The other side of the coin!
Investor Warren Buffet took a pasting for
ignoring the 1999 surge in dot.com stocks.
Now he is enjoying the last laugh, as BBC
News Online North America business
reporter David Schepp explains.
If investment guru and billionaire Warren Buffet
had just one message for investors following
the bursting of the internet bubble, it could
be: "I told you so."
Mr Buffet, whose moves in the stock market
are closely followed by investors, noted in a
letter to shareholders of his company,
Berkshire Hathaway, that technology investors
have overstayed the party.
And, following in the
footsteps of US central
bank chairman Alan
Greenspan, Mr Buffet
said that the "irrational
exuberance" which
invaded stock markets
in 1999 and early 2000
has left investors expecting unrealistic returns.
Mr Buffet, who was widely chastised by
analysts and in the press last year for failing to
cash in on the boom in technology stocks,
cited evidence from a Paine Webber-Gallup
survey of investors conducted in December
1999.
Dulled into complacency
Participants were asked their opinion about the
annual returns investors could expect to
realise over the decade ahead.
They answered, on average, rises of 19%, to
which Mr Buffet retorted that there were not
enough businesses in the country to ensure a
return of that magnitude.
Mr Buffet warned that
the outsized returns
experienced by
technology investors
during 1998 and 1999
had dulled them into
complacency.
"After a heady
experience of that
kind," he said, "normally
sensible people drift
into behaviour akin to that of Cinderella at the
ball.
"They know that overstaying the festivities...
will eventually bring on pumpkins and mice."
'Corporate chain letters'
Mr Buffet noted that investors had been
hypnotised by the staggering ascent of tech
stocks and ignored everything else, including
whether the businesses they were investing in
were making money.
Without naming them directly, Mr Buffet aimed
some of his harshest comments toward
dot.coms, those internet-based businesses
which issued shares in widely anticipated floats
only to shut up shop a few months later.
"Value is destroyed, not
created, by any
business that loses
money over its lifetime,"
Mr Buffet wrote.
He was referring to the
business model all too
many dot.coms
employed - to enrich
investors through rising
share prices rather than profits.
"The fact is that a bubble market has allowed
the creation of bubble companies, entities
designed more with an eye to making money
off investors rather than for them."
Unglamorous purchases
Business models for these companies amounted
to little more than "the old-fashioned chain
letter", he added.
It is advice that could be expected from
someone who looks for companies that are
undervalued and promise long term profits
growth.
Investors need only look at Berkshire's
acquisitions in 2000 to get a clear idea of what
Mr Buffet & Co view as value stocks.
For example, Berkshire's purchase of
MidAmerican Energy, in a year that rewarded
energy stocks as gas and oil prices surged in
the US, shows why investors envy Mr Buffet's
investing prowess.
Berkshire also bought Cort Business Services,
which rents furniture to businesses.
Mr Buffet said Cort had all the right ingredients
for a purchase: "a fine though unglamorous
business, an outstanding manager and a
price... that made sense."
Other acquisitions in 2000 included US Liability,
an insurance company, boot and bricks maker
Justin Industries, carpeting manufacturer Shaw
Industries, Benjamin Moore Paint and Johns
Manville, an insulation and roofing-products
maker.
There was not a technology stock in the
bunch.
Excel - Greg
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