At the 1998 Berkshire meeting a shareholder asked how long Buffett was willing to wait for attractive prices. Berkshire hadn’t found much to buy in equities for months. His answer: indefinitely.
It’s a short exchange, and the useful part comes after the headline. Here it is from the transcript.
Audience member: What about waiting for attractive values? How long are you willing to wait, and what does that say to the investment public in their own habits?
Warren Buffett: Well, you are correct that we have not found anything to speak of in equities in a good many months, and the question of how long we wait:
“We wait indefinitely. We are not going to buy anything just to buy something. We will only buy something if we think we’re getting something attractive.”
— Warren Buffett, Berkshire Hathaway annual meeting, 1998
And incidentally, if things were 5 percent cheaper, or 10 percent cheaper, that wouldn’t change anything materially.
So we have no idea when that period ends. It can turn out that these valuations are perfectly appropriate if returns on equity stay where they are. But even then, they aren’t in the least mouthwatering, so we won’t feel we’ve missed anything particularly if returns stay where they are.
Because if it turns out that these levels are OK, they still will not produce great returns from here, in our view. That doesn’t mean you couldn’t have a tremendous market in the short term or something of the sort.
Markets can do anything. And you look at the history of markets and you just see everything under the sun.
“But we will not, you know, we have no timeframe. If the money piles up, the money piles up. And when we see something that makes sense, we’re willing to act very fast, very big. But we’re not willing to act on anything that doesn’t check out in our view.”
— Warren Buffett, Berkshire Hathaway annual meeting, 1998
Charlie?
Charlie Munger: Yeah. An occasional dull stretch for new buying, this is no great tragedy in an investment lifetime. Other things may be possible in such an era, too. I mean, it isn’t like we have a quiver with only one arrow.
Warren Buffett: The businesses aren’t going to perform better in the future just because you got antsy and decided you had to buy something. We will wait till we find something we like.
“We’ll love it when we can swing in a big way, though. That’s our style.”
— Warren Buffett, Berkshire Hathaway annual meeting, 1998
What he’s actually waiting for
A 5% or 10% drop wouldn’t change anything, he says. So a correction isn’t the trigger. The trigger is a specific business at a price that clears his bar, and when one shows up, Berkshire moves “very fast, very big”.
The waiting and the size come as a pair. Few decisions, as on Buffett’s punch card, are what make it possible to swing hard on the ones you do make. A portfolio that’s always fully invested has nothing left to swing with.
Munger made the same point from the other side: the money is made sitting on your hands. What you’re waiting for is the subject of the fat pitch analogy, a pitch inside your own strike zone, which is a narrower thing than a cheap one.
The waiting doesn’t have to be idle. Research the business while nothing is happening, write down the price that would make it a yes, and the decision is already made when the price arrives. In FatPitches a Yes locks that entry price, and one of the 20 holes on your card is punched only when the market comes down to it. Research never costs a punch. Research 10 companies free, for life.
