2011: Does Berkshire now prefer acquisitions to buying stocks?
CAROL LOOMIS: This shareholder wishes to be known only by his initials, AJ.
The importance of Berkshire’s equity portfolio has diminished other the past few decades. Today I view Berkshire’s appetite for equity as an afterthought and instead see its focus as being on large acquisitions.
Would you agree with this, and where do you see the equity portfolio going over the next five or 10 years?
WARREN BUFFETT: Well, I prefer large acquisitions, but it’s not an afterthought at all in terms of the portfolio.
I mean, we — Charlie and I spend — well, we probably spend more time thinking about the portfolio because it’s only occasionally that we get a chance to think about acquisitions that are sizable and that are available to us.
So we are equally interested in both aspects of Berkshire’s operations. But where we hope we really get lucky is in adding significant companies to what we have already, and having our — the companies that we already own — make various bolt-on acquisitions.
We’ve had several of those already this year that you don’t read about.
A lot of our companies have the potential to do — to earn — considerably more money five or 10 years from now than they’re earning now.
So both the development of those businesses, which really resides with the managers — Charlie and I don’t contribute anything on that — but we will — we spend as much time thinking about the portfolio as we ever did.
And, you know, it’s important. I mean, if you talk about $150-some billion in cash and marketable securities, the performance of that particular segment is going to have a lot to do with how well Berkshire does over time.
Charlie?
CHARLIE MUNGER: Yeah, we’ll always have a fair amount of marketable securities because of our insurance subsidiaries and — but as we get forced by our size into the bigger and bigger stocks, of course we’re going to do less well than we did when we had a bigger universe of practicable things to consider.
WARREN BUFFETT: A lot less well. I mean, it really is the nature of things.
We are buying securities where we have to put billions of dollars in them in most cases, and that is not a field that is unlooked at by other analysts.
So it’s impossible to have a big edge. We hope we have a small edge.
CHARLIE MUNGER: On the other hand, when we were doing so well in marketable securities, nobody called us and said, I have a wonderful business, and you’re the only place in the world where I would want to transfer it.
And now that happens, what, a couple times a year at least?
WARREN BUFFETT: Yeah.
CHARLIE MUNGER: And I really prefer, in some ways, this part of the game to the earlier game. It’s more fun to create permanent partners doing constructive things than just outsmart other people and shuffling little pieces of paper.
WARREN BUFFETT: It’s fun to do both, actually. (Laughter)
CHARLIE MUNGER: Yeah. Well, I don’t see you holding back. (Buffett laughs)