Warren Buffett: 'Don't ask the barber whether you need a haircut'

• Warren Buffett doesn't trust forecasts or projections, especially from someone who has a financial interest in making those projections.
• "I do not understand why any buyer of a business looks at a bunch of projections put together by a seller...or his agent," he said.

David A. Grogan | CNBC

Warren Buffett

Legendary investor Warren Buffett is no stranger to billion-dollar business deals. Regardless of size or scope of a transaction, the "Oracle of Omaha" uses the same research philosophy:

Don't trust forecasts or projections, especially from someone who has a financial interest in making those projections.

Whether you're buying a stock or a house or a business, the chairman and CEO of Berkshire Hathaway advises to do your own research. Don't trust the "experts."

"Don't ask the barber whether you need a haircut," Buffett told the audience at Berkshire's 1994 annual meeting.

Buffett's longtime partner Charlie Munger recalled him and Warren being offered a thick book of $2 million worth of projections during the process of buying a business.

"We almost paid $2 million not to look at it," Buffett joked to the audience.

"I do not understand why any buyer of a business looks at a bunch of projections put together by a seller...or his agent," he continued.

Obtaining information or trusting analysis from someone who has an interest in a particular deal is detrimental due to its innate bias. Munger called projections "intrinsically dangerous."

Buffett reviews annual reports and other filings to draw his own conclusions. He believes you should stick with businesses that you can evaluate yourself.

The 88-year-old's methodology proved to be not only insightful but successful. Berkshire has returned 20 percent annually over the last 40 years, double the return of the S&P 500 over that same time span, according to FactSet.

For more classic Warren Buffett advice, see CNBC's Buffett archive .

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— With reporting by Alex Crippen