Berkshire Hathaway 1999 Annual Meeting Audience Question # 41

Holding on to a great company is better than trying to sell when you think they are high, then try to buy it back cheaper later

Warren Buffett:

Zone 8.

Audience Member:

Hello. My name is Larry Whitman from Minot, North Dakota.

You’ve already hinted about Coke and Gillette’s current valuations, and also about their great prospects for the future. But in the past year, both stocks have been down 30 to 50 percent from their highs.

How much farther would they have had to fall before your criteria of margin of safety had been satisfied and allowed you to purchase more shares?

And two, has the Disney/Cap Cities merger gone as well as you would have hoped, and has the future prospects of Disney changed in your opinion?

Warren Buffett:

First question, that’s a good question on Coke and Gillette, because obviously, we think about the businesses that we’re the most familiar with and where we’re committed.

But neither one of those businesses got to the price that left us happy putting new money in. But we’re quite happy, very happy, owning those businesses and will be happy owning them for a very long time to come. But they…

It’s some evidence of where the market has been and is, that, even when they ran into some tougher business conditions than they anticipated, that their stocks did not go down to the prices that cause us to get excited about them.

Charlie, you want to comment on that or the second part?

Charlie Munger:

No. But I do want to remind people that the Dilly Bar is a Dairy Queen product.

Warren Buffett:

And they are good. I can tell you that.

Charlie Munger:

I wouldn’t want the shareholders to believe that the commercial standards of this operation are faltering.

Generally speaking, trying to dance in and out of the companies you really love, on a long-term basis, has not been a good idea for most investors. And we’re quite content to sent with… to sit with our best holdings.

Warren Buffett:

People have tried to do that with Berkshire over the years. And I’ve had some friends that thought it was getting a little ahead of itself from time to time. And they thought they’d sell and buy it back cheaper and everything.

It’s pretty tough to do. You have to make two decisions right. You know, you have to buy… you have to sell it right first, and then you have to buy it right later on. And usually you have to pay some tax in-between.

It’s… if you get into a wonderful business, best thing to do is usually is to stick with it.

Coke and Gillette both experienced disappointments to their management, below what they anticipated a year, a year and a half ago, or whenever it was, and below what we anticipated. But that will happen over time.

It happens with some of our wholly-owned business from time to time. Sometimes they do better than we anticipate, too.

But it’s not the nature that everything… that things that… everything goes in a nice, straight, smooth line upward.

You mentioned Cap Cities. Parts of Cap Cities have done extraordinarily well, for example. But in the network business, if you go back 30 years and look at what network has been on top, you find that no one stays on top, or on the bottom, indefinitely there.

It’s a competitive world, as I mentioned earlier. And sometimes your competitors’ correct moves, your own incorrect moves, the world environment… all of those things can interrupt trend lines.

I see nothing that’s happened in the last year, in terms of the long-term trend line, of the blade and razor business, which is the one I’ve referred to as “inevitables” at Gillette. I mean, they are in other businesses that are not in the same category as the blade and razor business.

Coke, fortunately, has virtually its entire business in soft drinks. And so it comprises almost a hundred percent of the whole there.

But I see nothing that would change my thinking about the long-term future of either the blade or… blade and razor business… or Coke’s position in the soft drink business.

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