(April 29, 2000) Comparing the mania over internet stocks to a Ponzi scheme, Buffett says that while some early investors made money, eventually a stock will only be worth the profits it can generate over time. He also defends a big exit package for Coca-Cola's CEO, explains how corporate governance reform may be inflating paychecks, and tells shareholders why his purchase of Berkshire was a big mistake.
In 1999, Buffett broke an 18-year winning streak as the S&P's 21.0 percent gain crushed Berkshire's 0.5 percent increase in per-share book value. It was the worst performance since Buffett started running the company in 1965, both in absolute terms and when compared to the S&P. Buffett blamed himself, as several companies in his stock portfolio "badly lagged" the market due to disappointing earnings. The craze for internet stocks was helping the market averages that year, but Buffett wasn't tempted. "Our problem — which we can’t solve by studying up — is that we have no insights into which participants in the tech field possess a truly durable competitive advantage."
READ 1999 LETTER (DATED MAR. 1, 2000)