He said "far above" 125% of tangible net worth.

Actually, he didn't. It is hard enough sometimes to properly interpret Buffett's words. But we need to start with what he actually wrote.

The "far above" referred to the actual historic values for the S/P, not the hypothetical hurdle. As far as the "tangible" reference, I think Tode's explanation makes the most sense. For any discussion of dividend policy necessarily refers to what happens with retained earnings. Historic issues of tangible book vs. overall book are irrelevant to the issue of whether or not dividends make sense.


"This calculation, of course, assumes that our hypothetical company can earn an average of 12% annually on net worth and that its shareholders can sell their shares for an average of 125% of book value. To that point, the S&P 500 earns considerably more than 12% on net worth and sells at a price far above 125% of that net worth. Both assumptions also seem reasonable for Berkshire, though certainly not assured."