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Collection: Warren Buffett - #126 'Great Industry Does Not Mean Great Businesses'



Good morning, Mr. Buffett and Mr. Munger. My name is Jack Sutton (PH) from Brooklyn, New York. Thank you for hosting today’s meeting.

With reference to communication stocks, because of the growth of cellular communications and the internet, certain stocks hold the prospect of substantially above-average revenue and earnings growth.

AT&T and Nokia, as an example, earn respectable margins and return on common equity and would seem to fit Berkshire’s criteria from a financial perspective.

Has Berkshire reviewed stocks in the area of communications? And would you consider an investment in this area at some time in the future?


Yeah, there’s certainly no question amazing things have happened in communications.

It’s interesting that you mention AT&T. Because AT&T’s return on equity over the last 15 years has been, you know, has been very, very poor. Now, they’ve had special charges time after time and said, “Don’t count this.”

But the overall return on equity, if you calculate it for AT&T for the last 15 years, it’s not been good at all. They were the, you know, they were the leader in the field. But so far, what has happened has hurt them, at least relative to their competition, far more than it’s helped them.

We have a fellow on our board, Walter Scott, who’s right here in the front row — I can’t quite see him — who knows a lot more about this.

He used to try to explain to me these changes that were taking place. We’d ride down to football games on Saturday and Walter would patiently explain to me like he was talking to a sixth grader, what was going to happen in communications. And the problem was that he had a fourth grader in the car with him, namely me. (Laughter)

So, I never got it. But Walter did. And he’s done very well in MFS and Level 3.

And I think for people who understand it, and are reasonably early, you know, they could very well be substantial money to be made. There’s been an awful lot of money made in this town of Omaha by people who’ve participated in this. But I’m not one of them.

And I have no insights that I bring to that game that I think are in any way superior, and — in, probably, many cases, not even equal to those of other participants.

There’s a lot of difference between making money and spotting a wonderful industry. You know, the two most important industries in the first half of this century in the United States — in the world, probably — were the auto industry and the airplane industry.

Here you had these two discoveries, both in the first decade — essentially in the first decade — of the century. And if you’d foreseen, in 1905 or thereabouts, what the auto would do to the world, let alone this country, or what the airplane would do, you might have thought that it was a great way to get rich.

But very, very few people got rich by being — by riding the back of that auto industry. And probably even fewer got rich by participating in the airline industry over that time.

I mean, millions of people are flying around every day. But the number of people who’ve made money carrying them around is very limited.

And the capital has been lost in that business, the bankruptcies. It’s been a terrible business. It’s been a marvelous industry.

So you do not want to necessarily equate the prospects of growth for an industry with the prospects for growth in your own net worth by participating in it.



Well, it reminds me of a time in World War II when — where these two aircraft officers I knew, and they didn’t have anything to do at the time. And some general came in to visit. And he said to one of them, he says, “Lieutenant Jones, what do you do?” He says, “I don’t do anything.”

And he turned to the second one. And he says, “What do you do?” And he says, “I help Lieutenant Jones.” (Laughter)

That’s been my contribution on communications investments. (Laughter and applause)


You can address me as Lieutenant Jones for the rest of the meeting. (Laughter)

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