Betting on sure things

[When asked for the opinions on telecom industries]…I know people will be drinking Coke, using Gillette blades and eating Snickers bars in 10-20 years and have rough idea of how much profit they’ll be making. But I don’t know anything about telecom.

It doesn’t bother me. Somebody will make money on cocoa beans, but not me. I don’t worry about what I don’t know — I worry about being sure about what I do know.

[CM: Berkshire in its history has made money betting on sure things.]

We might buy some junk bonds in that business [telecom], and we have, but we expect losses in junk bonds — though we expect a decent result — because we’re dealing with institutions that have demonstrated problems. In some cases — not at all with Level 3 — there are management issues. We expect to have significant losses, and we haven’t seen our biggest loss yet, believe me. It’s like being an insurer of substandard risks — you’ll have more accidents, but can charge a premium.

We don’t buy businesses in which 15 will be train wrecks and 85 will work out OK.

There are all kinds of businesses where you can’t predict what they’re going to earn, so we try to favor a few where we can.

At Level 3, they are fine people and they acknowledge that they borrowed too much money. I have yet to see an electron and have no working relationship with them at all. I don’t know anything about the technology at all, but I understand the people involved. It’s of a different sort [of investment] than we usually do, but we’re happy we did it.

BRK Annual Meeting 2003 Tilson Notes