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So, on a related note... Google has grown really fast over 5 or so years. Say, 12,385% for the sake of argument. What do you think the chances of this experi

So, on a related note... Google has grown really fast over 5 or so years. Say, 12,385% for the sake of argument. What do you think the chances of this experiencing that PERCENTAGE growth over the next 5 years? I think his point is-- high percentage growth is easy for small things. It gets harder for big things. Growth curves tend to flatten out.

neilc 18y ago
The DJIA is not a single "thing" that is subject to the same growth rules as a single organization -- it is just an index of companies. The same properties that allowed the index to grow from 66 to ~11,000 in the 20th century could just as easily allow it to grow by a similar percentage in the 21st century: the absolute value of the index is not relevant (it already accounts for stock splits).
- webwright 18y ago
  Well, all "things" are made up of smaller "things"... Because the DJ is made up of smaller things, it's not subject to any growth rules? I'm not sure why you'd draw a line there. The question that Buffett is addressing is, "Is there as much potential for growth among these companies (and the economy as a whole) as there was 100 years ago?" His answer is no. While I'm not convinced, I don't think it's a "dumb" conclusion.
  - epi0Bauqu 18y ago
    I didn't say it was a dumb conclusion, but just that the particular argument made to support it was dumb. In particular, I qualified with Now there may be reasons not to expect similar returns in this century as compared to the last, but this is certainly not one of them. and This is not a discussion about whether we are actually in for similar, higher, or lower returns.
  - neilc 18y ago
    There may well be reason to conclude that there is less potential for growth -- the problem is that his reasoning for making that conclusion is based on the absolute value of the Dow index, which is what is dumb.
epi0Bauqu 18y ago
Berkshire Hathaway 2007 Annual Report, pg1: Overall Gain – 1964-2007 400,863% That being said, I agree with your underlying point: bigger things are harder to move % wise. However, when you consider the overall economy, it isn't as clear cut as Google (and Google isn't that clear cut!). There are so many factors to consider, including population growth, rate of integration of certain populations into the "developed world," resource constraints, innovation growth %, etc. etc. The Dow should increasingly roughly move at a small multiple of the growth of the global economy. So if one says you shouldn't expect the same returns, one is essentially saying that the global economy is going to slow down as a whole relative to the past century. I just haven't seen any compelling evidence for this claim. Sure, I have seen wild speculation and isolated scenarios, but I have not seen any well-thought out arguments that really attempt to capture all the factors in a probabilistic fashion. The best evidence I have seen is that developed countries tend to have slower growth rates after a certain point. But this is a recent trend, not universal, and of course not perpetually written in stone.
jdroid 18y ago
He doesn't seem to be taking into account new markets that might soon exist. We had TV's, space travel, the Internet, Y Combinator and wireless communication in the 1900's alone!
- jdroid 18y ago
  This post has negative points and no one responds with a comment? Back yourself up people!
Xichekolas 18y ago
Growth curves for a single company flatten out because a single company can never be larger than the entire market (and in practice never even close to that large). If Google were to grow indefinitely it will eventually become 100% of the economy, swallowing all other companies and employing everyone, but even at that point it would still grow, but only at the rate the entire economy grows. Growth for the entire economy is only limited by our abilities to innovate and find resources (both material and human resources). There is no inherent ceiling. The ceiling on a single company (which makes it's growth rate fall off) is imposed when it saturates it's market and can't enter any new markets, the economy as a whole is fueled by the seemingly endless wants of humanity. In essence, there is always a new market for the economy to enter: the next human desire. In short, the only way there could be a ceiling on the entire economy is if humans stopped wanting new things. Economic growth is supply constrained (supply of resources and innovation), not demand constrained.
- ovi256 18y ago
  >... find resources (both material and human resources). There is no inherent ceiling. Well, you just stated your ceiling. Material and human resources are both finite. Positive thinking cannot just make that go away.
  - Xichekolas 18y ago
    I guess I should have clarified that I meant there was no inherent ceiling on the size of the economy (other than the amount of mass and energy in the known Universe, although I hope we'll figure out something else to do before we consume all that), but yes, the growth rate in any given year is limited by resources available and human innovation. Sorry for the ambiguity. I guess my point is that the reason high percentage growth is easy for small companies is because they can rapidly expand to fill an existing market that is much bigger than the company. The reason it is hard for big companies is because of market saturation. The economy as a whole doesn't work that way. It just relentlessly grows with our ability to acquire resources and never-ending human desires.
  - epi0Bauqu 18y ago

neilc 18y ago

The DJIA is not a single "thing" that is subject to the same growth rules as a single organization -- it is just an index of companies. The same properties that allowed the index to grow from 66 to ~11,000 in the 20th century could just as easily allow it to grow by a similar percentage in the 21st century: the absolute value of the index is not relevant (it already accounts for stock splits).

webwright 18y ago
Well, all "things" are made up of smaller "things"... Because the DJ is made up of smaller things, it's not subject to any growth rules? I'm not sure why you'd draw a line there. The question that Buffett is addressing is, "Is there as much potential for growth among these companies (and the economy as a whole) as there was 100 years ago?" His answer is no. While I'm not convinced, I don't think it's a "dumb" conclusion.
- epi0Bauqu 18y ago
  I didn't say it was a dumb conclusion, but just that the particular argument made to support it was dumb. In particular, I qualified with Now there may be reasons not to expect similar returns in this century as compared to the last, but this is certainly not one of them. and This is not a discussion about whether we are actually in for similar, higher, or lower returns.
- neilc 18y ago
  There may well be reason to conclude that there is less potential for growth -- the problem is that his reasoning for making that conclusion is based on the absolute value of the Dow index, which is what is dumb.

epi0Bauqu 18y ago

Berkshire Hathaway 2007 Annual Report, pg1: Overall Gain – 1964-2007 400,863% That being said, I agree with your underlying point: bigger things are harder to move % wise. However, when you consider the overall economy, it isn't as clear cut as Google (and Google isn't that clear cut!). There are so many factors to consider, including population growth, rate of integration of certain populations into the "developed world," resource constraints, innovation growth %, etc. etc. The Dow should increasingly roughly move at a small multiple of the growth of the global economy. So if one says you shouldn't expect the same returns, one is essentially saying that the global economy is going to slow down as a whole relative to the past century. I just haven't seen any compelling evidence for this claim. Sure, I have seen wild speculation and isolated scenarios, but I have not seen any well-thought out arguments that really attempt to capture all the factors in a probabilistic fashion. The best evidence I have seen is that developed countries tend to have slower growth rates after a certain point. But this is a recent trend, not universal, and of course not perpetually written in stone.

jdroid 18y ago

He doesn't seem to be taking into account new markets that might soon exist. We had TV's, space travel, the Internet, Y Combinator and wireless communication in the 1900's alone!

jdroid 18y ago
This post has negative points and no one responds with a comment? Back yourself up people!

Xichekolas 18y ago

Growth curves for a single company flatten out because a single company can never be larger than the entire market (and in practice never even close to that large). If Google were to grow indefinitely it will eventually become 100% of the economy, swallowing all other companies and employing everyone, but even at that point it would still grow, but only at the rate the entire economy grows. Growth for the entire economy is only limited by our abilities to innovate and find resources (both material and human resources). There is no inherent ceiling. The ceiling on a single company (which makes it's growth rate fall off) is imposed when it saturates it's market and can't enter any new markets, the economy as a whole is fueled by the seemingly endless wants of humanity. In essence, there is always a new market for the economy to enter: the next human desire. In short, the only way there could be a ceiling on the entire economy is if humans stopped wanting new things. Economic growth is supply constrained (supply of resources and innovation), not demand constrained.

ovi256 18y ago
>... find resources (both material and human resources). There is no inherent ceiling. Well, you just stated your ceiling. Material and human resources are both finite. Positive thinking cannot just make that go away.
- Xichekolas 18y ago
  I guess I should have clarified that I meant there was no inherent ceiling on the size of the economy (other than the amount of mass and energy in the known Universe, although I hope we'll figure out something else to do before we consume all that), but yes, the growth rate in any given year is limited by resources available and human innovation. Sorry for the ambiguity. I guess my point is that the reason high percentage growth is easy for small companies is because they can rapidly expand to fill an existing market that is much bigger than the company. The reason it is hard for big companies is because of market saturation. The economy as a whole doesn't work that way. It just relentlessly grows with our ability to acquire resources and never-ending human desires.
- epi0Bauqu 18y ago