A Question From Mohnish Pabrai At The 1999 Berkshire Hathaway AGM

A question from Mohnish Pabrai, author of The Dhandho Investor, at the 1999 Berkshire Hathaway annual meeting.

circle of competence to understand

Mohnish Pabrai Asks A Question At The 1999 Berkshire Hathaway Annual Meeting

Transcript

Good afternoon Mr. Buffett and good afternoon Mr. Munger. My name is Monish Pabrai and I’m from the Chicago area. Mr. Buffett I’d like to thank you for all your insights over the years. I’m especially amazed at the pace at which you answer my letters point by point. I have a question for you. Related to circle of competence. I have a notion that both Mr. Munger and yourself. Understand that Kleiner Perkins model of early stage venture capital investing and currently the focus in the Internet space extremely well. My notion is that I think it is well within your circle of competence to understand what they do just like you understand your circle of competence to understand what they do just like you understand what your managers at See’s Candy or Executive Jets do. So the question is that with the Internet I think we are seeing a change that has not been seen in the last five hundred years. As humans we haven’t seen something that is as dramatic and as profound it’s going to come upon us. If let’s say a John Doe or at Kleiner Perkins approached you and said that they were starting let’s say a billion dollar early stage or later stage Internet investment fund that Kleiner would manage Would you consider that would you consider participating in that investment to be within your circle of competence if it were offered at terms that looked attractive.

I agree with the first part of what you said. I mean I’m not sure that necessarily will be the most important thing in the last five hundred years in the commercial world but it could well be and if it isn’t it’s right up there I mean it is it is. We talked about this last year and maybe even the year before. I mean it is a huge development but. I would say that. Charlie and I both understand the process of of.

Early investment slash promotion probably is as well as anyone. We haven’t participated in it. There’s certain things we don’t even like about it. But. We do understand it. Charlie. And. I would say that we would not have an interest in investing in the fund that we do not necessarily regard.

The Internet with. There’s no question if you’re in the early stages of promotion and you particularly you’ve got us six reputation as a successful in that but in this case it wouldn’t make much difference because the whole field has gone wild. You will make a lot of money selling the next stage in the next stage and next stage. But in terms of picking out businesses that are going to do wonderfully as businesses not as stocks for a while but as businesses. I don’t think it’s necessarily so easy in the Internet world and I would say that if you were to. Ask. Some very top names in the field. To name the next five companies out of the chute and the next ten companies out of the chute and predict that one of them will learn say the 200 million dollars I used as a threshold.

Six or seven years from now. I’m not so sure they. If they gave you a list that they would name a single one. That doesn’t mean they might not make a lot of money by being early investors and then because they sell out to the next group and so on. But in the end they have to succeed as businesses and a few will succeed as businesses. The Internet will have a huge impact on the world but I’m not so sure that that makes it an easy investment decision. Charlie. Oh at least that makes it an easy investment decision.

Charlie. Oh at least it’s not an easy investment decision for us. And that’s what we’re looking for.

We will never turn our money over to somebody else. You know if we’re going to lose your money as Berkshire shareholders we’re going to lose it ourselves and we’re going to come back and look you in the eye and tell you how we lost it. We are not going to say this game is too tough. So we’ll give our money to somebody else you can give your money to somebody else and you don’t need the intermediaries of me and Charlie to do it for you. So. We we get approached all the time I had a call. Within the last couple of days on something you know very well. About. Participating in some fund or they always have you know it’s always stage one stage Tuesdays 3:00 and the idea is we get some more people to come in later at twice the price and maybe the fact that our name is involved in it will cause people to pay even more and all of that sort of thing. We’re not in that game. And we’re not going to turn the money over to someone else to manage. It’s your money. You gave it to us to manage we’ll manage it. You decide you don’t want us to manage it you decide who will you give it do it. We’re not going to be intermediaries on it. And if we don’t understand something ourselves we’re not we’re not looking for any anybody else to do it for us.

The world doesn’t work very well that way anyway. I mean it usually end up in the hands of the promoters and not the hands of the people that really know how to make money.




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Jacob Wolinsky
Jacob Wolinsky is the founder of ValueWalk.com, a popular value investing and hedge fund focused investment website. Prior to ValueWalk, Jacob was VP of Business Development at SumZero. Prior to SumZero, Jacob worked as an equity analyst first at a micro-cap focused private equity firm, followed by a stint at a smid cap focused research shop. Jacob lives with his wife and three kids in Passaic NJ. - Email: jacob(at)valuewalk.com - Twitter username: JacobWolinsky - Full Disclosure: I do not purchase any equities to avoid even the appearance of a conflict of interest and because at times I may receive grey areas of insider information. I have a few existing holdings from years ago, but I have sold off most of the equities and now only purchase mutual funds and some ETFs. I also own 2.5 grams of Gold