2012: If Berkshire is undervalued at 110% of book value, why didn't you warn us that it was expensive at 200%?

BECKY QUICK: This question comes from a shareholder named Ben Noll (PH), and I’ve got several different emails that were very similar to this one but I’m choosing Ben’s question.

He writes that while pleased by your announcement to buy back stock at 110 percent of book value, he feels like a bit of a chump for sometimes having paid nearly 200 percent of book in the past few years.

Since you’ve stated repeatedly that it’s as bad to be overvalued as to be undervalued, why didn’t you warn us previously when the price-book relationship was very different, or have you not felt that Berkshire was trading above intrinsic value over the last decade?

WARREN BUFFETT: Yeah, we’ve written in the back of the report how we prefer to — not to see our shares sell at the highest possible price.

I mean, we’ve got a whole different view on that than many managers.

If we could have our way, we would have the stock trade once a year, and Charlie and I would try to come up with a fair value for intrinsic business value, and it would trade at that.

That’s incidentally what some private companies do, but you’re not allowed that luxury in the public market, and public markets do very strange things.

If Charlie and I think Berkshire is overvalued, then it would be a very interesting proposition to have us announce, you know, a half an hour before the market opens someday, and have us both saying, gee, we think your stock is overpriced.

I mean, we would have to do that with every shareholder simultaneously, and they would — who knows how they would react. We have never — I don’t think — certainly never consciously done anything to encourage people to buy our stock at a price we thought was above intrinsic value.

The one time we sold stock, under some pressure back in the mid-1990s when somebody was going to do something with the stock that we thought would be injurious to people, we created a stock and we thought the stock was a little on the high side then and we put on the cover of the prospectus something that I don’t think has ever been seen, which we said that neither Charlie nor I would buy the stock at the price, nor would we recommend that our family did it. (Scattered laughter)

And if you want a collector’s item for a proxy material — offering material — get that because I don’t think you’ll see that one again.

We think that if we are going to repurchase shares from people, that we ought to let them know what — that we think we’re buying it too cheap.

I mean, we wouldn’t buy out — if we had two or three partners and somebody wanted to sell out — but we’d probably try to arrive at a fair price — but if it was established by a market and they were going to sell too cheap, we’d tell them we thought they were selling it too cheap.

We are not selling it. We are not saying that 111 percent — we’re using 110 percent of book — 111 percent or 112 percent is intrinsic business value — we know it’s significantly above 110.

And I don’t think we will ever announce — because I don’t see how we would do it — I don’t think we’ll ever announce that we think the stock is selling considerably above intrinsic business value, but we will certainly do nothing to indicate that we think the stock is attractively priced, if that comes about.

Charlie?

CHARLIE MUNGER: I’ve got nothing to add. (Laughter)