1994: If Cap Cities is a "permanent" holding, why did Berkshire sell 1 million shares?

AUDIENCE MEMBER: My name is Hugh Stevenson (PH). I’m a shareholder from Atlanta.

My question involves the company’s investment in the stock of Cap Cities. It’s been my understanding in the past that that was regarded as one of the four, quote unquote, “permanent” holdings of the company.

So I was a little bit confused by the disposition of one million shares. Could you clarify that? Was my previous misunderstanding — was my previous understanding incorrect? Or has there been some change or is there a third possibility?

WARREN BUFFETT: Well, we have classified the Washington Post Company and Cap Cities and GEICO and Coke in the category of permanent holdings. And —

But in the case of three of those four, The Washington Post Company, I don’t know, maybe seven or eight years ago, GEICO some years back, and now Cap Cities, we have participated in tenders where the company has repurchased shares.

Now the first two, the Post and GEICO, we participated proportionally. That was not feasible, and incidentally, not as attractive taxwise anymore.

The 1968 Tax Act changed the desirability of proportional redemptions of shares, from our standpoint. That point has been missed by a lot of journalists in commenting on it, but it just so happens that the commentary that has been written has been obsolete, in some cases, by six or seven years.

But, we did participate in the Cap Cities tender offer, just as we did in the Post and GEICO.

We still are, by far, the largest shareholder of Cap Cities. We think it’s a superbly run operation in a business that looks a little tougher than it did 15 years ago, but looks a little bit better than it did 15 months ago.

Charlie, you have anything?

CHARLIE MUNGER: Uh, no. (Laughter)

WARREN BUFFETT: He’s thinking it over now though before — (Laughter)