2000: Will Berkshire buy technology companies?

AUDIENCE MEMBER: Mr. Buffett, I would like to start my question by giving you and Charlie 10 lashes with a wet noodle, not because of 1999 and what happened to your net worth or our net worth, but because you have spoiled your shareholders into expecting 25 percent growth every year, since 1965.

And then comes the bad, bad 199[9] and it hits all of us. But by my calculations, you personally, Mr. Buffett, have lost over 10 billion dollar — not million — billion dollars during 1999.

So I don’t think we should get too mad at you because probably all of us have, at this point in our life, increased our net worth and made a lot of money. So you don’t get a wet noodle today. (Laughter)

WARREN BUFFETT: Hmm.

AUDIENCE MEMBER: And the shareholders have, I’m sure, lost thousands. And some have lost millions of dollars during the year 1999.

Now after reading your biography in November of 1998 — unfortunately I didn’t know about you earlier — I started investing on November the 24th of ’98. And of course, I’m a poor little investor, so I bought your B stock at 23.08.

Then, because the market dropped, I bought some more on the 4th of December at 22.29. And then I bought, on January the 24th of 2000 at 16.89, so I do believe in dollar-cost averaging and I’ve been doing that for probably 30 years of my life.

My January investment, I’m happy to say, is up 15 percent, so the worst may be over.

Now, I read your annual report and I want to compliment you that that is the easiest and most entertaining annual report I think created in the whole world. And your — and I hope you continue that kind of a report. (Applause)

WARREN BUFFETT: Thank you.

VOICE: (Inaudible) Your name and —

AUDIENCE MEMBER: Oh!

VOICE: — where you’re from

AUDIENCE MEMBER: I’m sorry. I was just told that I should have said who I am. My name is Gaylord Hanson and I’m from Santa Barbara, California — where investor Munger puts his big, multimillion-dollar boat in the water. (Laughter)

WARREN BUFFETT: I’m not going to make any comment on that.

AUDIENCE MEMBER: Please don’t. (Laughter)

Now, with technology, computers, electronics, and software transforming our entire world — not just here — the world, I must admit that I personally invested in four technology computer software and aggressive growth mutual funds and made up all of my 1999 losses on Berkshire Hathaway. (Laughter and applause)

Are we asking too much as shareholders of Berkshire Hathaway for you men to put your brains to work and possibly speculate a little bit, maybe 10 percent of our money, into the only play in town, which seems to be technology, electronic?

And I read your report, and I understand a lot of your reasoning that it’s difficult — and it is difficult — to project earnings of a lot — people are going to be a little bankrupt. Are they going to out of business?

But isn’t there enough left in your brainpower to maybe pick a few and — (laughter) — see what’s going on? Because I made over a hundred percent profit in 1999 on my aggressive position in the technology field, so that’s —

WARREN BUFFETT: OK, well —

AUDIENCE MEMBER: — my question.

WARREN BUFFETT: The answer is we will never buy anything we don’t think we understand. And our definition of understanding is thinking that we have a reasonable probability of being able to asses where the business will be in 10 years.

But, you know, we’d be delighted — we have a man here who’s done very well. And if he has any business cards, you know, you could always invest with him, and — (Laughter)

And we’d welcome — you know — you can — we’ll give you a booth in our exhibitor’s section. And anybody that wants to do that is perfectly — obviously — free to do it with you or through any other — through anybody else that they select.

Now, you have a whole bunch of people out there that say they can do this. And maybe they can and maybe they can’t and maybe you can spot which ones can and can’t. The only way we know how to make money is to try and evaluate businesses.

And if we can’t evaluate a carbon steel company, we don’t buy it. It doesn’t mean it isn’t a good buy. It doesn’t mean it isn’t selling for a fraction of its worth. It just means that we don’t know how to evaluate it.

If we can’t evaluate the sensibilities of putting in a chemical plant or something in Brazil, we don’t do it. If somebody else knows how to do it, you know, more power to them.

There are all kinds of people that know how to make money in ways that we don’t. But, you know, it’s a free world and everybody can invest in those sort of things. But they would be making a mistake, a big mistake, to do it through us.

I mean, why pick a couple of guys like Charlie and me to do something like that with — when you can pick all kinds of other people that say they know how to do it.

I would say this. Incidentally, you mentioned a point earlier, which is how the popular press tends to think of things. But we don’t consider ourselves — Charlie and I don’t — richer or poorer based on what the stock does. We do feel richer or poorer based on what the business does.

So we look at the business as to how much we’re worth. And we do not look at the stock price, because the stock price doesn’t mean a thing to us. I mean, it doesn’t for a variety of reasons, but beyond that, imagine trying to sell hundreds of thousands of shares at the stock price.

We can always sell the business — we’re not going to do it — but we could always sell it for what the business is worth. We can’t sell our stock for what the — necessarily — what the stock price is. So we look at the business, entirely, in terms of evaluating our net worth.

We figure our net worth went up very, very, slightly — very slightly — in 1999. And we would figure that no matter what the stock was selling for — it just doesn’t make any difference — because we do look at the businesses.

We really look at it as if there wasn’t any quote on the stock. Because we don’t know what the stock is going to do.

If we do — if the business gets worth more at a reasonable rate, the stock will follow, over time. But it won’t necessarily follow week by week, or month by month, or year by year.

We had a lousy year in 1999, but the stock price did not calibrate with that in any perfect, or close to perfect, manner.

And we’ve had good years other times, when the stock price is way overpriced or over-described what happened during the year.

So we really measure all the time by the business. We think of it as a private business, basically, for which there’s a quotation. And if it’s handy to use that quotation, either in buying more stock or something of the sort, we may do it. But it does not govern our ideas of value.

Charlie?

CHARLIE MUNGER: Yeah. Generally, I would say that if you have a lot of lovely wealth in a form that makes you comfortable, and somebody down the street has found a way to make money a lot faster, in a way you don’t understand, you should not be made miserable by that process.

There are worse things in life than being left behind in possession of a lot of lovely money. I mean — (Laughter)

WARREN BUFFETT: Would you want to name a couple? (Laughter)

No, Charlie made — I mean, when farmland was — went from — farmland probably tripled here in the late ’70s, without any real change in yields per acre or the price of the commodity.

You know, are we going to sit around and stew because, you know, they — we didn’t buy farmland at the start?

You know, are we going to stew because all kinds of stuff — uranium stocks in the ’50s — or you can go back — all kinds of things that have — the conglomerates in the late ’60s, the leasing companies, I mean, you can just go down the line.

And it just doesn’t make any — we’re not in that game.

We would know how to create a chain letter, believe me. I mean, we’ve seen it down some many times. You know, we know the game. But it just isn’t our game.

Charlie? (Applause)