"And I have listened to cost of capital discussions at all kinds of corporate board meetings and everything else. And, you know, I’ve never found anything that made very much sense in it except for the fact that it’s what they learned in business school and that’s what the consultants talked about. And most of the board members would nod their head without knowing what the hell was going on. And that’s been my history with the cost of capital." Source / Credit: [ Ссылка ]

Companion transcript from October 27, 1996 symposium:
Munger: You say there is some vaguely established view in economics as to what is an optimal dividend policy or an optimal investment?
Professor William Bratton of the Rutgers-Newark School of Law: I think we all know what an optimal investment is.
Munger: No, I do not. At least not as these people use the term.
Bratton: I don’t know it when I see it but in theory, if I knew it when I saw it this conference would be about me and not about Warren Buffett.
Munger: What is the break point where a business becomes sub-optimal or when an investment becomes sub-optimal?
Bratton: When the return on the investment is lower than the cost of capital.
Munger: And what is the cost of capital?
Bratton: Well, that’s a nice one and I would…
Munger: Well, it’s only fair, if you’re going to use the cost of capital, to say what it is.
Bratton: I would be interested in knowing, we’re talking theoretically.
Munger: No, I want to know what the cost of capital is in the model.
Bratton: In the model? It will just be stated.
Munger: Where? Out of the forehead of Job or something?
Bratton: That is correct.
Munger: Well, some of us don’t find this too satisfactory.
Bratton: I said, you’d be a fool to use it as a template for real world investment decision making. We’re only trying to use a particular perspective on human behavior to try to explain things.
Munger: But if you explain things in terms of unexplainable sub-concepts, what kind of an explanation is that?
Bratton: It’s a social science explanation. You take for what it’s worth.
Munger: Do you consider it understandable for some people to regard this as gibberish?
Bratton: Perfectly understandable, although I do my best to teach it.
Munger: Why? Why do you do this?
Bratton: It’s in my job description.
Munger: Because other people are teaching it, is what you’re telling me.

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