1999: Why didn't Berkshire invest in pharma in '92-93?

AUDIENCE MEMBER: Hi, my name is McCall Bang (PH). I’m from central Florida. It’s nice and sunny there.

WARREN BUFFETT: Not so bad here either, now. (Laughs)

AUDIENCE MEMBER: My question was, last year somebody asked about the pharmaceutical companies and the aging baby boomers, et cetera. And you said it was difficult to single out individual companies. And I believe Mr. Munger succinctly said that we blew it on that one.

I was wondering, however, if the idea of regulation and, you know, the specter of what happened in ’92, ’93 with an unelected politician kind of dampered the whole industry for a period, there — if that plays a part in giving you a little ambivalence about investing in that area for the future.

Is that simply an unknowable? Or with all the, you know, a lot of the political — the things we see here today — if that causes you some concern about, you know, the future of that area?

I know that you’re concerned about the growth of — in companies having to spend money, in Washington with regulation, et cetera. So, I’d like to know your thoughts, specifically if you have some ambivalence because of future regulation with pharmaceutical companies?

WARREN BUFFETT: Well, if we could buy a group of leading pharmaceutical companies at a below-market multiple, I think we’d do it in a second. And we had the opportunity to do that in that 1993 period, as you mentioned. And we didn’t do it. So, we did blow it.

Because clearly, the pharmaceutical industry, as a whole, has done very well. And it has some of the threats that you enumerated, in terms of regulation and so on.

But, you know, every industry has some problems. And the pharmaceutical industry has enough going for it that the threats you named should not cause, in my view, should not cause the securities to sell at a depressed multiple, which they did.

Now, that’s no longer the circumstance. We don’t like — you know, we’re not going to buy them at present prices. But, we — at least I think they’re, you know, as a group, they’re good businesses.

I do think it’s very hard to pick out the winner. You know, so if I did buy them, I would buy them — I would buy a group of the leading companies. But I wouldn’t be buying them at these prices.

Charlie?

CHARLIE MUNGER: Yeah. I would argue that the pharmaceutical industry has done more good for the customers than almost any other industry in America. It’s just fabulous what’s been invented in my lifetime, starting with all the antibiotics that have prevented so much death and so much family tragedy.

And I think the country has been very wise to have a system where the pharmaceutical companies can make almost obscene amounts of money. I think we’ve all been well-served by the large profits in the pharmaceutical industry.