Berkshire Hathaway 1994 Annual Meeting Audience Question # 64

Berkshire’s size is a disadvantage

Warren Buffett:

Zone 1?

Audience Member:

Mr. Buffett, I’m Joe Sirdevan from Toronto.

With respect to Berkshire’s non-permanent, but large… and therefore, illiquid… holdings, what is your strategy for managing market impact on sales, given the intense scrutiny that Berkshire’s under by the market?

Warren Buffett:

I didn’t get that either. You get that?

Charlie Munger:

I’m not hearing that very well.

Warren Buffett:

Yeah, I don’t know whether you’re too close to the mic… we’re having a little trouble on that.

Charlie Munger:

Speak a little more slowly.

Warren Buffett:

Or maybe the monitor can repeat that and… would you repeat the question?

Audience Member:

Sorry. Just with respect to Berkshire’s large non-permanent holdings that are, therefore, illiquid, I’m just wondering what your strategy is for managing market impact when you do decide to sell portions of those holdings, given the intense scrutiny you’re under?

Warren Buffett:

Yeah, question about the things we might sell, and what’s going to happen to the market when we sell them.

That depends. I mean, it can be a very significant impact. It can be a negligible impact.

And it depends on market conditions, it depends on whether we might sell in a couple of large blocks to some institutions, it depends on… it could be, you know, there could be a tender off or something of the sort we would sell through. So, it’s hard to measure.

But it is a disadvantage. Size is a disadvantage, you’re absolutely correct in the basic point, both in buying and in selling. And we don’t know any way around that.

We allow for it, in terms of what we expect, you know, the kind of possibilities we need to see.

And we do… we sell so infrequently, that it’s not a crusher of a negative point, but it’s a negative we have that you do not.

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