JAY GELB: Berkshire’s cash and Treasury bill holdings are approaching $100 billion. Warren, a year ago, you said Berkshire might increase its minimum valuation for share buybacks above 1.2 times book value if this occurred. What are your latest thoughts on raising the share with purchase threshold?
WARREN: When the time comes—and it could come reasonably soon—even while I’m around, but we really don’t think we can get the money out in a reasonable period of time into things we like. We have to re-examine, then what we do with those funds that we don’t think can be deployed well. And at that time, it would make a decision and it might include both. But it could be repurchases, it could be dividends.
There are different inferences that people draw from a dividend policy than from a repurchase policy in terms of expectations that you won’t cut a dividend and that sort of thing. So you have to factor that all in. But if we felt that we had cash that was unlikely to be used—excess cash—in a reasonable period of time and we thought repurchases, at a price that was still attractive to continuing shareholders was feasible in a substantial sum—that could make a lot of sense.
At the moment, we’re still optimistic enough about deploying the capital that we wouldn’t be inclined to move to a price much closer where there’s only a narrow spread between an intrinsic value and the repurchase price. But, at a point the burden of proof is definitely on us. I mean, the last thing we like to do is own something that a hundred times earnings where the earnings can’t grow. As you point out, we got almost $100 billion. It’s $90 billion plus invested in a business—we’ll call it a business—where we’re paying almost a hundred times earnings and it’s kind of a lousy business.
CHARLIE: It’s more after every tax earnings.
WARREN: Yeah, so we don’t like that and we shouldn’t use your money that way for a long period of time. And then, the question is, are we going to be able to deploy it? And I would say that history is on our side, but it would be more fun if the phone would ring instead of just relying on history books. I am sure that sometime in the next 10 years—and it could be next week or it could be nine years from now—there will be markets in which we can do intelligent things on a big scale.
But it would be no fun if that happens to be nine years off—and I don’t think it will be—but just based on how humans behave and how governments behave and how the world behaves. But like I say at a point, the burden of proof really shifts to us big time and there’s no way I can come back here three years from now and tell you that we hold $150 billion or so in cash or more snd we think we’re doing something brilliant by doing it. Charlie?
CHARLIE: Well, I agree with you and the answer is maybe.
WARREN: He does have a tendency to elaborate
;D ;D The last exchange between them.
In another exchange, they were goading each other as to the size of the next elephant deal. Buffett said "something like $150B" and Munger chimed "Now you're talking". They are surely not thinking buybacks at all. If the market does give it to them, they'll do it but but they are still-a-hunting. It would be kind of silly if they retire shares and soon after this $150-200 B deal comes up and they have to issue shares. They would be in a position of Buffett's disavowed "being under the mercy of the kindness of strangers" in a sense because the price at the time may be value destroying to shareholders.
Something tells me that the 1.2x buyback is there to make it easier for the next guy. That poor bastard will have one hell of a time stepping into the shoes; besides will have something like $400 B to allocate in his first decade. Buffett is perhaps setting up a return-of-capital-scenario to make him somewhat of a hero to the shareholder community.
I totally agree on your comment about making it easier for the next guy. Buffett has barely used repurchases with Berkshire and if the next guy does it at cheap prices you could still get good per share returns after Buffett is gone. The benchmark just makes it easier for the next person to see what cheap is.
