Berkshire Hathaway 2018 Annual Meeting Audience Question # 56

Warren and Charlie talks about Apple, Google and Jeff Bezos

Warren Buffett:

OK. Station 9.

Audience Member:

My name is Dr. Sherman Silber. I’m an infertility doctor from St. Louis. And I’ve been a shareholder and coming to this meeting for 23 years, and I want to thank you very much for making my grandchildren very rich.

And they sometimes compare me in the medical world… infertility world… as the Berkshire Hathaway of infertility, because I’m so old and I come from a relatively small community.

But 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.

Warren Buffett:

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 told me early on… Bill Gates told me early on… you know, 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. And I saw at GEICO that we were paying a lot of money for something that cost them nothing incrementally.

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 mean, I went into Apple because I made certain… 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 that didn’t… I don’t think that required me to, you know, take apart an iPhone or something and figure out what all the components were or anything. It’s much more the nature of consumer behavior. And some things strike me as having a lot more permanence than others.

But the answer is, we’ll miss a lot of things that… or I’ll miss a lot of things… that I don’t feel I understand well enough.

And there is no penalty in investing if you don’t swing at a ball that’s in the strike zone, as long as you swing at something at some point, then you know, eventually that you find the pitches you like. And that’s the way we’ll continue to do it. We’ll try to stay within our circle of competence.

And Charlie and I generally agree on sort of where that circle ends, and what kind of situations where we might have some kind of an edge in our reasoning or our experience or something that… where we might evaluate something differently than other people.

But the answer is, we’re going to miss a lot of things.

Charlie?

Charlie Munger:

Yeah, we have a wonderful system. If one of us is stupid in some area, so is the other.

And of course, we were not ideally located to be high-tech wizards. How many people of our age quickly mastered Google? I’ve been to Google headquarters. They look to me like they’re… it looks like a kindergarten.

Warren Buffett:

A very rich kindergarten.

Charlie Munger:

Yes.

Warren Buffett:

No, it’s extraordinarily impressive, what they’ve done. And like I say, at GEICO we were paying them a lot of money at the time they went public. And all three of the main characters… Eric and Larry and Sergey… they actually came and saw me. But they were more interested in talking about going public and the mechanics of it and various things along that line.

But it wasn’t like what they were doing was a mystery to me. The mystery was how much competition would come along, and how effective they would be, and whether it would be a
game where four or five people were slugging it out without making as much money as they could if one company dominated.

Those are tough decisions to make. You can have industries where there’s only two people in it, and they still don’t (the sound in this part of the video is inaudible) very good because they beat each other’s brains out. And that’s one of the questions in the airline business. It’s a better business now than it used to be, but it used to be suicide, so…

And you know that the competitive factors are extraordinary in airlines, and how much better business is it with four people operating at 85 percent capacity than it was at… with seven or eight operating in the mid-70s, and with more planes run. Those are tough decisions.

But I made the wrong decision on Google. And Amazon, I just… I really consider that a miracle, that you could be doing Amazon web services and changing retail at the same time, with… you know, without enormous amounts of capital, and with the speed and effectiveness of what Amazon has done.

I just… I underestimated… I had a very, very, very high opinion of Jeff’s ability when I first met him. And I underestimated him.

Charlie?

Charlie Munger:

Well, my comment would be that the shareholders have one thing to be thankful for.

Some of the age-related stupidity at headquarters has been ameliorated by Ted and Todd joining us. We are looking at the world with the aid of some younger eyes now. And they’ve had a contribution…

Warren Buffett:

Significant.

Charlie Munger:

… beyond their own investments. And so you’re very lucky to have them be shareholders. Because there’s a lot of ignorance in the older generation that needs removal.

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