Berkshire Hathaway 2003 Annual Meeting Audience Question # 51

Warren and Charlie doesn’t like taking small positions when investing in marketable securities

Warren Buffett:

Number 1.

Audience Member:

Gentlemen, Wayne Peters from Sydney, Australia.

My question goes to stock reweightings. Could you describe your thought process in, firstly, determining your commitment weighting level in a new investment? Now, marketable securities is what I’m referring to.

And secondly, your thoughts on potential reweighting. Your record, and clearly in the earlier days as opposed to now, would indicate that on average, you’re either in a stock or out of it, though on occasion you’ve topped up and lightened up.

Warren Buffett:

Charlie? I’ll let you have one.

Charlie Munger:

I didn’t fully understand that question.

Audience Member:

Charlie, I was just referring to how you make an initial commitment to a marketable security investment, in regards to making it maybe a 5, 10, 15 percent commitment. How heavy you decide to go into a position, initially.

Charlie Munger:

Well, we ordinarily don’t like small positions.

Warren Buffett:

Yeah, we like to go in heavy. I mean, if we want to invest in a business through the stock market, we want to put a lot of money in. You know, we do not believe in a little of this and a little of that.

So, at our present size, we’re limited primarily by the availability of the quantity we want, rather than restricting ourselves based on some percentage of a total portfolio.

I can’t… it’s very hard for me to think of a stock we quit on, in terms of buying, except because we were going to run into some 10 percent limit where we would get liable for short-swing profits or become insiders or that sort of thing. But we almost never want to quit. Isn’t that right, Charlie?

Charlie Munger:

Well, not unless the price goes up.

Warren Buffett:

Yeah. And of course that’s where we made our big mistakes. I mean we have… or I’ve made the big mistakes, actually. I…

There have been a couple of things that we knew enough to buy, that were in our circle of competence, where we could have bought lots of stock, except it went up a little bit and then we faded because of price.

We didn’t fade because we didn’t want to put more than X dollars in. If we find an idea that we want to put $500 million in, we probably would be even happier if we could put 3 or 4 billion in.

Good ideas are too scarce to be parsimonious with once you find them.

Charlie Munger:

Yeah, having narrowly averted the mistake of being unwilling to pay up at See’s Capital [Candies], we’ve gone on and made the same damn mistake several times, with respect to marketable securities. We evidently learn very slowly.

Warren Buffett:

It’s cost us many, many, many billions of dollars, too.

Charlie Munger:

Those are opportunity cost billions. They don’t show up on the financial statements, but the amount of money that’s been blown by dumb decisions at headquarters at Berkshire Hathaway is awesome.

Warren Buffett:

Well said.

Charlie Munger:

Yeah.

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Q&A with Warren Buffett and Charlie Munger: A Compilation of All Shareholder Questions and Answers from The Berkshire Hathaway Annual Shareholder Meetings

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