1995: Could someone apply Berkshire's principals to build a technology portfolio?

AUDIENCE MEMBER: Chairmen, most company Berkshire invest at this time are not high in — are not in high-technology sector. What we have seen in the last few years, that there seems to be a significant growth, both in sales and earnings of the high-technology area.

And also, what invest — what U.S. shareholder believe that the times are changing from a brand name to high-technology.

My question is, can someone apply your investment principle, business philosophy, and your discipline in life to build a portfolio of, say, five or six high-technology company? Let’s call it Berkshire Hathaway Technology Fund? (Laughter)

WARREN BUFFETT: Well, I think it would sell. (Laughter)

The question about — Charlie and I won’t be able to do it. We — Charlie probably understands high-tech. But you can see how hard it is to get any information out of him. So — (laughter) — he hasn’t told me yet.

We try not to get into things we — that we don’t understand. And if we’re going to lose your money, we want to be able to come before you, you know, next year and tell you we lost your money because we thought this and it turned out to be that.

We don’t want to say, you know, somebody wrote us a report saying if, you know, “This is what’s going to happen,” in some field that we don’t understand and that, therefore, we lost your money by following someone else’s advice. So, we won’t do it ourselves.

At — I think that the principles — I think Ben Graham’s principles — are perfectly valid when applied to high-tech companies. It’s that we don’t know how to do it, but that doesn’t mean somebody else doesn’t know how to do it.

My guess is that if Bill Gates were thinking about some company in an arena that he understood and that I didn’t understand, he would apply much the same way of thinking about the investment decision that I would. He would just understand the business.

I might think I understand Coca-Cola or Gillette. And he may have a — he may have the ability to understand a lot of other businesses that seems as clear to him as Coke or Gillette would seem to me.

I think once he identified those, he would apply pretty much the same yardsticks in deciding how to act.

I think he would act — I think he would have a margin of safety principle that might be a little different because there’s essentially more risk in a high-tech company. But he would still have the margin of safety principle on a — sort of adjusted for the mathematical risk of loss in his mind.

He would have — he would look at it as a business, not as a stock.

You know, he would not buy it on borrowed money. I mean, it — a bunch of principles would be carried through.

But our circle of things we understand is really unlikely to enlarge, maybe a tiny bit here or there. But if the capital doesn’t get too large, the circle’s OK.

And — but we will not —if we have trouble finding things within our circle, we will not enlarge the circle. You know, we’ll wait. That’s our approach.