AUDIENCE MEMBER 00:08
My name is Thomas Kamay (PH). I am 10 years old and I go to Bacich School in Kentfield, California. I have been a shareholder for two years. This is my third annual meeting. Here’s my question.
I know you won’t invest in technology companies, but are you afraid that the internet will hurt some of the companies that you do invest in, such as The Washington Post or Wells Fargo? Thank you.
WARREN BUFFETT 00:38
Well, that’s an absolutely terrific question. You know, I may turn my money over to you. (Laughter and applause)
There’s probably no better question we’ll get.
And I hope Charlie answers in an appropriate vein considering your age. (Laughter)
We do not — we have no — you know, it’s no religious belief that we don’t buy into tech companies.
We just don’t — we have never found one — as conventionally defined — we’ve never found one where we think we know enough about what the business will look like in 10 years that we can make a rational decision as to how much we pay now for that business.
In other words, we have not been able to find a business where we think we know what that bush will look like in 10 years, and how many birds will be in it, so that we know how many birds we can give up today to participate in that future.
Not any — there will be wonderful things, as Charlie so colorfully explained, that will evolve from many of these companies, but we don’t know how to make that decision.
And you’re absolutely right that we should be thinking all of the time about whether developments in that tech area threaten the businesses that we’re in now, how you might counter those threats, how we might capitalize in opportunities because of it.
It’s a very, very, very important part of business now and will become more important in the years to come, including many of our businesses.
For example, you mentioned The Washington Post. Even closer to home, we own a newspaper called The Buffalo News in Buffalo, New York. We own all of that. So we’re in a position to make our own decisions of an operating nature as to what we should do in respect to the internet.
And believe me, Stan Lipsey, who’s here today, who runs that paper, and I have talked many, many hours, including considerable time yesterday about what we are doing on the internet, what we should be doing, what other people are doing, how it threatens us, how we can counter those threats, all of that sort of thing.
And newspapers are a category that, in my view, are very threatened by the internet because we had an example —
The internet is terrific for delivering information. We have a product, World Book, that’s terrific for delivering information. And 15 years ago, print encyclopedias were the best tool, probably, for educating not only young children, but for educating me or Charlie when we wanted to look up something on a subject.
And the World Book is a marvelous product. But it requires chopping down trees, and it requires operating paper mills, and it requires binding it and printing, and it requires a delivery of a 70 pound, you know, UPS package. And it’s a —
It was put together in a way that was, for 4- or 500 years, the best technique for taking that information and moving it from those who assembled it to those who wanted to use it. And then the internet changed that in a very major way.
So we have seen firsthand, and experienced the business consequences of the improvement offered by the internet and the delivery of information.
And newspapers, although not as immediately susceptible to that problem, still face that overpowering factor.
When you eliminate the delivery cost — I mean, we pay a significant percentage of our circulation revenue to our carriers, and we pay additional money to the district managers, and we pay for the trucks to deliver the product out, and we pay for huge printing presses, and all of that sort of thing.
And people do chop down trees in order to give us the raw material to transmit information in Buffalo, you know, about what the Buffalo Bills did yesterday, on Sunday, with all the details.
And now you have the internet that has virtually no incremental unit cost to anything and can deliver the information instantaneously. So it’s a big factor for newspapers.
And the newspaper world in my view will look very, very, very different in not that many years.
And I find it kind of interesting, because the people in the newspaper business are a little schizophrenic about this. They see this. They’re afraid of it. They’re, in almost all cases, trying to combat it on some way operationally.
But some of them, at least, continue to go out and buy papers at a price that sort of reflects the economics that used to exist 20 years ago, when it’s — to me it’s very clear that it doesn’t exist anymore.
So they sort of have their billfold, you know, in the past, even though they see the future. And, you know, I think, probably, they’re making mistakes in many cases.
All of our businesses, virtually — Coca-Cola will not be affected in any significant way by the internet, you know? The razor and blade business won’t be. Although you could dream up things about distribution or so on, but I think that it’s very unlikely.
But other businesses we have — our insurance business, particularly at GEICO, will be very affected by the internet. Now, that may turn out to be a big advantage to us over time. I wouldn’t be surprised if it is.
But our retailing businesses are all threatened in one way or another by internet developments, and there may be some opportunities there, too. But it’s a change.
It’s a change in — it’s going to be change in the world — how the world gets entertainment. It’s going to be a change in the world — how the world gets information. And it is incredibly low cost compared to the — most of the methods of conveying entertainment and information now.
CHARLIE MUNGER 06:58
Well, he asked if we were afraid that the internet would hurt some of our business and I think the answer is yes.
WARREN BUFFETT 07:11
I’m learning to appreciate these short answers, though, more as the day goes by. (Laughter)
I want to thank you for coming to our meeting, incidentally. You’re way ahead of me. I didn’t buy my first stock until I was 11, and so you’ve got a real jump on me. And I wish you well.
OK. Area 4.
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