1996: Why have more class B shares been authorized than will be issued?

AUDIENCE MEMBER: Hi there. Lee Debroff (PH), long-time shareholder, I think, going back a number of years now to when it was a little more intimate affair. Not quite sure whether I should look at you in the TV here or in real life, on stage. But anyway, I’m on the very right of you.

And I see all the guards around you, and I see all the security and that sort of thing. And then, I see this offering of the Class B. And I sort of wonder whether, from your perspective, you feel you might be in the same boat that the pope and the president are?

And I mean this absolutely sincerely, because I don’t think that you have, perhaps, as good a handle as some of us do on the renown that you carry outside of Omaha, Nebraska. People who have no idea what investments are about are fully aware of who you are.

And when they see this offering, I think you may find that there are substantially more people who are interested in just having a piece of you for the sake of saying they have a piece of you than having absolutely any idea what they’re doing.

And I notice that on — I try to read the fine print here — on page 14, first paragraph, second line, that you indicate some 50 million shares of Class B common stock may be offered.

And so, I’d like you to comment on this situation that you find yourself in, where you may be, perhaps, out of touch with the popularity that you have.

WARREN BUFFETT: Well, my first reaction: maybe I should tell my barber we could save the clippings and sell them. (Laughter)

The — I don’t think it’s quite as extreme as you say.

But, you know, I — in relation to the 50 million first, we have to authorize enough shares, because we are going to allow every share of class A — or present common stock — but the class A, to convert to B.

So we have to have the shares authorized to take care of 30 times the present one point almost two million shares. So, 36 million shares, in effect, are reserved for the present common stock. And, as long as we were authorizing it —

Well, we need that much, or we wouldn’t have the shares actually available if everybody came around to convert. That’s not going to happen. But we still have to be prepared for it.

We have no plans to issue a lot of shares. The — but the point you mention, which I think you stressed a little more than I would’ve, but the — that is what we were worried about, in terms of the unit trusts.

There are people that think that it can all happen again from this kind of a base which, you know, is mathematically a joke. And Charlie and I would settle for one whole lot less, you know, right today.

And we have done everything we can — I mean, if we hadn’t done this, the unit trusts would’ve moved forward. And I think they would’ve cashed in on that phenomenon you suggested.

And in a few years, you know, it would not — I would’ve been in a somewhat different position because people can get very disillusioned if they have hopes that aren’t realized.

And we have done everything possible, I think, to filter out those who might have an unrealistic belief.

And everyone should read a prospectus before they buy shares, and —

I think we have tailored — we’ve designed what we’re doing about as well as we can to moderate that phenomenon you’re talking about. There may be a few come in but not too many.

Charlie, do you have any thoughts on that?

CHARLIE MUNGER: Well, if we only issue the amount we’re now talking about, it’s sort of a non-event around Berkshire. It’d be 1 percent —

WARREN BUFFETT: Yeah. It’s 1 percent.

CHARLIE MUNGER: — or something like that of the —

It solves the problem of these disreputable followers — (laughter) — and 1 percent, what does it matter? (Applause)

WARREN BUFFETT: Wait, you heard that remark, referring to Charlie earlier, about all I want to know is where I’m going to die, so I’ll never go there. (Laughter)

Well, we think about that, in terms — we believe in reverse engineering.

And how do we keep people from buying it, who really are going to be unhappy, you know, a few years later?

You know, it’s a little like singing country songs. You all — you should sing them backwards. That way, you get your home back and your auto back and — (laughter) — your wife back, and —