2000: How much does incremental float increase intrinsic value?

AUDIENCE MEMBER: Hello, Warren. Hi, Charlie. Two questions. First, was anybody dumb enough to sell you Berkshire at less than 45,000 a share?

WARREN BUFFETT: We did not repurchase any shares.

AUDIENCE MEMBER: My second question concerns float. The float has been low cost most years for Berkshire and probably zero cost in many years, except last year, possibly.

When you think about float in terms of intrinsic value, do you have an idea in mind when you add new float for how much it will increase the intrinsic value of Berkshire?

WARREN BUFFETT: Well we add — that’s a good question — but we consciously add float sometimes at a given cost. And then we, other times, add float at no cost. So we have different layers of float, if you will, that we’ve entered into.

We’ve entered in some transactions in the last month or two, where we will take on some float, which will not have zero cost. But it’s acceptable to us. And we couldn’t get it at zero cost, although we’re also creating float which, I think, will be close to zero cost or better.

So, we would be willing to take on float, obviously, at costs only modestly below the Treasury rate, if that was the only way we could get that float, and it didn’t impede our ability to get other float, you know, at zero cost or something.

We don’t want to raise the cost overall by a single transaction that would have an effect on other transactions.

But float, if you look at our historical record, and our future record can’t be as good, but it’s not —it’s the cost of float, and it’s the amount of growth of float.

I mean, if you told me I could add $50 billion of float and have a 3 percent cost to that, you know, I would take that any day over adding 10 billion at zero cost.

So there are a lot of different ways, in the insurance business, that we can and will think about developing float.

And usually, one doesn’t preclude another. Occasionally, one bumps into another. But usually, one doesn’t preclude another.

And believe me, we spend a lot of time thinking about that. And we’ll continue to as long as we run Berkshire. It’s a big part of our strategy.

Charlie?

CHARLIE MUNGER: Well, I’ve been amazed how well we’ve done with the float. And I’ve been watching it from the inside for a long, long time.

It is a very wonderful thing to generate millions and millions, and then billions and billions, of dollars of float at a cost way below the Treasury rate. There are people who would kill for such opportunities.

WARREN BUFFETT: Yeah. And of course, that makes it competitive. We do — we — there are plenty of other people that are thinking about it in a similar vein and probably observed what we do and all of that. So like everything else in capitalism, it’s competitive.

We think we’ve got an edge in several very important respects. And we think that edge is sustainable for quite a — as far as we can see. And we intend to push it as hard as we can. And then we’ll see where it leads.

I would’ve had no idea, 10 or 20 years ago, that we would have the present situation. But we do find, if you just show up every day, like Woody Allen said, and you answer the phone and read the paper, every now and then, you see something that makes sense to do.

And we do find them occasionally. The hard part is finding them where they are material relative to our present size. If we were running a very small business, we would find plenty of things that would make good sense.

We find a few things that make good sense now, relative to our size. And there’s really no answer for that except to shrink dramatically, which is not a action we’re contemplating.