2019: Would Berkshire invest in a tech company if it had a wide moat?

AUDIENCE MEMBER: Mr. Buffett and Mr. Munger, hi. My name is Daphne. I’m from New York and I’m nine years old. And I’m excited to be at the Berkshire meeting, and this is my third year.

WARREN BUFFETT: Wow. (Applause)

You should be rich by now. (Laughter)

AUIENCE MEMBER: You have often said that investors are well-served by identifying businesses with a wide moat, where the castle behind the moat is run by a king or queen who can be trusted to make good decisions.

In the past, you have applied this advice by investing in businesses with world class strong brands, such as Coke, American Express, and See’s, as well as media companies that has helped these brands protect and widen their moats, such as Cap Cities, ABC, and the Washington Post.

In the past, you have also generally avoided investing in technology companies, pointing out how quickly technology changes and how hard it is to build a circle of competence in it.

Today, we seem to be in a world where some of the most dominant companies in the world are technology companies. And we have built powerful platforms, such as Amazon, Google, Facebook, and Microsoft in America, and Alibaba and Tencent in China.

These companies all have wide moats, strong brands, and are led by brilliant — entrepreneurs.

WARREN BUFFETT: That’s good. (Laughter)

AUDIENCE MEMBER: My question to you is this: if Berkshire is to honor its tradition of investing in wide moats and strong brands, and especially in companies that are also capital efficient, do you think that Berkshire needs to expand its investing lens to include more of these leading technology platforms?

In other words, do you believe that you need to adapt your model of wide moats and strong brands to embrace, not avoid, technology? (Applause)

CHARLIE MUNGER: I think the answer is maybe. (Laughter)

WARREN BUFFETT: I think the answer is to put her on the board and it’ll bring down the average age enormously. We won’t get criticized as much.

You’re exactly right, in that we do like moats, and we used to be able to identify them in a newspaper that was the only newspaper in town, or in TV stations where we felt the dominant position, we felt the product was underpriced in terms of advertising. We saw it in brands, sometimes.

And it is true that in the tech world, if you can build a moat, it can be incredibly valuable. I’ve not felt the confidence that I was the best one to judge that in many cases.

It wasn’t hard to figure out who was winning at any given time or what their business was about, but there were a huge number of people that knew more about the game than I did. And we don’t want to try and win at a game we don’t understand. We may hire people, such as Ted (Weschler) and Todd (Combs), that are better at understanding certain areas of investing than I am, or maybe even Charlie is.

But the principles haven’t changed. You’re right that some of the old ones have lost their moat and you’re right that there are going to be companies in the future that have them that will be enormously valuable.

And we hope we can identify one every now and then. But we won’t — we’ll still stay within where we think we know what we’re doing. And obviously, we’ll make mistakes even within that area.

But we won’t go into something because somebody else tells us it’s a good thing to do. I mean, we are not going to subcontract your money to somebody else’s judgment. You can take your money and follow somebody else’s judgment, but we’re not in the business of thinking that if we hire ten people with specialties in this area or that, that it will lead to superior investment results. And we do worry that we could blow a lot of money that way.

So, we’ll do our best to enlarge the circle of competence of the people at Berkshire so that we don’t miss so many. But we’ll miss a lot in the future. We missed a lot in the past.

The main thing to do is to find things where our batting average is going to be high. And if we miss the biggest ones, that really doesn’t bother us, as long as the things we do with money work out OK. Charlie?

CHARLIE MUNGER: Well, I think we’ve still got an awful lot of companies with big moats, and a lot of them are very — and some are industrial brands that are just incredibly strong in the niches we’re in.

So, Berkshire shareholders don’t need to worry about we’re just one big morass of unprofitability or anything like that. But we have not covered ourselves with glory in the new fields.

WARREN BUFFETT: Yeah. We won’t end up all in buggy whips, though, or anything. But it’s a very good question, and it’s what we focus on all the time. And I hope —

CHARLIE MUNGER: We’re trying to improve.

WARREN BUFFETT: And we hope we see you back here for your fourth next year.