1996 Annual Meeting
Meeting focused on Class B shares creation, unit trust prevention, and Berkshire's stock valuation
1996 Annual Meeting
Date: 1996 Location: Omaha, Nebraska Attendees: Warren Buffett (66), Charlie Munger (73) Source: Full Transcript
Overview
The 1996 annual meeting was dominated by discussion of the newly created Class B shares, which Berkshire introduced to prevent unit trusts from exploiting Berkshire's reputation. Buffett explained why the stock was not undervalued at current prices and discussed the risks of high-commission investment products.
Opening
Buffett opened with characteristic humor about the meeting logistics, noting the crowd had grown so large they were "sliding down the cultural chain" from the Joslyn Museum to a vaudeville theater, with the only option next year being the Ak-Sar-Ben Coliseum where "they have keno and racetracks."
On the Class B decision:
"We decided that, to reduce any feeling that you have to get in early, or only the big guy's going to get it, that we would announce loud and clearly that we would have shares available for everyone that wanted."
Business Results
On the year:
"Record earnings. The businesses are performing exceptionally."
On insurance:
"Float is growing. We're well positioned."
Key Topics
Class B Shares Creation
Buffett explained the rationale for creating Class B shares in detail. The trigger was the emergence of unit trusts that would have held nothing but Berkshire stock, sold in small denominations with high commissions:
On unit trusts:
"A great many people would end up buying these unit trust holdings without any idea of what they were buying, and with unrealistic expectations as to the future."
On the solution:
"We came upon the idea of the Class B shares, which would create a supply that would match the demand for, in effect, split shares, and that would be offered in a way that did not create special inducements."
On the pricing:
"We stuck a commission on it... that was about as low as any I've ever seen in many years in Wall Street, because we did not want salespeople to have a great inducement to go out and sell the shares."
Berkshire Valuation
Buffett addressed questions about whether Berkshire was undervalued:
On current pricing:
"At present prices, Charlie and I do not think Berkshire stock is undervalued."
He clarified that this was different from thinking it was overvalued—simply that the price fairly reflected the underlying businesses.
Shareholder Base
Buffett expressed hope for the quality of new Class B shareholders:
"Our hope is that the Class B shareholders that we attract are of the same quality as the people in this room, that they have an investment attitude where they feel they are buying into part of a business, that they expect to stay with it for the indefinite future, maybe the rest of their lives."
Meeting Logistics
The meeting drew attendees from many countries:
"We had Australia, the Channel Islands, England, Greece, Hong Kong, Israel, Portugal, Puerto Rico, Singapore, Sweden, and Switzerland."
Buffett noted they expected around 5,400 shareholders, up 600 from the previous year, necessitating overflow rooms.
Notable Quotes
"A great many people would end up buying these unit trust holdings without any idea of what they were buying."
"At present prices, Charlie and I do not think Berkshire stock is undervalued."
"We wanted anyone that was interested to read the prospectus, and think about it, and make their own decisions."
Key Themes
- Class B Shares — Created to prevent unit trusts
- Unit Trust Prevention — Protecting shareholders from high-cost products
- Valuation — Stock not undervalued at current prices
- Shareholder Quality — Seeking informed, long-term owners
- Growth Challenges — Meeting size outgrowing venues
Related
This summary captures the key topics from the 1996 transcript.