2005: How and why is the investment climate different today than in 1968-69 that makes you comfortable remaining substantially invested?
AUDIENCE MEMBER: Good afternoon, Mr. Buffett, Mr. Munger. Thank you very much for your wisdom and all your investment advice. I’m Adrian Sherr (PH) and I’m from Hong Kong.
Back in the old days in Hong Kong when somebody turned 100, they got to have tea at Buckingham Palace with the queen. I don’t know what you have here in America, but I hope that in 2030 we come back to watch you do 50 pushups at the White House. (Laughter)
CHARLIE MUNGER: It’s not the way to bet.
WARREN BUFFETT: Will you settle for 10? (Laughter)
AUDIENCE MEMBER: My question comes in two parts.
Firstly, in 1968-69, you liquidated all your partnerships. And I guess, aside from your holdings in Berkshire Hathaway, you got completely out of the market and stayed out.
In 2000-2001, you mentioned to us that in the coming decade the markets would go, at best, nowhere.
However, despite $50 billion in cash, you and therefore us, remain substantially invested in the market.
So my first question was, how and why is the investment climate different today than in 1968-69 that makes you comfortable remaining substantially invested?
WARREN BUFFETT: Yeah, well, we do own certain securities which we wouldn’t — we probably wouldn’t — buy at these prices. Some of them we would. Some of them we wouldn’t.
We’re not unhappy with anything we own. We’re not happy with putting more money in, so we’re in a zone in some of those securities that — where we wouldn’t buy and we wouldn’t sell.
Now part of it — that decision relates to the kind of quantities that we deal in. I mean, if we owned 100 shares of each one of the stocks that we own, you know, many billions of dollars’ worth, it would be an easier decision to go in and out.
But we would face significant costs — including taxes, but on top of taxes — in trying to go in and out of the big positions we have. And basically we like the businesses.
So, we are not unhappy. We may feel like we wouldn’t want to buy more here. But we are not unhappy about being in the businesses in which we have big equity holdings.
Now notwithstanding all of that, a lower percentage of our intrinsic value is represented by the common stocks we own than just about at any time of our history, with the exception of a couple — well, the period right there at the end of 1969 when we liquidated the partnership.
So, we have not made any big statement by purchases of stocks or the ownership of stocks that says we — in any way — says that we think that this is a particularly attractive time to own them.
But we are not unhappy with Coca-Cola. We are not unhappy with American Express. We are not unhappy with — we are not unhappy with Wells Fargo or Moody’s. Those are very, very good businesses that we own.
Would we be buying them at today’s prices if we, you know — well, the answer is we’re not. You know, we’ve got money. And we may buy more later on. We’re more likely to buy more later on than to sell those sort of investments.
But there is a zone, which because of size, because of taxes, where we would neither be a buyer nor a seller.
And we do not see lots of attractive stocks, but we also don’t think that there’s as much silliness in the market, by far, as there was 5 years ago roughly.
Charlie?
CHARLIE MUNGER: Yeah. One of the things that’s interesting about Berkshire lately is that if you take the last four or five things we did in the stock market, with a goodly number of millions, but — billions, really — but small in relation to Berkshire’s overall size — our record is much like it used to be in some of the best days.
Where we were able to move around with small amounts of money, the results were quite respectable. But where we were facing the problems of being enormously rich the way we were prevented from the nimble moneymaking record of the past, I don’t think that’s a permanent state of affairs, but it’s never going away either. But it —
WARREN BUFFETT: Explain that one. (Laughter)
CHARLIE MUNGER: Well, I mean, it’s that I think we may be able to deploy large amounts —
WARREN BUFFETT: Yeah.
CHARLIE MUNGER: — of money eventually at very satisfactory rates. Whereas in recent times, we have deployed small amounts of money at very satisfactory rates.
And better small than nil. And small is still billions. (Laughter)