GMAT Insider: Critical Reasoning The Warren Buffett Way

by on June 15th, 2010

warren buffettWhile the “tallest building in Omaha” has become the default analogy for something that is the best of a lackluster field, the “richest man in Omaha” is, depending on the stock market that day, sometimes the richest man in the world.  Warren Buffett is one of the most respected men in business history and perhaps the shrewdest investor of all time.  Business schools would obviously love to lay claim to an alumnus like Buffett (his Masters degree, incidentally, is in economics from Columbia), so how can you demonstrate via your GMAT score that you are capable?

Buffett’s investment philosophy, simply stated, is to focus only on the statistics that matter for long-term growth.  Eschewing the popular market trends, Buffett looks specifically at the intrinsic value of companies – return on equity, debt-equity ratio, market differentiation, etc. – to determine whether a stock is a long-term value.  If it is, and if the market has undervalued it (perhaps in search of glitzier, short-term statistical trends), he will buy and hold the stock, pretty much always to a high return.  By clearly articulating his goal – long-term profitability – and by only making his decisions on the basis of information that specifically addresses that goal, Buffett has outperformed the market consistently over the past 50 years.

As a result, Buffett would outperform all comers on the Critical Reasoning portion of the GMAT, which seek to determine candidates’ skills in Buffett’s arena.  Those who can make sound decisions as they impact a specific objective are rewarded by the exam.  Consider the question:

Citizen: Each year since 1970, a new record has been set for the number of murders committed in this city. This fact points to the decreasing ability of our law enforcement system to prevent violent crime.

City Official: You overlook the fact that the city’s population has risen steadily since 1970. In fact, the number of murder victims per 100 people has actually fallen slightly in the city since 1970.

Which one of the following, if true, would most strongly counter the city official’s response?

(A) The incidence of fraud has greatly increased in the city since 1970.
(B) The rate of murders in the city since 1970 decreased according to the age group of the victim, decreasing more for younger victims.
(C) Murders and other violent crimes are more likely to be reported now than they were in 1970.
(D) The number of law enforcement officials in the city has increased at a rate judged by city law enforcement experts to be sufficient to serve the city’s increased population.
(E) If the health care received by assault victims last year had been of the same quality as it was in 1970, the murder rate in the city last year would have turned out to be several times what it actually was.

Much like Warren Buffett in his financial planning, you should first consider the primary objective or conclusion in this case.  The City Official is attempting to refute the claim that the police force is doing an inadequate job of “preventing violent crime”, so it can be inferred that his point is to the extent of:

“Law enforcement is doing an adequate job of preventing violent crime.”

Because we are asked to weaken his claim, we can then look at the evidence he provides.  That evidence is specific not to violent crime as a whole, but rather solely focuses on one type of violent crime, referencing the murder rate.  The logical flaw in this argument is that he purports to talk about violent crime, but references a statistic that does not address that specific conclusion.  At this point, Buffett’s instincts would sound alarms: the evidence does not directly support the conclusion!

Looking at the answer choice, our goal is then to find justification for the idea that the murder rate could be down since 1970 while the violent crime rate remains up; choice E provides just that sentiment.  If the primary driver in the reduced murder rate is that what was once a murder is now simply a violent assault – the healthcare has prevented the death, but the crime was still committed – then the violent crime rate can surely remain high, and the City Official’s point is invalid.

When facing Critical Reasoning questions that involve statistics, awaken your inner “Oracle of Omaha” and be skeptical of the statistics.  Like Warren Buffett, first identify the conclusion or objective that you seek to accomplish, and then only accept as relevant those statistics that directly impact it.  While you won’t be able to match Buffett’s percentage growth with your GMAT score – that cap of 800 makes exponential growth tricky – you can nevertheless use his ideology to maximize the value of a number that is quite important to you.  “Highest GMAT score in Omaha” doesn’t sound so bad…

9 comments

  • Hi Brian, Thanks for the aticle. I have a small doubt. How can we eliminate D in this case? Is it because it doesnt counter "strongly"?

  • If I am not wrong Praveen then D is actually strengthning the City's offcial comment.
    Brian Please confirm.

  • IMO, D is out of scope. We are countering the comment made by the city official, and he did not address the issue regarding police at all.

    So to stay in scope, we should look for answers that address the population or the the claim that the murder rate per 100 has actually fallen.

  • i had fallen for the trap of option D. Good explanation. Thanks

  • I guess I am still not fully clear about the answer to this question. How could be eliminate D from the answer choices.

  • City Official: You overlook the fact that the city’s population has risen steadily since 1970. In fact, the number of murder victims per 100 people has actually fallen slightly in the city since 1970.

    (D) The number of law enforcement officials in the city has increased at a rate judged by city law enforcement experts to be sufficient to serve the city’s increased population.

    The question I ask myself is, can law enforcement have an effect on city's population since 1970? No.

    Can sufficient number of law enforcement officials lower the murder victim rate per 100 people? No way to establish this without lots of new information, or assumptions.

    Plus the question stem is asking you to respond to City Official, not Citizen. Perhaps there's a better way, but this is how I broke it down.

  • Im sorry but it may seems lame...what do u mean by:
    f true, would most strongly ""counter"" the city official’s response?
    does it mean ''support'' or ''weaken'' the officil's response?

  • counter is to weaken.

  • Why can the answer not be C? Answer C states "murders and violent crimes are more likely to be reported now than in 1970".

    If murders and violent crime are more likely to be reported now than in 1970, that means the actual number of ppl murdered in 1970 is higher than believed. This seems to weaken the city official's claim that there are less murders now compared to 1970.

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