1997: How does Buffett decide whether to convert Berkshire's Salomon convertible preferred shares?

AUDIENCE MEMBER: Good morning, gentlemen. My name is Cary Blecker (PH) from Wellington, Florida.

I know in 1987 when you purchased — or invested — in the Salomon Brothers convertible preferred stock, you had the eight-year time frame to convert it into common or take the cash out. I know in ’95 you took cash out, which was not a vote of confidence for Salomon Brothers. Any feelings on that in the future?

WARREN BUFFETT: Yeah. We — as the gentleman mentioned, we bought it in 1987, and starting in 1995 we have a — we have, every year for five years, we either have to take cash or convert to common, 20 percent of the original issue of 700 million.

We don’t have to make those decisions ahead of time. So we, in 1995, we elected to take cash. In 1996 we elected to take stock.

And you know, we see no reason ever to swing at the ball while it’s still in the pitcher’s glove. We’d just as soon wait till it gets to the plate to make the decision. So the ball will get to the plate on October 31st of 1997, I believe, for the next 20 percent. And we’ll decide whether to swing at that point. But we don’t need to make that decision today.

I would say that, you know, the odds are overwhelming that we’ll convert, but we’ll wait until that time to make the final decision.

We have terrific confidence in the people that run Salomon. They helped us through some incredibly dark days in the past, and showed the stuff of which they were made. And so we feel very good about that.

We don’t have the same degree of conviction about the profitability of the investment banking or brokerage business as a whole.

It’s not the sort of — you don’t develop that kind of conviction about that business versus a Coca-Cola or something. They’re different. They have different economic characteristics.

So we will see how the businesses — the industry — evolves. But we feel very good about the management, and the odds are extremely high that we will convert. But we will swing at the ball when it gets to the plate.

Charlie?

CHARLIE MUNGER: No more.

WARREN BUFFETT: OK.