Billionaire bridge-playing buddies Bill Gates and Warren Buffett have different backgrounds, but they agree on one thing: The multiples of technology stocks probably are too high.
The two recently stood before 350 business students at the University of Washington to share their philosophies. The unusual "town hall meeting" was chronicled by Fortune magazine in the July 20 issue. (PBS will broadcast the exchange this fall.)
Berkshire Hathaway chairman Buffett, a self-professed technophobe, told the audience, according to Fortune: "As a member of society, I applaud what [Gates] is doing, but as an investor, I keep a wary eye on it."
Whether he does or not, Microsoft's CEO Gates said: "I agree strongly with Warren [that] the multiples of technology stocks should be quite a bit lower than the multiples of stocks like Coke and Gillette, because we are subject to complete changes in the rules. I know very well that in the next ten years, if Microsoft is still a leader, we will have had to weather at least three crises."
One of those "crises," he noted, was Microsoft's sluggish response to the boom in the Internet. "Sometimes we do get taken by surprise. For example, when the Internet came along, we had it has a fifth or sixth priority."
Buffet has made his fortune investing in things he can understand, like soft drinks and razors. He does not dabble in market speculation. His portfolio includes Coca-Cola, Gillette, McDonald's, and World Book Encyclopedia. He argues that computers and the Internet will never change people's need to shave in the morning or enjoy a carbonated beverage.
"When I look at the Internet, for example, I try to figure out how an industry or company can be hurt or changed by it, and then I avoid it," Buffett said in the Fortune article. "That doesn't mean I don't think there's a lot of money to be made from that change. I just don't think I am the one to make a lot of money out of it.
"Take Wrigley's chewing gum. I don't think the Internet is going to change how people are going to chew gum. Bill probably does."
Gates shed some light on his own hard-nosed business philosophy. "Although about 3 million computers get sold every year in China, but people don't pay for the software," he said. "Someday they will, though. As long as they are going to steal it, we want them to steal ours. They'll get sort of addicted, and then we'll somehow figure out how to collect sometime in the next decade."
The software giant will be careful not to slip, however. "The technology business has a lot of twists and turns," the 42-year-old Gates said. "Probably the reason it's such a fun business is that no business gets to rest on its laurels. IBM was more dominant than any company will ever be in technology, and yet they missed a few turns in the road."
As for his own future, Gates noted: "I think probably a decade from now or so--even though I'll still be totally involved with Microsoft because it's my career--I will pick somebody else to be CEO."
He went on to say: "Picking that next person is something I give a lot of thought to, but it's probably five years before I have to do something concrete about it. If there was a surprise, well, there's a contingency plan."
Gates and Buffett, ranked as the No. 1 and No. 3 richest men in the world, respectively, also shared some laughs.
Buffet, whose Nebraska-based company owns International Dairy Queen, joked with Gates about fluctuating pricing in the competitive ice cream market. "We'll raise the price when you come," he said to his friend, whose net worth stands at about $50 billion.