Berkshire Hathaway 1994 Annual Meeting Audience Question # 53

Why breaking up Berkshire won’t improve results

Warren Buffett:

How are we going to do this, is there?

Audience Member:

We got three now.

Warren Buffett:

OK, I’ll let you hand the mic to whomever, you…

Audience Member:

(Some inaudible sounds from the audience) three.

Audience Member:

Lee again, from Palo Alto. By Omaha standards you are a relatively young man.

And every year, you point out that Berkshire’s size now precludes you from making the great, relatively small trades which made your reputation.

How much thought have you given to breaking up Berkshire into smaller entities?

Warren Buffett:

How much what?

Audience Member:

How much thought have you given into breaking up Berkshire into smaller entities, which would allow you to make those nice, small, wonderful trades that you made from the beginning?

Warren Buffett:

It wouldn’t do any good to break into smaller entities, because I’d still own, you know, we’d still have 10 billion-plus of capital to be responsible for, wherever it would be.

So, the… we could distribute it out to the shareholders, and let them make their own decisions, obviously. And any time we thought that we weren’t going to get more than a dollar of value per dollar retained, that, obviously, would be the course to follow.

But there’s no magic to creating multiple little… I mean, we could call Berkshire Two, Berkshire Three, Berkshire Four, but you still got the problem. There’s $10 billion to invest, and it doesn’t really solve anything.

Charlie, do you have any thoughts on that?

Charlie Munger:

No, the… Berkshire is incredibly decentralized, in the… in terms of power and decisions resting in the operating divisions. In terms of the marketable securities, it’s incredibly centralized.

And so far, we have not had any big penalty from not being able to do the things that we did when we were young. Eventually we will reach the penalty.

Warren Buffett:

Yeah, I think we’re… there’s no question we could earn higher percentage returns working with $100,000, though, than $10 billion. But, yeah… but it hasn’t hurt us as much as we thought it would, as size has increased.

But your universe of opportunity shrinks. But it shrinks no matter… I mean, you can set it up in 20 bank accounts or one bank account, but you still… the universe still has to fit the 10 billion, in aggregate.

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Q&A with Warren Buffett and Charlie Munger: A Compilation of All Shareholder Questions and Answers from The Berkshire Hathaway Annual Shareholder Meetings

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