1995: Why doesn't Berkshire sell underperforming subsidiaries?

AUDIENCE MEMBER: Yes, Jeff Peskin (PH) from New York City.

And I was — I have a question on the annual report where you say that, obviously, going forward, due to the size of Berkshire, the returns going forward probably won’t match the returns of the past.

And then you go on to state that one thing that may hinder that is the fact that you don’t really like to sell companies that you own.

And I would just like to know what the reasoning is in that, if you’ve got a company or investment that you don’t think is going to do as well as where you can put the money going forward. What really the reasoning is for holding on and not redeploying the money elsewhere?

WARREN BUFFETT: Yeah. I’ll just correct you just slightly. A, I didn’t say we’d probably do worse than the past. I said we will do worse than the past. I mean, there’s no way we can match percentage numbers of the past.

That, you know, we would — in a period that would not take that long, we would — assuming we paid out nothing — we would gobble up the whole GDP, which is something we may think about, occasionally, but — (laughter) — we don’t really expect to accomplish. The —

But — and the second point, that relates to size. That does not relate to our unwillingness to sell businesses, because that unwillingness has existed for decades. But the size has not existed for decades.

The size is — you know, doubling 12 billion or so is harder than doubling 1 billion-2, which was harder than doubling 120 million. I mean, there’s no question about that.

So, eventually — well, already it will be a drag on performance. It doesn’t mean that the performance will be terrible, but it does mean that 23 percent is an historical figure. It has no predictive value.

The unwillingness to sell businesses, like I say, goes back a long way. That is not what — that —

If that hurts performance, it’s peanuts. That’s simply a fact — a function of the attitude Charlie and I have, is that if we want to live our lives, we find it a rarity when we find people in the business that we want to associate with. When we do find that, we enjoy it.

We don’t see any reason to make an extra half a percent a year or 1 percent a year — don’t try us on higher numbers. But the — (laughter) — we don’t see a reason to go around ending friendships we have with people, or contact, or relationships. It just doesn’t make any sense to us. It —

We don’t want to get committed to that sort of activity. We know we wouldn’t do it if we were a private company.

Now, in Berkshire, we feel we’ve enunciated that position. We want to get that across to everybody who might join with us because we don’t want them to expect us to do it.

We want them to expect us to work hard to get a decent result, and to make sure that the shareholders get the same result we get, and all of that sort of thing.

But we don’t want to enter into any implicit contract with our fellow shareholders that will cause us to have to behave in a way that we really don’t want to behave.

If that’s the price of making more money, it’s a price we don’t want to pay.

There’s other things we forgo also, but that is the one that people might disagree with us on. So, we want to be very sure that everybody understands that, going in. That’s part of what you buy here.

And it may — I don’t think it’ll hurt performance that much anyway. But to the extent that it does, it’s a limitation you get with us.

Charlie? (Applause)

CHARLIE MUNGER: I don’t think there’s any way to measure it, exactly. But my guess is that, if you could appraise something you might call the character of the people that are running the operating businesses in Berkshire, many of whom helped create the businesses in the first place, and are leading citizens in their community, like the Helzbergs —

I don’t think there’s any other corporation in America that has done as well as we have, if you measure the human quality of the people who are in it.

Now, you can say we’ve collected high-grade people because we sure as hell couldn’t create them. But one way or another, this is a remarkable system. And why would we tinker with it?

WARREN BUFFETT: If you want to — (applause) — attract high-grade people, you probably ought to try and behave pretty well yourself.

I mean it’s just — besides, it wouldn’t be any fun doing the other. I mean, it — I was in that position, a little bit, when I ran the partnership back in the ’60s.

And I really — you know, people were coming into partnership with me. And my job was to turn out the best return that we could. And I found that if I got into a business, that presented certain alternatives that I didn’t like. So, Berkshire’s much more satisfactory in that respect.