
Warren Buffett 1997 Email Exchange on Microsoft [pdf] - breck
http://sabercapitalmgt.com/wp-content/uploads/2019/12/BuffettRaikesemails.pdf
======
forgingahead
What's more interesting to me was that the first third or so of the email was
just banter/chit-chat about sports and family updates. Good reminder that
business is always about relationships, and while cold hard factual analysis
(which is the latter part of the email) is important, the social and
relationship building elements are key.

~~~
everdrive
While I completely agree with you, it's also a good indication that the
executives running these businesses are in some sense immature. They should
not care about ego and other personal things. They should care about
effectiveness. If they rely on a personal rapport before acting, it seems to
be that they are incapable of acting objectively.

~~~
Blackstone4
So everyone at the top is a robot? The reality is that we are human and it is
important to communicate effectively...part of this is building relationship
with others. I've met billionaires and 100's of millions in financial services
and they are all great with people. This isn't because they are great
guys....some are narcissists...its because it works!

~~~
everdrive
This is clearly an unpopular opinion, but yes. If you need socialization to do
business, then you're building a social network, or a social club. I don't
think that generals in the army make small talk before giving orders. Yes, of
course, there is going to be some personal chatter, but the ability to give
orders does not depend on it. They can get down to brass tacks, and can work
well with people they dislike personally.

I understand that businesses are NOT the military. But, I'm perplexed that
business leaders are seeking out peoople they have a good rapport with rather
than people that are effective. These will not always be opposites, of course,
but I would think that effectiveness would always matter more than rapport.

Perhaps the problem is that in business there is no higher calling. It's all
just about making money, and so there is generally not something worth setting
aside your ego for.

~~~
NateEag
You're drawing a false dichotomy.

You can both be effective and build rapport with people. It's both/and, not
either/or.

In fact, building a rapport is actually an important part of being effective.
Esprit de corps is a real thing (and a military concept, to boot), and you do
not get it by treating people like robots.

However, you can't hack being kind and attentive. It only provides stat boosts
if pursued as its own intrinsic good. Humans are really good at detecting
false fronts - only world-class manipulators can consistently fool people into
believing they're cared for.

Given all that, an effective analyst like Buffett will understand that he
should look for people who are effective and personable. They're out there,
and they're better economic bets than the ones who hobble themselves by
pretending emotions, kindness, and taking an interest in others for their own
sake are irrelevant (I hobbled myself this way for years).

------
drtillberg
Raikes incidentally pointed out that tech business leadership is inherently
unstable. Writing of Lotus 1-2-3 and WordPerfect:

> They were the leaders and they could have chosen to cannibalize themselves.
> But they didn't act fast enough and were scared that investing in the new
> paradigm would open the door for us-- ironically it was their slow pace that
> opened the door.

No business voluntarily cannibalizes it's core revenue stream. That snippet
explains succinctly how monoline dominance in technology is inherently
unstable, and also tends to explain the "Amazon" (ha!) approach from major
technology companies of massively diverse investment and M&A to overcome this
effect and maintain their core dominance.

~~~
scaraffe
I could be wrong, but didn't apple cannibalize its ipod business with the
release of iPhone?

~~~
Seanambers
Yes Apple does cannabalize its own products, iPod-> iPhone & notebooks ->
iPads for instance. From what I remember this was also how Jobs et al. at
Apple views it.

Basically if you want to be a innovator you can't worry about eating your own.

Incidentally Tesla has done the same with Model 3 / Y eating up S / X sales.

~~~
DaiPlusPlus
> with Model 3 / Y eating up S / X sales.

Eeehhhhh. Not really. They did discontinue the low-end S editions, yes - but
the number of people who could have afforded to buy an S who opted for a 3
instead aren’t that many people.

Tesla opted to remarket the S/X as flagship cars instead of being their
mainstream offering.

It would be cannibalism if Tesla launched an extended wheelbase/station-
wagon/estate/shooting-brake version of the Model 3/Y while still getting the
S/X around.

Actually - I will concede that the Model Y probably is eating into sales of
the X.

------
nodesocket
Fun fact, if you invested $10,000 into MSFT on August 22nd 1997 [adjusted
closing price $10.98] the next day after Warren's reply, you'd have $183k
today. Not as big as a return as many would have thought, still amazing
annualized 2X S&P return for 23 years.

    
    
      ROI            1,730.00%
      Annualized ROI 13.47%

~~~
pengaru
Did you account for splits? According to [0] MSFT has split two for one on
three occasions since 1997.

[0]
[https://www.stocksplithistory.com/microsoft/](https://www.stocksplithistory.com/microsoft/)

~~~
cm2187
I suspect the parent used yahoo finance or the like to get historical stock
prices. Historical stock prices are usually re-adjusted when a split happens
so you get a clean history.

------
rjkennedy98
Anyone else weirded out by the tone of Warren's email. His casual references
to Coca Cola possibly causing cancer (when Coca Cola is probably the single
biggest cause of disease in this country via obesity). Also, the way he framed
Microsoft as being a toll on a water stream reminded me of Bill Burr's talking
about Nestle trying to own the water supply
[https://www.youtube.com/watch?v=w_pb6r8VNWk](https://www.youtube.com/watch?v=w_pb6r8VNWk).

Idk the most I hear of these oligarch's the more I'm terrified of them.

~~~
monkeynotes
I imagine that when you are playing at the top of your game, everything seems
like a game and that's the way you talk about it. Buffet is solely focussed on
winning bets, that's how he got to where he is. People like Buffet fill a slot
that is at the very foundation of capitalism. If you are terrified of rich,
powerful business people you are in the wrong economic model. So far we are
yet to find a better model, IMO.

~~~
sukilot
I'd you think the purpose of economics is to make the most money and not the
most utility for human society, you say you are in the wrong economic model.

Tumors are the best growing parts of a body; that doesn't mean cancer is the
ideal form of life

~~~
monkeynotes
Who said it was the best economical model?

Human society is made up of individuals. Capitalism, as opposed to socialism
puts the power of utility in the hands of the individual. Thus individuals
strive to make the most of the economic landscape and this often means making
as much money as they can.

Again, I am not saying it's perfect but it's worked pretty well for western
values.

------
sumanthvepa
I'm curious as how this private communication got released. Was it due to
discovery in a court case?

~~~
breck
"I sent one e-mail in my life. I sent it to Jeff Raikes at Microsoft and it
ended up in court in Minneapolis, so I am one for one."

[https://piersmorgan.blogs.cnn.com/2013/11/08/warren-
buffett-...](https://piersmorgan.blogs.cnn.com/2013/11/08/warren-buffett-on-
cell-phones-email-and-material-goods-2/)

It was the Microsoft anti-trust case:
[https://www.wsj.com/articles/SB107947771352857209](https://www.wsj.com/articles/SB107947771352857209)

~~~
eis
That is an interesting quote given that at the very end of the supposedly sole
email he sent in his life he talks about how he feels whenever he is sending
e-mails.

"As a beginner I always feel that when i send off any e-mail, it is going to
vanish into the ether and i would hate to have that happen with everything i
know."

~~~
omega3
Buffett cultivates his image very carefully.

~~~
_red
Yes, Buffets long-term shtick has been "grandfatherly simpleton". He
intentionally plays that up for maximum effect. What I find interesting is
that now Gates is aping Buffet in that regard. Gates now exclusively appears
wearing sweaters and speaking in simple truisms. Selling vaccines must require
it?

------
sradman
> In effect the company has a royalty on a communication stream that can do
> nothing but grow.

In hindsight, the desktop OS business reached saturation and it started to
look like the automobile industry which is sensitive to the replacement rate
of a long lived good. The introduction of SSD drives was probably analogous to
the introduction of quality rust proofing in the early 90’s.

~~~
lostlogin
> In hindsight, the desktop OS business reached saturation and it started to
> look like the automobile industry which is sensitive to the replacement rate
> of a long lived good.

If wish you could get a good car for free. My first, second and third choice
OS are all free. Helpfully, we are also at a time where old computer hardware
has some very attractive elements too (replaceable bits, helpful ports etc).

~~~
nextaccountic
But the computer itself isn't free, right?

~~~
sleavey
Maybe in the future cars will asymptote towards the upper limit of mechanical
efficiency (for each given class, like the school run, city trips, long
distance, etc.), allowing users to keep them on timescales similar to homes,
so the only profitable innovation will then be on the software. Then we might
see "car-OS wars" and the beginnings of open source driving systems in
parallel.

~~~
unnouinceput
Nobody is stopping you to start those free open source "car-OS" right now.
Considering this is actually embedded it's actually easier then writing a
general purpose OS like Linux or Windows.

------
yufeng66
Well, they got the husker-husky game wrong ;) Husker won the game and end up
splitting the national tile with Michigan that season.

~~~
OldHand2018
They were worried about Scott Frost being able to throw, but Nebraska played
football the way Nebraska plays football and ran all over them.

> The Huskers smashed any doubts about their ability to be a major player in
> this season's national-championship chase with a 27-14 victory that left the
> country's second- and third-ranked team battered, bruised and bewildered.
> "We knew what they were going to do," Washington linebacker Jason Chorak
> said. "We just couldn't stop it."

[https://dataomaha.com/huskers/history/game/1997-9-20-washing...](https://dataomaha.com/huskers/history/game/1997-9-20-washington)

------
dredmorbius
TIL: Buffett bottom posts.

~~~
Jolter
Everyone did, in 1997. It was the default for all mail readers I’ve seen
except Outlook (Express).

~~~
dredmorbius
There were different standards, And I don't believe Microsoft Mail or Outlook
Express defaulted to this at the time -- Outlook certainly changed practice
and dated from late '97 / early '98 ("Office 97" refers to the nominal release
year).

But other platforms/ communities differed, with Lotus Notes (big in some
corporate accounts) being an especially notable case with its own butt-ugly
quote/reply convention.

In the Unix world, Usenet, and among derived / affiliated tools (Eudora Mail,
Netscape Mail, others), yes, bottom-posting dominated.

------
sfblah
It’s a good one, but not really relevant in today’s new era of investing, is
it?

~~~
bb2018
I don't see how it is less relevant.

Warren says he understands how much Microsoft is getting off of royalties for
Windows but is unsure about his confidence in a 20 year bet compared to a
company like Coke which sells Cola.

Warren turned out to be very wrong in investing in Coke over MSFT. However,
his reasoning wasn't awful. The entire e-mail pleading the case to him is
about how great of a business selling the OS is. However, if Microsoft had
stuck to that the stock would not be doing so well now. Perhaps he and the
person pleading MSFT's case were wrong to view Microsoft's business as
operating system related instead of tech and computing more generally. I'd say
both were about the same levels of wrong but one had a better outcome.

~~~
sangfroid_bio
At that time software's AT&T style winner-take-all and network effect lock-in
was still not that obvious. The PC was not yet the golden standard for desktop
hardware and words like minicomputers and mainframes were not uncommon terms.

~~~
akg_67
What was the alternative in 1997? None? Windows 95 was on every office
desktop. It was the only desktop OS most companies bought. I can’t recall
another desktop OS widely available. OS from Apple was a niche, mostly in
education and desktop publishing, and on decline.

~~~
vidarh
The point is that dominance was only a few years old, and it was not at all
obvious it would last - the computer market had completely changed every few
years prior to that, so assuming there was a risk it might again was not
unreasonable.

~~~
akg_67
Nope, Microsoft dominance was already well established by 1997, about 7 years
with Windows and DOS.

~~~
vidarh
This is historical revisionism.

In '96 people were still talking about how Microsoft had failed to understand
the importance of the internet, and whether Windows '95 would fix that. The
'95 DOJ consent decree also looked set to potentially severely reign them in.
Apple still looked like a possible contender.

OS/2 still looked like a possible contender - I remember being at trade shows
at the time and seeing how hard OS/2 was pushed, at a time where Microsoft was
still a small upstart that had only bypassed Commodore in revenues a few years
prior (and speaking of Commodore, even in 95-97, several years after their
bankruptcy, people were still looking at whether Escom and then Gateway would
manage to resurrect Amiga), and there were lots of people convinced IBM would
swat Microsoft away like a fly.

In the corporate space, options like DEC, Sun and SGI were still pushing into
the workstation space at high pace and making inroads downwards into more
regular workstations - I saw this first-hand in computer labs filled with cost
reduced SGI Indy's and a bunch of DEC workstations at work, and lots of SUN
workstations at places I contracted in those years.

Non-Windows, non-DOS machines were still _everywhere_ in those years. It was
unusual to find an office without a non-MS OS, because if nothing else there'd
by a Mac for Quark Express or the like. And the presence of beachheads of non-
MS OS's like that meant that whether or not MS could maintain its position was
still not obvious.

More importantly: Giants had stumbled many times before. Most notably IBM, but
the years before were littered with computer companies that had either died
entirely or were shells of their former selves.

------
shayas
Warren's wisdom is timeless

------
swyx
he was right about Coke lasting longer than Windows.

