James Pan (PH), New York City. I have a two-parter question.
One, do you think the stock price of Berkshire Hathaway is trading within 15 percent of its intrinsic value currently?
And two, if you think Berkshire Hathaway is undervalued with the amount of cash you have on your balance sheet, would you consider a buyback?
The answer about a buyback is that we generally have felt that market conditions that would make Berkshire attractively priced is probably going to make other things even more attractively priced, because we think our shareholders are more rational than the shareholders of many companies.
It’s more likely that we will find some wonderful business at a silly price than we will find Berkshire at a silly price as we go along. So — (applause) that tends to eliminate repurchases.
But it doesn’t rule them out, but it explains why the circumstances will not arise very often where repurchases would make good sense.
60. Why we don’t estimate our intrinsic value
WARREN BUFFETT: In terms of giving you a number on intrinsic value, I don’t want to spoil your fun. I mean, you really should work that one out for yourself. (Laughter)
Charlie is the expert on intrinsic —
Do you have any comment for him, Charlie?
Well, your attitude on that subject reminds me of a famous headmaster who used to address the graduating class every year. And he’d say, “You know,” he says, “Five percent of you people are going to end up criminals.” And he says, “I know exactly who you are.” (Laughter)
And he said, “But I’m not going to tell you, because it would deprive your lives of a sense of excitement.” (Laughter)
If you stop to think about it, the companies that constantly told their shareholders what the intrinsic value was were the real estate holding companies in corporate form.
And I must say, that the amount of folly and misbehavior that crept into that process was disgusting. We would be just associating with a bad group if we were to change our ways.
Bill Zeckendorf Sr. I think was probably the first one to do that, with Webb and Knapp back in the late ’50s. I still have those annual reports. And he would announce, you know, like, to eight decimal places what the intrinsic value of Webb and Knapp was. And he did it right till the day they filed for Chapter 11. (Laughter)
I remember that well, because somebody said that he fell into bankruptcy. And somebody else said, “How can you fall off a pancake?” (Laughter)
Beware of people that give you a lot of numbers about their businesses. I mean, in terms of projections or valuations or that sort of thing.
We try to give you all of the numbers that we would use ourselves in making our own calculations of value.
We really — if you read the Berkshire reports, you essentially — you have all the information that Charlie and I would use in making a decision about the security.
And if there’s anything really lacking in that respect, you know, we would actually — we would truly appreciate hearing from you, because we want to have that kind of information in the report. But then we want you to make the calculation.
But we’ve stuck, I mean, that material, for example, on the float in the insurance business, we consider that quite relevant, obviously, because we use up almost a page printing it. It’s pretty serious stuff at Berkshire. (Laughter)
But that is relevant. I mean, your interpretation may be different than mine or Charlie’s, but those are important numbers.
And we could give you a lot of baloney about satisfied policyholders, you know, in Lincoln, Nebraska. It wouldn’t tell you a thing about what the company’s worth — and have pictures of them, and happy, you know, receiving the check from the agent and all of that. (Laughter)
We’re not going to do that.
~ Please visit the site above for full video of Berkshire Hathaway Annual Meeting.
"Beware of people that give you a lot of numbers about their businesses. I mean, in terms of projections or valuations or that sort of thing." ~Warren Buffett
"We could give you a lot of baloney about satisfied policyholders, you know, in Lincoln, Nebraska. It wouldn’t tell you a thing about what the company’s worth — and have pictures of them, and happy, you know, receiving the check from the agent and all of that. We’re not going to do that." ~Warren Buffett