If You Can't Understand It, Don't Buy It: Buffett's Trade-offs at the Peak of the Bubble

This is Berkshire Hathaway's 1999 shareholder letter, a letter Buffett wrote to shareholders explaining that year's underperformance. In a year when internet stocks soared and Berkshire's share price fell sharply, he admitted he couldn't understand technology companies, and admitted that this caused him to miss the big rally, but he insisted on buying only companies whose cash flows ten years out could be calculated.

Today, whenever markets go crazy over new stories no one understands, and someone uses "even Buffett missed the internet" to mock the conservatives, this letter is the original source. What it offers is not a prediction but a record of trade-offs: admitting the miss while refusing to abandon one's own algorithm to keep up with the market. Later value investors have almost all made tweaks on top of this set of trade-offs.

If a company you could have researched but couldn't be bothered to, don't use "if you can't understand it, don't buy it" as an excuse — it only protects giving up on things outside your circle of competence; it does not endorse laziness within it. Nor does it provide answers if used to judge the rightness or wrongness of price moves after the fact.

Berkshire Hathaway 1999 Shareholder Letter (2000) | Next review 2027-09-20