Most people assume Warren Buffett, with Bill Gates as a best friend, must have owned Microsoft stock. But here’s the twist: he never did. And his reason teaches us something powerful about investing.
Buffett’s Simple Rule: Stick to What You Understand 🧭
Buffett told Microsoft executive Jeff Raikes back in 1997 that Microsoft was a great business—like Coca-Cola, it had a “royalty stream” that just kept flowing. Every time a PC was sold, Microsoft collected money, just like Coke collects a few cents every time someone drinks a soda.
The difference? Buffett admitted he didn’t feel comfortable predicting the future of technology. “Paradigm shifts,” like the rise of graphical user interfaces, can wipe out leaders overnight. Coke doesn’t face that risk—nobody’s suddenly going to stop drinking sodas. But in tech, things change fast.
Why Buffett Stayed Away 🚫💻
Buffett explained it this way:
- With Coke, the moat (competitive advantage) is wide and stable.
- With Microsoft, the moat was strong… but vulnerable to sudden shifts in technology.
- He preferred to “wait for the right pitch,” rather than swing at a stock he didn’t fully understand.
Even though Microsoft had almost 90% market share and huge profit margins, Buffett worried that one big change like the internet or new software could erode that advantage too quickly.
The Lesson for Investors 📚
- You don’t have to own everything. Even if a business looks unstoppable, if you don’t understand it deeply, it’s okay to pass.
- Focus on durability. Buffett chose Coke over Microsoft because he believed Coke’s demand would still be here in 20 years.
- Avoid FOMO. Missing out on Microsoft didn’t stop Buffett from becoming one of the richest men in the world. Patience and discipline mattered more.
Real-World Example 🌍
Fast-forward to today: Nvidia looks like Microsoft in the 1990s—dominant, insanely profitable, and powering a technological revolution. The question for investors: is it Coke-like (durable for decades) or Microsoft-like (vulnerable to disruption)?
That’s the kind of thinking Buffett wants us to practice.
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