Warren Buffett gave the following example as a law of diminishing returns and future revenue growth, and I decided to take him up on it:







“A growth rate of that magnitude can only be maintained by a very small percentage of large businesses. Here’s a test: Examine the record of, say, the 200 highest earning companies from 1970 or 1980 and tabulate how many have increased per-share earnings by 15% annually since those dates. You will find that only a handful have. I would wager you a very significant sum that fewer than 10 of the 200 most profitable companies in 2000 will attain 15% annual growth in earnings-per-share over the next 20 years.”



I used the year 1990's Fortune 500 and the year 2013's Fortune 500 for my criteria. (Yes, I used 23 years instead of 20, but don't think much difference is made.)



Based on a capitalization rate of 15% and 23 years as a time interval, I arrived at a future value factor of 24.891 (1.15^23) and multiplied that by the 200th ranking company’s revenue in 1990, using it as a base for 2013 qualification.



2.172 x 24.891 = 54.063 Billion 2013 Annual Revenue as base for criteria.



I did not have much of a list so I decided to add in companies that had 23-year sales growth over 13% ($36.113 billion 2013 sales as the base).



Still only 86 companies in total made the cut. I manually sorted through the list for companies that were both in the top 200 in 1990 as well as the top 86 in 2013. I found 28 that had over 13% revenue growth for the last 23 years or 14% of the 1990 Fortune 200.





Company 2013 Rank 1990 Rank 1 Exxon Mobile 2 3 2 Chevron 3 11 3 Phillips 66 (SpinOff) 4 30 4 Berkshire Hathaway 5 179 5 Apple 6 96 6 General Motors 7 1 7 General Electric 8 5 8 Ford 10 2 9 Hewlett-Packard 15 33 10 IBM 20 4 11 Archer Daniels Midland 27 57 12 Procter & Gamble 28 14 13 Caterpillar 42 38 14 Pepsi 43 23 15 ConocoPhillips 45 30 16 Johnston & Johnston 41 47 17 Pfizer 48 80 18 United Technologies 50 17 19 Dow Chemical 52 20 20 Intel 54 137 21 Coca-Cola 57 121 22 Merck 58 70 23 Lockheed Martin 59 45 24 Johnson Controls 67 126 25 Abbott Labortories 70 90 26 Dupont 72 9 27 Honeywell 78 65 28 Deere 85 66

About the author:

Tannor Pilatzke I am a self taught investor through Warren Buffett, Charlie Munger, Ben Graham, Peter Lynch, Joel Greenblatt, David Einhorn, Seth Klarman, Howard Marks, Phillip Fisher and Thornton O'Glove. My focus is a bottoms up Value-GARP strategy with a mix of top down contrarianism.



"When you find yourself on the side of the majority, it is time to pause and reflect." - Mark Twain I am a self taught investor through Warren Buffett, Charlie Munger, Ben Graham, Peter Lynch, Joel Greenblatt, David Einhorn, Seth Klarman, Howard Marks, Phillip Fisher and Thornton O'Glove. My focus is a bottoms up Value-GARP strategy with a mix of top down contrarianism."When you find yourself on the side of the majority, it is time to pause and reflect." - Mark Twain Visit Tannor Pilatzke's Website

How many of the 28 companies had over 15% annual EPS growth for the last 20 years? Buffett’s wager was that fewer than 10 had done so. I used net income as a proxy for EPS.had the largest CAGR of the bunch, making the earnings cut with $2 million 1990 earnings compared to $2.745 billion in 2013 orover the last 23 years.also makes the cut from 1990 earnings of $71.7 million to $9.019 billion or afor the last 23 years.was another company with over 15% growth for the last 23 years, growing from $391 million net income in 1990 to $11 billion in 2013. Intel managed afor the last 23 years.went from 1990 net income of $219 million to $8.428 billion in 2013 or good for awas one of four in the 20%-plus club, growing from $454 million 1990 net income to a phenomenal $41.733 billion in 2013 or ais really no surprise here considering the CEO and team who are running the place. Berkshire had 1990 net income of $447.5 million and 2013 net income of $14.824 billion or a 23-yearalso had phenomenal growth numbers over the 23-year span, growing from $251 million to $26.179 billion or a whoppingLooks like Buffett’s bet would have paid off with only seven companies from the 1990 Fortune 500 growing both revenue at 13% or higher and net income at 15% or higher. It is crazy to think that if one took the Fortune 500 in 1990 (or possiblly now), with the goal of at least a 15% CAGR from investment, the chances of doing so would only be about 3.5%.