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Collection: Warren Buffett - #163 'Internet Stocks & Businesses'



Good afternoon, Mr. Buffett and good afternoon, Mr. Munger. My name is Mohnish Pabrai and I’m from the Chicago area.

Mr. Buffett, I’d like to thank you for all your insights over the years. I’m especially amazed at the pace of which you answer my letters, point by point.

I have a question for you related to circle of competence. I have a notion that both Mr. Munger and yourself understand the Kleiner Perkins model of early-stage venture capital investing and, currently, their focus in the internet space, extremely well.

My notion is that I think it is well within your circle of competence to understand what they do, just like you understand what your managers at See’s Candy or Executive Jets do.

So the question is, that with the internet, I think we’re seeing a change that has not been seen in the last 500 years as humans. We haven’t seen something that is as dramatic and as profound that’s going to come upon us.

If, let’s say, a John Doerr at Kleiner Perkins approached you and said that they were starting, let’s say, a billion-dollar early-stage or later-stage internet investment fund that Kleiner would manage, would you consider that — would you consider participating in that investment to be within your circle of competence, if it were offered at terms that looked attractive?


I agree with the first part of what you said. I mean, I’m not sure that it’ll, necessarily, will be the most important in the last 500 years in the commercial world. But it could well be. And if it isn’t, it’s right up there.

I mean, it is — and we talked about this last year and maybe even the year before — I mean, it is a huge development. But — and I would say that Charlie and I both understand the process of early investment/promotion probably as well as anyone.

We haven’t participated in it. There are certain things we don’t even like about it. But we do understand it. Right, Charlie? (Laughs)

And I would say that no, we would not have an interest in investing in the fund. It — we do not necessarily regard the internet —

There’s no question, if you’re in the early stages of promotion, and you — particularly if you’ve got a reputation as a successful in that — but in this case, it wouldn’t make much difference, because the whole field has gone wild — you will make a lot of money selling to the next stage, and the next stage, and the next stage.

But, in terms of picking out businesses that are going to do wonderfully as businesses — not as stocks for a while, but as businesses — I don’t think it’s necessarily so easy in the internet world.

And I would say that, if you were to ask some very top names in the field to name the next five companies out of the chute, or the next 10 companies out of the chute, and predict that one of them will earn, say, the $200 million I used as a threshold, six or seven years from now, I’m not so sure, if they gave you a list, that they would name a single one.

That doesn’t mean they might not make a lot of money by being early investors in them because they sell out to the next group and so on.

But in the end, they have to succeed as businesses. And a few will succeed as businesses. The internet will have a huge impact on the world. But I’m not so sure that makes it an easy investment decision.



Well, at least it’s not an easy investment decision for us. And that’s what we’re looking for.


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