Public Equity

In the Berkshire Hathaway Annual Letters, public equity appears as the arena where Buffett’s value discipline gains an edge over whole-company acquisitions. The tagged passage argues that the very “unevenness and irregularity” of public markets is an advantage to “the value-oriented purchaser of fractional portions of businesses”: buying fractional interests lets an investor select “from almost the entire array of major American corporations, including many far superior to virtually any of the businesses that could be bought in their entirety in a negotiated deal.” The catch — and the opportunity — is that public prices are “set by participants with behavior patterns that sometimes resemble those of an army of manic-depressive lemmings,” so a patient buyer can acquire pieces of great businesses at irrational prices.

Context: Public equity refers to ownership stakes in publicly traded companies (shares on a stock exchange), as opposed to private equity or the outright purchase of a whole business. Buffett’s letters repeatedly contrast the two as alternative routes to owning good businesses.

Where this appears

• Berkshire Hathaway Annual Letters — Buffett’s case that buying fractional interests in public markets can beat negotiated whole-company deals, because market irrationality offers great businesses at attractive prices