2010: Will Buffett's donations put downward pressure on Berkshire's stock price?

CAROL LOOMIS: This question also concerns the Gates Foundation but it’s entirely different.

“One of your owner-related business principles says that you will attempt, through your policies and communications, to keep Berkshire’s stock price rational.

“Yet every year, you give large amounts of your Berkshire stock to the Gates Foundation. And my understanding is that more will go to the foundation when you die.”

By the way, I forgot to say this is from Michael McLaughlin (PH) of Omaha, who continues: “Already, we have seen that foundation regularly sell Berkshire stock, and it will sell more because its purpose is to give money to charities not hold the stock forever.

“Won’t the foundation selling create a downward pressure on the stock because as much as 25 percent of it will be turned over?”

WARREN BUFFETT: Yeah. Basically, there’s five foundations I give money to every year, every July.

And the amount I would be giving now, it’s a 5 percent declining balance, the amount I would be giving now would amount to about 1 1/2 percent of the shares outstanding annually, something like that.

So if they sell, and they will, that stock fairly promptly after receipt in order to make charitable gifts, you basically have 1 1/2 percent of the shares being sold annually.

Now, if you contrast that with trading on the New York Stock Exchange, which averages well over 100 percent of the amount of shares outstanding, it’s not anything unusual at all in the way of sales.

And it is a free country. I mean, I could sell 10 percent of the company if I wanted to. I’ve never sold a share in my life, and I never plan to sell a share in my life. And I won’t sell a hell of a lot of shares after I die either, probably. (Laughter)

If 1.5 percent of the outstanding shares at Berkshire move the price down in a year, it probably deserves to move down.

Charlie?

CHARLIE MUNGER: Well, of course, I regard that degree of stock distribution to aid charity as almost a nonevent, and it may actually have been a constructive event, in terms of getting Berkshire into the Standard and Poor’s indexes and so on.

WARREN BUFFETT: Excuse me.

CHARLIE MUNGER: I think you’ve got more important things to worry about. (Laughs)

WARREN BUFFETT: If I’d owned 100 percent of Berkshire, for sure it would not have been in the S&P 500. It was always a problem of concentration.

So if by selling down it enhanced — and it did to some degree — enhanced the chances of Berkshire being in the S&P 500, that probably accounted for maybe 7 percent or so of the capitalization, some number like that.

So that was extraordinary, you might call it, buying that was brought in, to some extent because of the diminution of my own holdings.

As Charlie said, I would say if none of the stock had been given away in the last four years, I don’t know whether — I have no idea — whether the stock would be selling a little higher or a little lower. I think that’s sort of an even money bet.