1999 Letter to Shareholders

To the Shareholders of Berkshire Hathaway Inc.

In 1999, Berkshire underperformed the market. While the Dow Jones rose 27% and the NASDAQ soared 86%, Berkshire's book value grew only 0.5%. It was a painful year, and many shareholders questioned our approach.

"In 1999, I made no money in dot-com stocks. I also lost no money in dot-com stocks. Looking back, the second fact is far more important than the first."

The Dot-Com Mania

In 1999, the internet revolution was transforming American business. Companies with no earnings, no revenue, sometimes no product—were valued at billions. The market was drunk on the promise of the internet.

I watched this mania with growing concern. We had seen this before—the Nifty Fifty of the 1970s, the real estate bubble of the 1980s, the savings and loan crisis of the 1980s. Manias always end the same way.

Most internet companies had business models that could not possibly justify their valuations. They were burning cash at enormous rates, with no path to profitability. They competed in markets where winner-take-all dynamics meant that almost everyone would lose.

Why We Didn't Participate

Charlie and I were offered many internet investments in 1999. Some were good businesses, but priced at levels that made no sense. Others were terrible businesses priced at insane levels.

We passed on all of them. This decision cost us in the short term. But we could not justify buying businesses at prices that required miracles to justify.

The internet changes business models, but it doesn't change business fundamentals. Businesses still need to earn more than they spend. Businesses still need durable competitive advantages. Businesses still need honest management. These requirements don't disappear just because there's a new technology.

Looking Forward

The bubble will burst. It always does. And when it does, the companies that maintained discipline—Berkshire included—will be positioned to benefit.

Our approach remains constant:

1. We will not participate in manias — The price is never right for mediocre businesses
2. We will wait — Capital preserved is capital available for better opportunities
3. We will hold excellent businesses — Their values don't fluctuate with market sentiment
4. We will think independently — The crowd is always wrong at extremes

Warren E. Buffett February 2000