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today we'll be taking a look at Warren Buffett's 1999 letter to shareholders in which the Oracle of Omaha begins on a downer up to that point 1999 was the worst performance year Brookshire hathway has ever had with Warren Buffett at the helm we had the worst absolute performance of my tenure and compared to the S SMP the worst relative performance as well relative results are what concerns us over time bad relative numbers will produce unsatisfactory absolute results now what factors contributed to making 1999 the worst year performance-wise for Warren Buffett 1999 was a euphoric year for the doom boom with the NASDAQ climbing from under 2200 at the beginning of 1999 to surpassing 4,000 by the end of 1999 a gain of over 85% for the year the nasdaq's 85.6% yearly return for 199 99 sets the record for annual return for any major indices in investment history investors around the world clamored for over 300 Technology IPOs that launched that year including carsdirect.com which raised $280 million and webband the online delivery grocery store whose IPO stock Rose 65% on its first day of trading which valued the company at around $8 billion lots of people were making money in the ramp up of the doom boom stories would surface of college kids who made a fortune trading technology stocks or College Tech whiz who were managing large tech-based hedge funds with millions in invested Capital waren Buffett wasn't one of those investors making money Handover fist during the doom boom he didn't understand the inner workings of technology companies like carsdirect.com and webban in his own words our problem which we can't solve by studying up is that we have no insights in which participants in the tech field possesses a truly durable competitive Advantage Warren Buffett wasn't with it he was stuck investing in Old sty companies like Coca-Cola craft Hines and Walmart stocks that the investment Community all but forgotten in the doom boom many in the media speculated that the legendary Oracle of Omaha has lost his touch that he was from a bygone era a relic of finances past the Doom era was a new age in economic Prosperity that promised to Rocket the economic projection of the country upwards and Beyond but with hindsight we know that in the year 2000 the Doom boom became the Doom bust with a NASDAQ declining over 75% before bottoming out in 2001 it would be 15 years before the NASDAQ returned to its height it achieved in the doom boom the Oracle of Omaha was Vindicated in his decision to not invest in technology companies that he did not understand how they operated or what their competitive advantages was regardless of the fact that Warren Buffett is worth billions and is consistently ranked in the top five richest people in the world he understood that there were certain things that he was good good at and understands and certain things he isn't good at and doesn't understand if we have a strength it is in recognizing when we are operating well within our circle of Competency 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 we just stick with what we understand psychologically it's easy to get caught up in the herd mentality especially when you're watching your coworker or neighbor get rich quickly it must have been incredibly tough to tune out the media family and friends who were all chatting about the latest and hottest technology IPO that launched recently to hear them boast about the money they made so far investing in pets.com or some other new Fango Tech IPO while you're stuck with Costco stock it requires mental fortitude to admit that you don't understand something that you have no idea how X technology company can be valued so high or how y technology company can ever generate a profit it's much easier to listen to others especially well-dressed pundit on TV who justify and rationalize the ever increasing PE Ratio or non-existent PE ratio because the company's never made any money it's always difficult to be contrarian to go against the grain while everybody else around you is getting rich but to be successful in investing in individual companies you must recognize your limitations no one can know everything the pool of investment opportunities is simply too large for one person to grasp it all as Warren puts it our lack of tech insights we should add does not distress us after all there are a great many business areas in which Charlie and I have no special Capital allocation expertise for instance we bring nothing to the table when it comes to valuating patents manufacturing processes or geological prospects so we simply don't get into judgments in those fields Warren Buffett understood the laws of investing which gave him the strength to stand by his investing convictions we see the growth in corporate profits as largely tied to the business done in the country GDP if profits do indeed grow along with GDP at about 5% rate the valuation placed on American Business is unlikely declined by much more than that if investors expectations become more realistic and they almost certainly will the market adjustment is apt to be severe particularly in sectors in which speculation has been concentrated Warren Buffett has since gone on to make several large investments in technology companies more than12 billion in IBM 19 billion in apple and $1 billion in ver sign however even these technology companies are the old stewards of technology companies it's not difficult to analyze Apple's core competency and competitive advantages m Buffett's annual letter to shareholders please consider subscribing as it's ]
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