Berkshire Hathaway 1999 Annual Meeting Audience Question # 44

Berkshire’s goal is to grow cheap float quickly when possible

Audience Member:

My name is Ken Shuvenstein. I’m from New York City. First, thank you very much for this great, educational forum.

You’ve taught us that a key concept of Berkshire is the amount of float it has, the cost of the float, and how fast it grows.

Can you please help us understand, currently, what amount of float Berkshire has and what the goals are in the future for that growth rate over a sort of one to two-decade period, understanding that it will be a lumpy advance?

Because, looking at the historical data you’ve provided us for Gen Re and Berkshire, regarding the amount of float and its cost, it’s grown at a great rate… high teens, lows 20s. And if you could please comment on the future expectations we should have, that would be great.

Warren Buffett:

Yeah. Well, it’s an important question. It… but I don’t know how to give you a good answer.

The… it’s grown at a much faster rate, since 1967 when we went into the insurance business, than I thought it would.

I mean, I did not… I didn’t anticipate it would grow that way. I didn’t anticipate necessarily we would get a chance to buy GEICO. I didn’t necessarily know we’d ever acquire a General Re or… so it’s been very hard to forecast.

What we’ve tried to do is grow cheap float as fast as we could. And sometimes it’s been easy, sometimes it’s been impossible.

But I don’t know… if you had asked me that question 30 years ago, I’d have given you an answer that really hasn’t proven out very well. And I…

So, I don’t know how to give you the answer now, except to tell you this: it’s very much a goal of Berkshire to grow that float at as fast as it can, while maintaining a very low cost to it.

And again, you mentioned it’d be lumpy. Well, it’ll be lumpy on cost. It’ll be lumpy on growth rate. But, I mean, we are… it’s something we think about all of the time, in both our operating decisions and perhaps some big capital commitment decision.

It’s… we know that if we can solve that problem of how to grow it at… with it costing us relatively little, that we will make Berkshire a whole lot more valuable in the process.

And people, I mean… we always laid out the facts as to what we were doing, but people basically seem to ignore that.

And we have had this growth rate, which we can’t maintain, the numbers are too big. But it’s something that Charlie and I think about all the time.

We’ve got some good vehicles for growing it. But we don’t have any vehicles that will grow it in aggregate at anything like the rate it’s been grown in the past.

So we may have to… we may get a chance to do something that adds to our ability to do it. If we get a chance and it’s at the right price, we’ll add it. If we won’t, we’ll do as much as we can internally.

But the question you ask, the growth in intrinsic value of Berkshire over the next 10 years, will be determined, in a very significant way, by the rate at which we do grow it and if… and also the added fact of what it costs us to achieve that float.

Charlie?

Charlie Munger:

Yeah. If we grow very low-cost float at the same rate that it’s grown in the past for another 30 years, you can be confident of one thing: if you look to the heavens there will be a star in the east.

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