Berkshire Annual Letter 1999 (Part 3)
Reported earnings do not accurately measure the economic progress of Berkshire as they include only the dividends received from investees.
These dividends are only a small fraction of the earnings attributable to Berkshire.
A more accurate assessment can be made using the concept of look-through earnings. They consist of:
1) The operating earnings as reported, plus;
2) Berkshire’s share of the retained earnings of major investees, less;
3) an allowance for the tax that must be paid by Berkshire if these retained earnings of investees had been distributed to them.
Warren Buffett does not own tech stocks because he cannot figure out which participants in the tech field truly possess a truly durable competitive advantage.
He is unable to predict the long-term economics of companies that operate in fast-changing industries.