Berkshire Hathaway 2013 Annual Meeting Audience Question # 45

Warren and Charlie refuse to engage in any short-selling activity

Warren Buffett:

OK. Doug.

Doug Kass:

Warren, my next question is both a question and an unusual challenge.

I’m asking this next question because in the past, you’ve been open to inviting your audience to apply for jobs.

In 2002, you suggested that shareholders who thought they were eligible to send in their qualifications if they were interested in seeking a seat on your board of directors.

And, again, in your 2006 letter, when you advertised for a successor to Lou Simpson at GEICO, you said at the time “Send me your resume.”

In the past, you have discussed your views on short selling. You have cited that stocks tend to rise over time, and you’ve talked about the asymmetry between reward and risk.

By contrast, the last 15 years has demonstrated that short selling can be a value additive tool to total return when done by professionals. In fact, I believe Todd Combs had success as a short seller when you hired him.

Charlie Munger:

He had so much success he stopped doing it.

Doug Kass:

Yes, Charlie, but he got the job from that success. My question is…

Warren Buffett:

No, no, he didn’t.

Can’t slide that one in there, Doug.

Doug Kass:

My question is: would you ever consider committing capital to a short-selling strategy? Would you or Berkshire consider being my Homer Dodge, who invested in your partnership after the original seven investors?

Would you or Berkshire Hathaway be willing to give my firm at least $100 million in a managed account?

If Seabreeze failed to outperform the increase, during the two-year period, of the book value increase in Berkshire, all the earned fees earned would be contributed half to the Sherwood Foundation, and half to two charities of my choice, including the Jewish Federation of Palm Beach County?

And even if Seabreeze outperformed Berkshire’s change in book value, 25 percent of the earned fees would be contributed to the charities.

And I want to add something else. You talked about being technophobic.

Technology may be very hard for Berkshire to invest in, but it is also disruptive to many industries whose business models are scathed by it, and this produces very fertile ground for short-selling opportunities.

Warren Buffett:

Well, we got to…

Charlie Munger:

Let me add to that.

Warren Buffett:

OK… 1:55 without an ad, but…

Charlie Munger:

The answer to your question is no.

Warren Buffett:

Charlie and I are no strangers to short selling. I mean, we both…

Charlie Munger:

Failed at it.

Warren Buffett:

Yeah.

So we’ll… just think about how lucky you are. You don’t have the competition from all kinds of people that listen to us or… ourselves.

No, we… I may even propose a little wager at some point, but we’ll let that ride for the time being.

I’ve known… well, if you go back far enough, you know, we did a reasonable amount of short selling, and I’ve certainly identified lots of companies that I thought were far overpriced, and I’ve identified a fair number of companies that I not only thought, but was virtually certain, were frauds. And so, Charlie… we’ve been seeing them ever since we got in the business.

But making a lot of money short selling, still, is not a game that appeals to us over a long period of time. It’s one of those things that…

Charlie Munger:

We don’t like trading agony for money.

Warren Buffett:

But we wish you well.

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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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