Warren Buffett befriended then Microsoft Chairman and CEO Bill Gates in 1991, before Microsoft had its massive run in the 1990s. Bill Gates, obviously a Buffett admirer, invested in Berkshire Hathaway shares with his personal money in the 1990s. However, unlike his friendship, Gates’s confidence in Berkshire was not reciprocated, as Buffett to this date has not invested in Microsoft stocks.
Buffett’s answer to why he does not invest in Microsoft, or for that matter, in high-tech companies at large, is that he does not understand technology businesses.
There are definitely more reasons that the good old fellow wants to elaborate. Chief among the reasons, technology businesses, unlike consumer goods and services businesses, have shorter development cycles than consumption cycles. With a few exceptions (I am talking about all the products Apple is selling), typically a company may introduce a product, before it recoups the expenses of developing the product, somebody else could have already developed and introduced a better product. As a result, it is very difficult to predict what products a technology company, even the most successful one, will be selling in 10 years.
In ten years, Geico will be selling insurance; ACME will be selling bricks; See’s candy will be selling M&M; Coca-Cola will be selling sugar water; but what will Microsoft be selling? Now do you see Buffett’s point here?
These days, Microsoft stock is being beaten down by the Market. Plenty of people are arguing that at these prices, Microsoft represents good value. Maybe so, but in 10 years, what will Microsoft be selling?
Maybe for the same reasons, instead of converting Buffett to the high-tech camp, Bill Gates surrendered himself to Buffett’s way of managing money. The Bill & Melinda Gates Foundation’s portfolio is managed by Michael Larson. As of June 30, 2010, the portfolio has over $11 billion worth of stocks. About half of that amount is in the form of Berkshire Hathaway stocks, gifted by Buffett himself. Besides, the Foundation invested in the following same stocks that Buffett invests in through Berkshire Hathaway, none of which is of high tech companies:
Simple review and ownership history:
Check out Buffett’s stock portfolio here.
Check out Gates’s stock portfolio here.
Check out their aggregated portfolio here.
And finally, check out why the business predictabilities matters here
Buffett’s answer to why he does not invest in Microsoft, or for that matter, in high-tech companies at large, is that he does not understand technology businesses.
There are definitely more reasons that the good old fellow wants to elaborate. Chief among the reasons, technology businesses, unlike consumer goods and services businesses, have shorter development cycles than consumption cycles. With a few exceptions (I am talking about all the products Apple is selling), typically a company may introduce a product, before it recoups the expenses of developing the product, somebody else could have already developed and introduced a better product. As a result, it is very difficult to predict what products a technology company, even the most successful one, will be selling in 10 years.
In ten years, Geico will be selling insurance; ACME will be selling bricks; See’s candy will be selling M&M; Coca-Cola will be selling sugar water; but what will Microsoft be selling? Now do you see Buffett’s point here?
These days, Microsoft stock is being beaten down by the Market. Plenty of people are arguing that at these prices, Microsoft represents good value. Maybe so, but in 10 years, what will Microsoft be selling?
Maybe for the same reasons, instead of converting Buffett to the high-tech camp, Bill Gates surrendered himself to Buffett’s way of managing money. The Bill & Melinda Gates Foundation’s portfolio is managed by Michael Larson. As of June 30, 2010, the portfolio has over $11 billion worth of stocks. About half of that amount is in the form of Berkshire Hathaway stocks, gifted by Buffett himself. Besides, the Foundation invested in the following same stocks that Buffett invests in through Berkshire Hathaway, none of which is of high tech companies:
| Symbol | Combined Weightings (%) | P/E | Yield (%) | Market Cap ($Mil) |
| KO | 25.89 | 17.6 | 3 | 135981 |
| WMT | 7.79 | 13.9 | 2.3 | 198726 |
| XOM | 3.49 | 12 | 2.8 | 316659 |
| COST | 3.34 | 23 | 1.3 | 28350.3 |
| RSG | 1.03 | 19.5 | 2.7 | 11562.8 |
Simple review and ownership history:
The CocaCola Company (KO, Financial)
The Coca-Cola Company is the world's largest beverage company and is the producer and marketer of soft drinks. The Cocacola Company has a market cap of $135.98 billion; its shares were traded at around $58.88 with a P/E ratio of 17.6 and P/S ratio of 4.4. The dividend yield of The Cocacola Company stocks is 3%. The Cocacola Company had an annual average earning growth of 8.9% over the past 10 years. GuruFocus rated The Cocacola Company the business predictability rank of 3.5-star.WalMart Stores Inc. (WMT, Financial)
Wal-Mart Stores, Inc. is the world's largest retailer. Walmart Stores Inc. has a market cap of $198.73 billion; its shares were traded at around $53.57 with a P/E ratio of 13.9 and P/S ratio of 0.5. The dividend yield of Walmart Stores Inc. stocks is 2.3%. Walmart Stores Inc. had an annual average earning growth of 11.1% over the past 10 years. GuruFocus rated Walmart Stores Inc. the business predictability rank of 5-star.Exxon Mobil Corp. (XOM, Financial)
Exxon Mobil Corporation's principal business is energy, involving exploration for, and production of, crude oil and natural gas, manufacturing of petroleum products and transportation and sale of crudeoil, natural gas and petroleum products. Exxon Mobil Corp. has a market cap of $316.66 billion; its shares were traded at around $62.19 with a P/E ratio of 12 and P/S ratio of 1. The dividend yield of Exxon Mobil Corp. stocks is 2.8%. Exxon Mobil Corp. had an annual average earning growth of 11.2% over the past 10 years. GuruFocus rated Exxon Mobil Corp. the business predictability rank of 3.5-star.Costco Wholesale Corp. (COST, Financial)
Costco Wholesale Corp. operates membership warehouses based on the concept that offering members very low prices on a limited selection of nationally branded and selected private label products in a wide range of merchandise categories will produce high sales volumes and rapid inventory turnover. Costco Wholesale Corp. has a market cap of $28.35 billion; its shares were traded at around $64.56 with a P/E ratio of 23 and P/S ratio of 0.4. The dividend yield of Costco Wholesale Corp. stocks is 1.3%. Costco Wholesale Corp. had an annual average earning growth of 7.8% over the past 10 years. GuruFocus rated Costco Wholesale Corp. the business predictability rank of 5-star.Republic Services Inc. (RSG, Financial)
Republic Services, Inc., is a provider of services in the domestic non-hazardous solid waste industry. Republic Services Inc. has a market cap of $11.56 billion; its shares were traded at around $30.19 with a P/E ratio of 19.5 and P/S ratio of 1.4. The dividend yield of Republic Services Inc. stocks is 2.7%. Republic Services Inc. had an annual average earning growth of 10.3% over the past 10 years. GuruFocus rated Republic Services Inc. the business predictability rank of 4.5-star.Check out Buffett’s stock portfolio here.
Check out Gates’s stock portfolio here.
Check out their aggregated portfolio here.
And finally, check out why the business predictabilities matters here
