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Warren Buffett: Not Buying Google Is Berkshire Hathaway’s Biggest Mistake

May 06, 2017

At the Berkshire Hathaway annual meeting Saturday, CEO Warren Buffett made a startling admission. After surprising investors recently with his giant bet on Apple stock, the Oracle of Omaha—long averse to Silicon Valley companies—says he now wishes he'd bought more technology stocks when he had the chance.

Apple (aapl) has been Buffett's greatest hit over the past year, boosting Berkshire's portfolio by about $2 billion in 2017 alone after the investor loaded up on more of the iPhone maker's stock. Now, Buffett is kicking himself for not taking advantage of the opportunity to buy stock in Google (googl) shortly after it went public more than a dozen years ago.

The founders of the company now called Alphabet even came to see Buffett shortly after the tech company's IPO with an investment prospectus, but the legendary stock-picker passed. "I knew the guys," Buffett said at the Berkshire Hathaway (brk.a) meeting. "And so I had plenty of ways to ask questions or anything of the sort and educate myself, but I blew it."

Buffett's business partner and Berkshire Hathaway vice chairman Charlie Munger regrets that decision even more. "If you asked me in retrospect what was our worst mistake in the tech field," that was it, Munger said at the meeting.

"I think we were smart enough to figure out Google—those ads worked so much better in the early days than anything else—so I would say that we failed you there," Munger said. "We were smart enough to do it, and we didn’t do it."

In fact, Berkshire's insurance subsidiary Geico was an early customer of Google, buying ads on the search engine for "$10 to $11 a click," so the investors had a front row seat seat to the business' growth, Buffett said. "Any time you're paying somebody $10 or $11 when somebody just punches a little thing where you’ve got no cost at all, that’s a good business," he added. "You’ve almost never seen a business like it."

Explaining his decision to invest in Apple after so many years of steering clear of the tech industry, Buffett said he sees the company as less of a technology company than a consumer products company (as opposed to IBM (ibm), whose stock the investor announced that he is selling this week). But Buffett also noted a fundamental change in the market that has made him see tech differently, observing that the five most valuable American companies are now worth a whopping more than $2.5 trillion combined.

Those five companies, in order of market value, are Apple, Alphabet, Microsoft (msft), Amazon (amzn) and Facebook (fb). "And if you take those five companies, essentially you could run them with no equity capital at all," Buffett said. "You literally don’t need any money to run the five companies that are collectively worth more than $2.5 trillion."

"That is a different world than what existed in the past," he added, comparing the "capital-light" nature of Internet and cloud computing companies to the capital-intensive industrial and steel businesses that he invested in earlier in his career. "But this is so much better if you happen to be good at it."

Given his views on the compelling case for those companies, a shareholder asked Buffett during the annual meeting's Q&A why Berkshire had never invested in Amazon. "I was too dumb to realize what was going to happen," Buffett responded, saying he "never even considered" buying Amazon stock, despite his great respect for the e-commerce company's founder, Jeff Bezos. "I admired Jeff but I did not think he’d succeed on the scale that he has," Buffett said, noting that Amazon's lucrative foray into the cloud services business never occurred to him a few years ago. "I really underestimated the brilliance of the execution."

But for Berkshire's executives, the one that got away, so to speak, is really Alphabet. "I don’t feel any regret about missing out on the achievements of Amazon," Munger said. "Other things were easy, and I think we screwed up a little." When Buffett declined to comment on those screw-ups, Munger clarified: "I meant Google."

In the future, though, Berkshire is likely to make more bets on tech, Munger hinted. "I think it’s a very good sign that you bought the Apple stock," Munger told Buffett. "It shows either one of two things: Either you’ve gone crazy or you're learning. I prefer the learning explanation."

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