2001: How has Buffett's view of the internet changed?

AUDIENCE MEMBER: Good morning. My name is Thomas Kamay (PH). I am 11 years old and from Kentfield, California. This is my fourth annual meeting.

Last year, I asked how the internet might affect some of your holdings. Since a lot of the internet companies have gone out of business, how are — has your view of internet changed?

WARREN BUFFETT: Well, that’s a good question. I think that the internet probably looks to most retailers like less of a competitive threat than it did a couple of years ago.

For example, if you look at the jewelers who have been on the internet and, in many cases — in several cases, at least, had very large valuations a couple of years ago, so the world was betting that they would be very effective competitors against brick and mortar jewelry retailers.

I think that that threat has diminished substantially. I think that’s been true in the furniture business. In both of those industries, very prominent dot-coms that had aggregate valuations in the hundreds of millions have vanished in short order.

So I would say that we think the internet is huge opportunity for certain of our businesses. I mean, GEICO continues to grow in a — at a significant rate in internet business.

See’s Candies’ internet business is up 40 percent this year. Last year it was up a much larger percent from the year before, and it grows and it will continue to grow.

So the internet’s an opportunity, but I think the idea that you could take almost any business idea and turn it into wealth on the internet — many were turned into wealth by promoting them to the public. But very few have been turned into wealth by actually producing cash results over time.

So I think there’s been a significant change in the degree to which I perceive the internet as a possible threat to our retail businesses. There’s been no change in the degree to which I regard it as an opportunity for other of our businesses.

Charlie?

CHARLIE MUNGER: Well, Warren, you and I were once engaged in the credit and delivery grocery business. And it was a terrible business. It barely supported one family for a hundred years with all of them working 90 hours a week.

And somebody actually got the idea that was the wave of the future and turned it into a great internet idea. That can only be described as mania. And it sucked in a lot of intelligent people.

WARREN BUFFETT: Yes, Charlie is talking about the infamous Buffett & Son Grocery Store, which did barely support the family for a hundred years. And, only then did we support the family by hiring guys like Charlie for slave wages. (Laughter)

But I used to go out on those delivery trucks, and it was pretty damned inefficient. You know, people would phone their orders in. And now it’s true we took them down with a pencil and an order pad instead of punching them into a computer.

But when we started driving around the trucks and hauling the stuff off and everything, you know, we ran into the same costs that Webvan is running into now.

What the internet offered was a chance for people to monetize the hopes of others, in effect. I mean, you are able to capture the greed and dreams of millions of people and turn that into instant cash, in effect, through venture capital and the markets.

And there was a lot of money transferred in the process, from the gullible to the promoters. But there’s been very little money created by pure internet businesses so far. It’s been a huge trap for the public.

Charlie?

CHARLIE MUNGER: Nothing more.