Halls of Shrewd'm / US Policy
No. of Recommendations: 2
No. of Recommendations: 2
Investing
Warren Buffett
Warren Buffett’s blind spot: Did the digital economy leave him behind?
By Adam Seessel
December 30, 2025, 7:30 AM ET"
It's a long article.
" The data lead to an obvious conclusion. For most of the 21st century, Buffett’s record was mediocre—Salieriesque, one might say.
How could this happen? How could a practitioner as driven and imaginative as Warren Buffett produce such genius, then become slightly below average?
These questions are worth pursuing. To understand why Buffett excelled in the 20th century but hasn’t in the 21st will help us understand two things. First, what once made his style of value investing so good. Second, why he faltered, and how value investors must change if we want to excel in the digital age.
I realize that by calling attention to these facts I am violating one of value investing’s cardinal commandments: Thou shalt have no other gods beside Warren Buffett. To those deeply immersed in it, value investing, invented by Ben Graham more than a century ago and passed directly to Buffett, resembles a religious order in many ways. It has many principles and precepts and a long list of dos and don’ts. Our discipline, we believe, distinguishes us from growth investors and momentum investors, whom we look down on as heathens. Unlike them, we think, we aren’t stock jockeys or herd followers. We have rules. We trust that these rules will lead us to outperform. And when we do outperform, we believe it is not a matter of luck, but of patiently applied skill.
This fixity of purpose can lead to stilted and dogmatic thinking. To suggest that Buffett was Mozart in the first three-quarters of his investing career and then Salieri in his last quarter represents a kind of heresy to many in the value church. Fortunately, one of the many salutary things about value investing is that recourse to hard facts is another of its cardinal principles. Value investing has had one major reformation in its 100-year history, a reformation driven by Buffett himself. As Buffett’s two disparate records suggest, if we are to succeed in the digital age, value investors must again evolve.
From ‘cigar butts’ to mass brands
Like Buffett’s overall record, his magisterial performance in the late 20th century is in fact composed of two discrete periods. The first comes from what Chris Begg at East Coast Asset Management calls Buffett’s Value 1.0 days, when he invested in Ben Graham-like “cigar butts,” companies that were cheap not on the merits of their business quality but on their asset liquidation value. Early on, Buffett scored big with such fire-sale investments as Dempster Mill Manufacturing and National American Fire Insurance. His purchase of Berkshire Hathaway, a dying New England textile mill he bought because it was worth more dead than alive, was the very distillation of Ben Graham’s quantitative, defensive style. "
The road not taken
This is all standard, brilliant Buffett stuff—but why, aside from Apple, did he never pull the trigger on these stocks? Over the last twenty years he has been consistently underweight technology stocks, and he forewent hundreds of billions of dollars of value creation in doing so. Having evolved so well from Value 1.0 to 2.0, why did he fail to evolve to Value 3.0? And if he had, would it have made his record better?
The second question is easier to settle than the first. The answer to it is unquestionably yes—Berkshire Hathaway’s stock performance would have been materially better had he followed through on his observations about the superiority of tech’s business models and invested in more of them. When Buffett started buying Apple nearly a decade ago, if he had deployed excess cash (the cash he didn’t need for potential insurance claims) into each of the three mega-tech stocks besides Apple that he knew best—Alphabet, Amazon, and Microsoft—I estimate that Berkshire Hathaway’s market cap would not be the $1 trillion it is now, but at least $1.6 trillion. It’s important to note that this calculation incorporates only the market appreciation of these three stocks. If the market had capitalized Buffett’s “getting tech” and given Berkshire Hathaway’s stock a greater premium as a result, then Berkshire’s gain would have been greater. (Berkshire did buy $6.5 billion worth of Alphabet’s stock earlier this year, though it’s not clear whether it was Buffett or his lieutenants who pulled the trigger on the purchase).
While rough, my estimates are not crazy. Buffett understood all three stocks well. He was close friends with Bill Gates, Microsoft’s founder, who explained the company’s competitive advantages to Buffett many times. At his 2017 annual meeting, Buffett admitted that he “blew it” by not investing in Amazon and Alphabet. Investing a big slug of his cash in these liquid, mega-cap stocks would have solved the “problem of large numbers” that some who seek to rationalize Buffett’s average latter-day record point to. And my estimate assumes that Buffett bought only a single slug of each.
To those who say, “Buffett didn’t miss tech—he had Apple,” I would say two things. First, thank goodness Buffett invested in Apple—can you imagine what his recent record would look like if he hadn’t? Second, I would argue that by the time he invested in Apple the company was acting more like one of his mature, moated consumer products companies than it was a company we would recognize as a “tech company:” ambitious and forward-looking in its investment and R&D spending. When Buffett first bought Apple shares in 2016, it had transformed into a business that had much more in common with Coke and Gillette than it did Amazon or Alphabet.
People forget that two important things happened in the years immediately before Berkshire began to buy Apple. First, Steve Jobs became terminally ill and was replaced in 2011 by Tim Cook. Suddenly, the design visionary was out, and the man whose main achievement was perfecting the company’s supply chain was in. While Jobs brought us the iPod and the iPhone, he also was responsible for the Lisa and the Newton, and he once almost bought Universal Music, a purchase that would have meant handing over cash or stock worth nearly Apple’s entire market capitalization at the time. That wasn’t going to happen under Cook. The quartermaster had replaced the field marshal. Salieri replaced Mozart, and this suited Buffett fine."
No. of Recommendations: 13
No. of Recommendations: 3
Is this an example of “Buffett has lost it…”
No. of Recommendations: 15
Is this an example of “Buffett has lost it…”
I was fearing the worst when I started reading it, but it was actually well written and nuanced. His point was basically that the way tech works is by constantly expanding. That's not Buffett's style. He likes predictability, so he never really got on that train. I think most of us would agree with that.
He did hit one of my pet peeves: "if Buffett hadn't bought Apple the returns would have been much worse." Sure, but he did buy it. And his returns would have been worse if he hadn't bought a lot of other stuff too.
Also Todd and Ted buy tech stocks. The BRK culture isn't allergic to it.
No. of Recommendations: 7
The Apple investment should be praised, when he was 86 years old he laid into Apple
No. of Recommendations: 8
The Apple investment wasn’t a “Tech” investment when Buffett bought it. It was a brand investment. Just like American Express and Coca Cola are, “occupying a piece of consumer’s mental real estate”. He saw the durability of it at NFM pricing moves and the unwillingness of his great grandchild to part with it at bedtime.
No. of Recommendations: 1
I’m going to go out on a limb and guess why Warren Buffett never bought Alphabet, META or Amazon. I will refrain from using the word “TECH“
Arguably, a new economic ecosystem has been minted, mundane things like “product”, “customer”, “service provider” etc. have blurred. For instance, when I do an internet search, what am I? Customer? User? Supplier? Product? something else? Sure, it has been wildly successful. Sure, it has been nearly two decades already. Sure, Buffett groaned as Geico paid “$11 per click” for their ad placements. Yet, for Buffett or Munger, this brave new world likely found itself in their “too hard” pile. Perhaps, “impossibly hard” as it is an ecosystem thing, not just another business to evaluate. They watched the movie get off to a rollicking start but they couldn’t see how it’s going to end! Lacking this basic understanding, they passed to look elsewhere. Period.
If my reasoning above is correct, I’ll go out on an extreme limb here and say that the Alphabet purchase will be unwound in due course as it was a Todd thing. It’s a 50% probability that it was a Todd thing. Buffett had other things in mind over the past year. We’ll see in due course if my hunch is correct.
No. of Recommendations: 13
Also Todd and Ted buy tech stocks. The BRK culture isn't allergic to it.
Maybe not now, but even the Apple purchase took a long time to execute. They had several hurdles to get past (nothing wrong with that) that included very Berkshire things like “major consumer brand”, “moat”, “predictable earnings far into the future”, “big enough cap so shares could be both purchased or divested without causing fluctuation”,and several other things which I forget at the moment (couple of articles I read a few months ago).
And then it had to go through the exercise again. And then again. Quarter after quarter. Perhaps year after year. By that time a lot of appreciation had, uh, appreciated - although there was still gas in the tank, to be sure.
I would submit that most of the (so called) Magnificent 7 could have passed the test (Facebook? Google? Microsoft? Amazon?) and could have sucked up a ton of those stacks of Benjamins people are (still) complaining about. The only ones of those 7 I would have put in the “speculative” category are Tesla and Nvidia, which ironically did the best (stock wise) during that period when they would have failed the “predictable” hurdle.
Although I found a few faults in the article, mostly I agree with the premise: there have been 3 periods: Buffett 1.0 (cigar butts), Buffett 2.0 (consumer goods, moat, etc), and Buffett 3.0 (missing tech.) It will be interesting to see what happens without Warren’s heavy hand on the tiller over the next decade. I suspect things will be at least a little different.
No. of Recommendations: 2
It is an excellent article. Adam Seesel engages with folks on LinkedIn, and I gave him some props there.
I'm hoping Abel and/or Weschler have some ideas for capital deployment, whether securities or a truly major acquisition like Disney (that comes to mind occasionally).
