In the past few articles on “strategy as surfing a wave” (see part 1, 2, 3 and 4), we looked at how a big wave like Internet hits people like Gorssman and Patrick. And how they surfed the wave. Well, do you really need to surf every wave coming? Can you choose not to surf a wave? How do wise men let a wave pass by? Let’s explore these questions using the story of Warren Buffett who chose to be a by-stander to both the PC and the Internet waves.
Let’s rewind to 1967 and zoom into the campus of
In 1968 Buffett showed up for a meeting at
And guess who were there at the party? Mr and Mrs Gates along with their son Bill Gates. It was the first time Buffett met Bill Gates. Buffett immediately asked Gates whether IBM was going to do well in the future and whether it was a competitor of Microsoft. Computer companies seemed to come and go, why? Gates started explaining. Buffett remembers, “We talked and talked and talked and talked and paid no attention to anybody else. He’s a great teacher and we couldn’t stop talking”. Gates told Buffett to buy two stocks: Intel and Microsoft. Buffett did not buy either – at least seriously. Why?
To get a glimpse of the answer, we need to understand two of the three pillars of Buffett’s business philosophy. The first one is “margin of safety”. It means having sufficient confidence in protecting your investment over long enough period. And why wouldn’t Buffett have confidence in the competitive position of Microsoft or Intel? There comes the second pillar: “Circle of competence” i.e. sticking to an area that you understand better than most others. In his own words, “I don't know what the world will look like in 10 years, and I don't want to play in a game where the other guy has an advantage over me."
In case you are wondering what the third pillar of Buffett’s philosophy is – It is “exploiting Mr. Market vagaries” i.e. exploiting the irrational behaviour of market investors. You may also want to check out: Warren Buffett and disruptive innovation. (source for Buffett stories: The Snowball by Alice Shroeder).