Buffett warns against e-hype By Andrew Edgecliffe-Johnson in Omaha
The internet will create no more wealth than a chain letter and will damage the profits of most US businesses, Warren Buffett said this weekend.
Addressing 15,000 shareholders at the annual meeting of Berkshire Hathaway, America's wealthiest investor, said: "For society the internet's a wonderful thing, but for capitalists it's probably a net negative.''
Mr Buffett's aversion to investing in technology stocks contributed to the investment and insurance group's worst ever absolute and relative returns in 1999. He was unrepentant on Saturday, saying: "When we look back, we will see this as a period of enormous amounts of wealth transfer [rather than wealth creation].''
The internet was much more likely to reduce the value of American business than improve it, he said, because the ability to easily compare prices online would drive down margins and increase competition.
Internet investments worked on the same principle as a chain letter, he argued: "If you are very early in a chain letter, you can make money, but there's no money created."
Mr Buffett, who has chaired the Omaha-based group for 35 years, likened current equity market conditions to the "mania" in farmland prices in Nebraska 20 years ago, noting: "It killed a lot of people who bought at those [inflated] prices.''
He added: "Any time there have been real bursts of speculation in the market, it does get corrected eventually.''
Asked about the decisions of two other prominent investors - George Soros and Julian Robertson - to scale back or close their hedge funds, Mr Buffett said he was not in the same business.
However, he gave strong indications that Berkshire may reduce its equity holdings. It would prefer to expand its list of wholly-owned operating companies through large acquisitions, rather than put more money into stock market investments, he said.
"I'd love it if we could move all the money we have in securities into businesses we like," he added: "But that's not going to happen in all probability, because it's too tough to find businesses that we like."
The legendary loyalty of Berkshire Hathaway's investors, some of whom had travelled from Australia and Japan, appeared unshaken by the group's poor performance last year, which is still 25 per cent below its peak despite a recent rally.
Only two of the shareholders who addressed the six-hour meeting referred to the stock. One, Steve Yates from Chicago, thanked the people who sold Berkshire stock last year "for giving us an opportunity to buy more of the world's greatest stock."
Another jokingly chided Mr Buffett and his vice chairman, Charlie Munger, saying he would like to give them "10 lashes with a wet noodle because you have spoiled your shareholders into expecting 25 per cent [annual growth in Berkshire's book value]".
Last year, Berkshire's book value advanced just 0.5 per cent, while the S&P 500 recorded a 21 per cent gain.