2006: What is Berkshire's exposure to silver?

AUDIENCE MEMBER: Dear Warren and Charlie, I’m Oliver Couchet (PH) from Frankfurt in Germany.

Here’s a question to the Silver King: Some commodity investors give you as a reference as one of the largest owner of physical silver. Could you please clarify what kind of exposure you or Berkshire currently have in silver?

And, further, could you please help us to understand how you determine the value of a noninterest-bearing precious metal?

WARREN BUFFETT: Do you have any silver on you, Charlie? We had a lot of silver at one time, but we don’t have it now.

The original decision — my decision — was that the production of silver and the reclamation of silver — I don’t remember the numbers exactly now — but they were running, perhaps, 100 million ounces or thereabouts, less than the consumption.

And, now, a lot of consumption has gone down in photography, but that’s where the reclamation was, too, so that those tended more to balance each other out.

I haven’t looked at the figures for the last year or so, but silver was out of balance.

Now, on the other hand, there were enormous quantities of silver aboveground, and there were huge quantities of silver that could possibly be removed from other uses, perhaps, you know, in jewelry and all kinds of things, that could conceivably add to supply as they did in the early 1980s when the Hunt Brothers thing took place.

But, overall, silver was being produced and reclaimed at a lesser rate than it was being consumed.

And added to that was the fact that there are relatively few pure silver mines. Silver is largely produced as a by-product of copper and lead and zinc, and so that it was not easy to bring on added production.

So, all of that added up to the fact that I thought that silver would get tight at some point.

And, as I said, I was very — I was early in that conclusion, and I was early in selling.

So we have no silver now, and we did not make much money on it.

And you’re right that it doesn’t earn anything. So you sit with it. It’s not like sitting with a stock where, in most cases, earnings are piling up for you.

You have to hope that it — you have to hope that a commodity moves in price, because it is not producing anything as it sits there looking at you. And that’s one of the drawbacks of commodities.

Charlie?

CHARLIE MUNGER: We didn’t get where we are by owning noninterest-bearing commodities. I don’t think it’s a big issue around here.

WARREN BUFFETT: We actually owned oil at one time too, didn’t we? But we didn’t make much money on it. We made a little money.

CHARLIE MUNGER: No. You made quite a bit out of oil.

WARREN BUFFETT: Yeah.

CHARLIE MUNGER: But, you know, it’s a good habit to trumpet your failures and be quiet about your successes. (Laughter)

WARREN BUFFETT: Yeah. We have more to trumpet than we have to be quiet about. (Laughter)