2003: Would Berkshire buy back stock?

AUDIENCE MEMBER: Good morning — Mr. Buffett. This is Abhishek Dalmia coming from the land of Mr. Ajit Jain, (inaudible) India. The question is —

WARREN BUFFETT: If you have any more like Ajit over there, send them. We need them. (Laughter)

AUDIENCE MEMBER: Right. My question pertains to the allocation of a company’s free cash. And the question is, under what circumstances would Berkshire consider parting with its money for a share buyback program, as opposed to retaining it for future acquisitions? Thank you.

WARREN BUFFETT: Yeah, that’s a good question and we addressed that a bit back a couple of years ago. In fact, I think our annual report for 1999 came out on March 12th — I believe it was March 12th — on a Friday night or a Saturday morning.

That was the day the NASDAQ hit its high and Berkshire hit its low, on that exact day. And we said we would — the next morning, on the internet — on a Saturday morning — we said we would repurchase, but we wanted you to have the annual report first, but we might repurchase at those levels.

And the NASDAQ never saw its level of 5100 again, and Berkshire never saw its level of whatever it was, 41,000 or thereabouts.

Our preference — and we stated this 20 years ago, even to — is to buy businesses. We are — we want to add businesses of a quality with managers of a quality equal to those we already own, at prices that make sense. And that’s our number one preference.

If we thought Berkshire was significantly undervalued and we thought the likelihood of using the money to buy businesses — the probability was low — we would be buying stock in — we probably wouldn’t be able to buy a lot of stock in, but we would only buy stock in if we thought the stock was selling significantly below intrinsic value.

And there’s no magic figure for intrinsic value. Intrinsic value is a range. Charlie would name a different number than I would name, but our ranges would be quite similar, if we were to write them down on a piece of paper now. But they wouldn’t be identical.

So we leave a — we would leave a significant margin of safety and would want to buy at a — what would be a clear-cut, to us, discount from the lower levels of intrinsic value we might calculate.

It’s not our number one preference. We would rather add — we love it when we add good businesses to Berkshire.

But we would have to — if the stock — if we could add intrinsic value per share by repurchasing, and we’ve given all the shareholders relevant information about the value so that we weren’t putting anything over on them, that they had the same information we had, we would buy in stock.

I think it’s unlikely that happens, that we don’t find other opportunities to do things at a time like that. But it could happen, and it almost happened in March of 2000, and then things turned around very, very abruptly.

Charlie?

CHARLIE MUNGER: I’ve got nothing to add.