[DesertCat]

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Overall, this is a major quibble that I have with Buffett and Munger. They take a concept like EVA that is at least 80% correct and argue with the remaining portion that they disagree with. I’m sure that they would say, “Well, the part that is correct is obvious, so we won’t talk about it. We’ll just talk about the part that’s incorrect.”

The problem is with people (and I’ve met a few) who don’t have the Buffett/Munger depth of understanding and who actually form opinions based on the Buffett/Munger soundbites. They hear the criticisms of EVA and infer that EVA as an entire concept must be fatally flawed and simply twaddle. They don’t realize that the bulk of what’s included in EVA (economic profit vs. accounting profit) is a very valuable way of thinking.


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Let me add some color on why Munger and Buffett criticize EVA(R). Stern Stewart is essentially a consulting organisation that's trying to get lucrative contracts from companies where Munger and Buffett are on the board. The fact that Stern Stewart gets 20% of the process wrong renders their version of EVA useless. You can't build a skyscraper on an inadequate foundation. So if Munger and Buffett can convince a few more company managers to view Stern Stewarts version of EVA as twaddle, they'll probably save those managers millions in wasted consulting fees and poor resulting decisions.