2000: What does Buffett mean when he says he can't "understand" a business?

AUDIENCE MEMBER: Hello, Warren. Hello, Charlie. My name is Doug Paterson. I’m from here in Omaha.

I teach down the road at the University of Nebraska at Omaha. And I teach in theater, which is also the greatest job in the world. And I have to say that I enjoy the theater that you provide every year. Thanks so much.

WARREN BUFFETT: Thank you.

AUDIENCE MEMBER: Just sitting here, there are so many questions that come to those of us who have been sitting here for three or four hours. I’ve got three very disconnected questions.

WARREN BUFFETT: OK, we’ll do them one at a time.

AUDIENCE MEMBER: Cool. In terms of these tech stocks, you say that you don’t understand them. Can you say if you think — I can’t imagine you not understanding something.

WARREN BUFFETT: Oh, we understand the product. We understand what it does for people. We just don’t know the economics of it 10 years from now.

That, I mean, you can understand all kinds — you can understand steel. You can understand home building. But if you look at a home builder and try and think where it’s going to be in five or 10 years, the economics of it, that’s another question.

I mean, it’s not a question of understanding the product they turn out or the means they use to distribute it, all of those sort of things. It’s the predictability of the economics of the situation 10 years out. And that — that’s our problem.

AUDIENCE MEMBER: Right, and I’m not trying to provoke you into doing it. I’m glad you haven’t. Because I probably would’ve gone into cardiac arrest this last couple of months.

WARREN BUFFETT: Well, so would we.

AUDIENCE MEMBER: Yeah. So your projection is that you are not going to try to make an attempt to understand it. You think it’s — is it not comprehensible? Is that it, it’s not comprehensible?

WARREN BUFFETT: Yeah. Every business I look at, I think about its economics. It’s built into me. It’s built into Charlie.

So it isn’t like, when some — if I’m with Andy Grove, or actually, I knew Bob Noyce back at Grinnell in 1968 and ’69, when they were starting Intel.

I — when he talked to me about starting Intel, or anybody talks to me about a business, I think about its economics. I’ll think about the economics of UNO, you know, if we talk for three or four minutes.

But — I — so it isn’t that we shut off the valve. It’s just that we don’t get anyplace. We don’t know what it’ll look like. And it’s, you know, there are a lot of things in life that, you can — they’re just beyond comprehension for many of us. And —

AUDIENCE MEMBER: So you’d say that like, nobody, really, probably, can understand this, where it’ll be in 10 years. Nobody could understand it.

WARREN BUFFETT: We would be very skeptical about it. I would say that — and incidentally, my friend, Bill Gates, would say the same thing. And actually, Bob Noyce would’ve, and Bob died some years ago, but — or Andy Grove — they would say the same thing. I’ve taken long walks with Andy.

And they would not want to put down on paper their predictions about where 10 companies you would choose in the tech field would be in 10 years, in terms of their economics. They would say, “That’s too hard.”