1999: Will Berkshire buy more businesses outright as it grows?

AUDIENCE MEMBER: Good morning. My name is Fred Castano (PH), from East Point, Michigan. And I appreciate this opportunity.

With Berkshire’s size becoming very large, are we to expect major future investments to be in the form of complete buyouts, such as the General Re acquisition? Or would you still consider nibbling in the stock market?

WARREN BUFFETT: Well, we don’t want to nibble. But we would like to take big gulps in the stock market from time to time.

But we’ve always wanted to acquire entire businesses. People never seem to really believe that, back when we were buying See’s Candy or the Buffalo News or National Indemnity. But that’s been our number one preference right along.

It’s just that we’ve found that much of the time we could get far for more our money, in terms of wonderful businesses, by buying pieces in the stock market, than we could by negotiated purchase.

There may have been — there may be some movement, in terms of the availability of the two, toward the negotiated purchase, although you — it’s almost impossible to make a wonderful buy in a negotiated purchase.

I mean, you will never make the kind of buy in a negotiated purchase that you can in a bad — that you can make via stocks in a stock — in a weak stock market. It just isn’t going to happen.

The person on the other side cares too much. Whereas, in the stock market, in a 1973 or 1974, you were dealing with the marginal seller. And whatever price they establish for the business, you could buy it.

I couldn’t have bought the entire Washington Post Company for $80 million in 1974. But I could buy 10 percent of it from a bunch of people who were just operating, you know, based on calculating betas or doing something of the sort. And they were in a terrible market. And it was possible to buy a piece of it on that valuation. You never get that kind of buy in a negotiated purchase.

We always are more interested in a negotiated — large negotiated — deals than we are in stock purchases. But we are not going to find a way, probably, to use all the money that way.

And we occasionally may get chances to put big chunks of money into attractive businesses that are — which we buy through the stock market, five, 10 percent of company or something of that sort.

Charlie?

CHARLIE MUNGER: My guess is over the next five years, we’ll do some of both. Both the entire business and the big gulps in the stock market.

WARREN BUFFETT: Yeah, I agree with that.

We’ll keep working at both. We’re not finding a lot in either arena. We might be a little more likely to find it in the negotiated business. It won’t be any huge bargain. We’re not going to get any huge bargain in the — in a negotiated purchase.

We are more likely to find what I would call a fair deal there under today’s circumstances, than we will in the market. But I agree with Charlie. Over the next five years, I think you’ll see us do both.