1999: Do current valuations remind Buffett of the time he disbanded his investment partnership?

AUDIENCE MEMBER: Warren and Charlie, good morning.

WARREN BUFFETT: Good morning.

AUDIENCE MEMBER: My name is Maurus Spence from Waterloo, Nebraska.

Some 30 years ago, you disbanded your Buffett partnership saying that you felt out of step with the market and you feared a permanent loss of capital.

Given today’s market and current valuations, if Berkshire Hathaway was a partnership of 100 partners, instead of a corporation, would you consider disbanding it as you did 30 years ago? And if not, why not? And was that the right decision back then?

WARREN BUFFETT: Well, if our activities were limited to marketable securities, and I had less than a hundred partners, and we were operating with this kind of money, so that there was a real limitation on what we could do, I would simply tell the partners and let them make the decision. That would be easy enough.

We’re not in that position. A, we’ve got a number of wonderful businesses. And those businesses will grow in value. And in some cases, very significantly, in value.

And it’s not a feasible way. People have their own way, if they decide that — since we’re unable to find things, that they’d rather go on to something else — they have their own way of getting out. And they can get out at, certainly, a premium to the amount of money they put into the business over the years.

So, if I were running a marketable securities portfolio now and were limited to that, I would explain very carefully to my partners how limited my ability to make money in this market would be. And then I would ask them to do whatever they wish to do. Some of them might want to pull out and others might want to stay.

In the 1969 period when I closed up, A, I had a somewhat similar situation in terms of finding things.

And B, I really felt that the expectations of people had been so raised by the experience we’d had over the previous 13 years, that it made me very uncomfortable. And I felt unable to dampen those expectations.

And I really just didn’t find it comfortable to operate where my partners, even though they might nod their heads understandingly and say that, “You know, we really know why you aren’t making any money while everybody else is.”

I didn’t think I wanted to face the internal pressure that would come from that. I don’t feel any such internal pressure in running Berkshire.

Charlie?

CHARLIE MUNGER: Yeah, that — I think there are some similarities between 1969-70 and the present time. But I don’t think that means that 1973-4 lies right ahead of us. We can’t predict that.

You can argue it worked out wonderfully for Warren to quit in ’69. And then have ’73-4 to come into with his powder dry. I don’t think we’re likely to be that quite that fortunate again.

WARREN BUFFETT: Yeah, it was a long time from ‘69, though, to ‘73. I mean, it sounds easy, looking back. But the Nifty Fifties, you may remember, sort of hit their peak in ’72. So, although there was a sinking spell for a while in that ’69 -70 period, the market came back very strong.

But you know, that’s part of the game. I mean, it stayed cheap a long time from the ’73 period on.

And you will find waves of optimism and pessimism. And they’ll never be exactly like they were before. But they will come in some form or other.

That does not mean we’re sitting around with a bunch of cash because we expect stocks to go down, though.

We keep looking for things. We’re looking for things right now. We’re talking to people right now about things where we could expend substantial sums of money. But it’s much more difficult in this period.