1999: Why does Buffett think Berkshire's intrinsic value increased when operating profit was flat?

AUDIENCE MEMBER: Richard Corry (PH) from England.

Could you please say what was the main factor which produced the very substantial gain in intrinsic value mentioned in your report?

I ask this because per share gains in portfolio and operating profits were modest. And you said that there was no (inaudible) gain from issuing shares for acquisitions.

WARREN BUFFETT: Well, we did increase the float per share very significantly last year, I mean, invested assets per share. And I would say that, in the — GEICO’s business was worth far more at the end of the year than at the start of the year. And that was our largest subsidiary at the start of the year. And if anything, GEICO’s competitive position continues to improve.

I would say that Executive Jet is a natural fit into Berkshire. And we paid a significant sum for it. But that it will be a very, very big company 10 or 15 years from now.

And perhaps — well, I’m almost sure it’ll get there sooner as part of Berkshire, than it wouldn’t gotten there otherwise. And its dominance may be even greater over the years as part of the Berkshire family than it would have independently. Although it would’ve done very well independently.

I mean, it had a terrific management. It had — it started early, and they had the most service-oriented company you could imagine. So, it would’ve done fine without us, but I think it will do even considerably better and get there faster with us.

So, I think there — I think in the aviation field, certainly in the primary insurance field, we had large gains in intrinsic value. And I think that, additionally, we had a significantly greater amount of invested asset per share to work with.

So, I feel good about what happened with intrinsic value last year. The problem is doing it year after year after year.

Charlie?

CHARLIE MUNGER: Just basically, we have a wonderful bunch of businesses. And we have a float that keeps increasing and a pretty good record of doing pretty well in marketable securities. None of that has gone away.