Analogy by Warren Buffett on boosting earnings via acquisitions.
At other companies, executives may devote themselves to pursuing acquisition possibilities with investment bankers, utilizing an auction process that has become standardized. In this exercise, the bankers prepare a “book” that makes me think of Superman comics of my youth. In the Wall Street version, a formerly mild-mannered company emerges from the investment bankers’ phone booth able to leap over competitors in a single bound and with earnings moving faster than a speeding bullet. Titillated by the book’s description of the acquiree’s powers, acquisition-hungry CEOs – Lois Lanes all, beneath their cool exteriors – promptly swoon.
What’s particularly entertaining in these books is the precision with which earnings are projected for many years ahead. If you ask the author-banker, however, what his own firm will earn next month, he will go into a protective crouch and tell you that business and markets are far too uncertain for him to venture a forecast.