Editor’s note: This article was first published in March 2011, and its account of Buffett’s stance on technology stocks reflects that time; Berkshire Hathaway bought a large stake in IBM later in 2011 and has been one of Apple’s largest shareholders since 2016.
Warren Buffett gives a clear and masterfully reasoned explanation of where he stands on tech companies and, above all, of why he is one of Coca-Cola’s largest shareholders. Mr Buffett has never suggested that tech companies such as Microsoft or Google are not profitable businesses. In fact, Buffett himself says he could have made billions investing in Microsoft.
To begin with, Warren Buffett doesn’t invest in businesses he doesn’t understand. He says that if he were a teacher, he would set his students a final exam with this question: analyze Microsoft, Google and Apple, and tell me how they will be doing 10 years from now. Warren would fail anyone who answered it, because he says it is impossible to know.
That is not the case with his favorite stock, Coca-Cola, a company that has kept growing for more than 130 years. It has lived through wars and recessions and has never stopped growing, and even when its share price has fallen, the company’s dividends have been quite generous.
When Buffett thinks about tech companies, doubts come to mind; when he thinks about Coca-Cola, what comes to mind is expansion and more profits.
Coca-Cola has known how to adapt over the years, and today its product costs less to make than it did 50 years ago.
Warren Buffett also looks at it another way: if he were given 1,000 million dollars, he could build companies that would compete with many listed companies. But with 100,000 million dollars, he says, he could never build a company that would overshadow Coca-Cola.
In short, Coca-Cola was around before he was born and will still be around after his grandchildren are gone.
Further reading
Featured image: DXR, CC BY-SA 4.0, via Wikimedia Commons.
