2003: Does Buffett think Berkshire stock is expensive?

AUDIENCE MEMBER: Hi. I’m Bruce Gilbert (PH), a stockholder from New York City.

And about four or five years ago, I put most of my family’s portfolio — actually all of it — into Berkshire Hathaway.

And over the past four or five years, the stock price has remained rather steady, and I’ve withstood the year 2000, when friends were making 50 percent and I was losing 50 percent on my investment.

But I have to admit, when I read your Fortune article last year and you referred to the stock price as expensive, I felt badly.

Now I spend my days sometimes having fun, figuring out the value of Berkshire Hathaway.

But at night after that comment I could also wake up in worry and fret. And I realize you talked, recently, a lot about the qualitative and quantitative aspects of things.

And I guess I would like you, with your self-reflective position, and knowing that I’m asking you to do something like maybe talking about your breathing, what went into that comment to call the stock price expensive, in terms of your weights and measures?

What price, what value? What do you think about the company and its stock price when you say it’s expensive?

WARREN BUFFETT: I think if you — I don’t remember the exact wording of that article, but I’m quite sure that I told the author of that article, and I’m almost positive it was in the article, that said I thought it was more attractive than owning the general market or the S&P.

So I was saying that I preferred it to the general market. I’m certainly happy having 99 and a large fraction percent of my net worth in it. I’ve never sold a share, I am not the least bit uncomfortable about holding it until the day I die, and quite a bit thereafter. (Laughter)

But I have not thought stocks were cheap at all for some time. And I’ve never wanted to encourage anybody, particularly in the last few years, to buy Berkshire or any other stock because — the market — I felt that the — you know, I felt we had a great bubble.

And you know, I think Berkshire’s value has improved — I think Charlie does, too, fairly significantly — in recent years.

And I would — if I had a chance to swap, tax-free, my Berkshire for the S&P 500, or for any mutual fund or anything, you know, I wouldn’t even give it a thought. But that does not mean I think, you know, either Berkshire or stocks are cheap.

Charlie?

CHARLIE MUNGER: I’ve got nothing to add to that.

WARREN BUFFETT: I don’t think we’ve ever recommended the purchase or sale of Berkshire, that I can remember. We did say at one time we would repurchase shares, which has a certain underlying message to it.

And we said at other times we wouldn’t buy shares. That doesn’t mean we’d sell shares at all, but we wouldn’t have bought them under the prevailing conditions.

But we have stayed away from recommending, actually not only the purchase or sale, not only of Berkshire, but just of any other specific shares.

We’ve only given our views, occasionally, on what we think about the level of the stock market, generally.

But I do think, if you go back and look at that article — I wish I had it here. But I think you’ll find that I said I preferred it to equities, generally. It —

CHARLIE MUNGER: I do think that there’s a lot to be said for developing a temperament that can own securities without fretting. I think that the fretful disposition is the — it’s an enemy of long-term performance.

WARREN BUFFETT: Well, it’s almost — I think it’s almost impossible if you’re — to do well in equities over a period of time if you go to bed every night thinking about the price of them. I mean, Charlie and I, we think about the value of them.

But we would be happy, just as in that movie — if they closed the Stock Exchange tomorrow, you know, Dick Grasso wouldn’t be happy and Jimmy Maguire, our specialist, wouldn’t be happy.

It wouldn’t bother me and Charlie, at all. We would keep selling bricks, selling Dilly Bars, selling candy, writing insurance. You know, a lot of people have private companies and they never get a quote on them.

You know, we bought See’s Candy in 1972. We haven’t had a quote on it since. Does that make us wonder about how we’re doing with See’s Candy? No, we looked at the company results.

So you — there’s nothing wrong with focusing on company results. Focusing on the price of a stock is dynamite, because it really means that you think that the stock market knows more than you do.

Now if the stock market may know more than you do, but then you shouldn’t be in stocks. I mean, you should have — the stock market is there to serve you and not to instruct you.

So you need to formulate your ideas on price and value, and if the price gets cheaper and you have funds, you know, logically, you should buy more, if — and we do that all the time.

Where we make our mistakes, frankly, is where we focus on price and value and we start buying, and the price goes up a little and we quit, you know, like Charlie referred to, we might have done on See’s Candy.

A mistake like that cost us $8 billion in the case of Walmart stock a few years ago, because it went up in price. And you know, we are not happy when things we’re buying go up in price.

We want them to go down, and down, and down. And we’ll keep buying more and — hopefully we won’t run out of money. Of course, that’s a different story.

Charlie?

CHARLIE: No.