1996: Will the class B shares dilute the earnings of the class A shares?

AUDIENCE MEMBER: Oh, sorry. I’m Elaine Cohen (PH) from San Diego.

I’m a little confused about how the B shares are going to be moving if they’re at 1/30th of the A shares when they get out on the market.

Are they always going to be 1/30th of the A shares? And if they are, is that going to dilute the earnings of the A shares? Could you just explain that?

WARREN BUFFETT: Yeah. It won’t dilute the earnings or value of the A shares as long as we use the money reasonably effectively that is produced.

As I mentioned earlier, if it happens to be 1 percent, you’ll own 1 percent less of all these other things — on the other hand, will have close to $400 million more of cash. So, it will not — in our view, it will not dilute the value of the A.

I expect, over time, that the B, a very large percentage of the time, will be selling very close to a 30th. But it could sell for less than that ratio. It can’t sell for any significant amount more than that ratio, or arbitrage will eat away at any slight premium. I think that takes care of that.