Leave Room for Error
At the 2018 Berkshire Hathaway meeting, one long-time shareholder presented this question to chairman and CEO Warren Buffett: “You have gotten into the tech world recently buying Apple stock. I see Bill Gates sitting in the first row today and I’m just wondering, why have you never bought Microsoft?”
The standing room only crowd laughed. Gates, a Berkshire board member, smirked while sitting in a folding chair.
Buffett, always candid, remarked, “It’s very clear. The answer is stupidity.”
Warren Buffett has known Bill Gates since 1990. When they first met, Microsoft was publicly traded and worth about $5 billion.
The friendship between the two has been well documented. Gates had been a Berkshire board member since 2004 prior to stepping down in March 2020 to focus on philanthropy. Buffett has pledged to give away 99 percent of his wealth to the Bill and Melinda Gates Foundation. Together, they founded The Giving Pledge, an organization centered around philanthropy for the world’s wealthiest individuals.
But the billionaires’ friendship has its boundaries: Buffett, nor his company, has ever purchased any Microsoft stock.
Microsoft is worth nearly $2 trillion today. An opportunity squandered by one of the world’s great investors. It wasn’t the first time.
In the 1960s, Warren Buffett was introduced to Joe Rosenfield, a retail operator who ran the Younkers chain of department stores in Des Moines, Iowa. Rosenfield was a trustee of Grinnell College, which sat in the middle of a farming community in Grinnell, Iowa.
Rosenfield oversaw the college’s endowment and built it up to nearly $10 million, a prolific sum at the time. Given shared interests in business and investing, Rosenfield was able to convince Buffett to join Grinnell as a trustee where he was appointed to the finance committee.
Bob Noyce, who ran a company called Fairchild Semiconductor that made electronic circuits – an area Buffett knew little and cared even less about – was chairman. Buffett showed up to a committee meeting one day to find Noyce itching to leave his semiconductor company.
Noyce, along with Gordon Moore and Andy Grove, had decided to start a nameless new company in Silicon Valley based on a vague plan to extend the technology of circuits to “higher levels of integration.”
The Grinnell College endowment, including Buffett, approved a seed investment of $100,000 to help raise $2.5 million to get the company started. In addition to the endowment, multiple trustees invested personally in Bob Noyce’s new idea.
The company went on to be named Integrated Electronics, or Intel.
As much as Buffett admired Noyce, he opted not to invest in Intel, thus passing on one of the greatest investing opportunities of his life.
As he saw it, “We were betting on the jockey, not the horse,” referring to Grinnell’s investment. Buffett didn’t personally trust technology companies. In his experience, technology companies came and went, their products often made obsolete.
This particular quality – passing up potential riches when unable to properly handicap risk – was what made him Warren Buffett. His ability to remain dispassionate in the face of missed opportunities makes him truly unique.
Things not going to plan has always been part of Buffett’s plan. In any of his annual letters, the sermons always sound off on companies and industries Berkshire’s invested in that are not performing well. There is no such thing as a perfect portfolio – neither Buffett nor Berkshire ever had one. The rest of us likely never will either.
Reflecting on Microsoft, Buffett finished by saying, “We missed a lot in the past and I suspect we’ll miss a lot more in the future.”
The valuable lesson within that statement is, leave some room for error.