Berkshire Hathaway 1994 Annual Meeting Audience Question # 55

The less volatility on Berkshire’s stock price, the better

Warren Buffett:

Zone 1?

Audience Member:

It appeared to me that in 1993 the variation between the stock price for the high and the low was much greater than years in the past. Would you mind commenting on that?

Warren Buffett:

Well, there was more volatility in the price of Berkshire last year. And as I put in the annual report, the stock overperformed the business last year.

Now, over any 10 or 20 or 30-year history, every year the stock is going to perform a little differently, at least, from the business. I mean, it may slightly underperform, or slightly overperform.

We would prefer that those variations be as small as possible. But there was more variability last year than historically’s been the case. Although we’ve had one or two other… we had a few years like that. We…

Our best way to handle that is to give all the information we can to shareholders and prospective shareholders, and follow policies that we think will induce the investment-oriented with long time horizons to join us, and not to encourage other people. But, occasionally… you know, we can’t guarantee that result.

One of the things that was interesting to me, I don’t know whether it was three months ago or when, but I happened to be talking to the [NYSE] specialist, terrific specialist, Jimmy Maguire.

He had to leave, but he was here earlier in the session.

And I think, at the time, the stock was around 16,000 or something like that. And he had some rather significant stop-loss orders on the books at 15-5, or thereabouts, involving some hundreds of shares.

And that to me is a signal that, you know, we have some people that are… in my view… are not really the kind of owners that we would like to attract. Because why somebody wants to put in an order to sell something for 15,500 that they don’t want to sell at 16,000 is beyond me, but…

The idea of people using stop-loss orders with Berkshire, obviously… it tells me that we’ve got some people in that are using it as trading vehicle of some sort, or have some totally noninvestment-type calculations in their mind.

I don’t think we have very many of them. But obviously, if we have enough people like that, you will have a more volatile stock than if you have a whole bunch of people who look at it as something that they’re going to hold for the rest of their life.

And the stock did go down at that time and hit 15,500. And there were… that… I think it was close to 300 shares, which is 4 1/2 million dollars’ worth of stock.

And somebody made a decision, apparently, that they… or some small number of people… made a decision that they wanted to sell something at 15,500 that they could have sold for 16,000. The lower it went, the better they liked it, apparently. I mean, the better they liked the sale.

Which, you know, has always struck me as like having a house that you like, and you’re living in, and, you know, it’s worth $100,000 and you tell your broker, you know, if anybody ever comes along and offers 90, you want to sell it. I mean, it doesn’t… make any sense to me.

But it has… I would say that there’s been some small… I think, relatively small… tendency for people to get… relatively few people… but to get more interested in the price of the stock in terms of… and thinking of it in terms of whether it’s going to go up or down in the next six months, than might formerly have been the case.

I think we’re unusually well-blessed in that respect, in that we’ve got people who basically want to own it for a very long time.

But to the extent that you get people who were owning it because they think the stock market’s going to go up, or something of that sort’s going to happen, that is not good news from our standpoint, and it will increase the volatility in it.

We will do nothing to encourage that.

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