Collection: Warren Buffett - #387 | Having Too Much Money Can Be A Problem



[Transcript]

AUDIENCE MEMBER

In the last 18 months, the company has allocated at least $1 billion to four or five publicly traded companies.


Berkshire has an abundance of capital and a scarcity of ideas. Since these stocks investments were made in large cap companies in which we could have probably made $5 billion investments, have you thought about allocating more capital to each stock investment?


WARREN BUFFETT

Yeah, we do think about that, obviously. And there’s certain ones that we have added billions of dollars to that we already had substantial positions in a couple years ago.


Obviously, when we add to the present list, we think we’re adding to the ones either that look the most attractive to us, or to the ones that we can just buy. I mean, there’s some things where we can’t put that much money in, or where we will have reporting thresholds that will cause a problem.


If we own over 10 percent of a company, you know, we can’t sell a share of it, then, for six months without it being — if there’s a profit — it being recaptured pursuant to a short-swing rule.


So there’s some technical things that enter into whether we cross certain thresholds of ownership size.


But if you look at — you know, if you look at the portfolio at the end of 2007, you’re going to see that certain positions in there from 2006, there will probably be an increase by billions of dollars.


And that’s always something that I’m considering and Charlie is considering.


We like to add to present positions. I mean, those are companies we know, understand, obviously like to some degree.


And if the price gets reasonably attractive and we’ve got money around, we will add. If we can find a good business to buy, you know, we will sell the least attractive.


Charlie?


CHARLIE MUNGER

Yeah. It isn’t as easy as it looks to buy these big positions. When we were buying Coca-Cola, we were buying every share we could. We bought, what, 30 or 40 percent of the daily trading?


WARREN BUFFETT

Yeah.


CHARLIE MUNGER

And it took us a long, long time to get our position. There are huge difficulties to managing great, big, common stock portfolios.


We like it way better when we have those problems now than we liked it when we didn’t have them early, but it does make it much harder. We have no easy way of moving these elephants around.


WARREN BUFFETT

In general, we think we usually can buy something like 20 percent of the daily trading volume and feel that we’re not causing the price to be violently different than it would have been if we hadn’t been participating in the market.


So that means if we’re going to buy $5 billion worth of something, $25 billion worth of it is going to have to trade, and that’s a lot for many stocks.


So we are a big ocean liner, and that has its disadvantages compared to being a smaller boat.


(Source: https://buffett.cnbc.com/2007-berkshire-hathaway-annual-meeting/)

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[YAPSS Takeaway]

The short-swing profit rule is a rule that states that company insiders should return profits realized from trading the stock of a company. Profits made from purchase and sale of a company's stock within a period of six months must be returned to the company.