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1996: Is Berkshire undervalued?
AUDIENCE MEMBER: My name’s Tom Conrad (PH). I’m from McLean, Virginia, and I (inaudible) to this meeting and tell all my friends and family members to buy it last week. But I’ve been reading in some publications that you said that you would not advise your friends and family members to buy it at its current pricing.
And I’m just concerned, if I go out and run and tell them why you’re saying — what your feeling would be, should I go tell my friends and family members? — (Laughter)
WARREN BUFFETT: I think I’ll leave that one up to you. What I said — (laughter) — I said, at present prices, Charlie and I do not think Berkshire stock is undervalued. And that, now that is not what’s gotten reported sometimes. I mean, sometimes people have said we thought it was overvalued.
We did not — if you look at the prospectus or if you look at the — if you look at the prospectus, you will see that what we said was we do not think it’s undervalued.
Now, I find it somewhat entertaining that people regard that as kind of an amazing statement by somebody making a public offering.
But if you think about it a bit, can you imagine a management that goes out and says to the world, “We are selling you something — in a new stock — and it’s way undervalued.”
What do you say to your present shareholders if you go out and say to the public, “We’re selling you something that’s worth a dollar, and we’re going to sell it to you for 80 cents?” Now, that would leave me very unhappy.
So, I feel that any management that is talking about selling their stock and they say it’s very undervalued, either doesn’t know what’s good for their present shareholders or they may have their tongue in cheek.
We would not be selling — we would not sell a part of your interest in Berkshire at a price which we did not feel was adequate for the present shareholders. It’s that simple.
If we sell 1 percent of the company, and 350,000 shares is close to that figure of B, we are selling 1 percent of your ownership in See’s Candy. We’re selling 1 percent of your ownership in GEICO. We’re selling 1 percent of your ownership in The Buffalo News. Those are all valuable assets.
We have no intention of selling 1 percent, or 10 percent, or the hundred percent of any of those entities at a price that is not fair to present shareholders.
That doesn’t mean it’s unfair to new shareholders, but we’re not going to — we would not be selling the stock if we thought it was undervalued.
I’m not sure what we would’ve done if we’d had that position when the unit trust came along. But we have — and put in the prospectus — but we are not selling any of our shares. Frequently, on a new offering you see present holders. But, you know, I have very close to 100 percent of my net worth in Berkshire and it leaves me quite happy.
I’ve got a trust I run set up in 1964. I’m the sole trustee. I can do anything in that trust I want. And I’m freed by the person who set up the trust of responsibility for a concentration of investments. And I have some members of my family who are beneficiaries of that trust.
That trust owns nothing but Berkshire Hathaway stock. That doesn’t bother me at all. That — I’m not recommending purchase. But I’m perfectly happy owning Berkshire.
But we do not want — (applause) — we do not want people to think, when they buy into Berkshire, that they’re buying something that’s undervalued, because it’s not.
And we say in that fourth caveat on the prospectus that we want people to buy it only if they expect to be holders for a very long time.
Charlie and I expect to be holders for a very long time. And, in fact, you may see us up here sometime where we don’t know who the guy next to us is. (Laughter)
But we’ll put on an act, though. (Laughter) The — we —
You know, that is our attitude toward Berkshire. We do not want people to come in who think it’s going to be a hot stock or selling for more a year from now, because we don’t have the faintest idea whether it’s going to be selling for more or less a year from now. Never have had.
We do think that to the extent that Berkshire attracts a special class of shareholder that really looks at themselves as owning a part interest in a business, like they’d own a part of a farm or part of an apartment house, and they expect to hold it, really, for the rest of their lives, we think that it’s a perfectly sensible thing to do because we’re doing it ourselves. But we don’t want to go beyond that.