1996: What will happen if there is more demand for B shares than for A shares?

AUDIENCE MEMBER: Yes. My name is Jim Elliot (PH). I’m from Minneapolis.

I wonder if you could help me with an upside scenario where the B shares, after they’re issued, are limited and there’s not a significant reissue afterwards. The A shareholders are somewhat reluctant to convert. And you have a run on the B shares where, let’s say, it goes to $2,000 a share.

Do we then have the tail wagging the dog, where the 2,000 command a $60,000 price on the A shares? And, you know, what — does the — this arbitrage take care of that? Or —

WARREN BUFFETT: Well —

AUDIENCE MEMBER: — what do we do in that case?

WARREN BUFFETT: If there is demand for the B that pushes the price up somewhat, it will produce conversion from the A. I mean, the only way the B will be able to get — we’ll just pick a figure — if it were to get to $1,200 — there is no way that the A could be selling appreciably below 36,000.

And I don’t think — I think that introducing the B into the equation, may mean — it will mean — that there will be some people who like a lower denomination stock and come in.

But it takes a lot of that to, in an appreciable way, affect $40 billion worth of what is now A stock.

So, you know, if there were incremental demand of a hundred million dollars a year or something like that, that’s a little more than the demand that might otherwise go into the A. But I do not see it producing anything in the way of a big movement.

But you’re quite correct in that there’s no way that the B stock can go up and not really force some conversion from the A. It’ll — I think it’ll be minor.