When estimating a company's intrinsic value, does Warren Buffett prioritize precision or being approximately right?

Warren Buffett's Perspective on Estimating a Company's Intrinsic Value

When estimating a company's intrinsic value, Warren Buffett prioritizes being "approximately right" over precision. He believes intrinsic value is inherently an estimate—impossible to calculate to several decimal places—and that investors should focus on a reasonable range, making decisions with a margin of safety.

Key Reasons

• Buffett’s Own Words: In multiple shareholder letters (e.g., 1983 and 1994), Buffett emphasized preferring "approximately right" over "precisely wrong." This stems from his mentor Benjamin Graham’s philosophy: valuation is not a science but an art, requiring discounted future cash flow analysis while avoiding false precision.
• Value Investing Principles: Buffett argues that overemphasizing precise calculations (e.g., complex models) often leads to flawed assumptions. An approximately accurate valuation, combined with a margin of safety (buying at a discount to intrinsic value), better mitigates risks.
• Practical Application: When evaluating companies like Coca-Cola or Apple, Buffett focuses on long-term economic traits (e.g., moats and profitability) rather than short-term precision. This reflects value investing’s core tenet: favor conservative estimates over speculative exactitude.

Implication

For investors, this means prioritizing directional accuracy (e.g., whether a company has sustainable competitive advantages) over minutiae in models. Buffett’s success proves that "approximately right" often yields superior long-term returns.