Power Players

Warren Buffett on not investing in Amazon — and why it's not his biggest mistake

Warren Buffett, Chairman and CEO of Berkshire Hathaway.
David A. Grogan | CNBC

Warren Buffett's investing company, Berkshire Hathaway, owns shares in American Express, Costco, The Coca-Cola Company, Visa and Verizon to name a few.

A notable American brand miss from the list? Amazon.

"There's a lot of games I miss," Buffett told Yahoo Finance editor in chief Andy Serwer in an interview published Wednesday.

"I would have missed Microsoft even if I had gotten to know Bill [Gates] earlier or something. Those just aren't my games, " Buffett said.

Though Buffett didn't invest in Amazon, or Microsoft for that matter, he said he doesn't consider those terrible mistakes.

"I don't worry about the things I miss that are outside my circle of competence of evaluating," said Buffett, who has been adverse to tech stocks (other than Apple). "I have missed things that were within my circle, and that's a terrible mistake. Those are my biggest mistakes. You haven't seen them. But ... it's not a mistake because I miss Netscape or something like that."

The octogenarian investor has often spoken about how important it is to have an area of expertise. 

"Intelligent investing is not complex, though that is far from saying that it is easy. What an investor needs is the ability to correctly evaluate selected businesses. Note that word 'selected': You don't have to be an expert on every company, or even many. You only have to be able to evaluate companies within your circle of competence," Buffett wrote in his 1996 annual shareholders' letter. "The size of that circle is not very important; knowing its boundaries, however, is vital."

Buffett told Serwer,  "maybe 5% of the companies or 10% of the companies at most are within an area, my circle of competence. They're something I should be able to understand."

Within his area of expertise, Buffett buys companies, or stock in companies, that he feels are a good value.

"Your goal as an investor should simply be to purchase, at a rational price, a part interest in an easily-understandable business whose earnings are virtually certain to be materially higher five, ten and twenty years from now," he wrote in the shareholders' letter.

"Over time, you will find only a few companies that meet these standards — so when you see one that qualifies, you should buy a meaningful amount of stock. You must also resist the temptation to stray from your guidelines: If you aren't willing to own a stock for ten years, don't even think about owning it for ten minutes. Put together a portfolio of companies whose aggregate earnings march upward over the years, and so also will the portfolio's market value," Buffett said.

As for Amazon, though Buffett has not invested, he has a great deal of respect for the business and its CEO and founder Jeff Bezos.

"I'd always admired Jeff," Buffett tells Serwer. "I mean, I met him 20 years ago or so, and I thought he was something special, but I didn't realize you could go from books to what's happened there."

Indeed, Bezos started Amazon as an online bookseller and grew it into an "everything store," with a more than $950 billion market cap.

Bezos "had a vision and executed in an incredible way," Buffett says.

See also:

Here's how much cash Warren Buffett carries in his wallet

Warren Buffett: This is the best way to put cash in the pockets of people who need it

Warren Buffett: This is how to be successful

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Graham's three investing principles
Warren Buffett, Chairman and CEO of Berkshire Hathaway.
David A. Grogan | CNBC
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