Warren Buffett published his annual letter to Berkshire Hathaway shareholders this week:
Our gain in net worth during 2003 was $13.6 billion, which increased the per-share book value of both our Class A and Class B stock by 21%. Over the last 39 years (that is, since present management took over) per-share book value has grown from $19 to $50,498, a rate of 22.2% compounded annually.
Buffett is one of only two people that I know of (Peter Lynch is the other) with a documented record of making a lot of money for people over a significant period of time.
You may remember back in the dot-com boom years that Buffett, despite his excellent long-term track record, was frequently raked over the coals for his refusal to hold tech stocks in the Berkshire portfolio.
Here’s what Buffett said in his 1999 shareholder letter, a year in which Berkshire had its worst-ever performance relative to the S&P 500:
. . . we don’t own stocks of tech companies, even though we share the general view that our society will be transformed by their products and services. Our problem — which we can’t solve by studying up — is that we have no insights into which participants in the tech field possess a truly durable competitive advantage. . . .
If we have a strength, it is in recognizing when we are operating well within our circle of competence and when we are approaching the perimeter. Predicting the long-term economics of companies that operate in fast-changing industries is simply far beyond our perimeter. If others claim predictive skill in those industries — and seem to have their claims validated by the behavior of the stock market — we neither envy nor emulate them. Instead, we just stick with what we understand.
It’s been a long time now since I’ve seen any “Warren Buffett is an idiot for not owning Internet stocks” articles . . .