Warren has always sought to have Berkshire trade close to fair value. To the extent that it does, that removes speculators who seek to buy low and sell high—and often end up doing the opposite—and it attracts owners, whom Warren treats as partners. Under that regime, one is rewarded for the performance of the business, not the stock. He once said to me: if you do 20% for 20 years, you will be rich—I didn’t reveal to him how puny my beginning stake was…, but the math is solid.
But Warren has also advised us not to disparage a manic-depressive market, fore it will produce ripe fruit for the picking. We just need to be patient.
I've always loved this quote of his from a 2008 meeting with Columbia Business School students about how, as you say, a manic-depressive market brings with it many opportunities: "The stock market is there to serve you, not to instruct you. The volatility in a stock is your best friend. I love it when companies’ prices jump up by 100% or down by 50% in the same year. Volatility in stocks is what has made me rich."
In my opinion, one of the reasons that Berkshire did not repurchase shares for many years, and why the pre-2018 authorization was restricted to very low price-to-book ratios is because Buffett was historically uneasy with the idea of buying out partners as well below intrinsic value. In some ways, I think that Berkshire’s inclusion in the S&P 500 around the time of the BNSF acquisition changed the psychology of repurchases for Buffett and Munger since the shareholder base would inexorably shift from longtime individual owners to index funds.
But overall, Buffett and Munger always wanted Berkshire to trade near intrinsic value to facilitate fairness to new and departing owners. The communications in the letters and meetings always try to get to that result but Mr. Market is rarely rational.
That's a great point about the shift in his share repurchase policy over the past 10-15 years. I had never linked that to the BNSF acquisition and the Class B share split (and, thus, joining the S&P 500) but it makes a lot of sense.
Warren has always sought to have Berkshire trade close to fair value. To the extent that it does, that removes speculators who seek to buy low and sell high—and often end up doing the opposite—and it attracts owners, whom Warren treats as partners. Under that regime, one is rewarded for the performance of the business, not the stock. He once said to me: if you do 20% for 20 years, you will be rich—I didn’t reveal to him how puny my beginning stake was…, but the math is solid.
But Warren has also advised us not to disparage a manic-depressive market, fore it will produce ripe fruit for the picking. We just need to be patient.
I've always loved this quote of his from a 2008 meeting with Columbia Business School students about how, as you say, a manic-depressive market brings with it many opportunities: "The stock market is there to serve you, not to instruct you. The volatility in a stock is your best friend. I love it when companies’ prices jump up by 100% or down by 50% in the same year. Volatility in stocks is what has made me rich."
In my opinion, one of the reasons that Berkshire did not repurchase shares for many years, and why the pre-2018 authorization was restricted to very low price-to-book ratios is because Buffett was historically uneasy with the idea of buying out partners as well below intrinsic value. In some ways, I think that Berkshire’s inclusion in the S&P 500 around the time of the BNSF acquisition changed the psychology of repurchases for Buffett and Munger since the shareholder base would inexorably shift from longtime individual owners to index funds.
But overall, Buffett and Munger always wanted Berkshire to trade near intrinsic value to facilitate fairness to new and departing owners. The communications in the letters and meetings always try to get to that result but Mr. Market is rarely rational.
Thanks for including a link to my article.
That's a great point about the shift in his share repurchase policy over the past 10-15 years. I had never linked that to the BNSF acquisition and the Class B share split (and, thus, joining the S&P 500) but it makes a lot of sense.