Warren and Charlie on missing hi-tech investments

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At the May Berkshire Hathaway shareholders meeting Buffett and Munger were asked about missing out on Google and Amazon.  While, of course, with hindsight they should have bought shares in these entities, at the time they had to stick to their investment principles.  Their responses teach us much about the correct approach to investing – even if you do miss out from time to time.

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The question asked:

“I’m wondering about your interests in not just Apple, but all of the tech stocks, like Amazon and Google. Because you’ve avoided them, you’ve stated in the past, because they’re complicated, you should stick with something you understand. On the other hand, Amazon and Google have what you call a very durable competitive advantage. They really hardly have any competitor. And that’s true in China, too, of Alibaba and Tencent. So it seems like it’s a conflict, and I’m wondering if you’re going to be turning the corner and going into these tech companies that seem to have no serious competition.”

Buffett’s response:

“Well, we certainly looked at them. And we don’t think of whether we should be in tech companies or not, or that sort of thing. We are looking for things when we do get into the durability of the competitive advantage, and whether we think that our opinion might be better than other people’s opinion in assessing the probability of the durability, so to speak.

But the truth is that I’ve watched Amazon from the start, and I think what Jeff Bezos has done is something close to a miracle. And the problem is, if I think something will be a miracle, I tend not to bet on it.

It would have been better – far better, obviously – if we – if I had some insights into certain businesses.

But you know, in fact, Bill Gates told me early on, that I think I was on AltaVista and he suggested I turn to Google. But the trouble is I saw that Google was skipping past AltaVista, and then I wondered if anybody could skip past Google.

We’ve looked at it, and you know, I made a mistake in not being able to come to a conclusion where I really felt that at the present prices that the prospects were far better than the prices indicated.

And I didn’t go into Apple because it was a tech stock in the least. I went into Apple because I came to certain conclusions about both the intelligence with which the capital would be employed, but more important, about the value of an ecosystem and how permanent that ecosystem could be, and what the threats were to it, and a whole bunch of things.

And I don’t think that required me to take apart an iPhone or something and figure out what all the components were or anything. It’s much more the nature of consumer behaviour. And some things

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