Berkshire Hathaway 1994 Annual Meeting Audience Question # 58

Will Warren use puts again to increase his position on an investment?

Warren Buffett:

Zone 1?

Audience Member:

Warren, I have one question.

Last year you were using Coca-Cola puts as a way to increase income, and conversely, if they were exercised, as a way of increasing your position. Do you still use puts in this type on investments you wish to add to?

(The video then skipped to Warren already midway through his answer)

Warren Buffett:

…five million shares, as I remember, of Coke sometime in the early fall or thereby… I don’t remember exactly… last year. And the puts, I think the premium was around 7 1/2 million dollars, and they were priced around 35.

We have not done that very often, and we’re unlikely to do very much of it. For one thing, there are position limits on puts, which don’t apply to us, but they apply to the brokers for which we do them. And those position limits were not clear before that. But we could probably write puts on that same amount by doing it through a bunch of different brokers.

It’s not something we’re really very likely to do. I was happy to do it, and in that particular case, we made 7 1/2 million dollars.

But we’re better off, probably… if we like something well enough to write a put on it, we’re probably better off buying the security itself, and particularly since we can’t do it in the kind of quantities that really would make it meaningful to Berkshire.

There are securities I would not mind writing puts for 10 million shares or something, but I… that probably… it’s probably allowable for us to do it. It’s not allowed… we’d probably have to do it through multiple brokers to get the job done.

And on balance, I don’t think it’s as useful a way to spend my time as just looking for securities to buy outright.

Charlie, you have anything?

Charlie Munger:

No.

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