2018: Is Berkshire more likely to repurchase class B shares?

GREGG WARREN (FINANCIAL SERVICES ANALYST, MORNINGSTAR RESEARCH SERVICES): Warren, my first question, not surprisingly, is on share repurchases.

Stock buybacks in the open market are a function of both willing buyers and sellers. With Berkshire having two shares of classes, you should have more flexibility when buying back stock. But given the liquidity difference that exists between the two share classes — with an average of 313 Class A shares exchanging hands daily the past five years, equivalent to around $77 million a day, and an average of 3.7 million Class B shares doing the same, equivalent to around 622 million — Berkshire’s likely to have more opportunities to buy back Class B shares than Class A, which is exactly what we saw during the back half of last year and the first quarter of 2019.

While it might be more ideal for Berkshire to buy back Class A shares, allowing you to retire shares with far greater voting rights, given that there’s relatively little arbitrage between the two share classes and the number of Class B shares increase every year as you gift your Class A shares to the Bill and Melinda Gates Foundation and your children’s foundations, can we assume that you’re likely to be a far greater repurchaser of Class B shares, going forward, especially given your recent comments to the Financial Times about preferring to have loyal individuals on your shareholder list, which a price tag of $328,000 of Class A shares seems to engender?

WARREN BUFFETT: Yeah, we will - when we’re repurchasing shares, if we’re purchasing substantial amounts, we’re going to spend a lot more on the Class B than the Class A, just because the trading volume is considerably higher.

We may, from time to time — well, we got offered a couple blocks in history, going back in history from the Yoshi (PH) estate and when we had a transaction exchanging our Washington Post stock for both a television station and shares held — A shares — held by the Washington Post.

So, we may see some blocks of A. We may see some blocks of B. But there’s no question. If we are able to spend 25, 50, or a hundred billion dollars in repurchasing shares, more of the money is almost certainly going to be spent on the B than the A.

There’s no master plan on that other than to buy aggressively when we like the price. And as I say, the trading volume in the B is just a lot higher than the A in dollar amounts. Charlie?

CHARLIE MUNGER: I don’t think we care much which class we buy.

WARREN BUFFETT: Yeah. (Laughter)

We would like — we really want the stock — ideally, if we could do it if we were small — once a year we’d have a price and, you know, we’d do it like a private company. And it would be a fair price and people who want to get out could get out. And if other people wanted to buy their interest, fine. And if they didn’t, and we thought the price was fair, we’d have the company repurchase it.

We can’t do that. But that’s — we don’t want the stock to be either significantly underpriced or significantly overpriced. And we’re probably unique on the overpriced part of it. But we don’t want it.

I do not want the stock selling at twice what’s it worth because I’m going to disappoint people, you know. I mean, we can’t make it — there’s no magic formula to make a stock worth what it’s selling for, if it sells for way too much.

From a commercial standpoint, if it’s selling very cheap, we have to like it when we repurchase it.

But ideally, we would hope the stock would sell in a range that more or less is its intrinsic business value. We have no desire to hype it in any way. And we have no desire to depress it so we can repurchase it cheap. But the nature of markets is that things get overpriced and they get underpriced. And we will — if it’s underpriced, we’ll take advantage of it.