1994: What is Berkshire's current price to intrinsic value?
Dan Raider: Let’s try it one more time. Dan Raider from San Mateo, California. This question is for Mr. Munger. In your most recent letter to shareholders in Wesco’s annual report, you calculated the intrinsic value of Wesco at about $100 per share, compared to the then-current market price of around $130. You also mentioned that it was unclear whether Berkshire or Wesco presented a better value to prospective purchasers. Given that, could you compare the intrinsic value of Berkshire to its current market price?
Charlie Munger: Well, the answer to that is no. (Laughter) Berkshire has never calculated intrinsic value per share and reported it to shareholders, and Wesco hadn’t done that before this year either. We changed our approach at Wesco because we felt some buyers had gone a little crazy, and there were a lot of unwise things being communicated to prospective shareholders. We don’t want to attract people at high prices that may not be wise, so we made a one-time estimate of intrinsic value per share in the Wesco report.
Warren Buffett: Additionally, I think it’s important to note that anyone can estimate the intrinsic value per share of Wesco within fairly close limits. It’s not that complicated, as there aren’t many businesses there with values that differ significantly from their carrying values, and those are all documented.
In contrast, Berkshire has assets, especially our insurance business, that have significant excess values. However, one person might estimate those values at three times what someone else might estimate them at. This variance is less true for our other businesses but still applies to some degree, leading to a wider range of intrinsic value estimates for Berkshire.
As Charlie said, we aim to avoid disappointing our partners, but we also don’t want to disappoint ourselves. We have our own benchmarks for what we believe is achievable, and we try to communicate that as clearly as possible to our partners. We noticed that some things published about Wesco might have led to expectations that didn’t align with our own, which made us uncomfortable.