2017: What is the value of Berkshire to the world?
CAROL LOOMIS: This question is from a shareholder in California, in the Silicon Valley area, who didn’t want his name mentioned because he said he wasn’t looking for publicity, but whose picture makes him appear to be a millennial.
“Every Berkshire shareholder knows about the stock market value of Berkshire, but my question is about the value of Berkshire to the world.
“For instance, the value of Apple to the world has been iPhones. The value of GEICO is cost-effective auto insurance. The value of 3G,” and I will tell you that there are some shareholders who would be arguing about it here, but “the value of 3G is improved operations.”
“But about Berkshire, I just don’t know. In managing Berkshire’s subsidiaries, as Mr. Munger once famously said, you practice ‘delegation just short of abdication.’ So, hands-on management can’t be the answer.
“That means the majority of Berkshire’s subsidiaries would do just as well if they were to stay independent companies. So that’s my question. What is the value of Berkshire to the world?”
WARREN BUFFETT: Yeah, well, the — I would say the question about — I’m with him to the point where he says that our — which he accurately describes as “delegation to the point of abdication.”
But I would argue that that abdication, actually, in many cases, will enable those businesses to be run better than they would if they were part of the S&P 500 and the target, perhaps, of activists or somebody that wants to get some kind of a jiggle in the short term.
So I think that our abdication actually has some very positive value on the companies. But that, you know, you’d have to look at it company by company.
We’ve got probably 50 managers in attendance here. And naturally, they’re not going to say anything, probably, on television or anything where they knock a certain thing.
But get them off in a private corner and just ask them whether they think their business can be run better with a “management by abdication” from Berkshire, but with also all the capital strengths of Berkshire, that when any project that makes sense can be funded in a moment without worrying whether the banks are still lending, like in 2008, you know, or whether Wall Street will applaud it or something of that sort.
So I think our very — our hands-off style, actually, I think can add significant value in many companies, but we do have managers here you could ask about that.
We certainly don’t add to value by calling them up and saying that we’ve developed a better system, you know, for turning out additives at Lubrizol, or running GEICO better than Tony Nicely can run it or anything of the sort.
But we do take a — we have a very objective view about capital allocation.
We can free managers up. I would say that we might very well free up at least 20 percent of the time of a CEO in the normal public — who would have — otherwise have a public company — just in terms of meeting with analysts, and the calls, and dealing with banks, and all kinds of things that, essentially, we relieve them of so that they can spend all of their time figuring out the best way to run their business.
So I think we bring something to the party, even if it — even if we’re just sitting there with our feet up on the desk.
CHARLIE MUNGER: Yeah. We’re trying to be a good example for the world. I don’t think we’d be having these big shareholders meetings if there weren’t a little bit of teaching ethos in Berkshire.
And I’ve watched it closely for a long time. I’d argue that that’s what we’re trying to do, is set a proper example. Stay sane. Be honest. Yeah. (Applause)
So I’m proud of Berkshire, and I don’t worry too much if we sell Coca-Cola. (Laughter)
WARREN BUFFETT: We — I would say, you know, GEICO is an extraordinarily well-run company and it would be extraordinarily well-run if it were public.
But it has gone from 2-and-a-fraction percent of the auto insurance market to 12 percent.
And part of the reason, a small part — the real key is GEICO and Tony Nicely — but part of the reason is that when other — at least two of our competitors — and big competitors — said that they would not meet their profit objectives if they didn’t lighten up their interest in new business, eight or 10 months ago, I think our business decision to step on the gas is a better business decision.
But I think that GEICO, as a public company, would have more trouble making that decision than they do when they’re part of GEICO [Berkshire].
Because we are thinking about nothing but where GEICO’s going to be in five or 10 years, and if that requires having new— we want new business cost to penalize our earnings in the short-term.
And other people have different pressures. I’m not arguing about how the —how they behave, because they have a different constituency than GEICO has with Berkshire and what Berkshire has with its shareholders, in turn.
And I think in that case, our system’s superior. But it’s not because we work harder. Charlie and I don’t do hardly anything. (Laughter)