relying on the projections of “experts.” This requires only doing things you can understand. Keep it simple. $BRK 1994 AGM pic.twitter.com/cR1zVvC3qk

Related stories

• 
  Warren Buffett Turns 95: Lessons for India’s next-gen promoters
• 
  Warren Buffett’s Berkshire hit with $3.8 billion Kraft Heinz charge
• 
  For wise investing, build on Warren Buffett guru Graham's bond playbook

— Compound248 (@compound248) September 17, 2022

"We almost paid $2 million not to look at it," Warren Buffett joked to the audience. "I do not understand why any buyer of a business looks at a bunch of projections put together by a seller... or his agent."

The American business magnate further added that it's naïve to not have some idea about the future of the business that one wants to invest in and listen to advice from an "expert".

"If we don’t have some idea ourselves of what we think the future is, to sit there and listen to some other guy who’s trying to sell us the business or get a commission on it tell us what the future’s going to be... it’s very naïve," Buffett said.

To drive the point home, he added, "We had a line in the report one time, “Don’t ask the barber whether you need a haircut.” And it’s quite applicable to projections of -- by sellers -- of businesses."

Read more: Warren Buffett is auctioning off a signed portrait. Bids cross $30,000