Collection: Warren Buffett - #46 | We Look for Businesses that Change Is Not as Important



I’m Joe Condon (PH) from London.

Both Mr. Buffett and Mr. Munger have addressed my question in annual reports and at previous meetings here. This is my first time. It has to do with investment in a few great, high-technology stocks.

I know your answer has been that, if you don’t understand it, and I can’t, after this performance, can’t really believe that both of you don’t understand most of the high-technology questions. But I’m thinking about not only Microsoft but, say, Pfizer and J&J.

All three companies, which have already proven that not only do they have a great product, proven management over 10 to 15 years, great market share positions, which are not easy to get into.

And I, frankly, don’t see a big difference in the P/E ratios, for example, you could say, Coca-Cola, or, you know, against Johnson & Johnson or Pfizer, which are very powerful companies. I wonder if either or both of you would address that question again.


Charlie, why don’t you? (Laughter)


If you have something you think you understand that looks very attractive to you, we think it’s smart to do what you understand. If — we’ve been unable to find companies that fit our slender talents.

We well might have been in the Pfizers and Microsofts and so forth. But we’ve never had to revert to it.

We don’t sneer at it. Other people with more talent have found that a wonderful course of action.


We generally look at businesses — we feel change is likely to work against us. We do not have great ability — we do not think we have great ability to predict where change is going to lead.

We think we have some ability to find businesses where we don’t think change is going to be very important.

Now, at a Gillette, the product is going to be better 10 years from now than now, or 20 years from now than 10 years from now. You saw those earlier ads going back to the Blue Blade and all that. The Blue Blade seemed great at the time. But they keep — the shaving technology gets better and better.

But you know that Gillette — although they had that little experience with Wilkinson in the early ’60s — but you know that Gillette is basically going to be spending many multiples the money on developing better shaving systems than exist now, compared to anyone else.

You know, they’ve got the distribution system. They’ve got the believability. If they bring out a product, and they say, “This is something that men ought to look at,” men look at it.

And they found out here a few years ago that the same thing happened when they said to women to look at it in the shaving field. They wouldn’t have that same credibility someplace else. But in the shaving field, they have it.

Those are assets that can’t be built. And they’re very hard to destroy.

So change — we think we know, in a general way, what the soft drink industry or the shaving industry or the candy business is going to look like 10 or 20 years from now.

We think Microsoft is a sensational company run by the best of managers. But we don’t have any idea what that world is going to look like in 10 or 20 years.

Now, if you’re going to bet on somebody that is going to see out and do what we can’t do ourselves, I’d rather bet on Bill Gates than anybody else.

But that — I don’t want to bet on anybody else. I mean, in the end, we want to understand, ourselves, where we think a business is going. And if somebody tells us the business is going to change a lot, in Wall Street, they love to tell you that, you know, that’s great opportunity.

They don’t think it’s a great opportunity when Wall Street itself is going to change a lot, incidentally. (Laughter)

But they — you know, it’s a great opportunity. We don’t think it’s an opportunity at all. I mean, we — it scares the hell out of us. Because we don’t know how things are going to change.

We are looking, you know — when people are chewing chewing gum, we have a pretty good idea how they chewed it 20 years ago and how they’ll chew it 20 years from now. And we don’t really see a lot of technology going into the art of the chew, you know? (Laughter) So, that —

And as long as we don’t have to make those other decisions, why in the world should we? I mean, you know, if I — all kinds of things, we don’t know. And so, why going around trying to bet on things we don’t know, when we can bet on the simple things?

Zone 1? (Applause)

I can see the shareholders like us sticking with the simple ones. They understand us, yeah.


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[YAPSS Takeaway]

The result of change is unpredictable in a business, it can be good or bad. If we can find those businesses where changes are less important, the probability of us facing uncertainty & inconsistent result will be much lower than those businesses that need rapid changes.