The Snowball_ Warren Buffett and the Business of Life - Alice Schroeder [395]
Some may have thought, If he’ll buy Dexter Shoe, Buffett will buy anything. He was starting to regret that deal. Dexter was getting killed by foreign competition; people had not lost their interest in buying imported shoes. But the mistakes were few and the home runs many: Cap Cities/ABC negotiated a deal to sell itself to Disney for $19 billion, and Berkshire made $2 billion, almost four times its original investment. Tom Murphy went on the board of Disney, and Buffett became linked to Michael Eisner, the CEO of Disney, through Murphy. At Sun Valley, the Buffetts now mingled easily with a crowd that ranged from Coca-Cola executives to movie stars. He also went back on the board of the Washington Post, which was now being run by Don Graham, one of his favorite people, enabling him to rejoin his favorite company in his favorite milieu—newspapers.
In early 1996, Berkshire stock suddenly rocketed to $34,000 a share, valuing Berkshire as a company at $41 billion. An original partner who invested $1,000 in 1957 and left it untouched would now have $12 million stashed away—double the amount of just a couple of years before. Buffett himself was worth $16 billion. Susie now had $1.5 billion worth of Berkshire stock—which she had promised not to touch.7 Both she and Charlie Munger were now on the Forbes 400 list—as billionaires. Once invisible, Berkshire was noticed by people who had never heard of it before. That year, five thousand people from all fifty states came to the shareholder meeting–cum–discount mall.
Buffett took pride in having never “split” the stock and swore he never would. “My ego is wrapped up in Berkshire….” he said. “I can gear my whole life by the price of Berkshire.”8 But now it cost so much to buy a share of BRK that copycats set up investment trusts. Their idea was to mimic Berkshire Hathaway’s stock portfolio and let people buy in smaller units, as if it were a mutual fund. But Berkshire was not a mutual fund; it was a perpetual-motion vacuum cleaner that sucked up businesses and stocks and spit out cash to buy more businesses and stocks. That couldn’t be replicated by buying the stocks it owned. Among other things, you didn’t get Buffett.
Moreover, the copycat funds were buying the stocks that Berkshire owned at prices far higher than Berkshire had paid, and charging fat fees to do it. They were cheating investors. Now the cop in Buffett came out.
“I don’t want anybody buying Berkshire thinking that they can make a lot of money fast. They’re not going to do it, in the first place. And some of them will blame themselves, and some of them will blame me. They’ll all be disappointed. I don’t want disappointed people. The idea of giving people crazy expectations has terrified me from the moment I first started selling stocks.”
To foil the putative copycats, he decided to issue a new class of shares. Each B share—or “Baby B”—was equal to 3.33 percent, or 1/30, of a pricy A share.
He had great fun with the B shares, writing: “Neither Mr. Buffett nor Mr. Munger would currently buy Berkshire shares at that price, nor would they recommend that their families or friends do so.” He added that “current shareholders will not suffer any diminution in per-share intrinsic value, no matter how many Class B shares the Company decides it is necessary to sell.”9
By selling an unlimited amount of stock, they ensured that the price would not rise because of more demand than supply. “You don’t want people who think of it as something that can double, you know. And you can create your own market action for a while. I could have been a hero for a year as all the money poured into a fixed supply of stock. Instead, we said we would sell as much of this stuff as the world wants, and that way there is no way it can be a hot stock.”
At the same time, the inverted logic of selling stock that you wouldn’t buy yourself, and explicitly saying so, pleased Buffett enormously. Moreover,