I will tell you now that we have embraced the 21st century by entering such cutting-edge industries as brick, carpet, insulation and paint. Try to control your excitement.
Those witty words were written by Warren Buffett in his 2001 letter to Berkshire Hathaway (NYSE: BRK-A)(NYSE: BRK-B) shareholders.
Source: Flickr / twoblueday.
But these words are more than just witty, they also underscore an important investing lesson: the dullest of businesses can make for the best investments.
The turn of the century
In the year 2000, Berkshire Hathaway purchased eight companies for $8 billion. Combined, the firms employed more than 58,000 individuals and had more than $13 billion in sales.
The simple businesses
Which eight companies did Buffett buy in the middle of the roaring tech bubble? Nothing that would've made investors hearts race in the slightest:
Source: Company Investor Relations.
Nothing on this list is terribly "exciting," but there's more than meets the eye.
Boring but beautiful
All too often in investing, we are led to believe only exciting businesses will deliver great returns. The thought of investing in the next high-growth phenom in the technology industry brings dreams of great riches.
Yet we can so easily forget that for every Amazon -- which has seen its stock price skyrocket by more than 175 times since it went public -- there's a Pets.com . The latter raised $82.5 million from its IPO in February 2000 and collapsed just nine months later. CNET called the collapse of Pets.com the "latest high-profile dot-com disaster."
Warren Buffett at the 2014 Annual Meeting.
But take a step back and reconsider those businesses Buffett bought. "Brick, carpet, insulation and paint."
What is required of nearly every home that is built? Brick, carpet, insulation and paint. What industry saw one of the most remarkable rises during the first decade of the 21st century? Housing.
While we know what happened to housing in 2008, it turns out more homes were built in the 2000's than both the 80's and 90's. It's also important to remember all those manufacturing businesses Buffett bought were paid as the homes were built and they didn't have to deal with the mortgage fiasco which characterized both the boom and the bust.
Buffett was able to see beyond the pundits who proclaimed the Internet was the next big industry, and instead invested in boring businesses that serve our everyday needs. Although these companies lack the flash of the "next big thing," their products and services are staples of our economy. Their leadership positions in their respective markets don't hurt either.
This isn't to say technology investments should be avoided altogether -- Berkshire Hathaway has a $13 billion position in IBM -- or that manufacturing, service, and retailing businesses should be blindly bought. Instead, it's critical to understand the business you're investing in, rather than to follow the "market expectations" for a specific sector or company. It's only then that we'll be able to have a real sense for the value of a company.
And it's this kind of honest humility in sticking to what he knows -- even if it's boring – that has netted Buffett some of the greatest investment success the world has known.
