How Buffett Missed Intel [Acquired.fm]

Audio source: https://www.acquired.fm/episodes/berkshire-hathaway-part-i

Transcript

I think maybe in part because of this mindset of like I'm going to stay true to do what I'm good at, he makes the biggest missed opportunity ever maybe in history. I was teasing Ben, over the last couple days texting him saying, I've got something in this episode that I don't know if you know but is just the most unbelievable thing that you will never imagine.

Ben: Lay it on me.

David: In 1967, he writes his partners saying that he's introducing a new ground rule to the partnership. This one is quite literally the opposite of Don Valentine. He says, “We will not go into businesses where technology, which is way over my head, is crucial to the investment decision. I know about as much about semiconductors or integrated circuits as I do about the mating habits of this chrząszcz.” It a Polish word. It means beetle in Polish. Typical Warren way with words here. “This is very unfortunate.”

Ben: What was the company?

David: “Very unfortunate decision to make.”

Ben: Let’s see, 1967. It predates Microsoft by seven years, predates Apple. It’s way after IBM. What's around this time, DEC? No, it’s post-DEC.

David: No, you'll get it if you think about it enough. Silicon Valley, or just as we talked about it a lot on the show.

Ben: Is it an early Sequoia investment?

David: Just pre-Sequoia. Sequoia was started in 1972, but this is all the crew that Don Valentine—

Ben: Is it an Arthur Rock investment?

David: It is an Arthur Rock investment.

Ben: Is it Intel?

David: We're talking about Intel here.

Ben: No way.

David: Get this. Buffett, at this point, is on the board of Grinnell College in Iowa. He's a trustee of Grinnell College, which by the way, he was introduced to by Susie. Susie became an incredible civil rights activist and Grinnell College was involved in the civil rights movement. Martin Luther King spoke at Grinnell College six months before he was killed. Susie brings Warren to the college to listen to King speak. Warren is like incredibly moved by Dr. King.

He decides after that to join the board. They were trying to recruit him to join the board, so he does. Do you know who else was on the board? One of Grinnell College's most famous alumni, alongside Warren Buffett?

Ben: Noyce or Moore.

David: Yes, bingo. Robert Noyce.

Ben: Wow.

David: Alumni of Grinnell College, inventor of the integrated circuit, part of the traitorous eight, who left Shockley Semiconductor to start Fairchild, and then co-founder of Intel with Gordon Moore and Andy Grove is on the board of Grinnell with Warren. Not only has that, but Warren chairs the endowment investment committee at Grinnell. Of course, that would make sense. When Noyce leaves to start Intel and Arthur Rock is putting the deal together to finance Intel, Noyce brings it to the investment committee at Grinnell College and says, there's $100,000 piece. I think Grinnell should invest in this company. I think this is really going to be big. I know what I'm doing.

Ben: He saw the deal.

David: Warren approves the investment and Grinnell does invest $100,000 in the Intel seed round effectively. But Warren never goes near it for the partnership, for himself. In fact says, I will never invest in technology companies. Unreal.

Ben: Basically held to that for another 45+ years.

David: Totally. Not until Apple and I think—I haven’t done the research yet—Apple bubbles up within Berkshire from Todd Combs, not from Warren. Talk about sins of omission. This is before Sequoia. Imagine if Warren had financed Intel, Warren Buffett could have been Warren Buffet plus Sequoia Capital.

Ben: Wow. Realistically, what would he have done with it if he did invest in it? First of all, he’s never invested in technology business to this point. He's never invested in something that early. Everything he's bought has been pieces of public companies.

David: Yup. Established on-going cash flow businesses.