Warren Buffett and Berkshire Hathaway 1971

Berkshire Hathaway still has three major divisions in 1971...The divisions are banking, insurance, and textile...The bank owned by Berkshire was Illinois National Bank...It had a return on deposits of over two percent for the year 1971...Warren reports that the bank, seldom goes into a borrowed position, except for short term cash management positions, therefore has excess liquidity...The bank has a de minimis amount of charge offs and loan losses, which are below the industry averages...The bank pays its depositors the maximum rates permitted by law...

As usual Warren hedges next year (1972) comments on profits and says it will be very difficult for the bank to have the same kind of returns in 1972 as it has in 1971...Interest rates on investments and loans were down in 1971, but Gene Abegg and Bob Kline did an excellent job managing the bank's net interest margin and operating earnings...

The insurance division also had an excellent year...It is ran basically by Jack Ringwalt...The reinsurance business was extremely profitable this year (1971)...The "homestate" insurance operation of Cornhusker Casualty was started in 1970...It contributed only a small amount to the bottom line...But Warren says they have started "homestate" insurance operations in Minnesota, under the name of Lakeland Fire & Casualty (started in 1971 as a new company)... Texas United Insurance would start in 1972, in Texas...On an even more positive note the Home & Auto Insurance Company of Chicago started by Victor Raab wrote $7.5 million in policies in 1971...The overall outlook for the insurance business for 1972 is positive...

The textile business in 1971 struggled with low margins...Ken Chace is running the textile division and doing an excellent job...Without his management skills the division would have lost much money...Instead it did make a little profit for Berkshire...Cost cutting and expense oversight allowed the textile company to stay profitable, albeit very small...

Warren Buffett and Berkshire Hathway 1970

Warren Buffett becomes owner of Berkshire Hathaway in May of 1970...Warren owned 29% of Berkshire's stock and he votes himself in as chairman of the Board of the company...He will receive a $50,000 annual salary...
Warren would write the 1970 annual letter to shareholders for Berkshire...Ken Chace had done it the last few years...The Berkshire annual letters and future letters would become a must read for many investors...
The three main business lines of Berkshire Hathaway are textile, banking, and insurance...The businesses were purchased by Warren through Berkshire Hathaway earlier...
The textile division is ran by Ken Chace and is a tough business because the textile business is moving overseas...In 1970 the textile business sales are down dramatically...Ken Chace is doing all he can to squeeze out profits in the business...The profits for the textile division of Berkshire is $45,000...Ken Chace's salary is $42,000...
The banking business is mainly the Illinois National Bank...From an earnings standpoint, the banking division is the largest division...The bank makes record profits in 1970 of $26 million...The bank is ran by Gene Abegg and Bob Kline...
The insurance division is ran by Jack Ringwalt...The division profits come from National Indemnity...The insurance mainly from National Indemnity earned $2.1 million...The company started Cornhusker Casualty...The insurance operations deteriorated somewhat in 1970 from 1969 from an underwriting standpoint, but the insurance portfolio had excellent results...

Warren Buffett Partnership Letter 1969 Summary and his Retirement

In 1969 Warren announces he is closing the partnership...The partnership returned 7% in 1969 while the DOW returned a minus 11%...The partnership was up 29.5% from 1956 through 1969...The partnership earned 20% more annually than the DOW...

Warren is now thirty nine years old...His holdings are worth approximately $25 million dollars...Warren announces his intention to close the partnership and retire...The partnership has been in existence for thirteen years...The stock market is flying high and Warren does not want to be investing when the market continues to make new highs...He tells the partners that there could be a loss of permanent capital in a stock market environment like the current one...He is out of step in this kind of market...

He personally talks about doing something different than the day to day investing money for the partnership...

The partners have three choices to put their money upon liquidation...Warren talks with Bill Ruane, a former classmate of Ben Graham...Bill Ruane was starting the Sequoia Fund and many partners can put their money in this new fund, with his recommendation...Partners can also take cash...A third alternative will be to take the stock of Berkshire Hathaway a publicly traded company and Diversified Retailing, which Warren became a director in 1965...The Buffett Partnership has had a controlling interest in both these stocks...

The old partnership will liquidate their financial holdings, except two...Diversified Retailing (a chain of women's retail stores) and Berkshire Hathaway (a textile company) will be retained by Warren...These companies will basically have three divisions...Textile, insurance, and banking are the three divisions...The insurance company of National Indemnity and Illinois National Bank & Trust Company were bought by Warren through Berkshire Hathaway a few years back...More stock of the Blue Chip Stamp Company would be bought by Warren and Charlie in 1969...They would then have a controlling interest in Blue Chip Stamps...

Warren Buffett Stocks...Besides Diversified Retailing and Berkshire Hathaway, Warren bought the Omaha Sun, a newspaper, as well as a string of weekly newspapers...Also, a printing company, named Blacker Printer was purchased, and a 70% interest in Gateway Underwriting...

Warren Buffett Partnership Letter 1968 Summary

The Buffett Partnership outperformed the DOW again...The partnership returned over 58% versus the DOW's return of about 7.7%...The partnership is continuing to roll...This is the 12th year and the partnership has beaten the DOW every year and in total by a convincing annual margin of over 20%...

The four investment companies of Massachusetts Investment Trust, Investor's Stock, Lehman Corporation, and Tri-Continental have just about been in line with the DOW's average return of 9.1%... The top investment companies areLehman has beat the DOW over the 12 year period and Lehman's return was 10.3% and Tri-Continent at 9.6%...

The partnership is now over $104 million in assets...The results of the partnership were again outstanding...The Controls average balance of $25.00 million gained $5.89 million for a return of over 23.5%...

The Generals private owners average balance are $16.36 million and gained $21.99 million for a return of over 134%...The Generals relatively undervalued are $8.77 million gaining $4.27 million for a return of over 49%...The Workouts average balance of $18.98 million gained $7.32 million for a gain of 39%...Miscellaneous Securities average balance were $12.74 million and earned 6.6%...

Although not mentioned by name American Express, bought after the salad oil scandal in 1964 is the largest holding and was up to 40% of the portfolio is mentioned as his single best idea...Also stock of Blue Chip Stamps is purchased in 1968 (and more will be purchased in 1969)...Again the stock is not mentioned by name...

Warren mentions again it is hard to find good investment ideas...

Warren Buffett Stocks: Only control companies of Diversified Retailing (80% owned), Berkshire Hathaway 70% owned) earn $5 million are mentioned in the report as stock holdings...Normally, he will not mention stocks he is currently or going to purchase in the future...Although not mentioned, Berkshire Hathaway would pay their only dividend in 1967 of ten cents...

What can we learn:

Warren again outperforms the DOW, now 12 years straight...

The partnership is now $104 million...

The portfolio has a return of 58.8%...WOW...

The partnership controls Berkshire Hathway...

Warren mentions good investment ideas are becoming harder and harder to find...

Warren Buffett Partnership Letter 1967 Summary

The Buffett Partnership outperformed the DOW again...The partnership returned over 35% versus the DOW's return of about 19%...The partnership is rolling...This is the eleventh year and the partnership has beaten the DOW every year and in total by a convincing annual margin of 20%...
The four investment companies of Massachusetts Investment Trust, Investor's Stock, Lehman Corporation, and Tri-Continental have just about been in line with the DOW's average return of 9.3%...Only Lehman has beat the DOW over the 11 year period and Lehman's return was 10.7% and Tri-Continent at 9.9%...
The partnership is now over $68 million in assets...The results of the partnership were again outstanding...
The Controls are $20.2 million gaining $2.9 million for a return of over 14%...
The Generals private owners are are $5.1 million gaining $1.3 million for a return of over 25%...
The Generals relatively undervalued are $19.5 million gaining $14.1 million for a return of over 72%...
The Workouts are $17.2 million gaining $.14 million for a gain of 1%...
Miscellaneous Securities were not mentioned...
Although not mentioned American Express, bought after the salad oil scandal in 1964 is the largest holding and was up to 40% of the portfolio...Warren says one holding was the largest holding ever in the partnership and has outperformed the market in 1964-66...

Warren Buffett Stocks: Only control companies of Diversified Retailing, Berkshire Hathaway, as is Associated Cotton Shops, National Indemnity, and National Fire & Marine (an affiliate of National Indemnity) are mentioned in the report as stock acquisitions...Normally, he will not mention stocks he is currently or going to purchase in the future...
Although not mentioned, Berkshire Hathaway would pay their only dividend in 1967 of ten cents...Also, Diversified Retailing purchases Associated Retailing Inc. based in New York...This also is not mentioned in the letter to partners...

In a semi-annual letter he mentions to the partners he is having a more difficult time to find investment ideas...

What can we learn:
Warren again outperforms the DOW, now eleven years straight...
Generals-relative undervalued returns 72%...
The partnership controls Berkshire Hathway...
Warren focuses on a nontraditional diversification, by holding up to 40% of one stock in the portfolio...The stock is still not mentioned, but we learn later it is American Express, hurt by a scandal...
Warren also mentions he is not closing the partnership...

Warren Buffett Partnership Letter 1966 Summary

The Buffett Partnership outperformed the DOW again...The partnership returned over 20% versus the DOW's return of a minus 15%...The partnership is rolling...This is the tenth year and the partnership has beaten the DOW every year and in total by a convincing annual margin of 20%...

The four investment companies of Massachusetts Investment Trust, Investor's Stock, Lehman Corporation, and Tri-Continental have just about been in line with the DOW's average return of 8.3%...Only Lehman has beat the DOW over the ten year period and Lehman's return was 9.1%...

The partnership is now over $54 million in assets...Warren again talks about not following the herd when one is investing...He also plans on avoiding companies where a human problem has the potential of existing or developing...

The results of the partnership were outstanding...

The Controls are $17.3 million gaining $1.6 million for a return of over 9%...

The Generals private owners are are $1.4 million gaining $1.0 million for a return of over 73%...

The Generals undervalued are $21.8 million gaining $5.1 million for a return of over 23%...

The Workouts are $7.7 million gaining $1.7 million for a gain of over 22%...

Miscellaneous Securities total $1.3 million had a de minimis loss...

Although not mentioned American Express, bought after the salad oil scandal is the largest holding and was up to 40% of the portfolio...Warren says one holding was the largest holding ever in the partnership and has outperformed the market in 1964-66...

Warren Buffett Stocks.: No stocks, by name are mentioned in the report...But Warren comes CEO of Diversified Retailing in 1966...

What can we learn:

Warren again outperforms the DOW, now ten years straight...

All the categories Warren uses outperforms the DOW...

Warren focuses on a nontraditional diversification, by holding up to 40% of one stock in the portfolio...The stock is not mentioned, but we learn later it is American Express, hurt by a scandal...

Warren Buffett Partnership Letter 1965 Summary

Warren Buffet's, Buffett Partnership for the ninth year in a row handily beat the DOW by a whopping 33%...The partnership made 47%...The large investment companies of Massachusetts Investment Trust, Investors Stock, Lehman Corporation, and Tri-Continental have not beat the DOW since 1957 all earning approximately 10% annually since 1957, while the DOW has made 11%...For the first time Warren mentions that size has and will be an issue in getting large annual returns...Warren says this, but continues to beat the DOW and S&P in the future substantially...The extra capital and larger size this year was a positive and allowed the partnership to make large purchases that assisted the return...The partners assets are $43.6 million and grew over $12 million in 1965...

The workout business has slowed down...The generals-private owners has done well in 1965...

It is announced that Warren is purchasing Berkshire Hathaway, a textile company...Warren works with Malcolm G. Chace early in 1965, to buy a large block of Berkshire Hathaway...Malcolm welcomes Warren and the partnership as a large shareholder... The partnership now has controlling interest in Berkshire...Malcolm would remain on the Berkshire Hathaway board until 1992...The company will be ran by Ken Chace (no relation to Malcolm), the textile company's top manager...Warren started purchasing the textile company in 1962, and is a value play, similar to Ben Graham's philosophy...

Warren is candid and announces he made the single biggest investment mistake, since the partnership started, but does not mention the stock by name...

Warren also talks about diversification and how he diversifies less than other investment companies...And how investing 40% in one security might happen, if he has the facts and information correct about the company...We must assume again, this is the large purchase of American Express which he purchased when they had a problem...He tells his readers he does not believe in Noah Ark investing of having two of everything...

Warren Buffett stocks: He does not mention anything specifically about American Express...

Five companies accounted for the bulk of 1965 returns...

Warren also announce he personally owns Mid Continent Tab Card, a local company...

What can we learn:

Warren beats the DOW handily and the ninth year in a row...

Warren easily beats the other large investment firms...

Warren again takes a big bet and defies conventional diversification...

Warren's portfolio is large, but he takes big bets and five companies make the bulk of his returns for 1965...

Warren Buffett Partnership Letter 1964 Summary

In the eighth year of the partnership it beats the DOW again by 9%...The partnership returned 28%...The partnership has beaten the DOW every year...The four largest investment companies are Massachusetts Investment Trust, Investors Stock Fund, Lehman Corporation, and Tri-Continental...All four have underperformed the DOW since 1957 by about one percent...The reason is that large investment companies work in a bureaucratic environment and follow the herd in picking and choosing stocks...

Ninety percent of Warren's net worth is in the partnership...Warren states if you cannot handle a 30% drop in the markets and your portfolio, then you should not be in the stock market...

This year Warren breaks down generals into two categories instead of one...The are generals- private owner basis and generals-relative undervalued...This new category general-private issues has been growing and producing good results....He still has the two other categories of workouts and controls...Warren discusses a 1963 purchase and says this purchase in the workout category has substantially helped 1964 returns...We can only assume it is the purchase of American Express Company...It had a one time fixable problem and Warren backed the truck up and makes a huge purchase...

In 1964 the work-out category lagged in the partnership versus the other categories in the portfolio...

What can we learn:
Warren continues to outperform the DOW...The partnership has never underperformed it since the partnership started...
Warren breaks down the category of generals...Now into private issue and relative undervalued securities...
Work-outs were the worst performers in the partnership portfolio...

Warren Buffett Partnership Letter 1963 Summary

The Buffett Partnership returned greater than 38%...The DOW was up over 20%...In the first seven years of the partnership, Warren has outperformed the DOW every year...Warren has outperformed the DOW by over 17% in those seven years...In looking at the other large investment companies that manage other people's money, Warren has outperformed them soundly...Warren again talks about the joys of compounding and over time compounding is such a joyful thing...He again talks about the three categories he classifies his stock picks...General, workouts, and controls...Generals perform much like the DOW...But he expects his picks of general to outperform the DOW...The workout choices are stocks that are involved in mergers, spin offs, and other corporate activism that will cause a change to the company...Warren then looks at the price and sees if there might be an arbitrage play after the announcement, especially in a down market...The controls are long term plays where the partnership has acquired a large position in a company and over time decides whether to become an active shareholder or remain passive...Building up a large position takes time and sometimes for the company requires a change in management to see its value recognized...The partnership is now over $17 million...Warren's position is now $2.4 million in the partnership...

Warren has purchased a position in Texas National Petroleum (TNP)...It is an oil producer...TNP was going to be bought out by Union Oil of California...TNP was going to get three different types of securities, debentures, common stock, and warrants...When looking at the securities TNP was being mispriced by the market...By just purchasing the stock now, you would make a profit in the future as long as the deal was going to pass through the proper legal departments...The deal looked like it would pass by August or September after the April announcement...Borrowing against this type of workout position could make the position more profitable...
Also, Dempster Mill is mentioned again...The purchases started in 1956...It was a general then...By 1961, the partnership owned 30% of the company...The partnership made several more purchases and now hold 70%...The partnership put Harry Bottle in as president...Harry has done a great job and has made things more efficient...The company name of Dempster as were some of the assets...The partnership holds the marketable securities (of the old Dempster) and the cash and is now First Beatrice...The auditors value the securities at market of First Beatrice assets rather that the lower of cost or market...

Dempster has gone from a general to a control over a period of five years...Harry Bottle is now a partner in the partnership...
What can we learn:
Warren continues to outperform the DOW...
The partnership is growing fast and is now $17 million...
Warren's position is $2.4 million in the partnership...
A more detail definition of generals, controls, and workouts is explained...
The partnership has made money on Texas National Petroleum as a workout...
The partnership started with Dempster Equipment in 1956 and by being patient and continuing to purchase the stock, Warren holds 70%, with a substantial profit...The Dempster position has gone from a general to a control...

Warren Buffett Partnership Letter 1962 Summary

Warren lays out a list of withdrawal procedures for the partnerships...He talks about how important it is to think long term when it comes to investing and he should be measured over a five year period and should be compared to the DOW...Warren will not predict what the market is going to do...He will base his stock picks on valuation and not how popular they are...
He now has his net worth invested in the partnerships...He will use the Ben Graham margin of safety rule when investing...The DOW opened at 731 and closed at 652...A loss of 10.8%...The total partnerships were up over 12% and for five years they have averaged about 23%...The top four investment companies all had negative returns averaging about a minus ten percent..Of the top four, Massachusetts Investors Trust returned the best, and it was -9.8%...
Warren talks about the impacts compounding has over the very long term and how money can grow especially over thirty years, especially when the compounding rates are high...Warren reiterates the classifications of 1. Generals, 2. Work-outs, 3. Controls...Generals are tied to the DOW's return and will drop the most of the three groups, when the DOW drops...Work-outs will have a more specific time period when the value will be realized...Different corporate events such as a company selling itself, a merger or a spin off can lead to work-outs...Warren is looking for a stock price difference after a company announcement where the price is not valued properly...In controls, a large shareholder will try to influence the company's policies...Control situations take place over time as positions are increased and a board seat or seats take place... As we assume a larger shareholder position, we will discuss with the board and executive management to improving management or a shift in corporate policy, if necessary...The partnership's present control position is Dempster Mill which was discussed in 1961...The partner's own 73% of the company...Warren shows us for the first time a valuation of a simplified balance sheet of Dempster...He values accounts receivable at 85% of its value, inventory at 60% of its value, and prepaid assets at 25% of their value...Finally a look at intrinsic valuing a company...Harry Bottle a friend of Warren's, looks at valuing Dempster...And Warren plans to continue to use Harry's expertise...Warren talks about being an independent thinker and you are not right just because the herd is following you or you are popular...You are right when you have the facts right...When he buys a company, he wants to buy it at the right price and not depend on having to get out of the purchase with an increase in the stock price...Annual increase in sales makes the margin of safety even better...
Bill Scott, an employee is invested in the partnership...And the partnership is now over $9 million...
What have we learned:
Warren continues to outperform the DOW...
Warren continues to follow Ben Graham's margin of safety concept...
Compounding is very effective over the long term...
Warren continues to own Dempster...
Warren shows the valuation of Dempster, using a percent on each asset...
Purchasing stocks at the right price with increasing sales is the way to purchase stocks and give you a margin of safety...
You are right in an investment because you have the facts right...
Being conservative is tied with how many facts you have and if your facts are correct about a purchase...
The partnership continues to grow...

Warren Buffett Partnership Letter 1961 Summary

The DOW increased from 616 to 692 a 22.2% increase...This is the fifth year of the partnerships and the partnerships have easily outdistanced the DOW every year...Warren mentions Arthur Weisenberger's book on investment companies and how they have not come close in total in matching the DOW...
Warren goes on to tell his partners that he breaks down his investments in three classes... Generals, which are undervalued securities and take time for the market to recognize the value of the security...Generals move pretty much with the DOW...The second category is work-outs... These securities after a corporate action might have a difference in the price than what the company is actually worth...Warren also mentions borrowing money to leverage the portfolio...This is the first time leverage is mentioned in his letters...The borrowing will be related to the work-out group... The third category is control...The control stocks is when the partnership controls it or is a large shareholder of the company...The company needs a corporate policy change to get the security to recognize its value...The partnership controls a company called Dempster Mill...Dempster is an ag equipment company...Sales are $9 million and book value is $4.5 million, and working capital is $50 per share...The price is currently $75 per share...Dempster is 21% of the partnerships portfolio...As the markets move higher, it is more difficult to obtain controls, because valuations become high and are not worth the value...
Warren mentions something he was taught by his dad and Ben Graham...That when you have your facts right, you can invest heavily in a investment...This in fact is an act of being conservative, if you have the facts right...
The partnership has moved out of his bedroom and into an office in Kiewit Plaza in Omaha...
He is running ten partnerships totaling over $7 million...
What we can learn:
Warren beats the DOW again...
Warren uses the DOW as his benchmark...
Warren again loads up on one stock, with little diversification...
Warren breaks down his stocks as generals, work-outs, and controls...
Warren talks about knowing the facts when you invest and are focused on a small list of securities...
Warren moves out of his bedroom to Kiewit Plaza in the fifth year of the partnership...
Warren is running ten partnerships totaling $7 million...

Warren Buffett Partnership Letter 1960 Summary

The DOW decreases from 679 to 616 a drop of 9.3%...The NYSE had 653 stocks dropping in price and 404 increasing...A number of new partners were added to the Buffett Partnership(s) in the year 1960...Warren again reiterates his stock picks will do better when the DOW drops than when it increases...In 1960 Warren is running seven partnerships...He mentions he would like to combine the seven partnerships into one...Also, some partners are wanting to add money in the middle of the year...Warren has told these investors they will be paid six percent until year end...Their new money will be invested at the first of the year when those dollars will be added to the partnership(s)...
Warren mentioned last year that one stock made up 35% of the partnerships assets...The company is Sanborn Map...The company makes detail maps of cities in the U.S....The maps have detailed information including infrastructure beneath the cities including locations of fire hydrants and water mains...Insurance companies like this information which helps them underwrite their fire policies...City maps need updating frequently as cities grow and expand...Sanborn Map is more or less a monopoly, until around 1950 and now is seeing more competition...Sanborn Map's board is filled with insurance men...Sanborn Map earnings have fallen from $500,000 in the 1930's to $100,000 in the 1958 and 1959...In the 1930's Sanborn started investing in the stock market and now have a large equity and fixed income portfolio...Now the investment portfolio was worth more than the stock price...Sanborn Map had $2.5 million in sales and had marketable securities of $7.5 million...Nine of the fourteen board members were insurance men...These nine board members held only 46 shares of the 105,000 shares outstanding...Two other outside directors held ten shares each...Two directors were officers and held 300 shares in total...The only director who held any size shares was a son of a past deceased president of the company...The son's mother, a widow owned 15,000 shares...The son made a bid to become a top officer of the company, which did not work out...The son now unhappy resigned...The mother also was unhappy with the company's current situation...A bid was made by the partnership for the 15,000 shares and was accepted...The mother and son, as well as the partnership know that there is a hidden asset in the investment portfolio...
The board did not want any change...A plan evolved from a consulting company to recognize the value of the investment portfolio...It was approved by the SEC...Fifty percent of the shareholders were bought out with the securities from the investment portfolio...There was some shareholder activism that created some excitement...
Warren calls the Sanborn Map situation a "control situation"...He states most of the partnerships money will normally be in basically two situations...One is undervalued securities which will be tied up for a period, until the market recognizes the value of the underlying assets... Two will be special situation stocks, where some corporate-shareholder activism will increase the price rather than the market...
What can we learn:
Warren easily beats the DOW...He continues to use the DOW as his benchmark...
Warren is adding new partners and the existing partners are adding new money...
This years big reason for the over performance is Sanborn Map...
Warren, again knows the details of the company (Sanborn Map)...
Warren is not diversified...
Sanborn's board did not want to recognize the value of the company or did not recognize the value of their company...
Sanborn is broken up and the company's value is recognized...

Warren Buffett Partnership Letter 1959 Summary

The DOW was up from 583 to 679, a 16.4% increase...The largest investment funds, Tri-Contental and Massachusetts Investors increased 5.7% and 9% respectively...The Buffet Partnerships, now are six in number, and averaged 25.9%...Thirty five percent of the portfolio is in one security, which Warren does not name...The partnership is the largest shareholder in the unnamed security...The unnamed security is selling at a large discount to its intrinsic value...Two other large shareholders of the unnamed security agree with this large position...(How Warren knows this, is not stated)...It is highly likely that this security will increase in value this next year...The remaining 65% of the portfolio is in undervalued securities and work-outs...

What can we learn:
Warren continues to outperform the DOW...
Warren continues to be a focused investor, with little diversification...
Warren knows in detail the information of his investments...
Warren continues the generals, work-outs, and undervalued security stratification...

Warren Buffett Partnership Letter 1958 Summary

The DOW advanced from 438 to 583...An increase of over 33%...The five partnerships averaged over 38%...Warren feels and reiterates that he can perform better when the stock market is down than when it is up...Warren says he will not focus on market forecasts or predictions...He will be focused on buying undervalued securities...Warren has taken a large position in Commonwealth Trust...The bank has not paid a dividend and has built up its capital position...It has been a solid earner...Commonwealth has another bank interested in buying it, but presently the bank is not interested in selling...The bank is a solid defensive investment...The capital position continues to grow and will be undervalued for several years and will not be realized until a catalyst unlocks the value in the company...If the value is not released early the company will continue to increase in intrinsic value...Warren had been slowly purchasing the bank stock all year, not trying to move the stock price up...Warren purchased up to twelve percent of the bank...A better deal came up at the end of the year and he sold the bank stock and took a new large position in a different investment...The partnership was able to make a substantial profit in the bank and expect to make a better profit from the new investment...He would continue to search for work-out situations...

What can we learn:
Warren would rather the stock market be down...
Warren is not afraid of taking a large position with little or no diversification...
He has much knowledge and detail of his investments in his portfolio...
Commonwealth had a solid capital position...
Warren can, without emption, quickly sell when a better investment comes along...
He is always looking for different and better investments...

Warren Buffett Partnership Letter 1957 Summary

When Warren wrote to the partners for 1957, he states that the current market for blue chip stocks are priced above intrinsic value...A bear market would not hurt his position in work-out (explained later) investments and a bull market would push prices up for the work-outs...
He states that he will not attempt business or to forecast the market, but still considers the market to be overpriced...

He explains that a "work-out" investment is an investment in a company that has announced a merger, spin off or corporate change...Warren will try to find the proper price of the secuity after the company announcement to finding any company's that are mismatched in price...A "control position" is where the partnership will try to become a large shareholder in a company...After a large position is taken, this push or act of activism by an officer(s) or director(s) will increase the stock price through an influence in policy or policy change, within the company... Now this is different from undervalued securities which are just that, securities undervalued in intrinsic value...A third category he discusses is generals, which will behave much like the DOW...He states that he has taken a large position in one company that is 10% of one partnership and 20% of another...The partnerships did much better than the DOW...The DOW ended at 436 for a loss of 64 points for year end 1957...The three partnerships all gained a respectable percentage and a substantial growth on the net worth of the partnerships...All gained above the six percent...Warren's pay is triggered to be paid 25% of profits, above 6% annually, with deficiencies carried forward...All partnerships own basically the same securities...And when purchasing work-outs you need patience so you can increase your position over time, without pushing up the stock price...

What can we learn:
We learned that Warren breaks his securities down into three categories: 1) Work-outs 2) Generals and 3) Undervalued securities...He would spend much more on this in his 1961 Letter to Partners...
He does not like to mention what he is purchasing until he is done purchasing the security, because it could push the security price higher...
He is very patient in his stock positions...

Warren Buffett Starts Buffett Associates Partnership 1956

On May 1,1956 Warren started Buffett Associates...It consisted of seven total partners including Warren...The seven original partners and the amounts they invested were:
Charles S. Peterson (Warren's friend) $5,000
Elizabeth B. Peterson (Mother of Charles) $25,000
Doris B. Wood (Warren's sister) $5,000
Truman S. Wood (Warren's brother in law) $5,000
Daniel Monen Jr. (Warren's friend and an attorney) $5,000
William H. Thompson ((Warren's father in law) $25,000
Alice R. Buffett (Warren's aunt and a school teacher) $35,000
Warren E. Buffett $100
Total of $105,100

Warren received 25% of the profits above six percent annually, with all deficiencies carried forward...This 25% above the six percent would provide Warren an excellent income, if he could provide the kind of returns, he thought he could...Warren ran this and all his original partnerships out of his bedroom...

Warren would start two other partnerships in 1956, also...Ben Graham had retired and was telling some of his former clients to contact Warren...One who contacted him was Homer Dodge, who had an account at Graham Newman...He would put $120,000 in another 1956 partnership...Warren would end 1956 with three partnerships totaling $303, 726...Warren's net worth in 1956 was $140,000...It would increase greatly if he could substantially outperform the market...

Warren would have three partnerships in 1957, add two in 1958, add 1 in 1959 and add one in 1959...He had seven total partnerships at year end 1959...This would the total he would have until he would dissolved the partnership and start Berkshire Hathaway...

Warren Buffet's High School and College Years

Warren went to Wilson High School in Washington D. C….This was because his father Howard was elected to the Congress in 1942 and the family moved first to Fredericksburg, Virginia and later to Washington D. C…He was continually homesick for Omaha…He got paper routes to take his mind off his homesickness…In his senior year Warren and Donald Danly bought seven pinball machines….They started a company called Wilson Coin Operated Machine and put the machines in barbershops…Warren was the financial guy and Dan would work on the machines when they broke…Warren was said to be “not very mechanically minded”… At age 14 Warren takes the money he has earned from his paper routes and buys a 40 acre farm in Nebraska...

His Wilson High School classmates remember him for always wearing sneakers, even in the dead of winter and being good with math and numbers…In his senior year of high school, not only had Warren decided on a business career, he would become an investor…He graduated in June 1947, at the age of sixteen…He finished 16th out of 374 students…His yearbook said likes math, a future stockbroker…Had Warren graduated in Omaha, he would have graduated from Benson High School…(He does attend Benson High’s reunions)…When he graduated, he had income from his paper routes and from Wilson Coin and cash rent from the farm he owned…He had read over one hundred business books…He did not really want to go to college…His father made him go (to college)…Wilson Coin is sold for $1,200 to a war veteran in 1947, the same year they started the company...

Warren attends Wharton Business School in Pennsylvania…His junior year Warren transfers to the University of Nebraska…After graduating with a B. S. degree in Economics in 1950, Warren applies to Harvard…Harvard turns him down...He has read the Intelligent Investor in 1950 by Benjamin Graham which he thoroughly enjoyed…Ben teaches at Columbia University, so he applies there and is accepted…He graduates in 1951…Ben Graham would be a mentor for life…Later Warren would write the preface and much of the appendix in the fourth edition of the Intelligent Investor…
After graduating from Columbia and the knowledge learned from Ben’s classes, Warren is armed and ready to go to work, investing and picking stocks…

Warren Buffett and his Early Years

As a youngster Warren was fascinated by numbers...His grandfather owned a grocery store and his father was a stockbroker...At age six Warren was buying six packs of Coke for 25 cents a carton and selling them for a nickel a piece, making a nickel per six pack...At age eight Warren was reading information from his father's business about the stock market...

Three years later he was working and marking the black board where his dad worked...Warren became infatuated with stocks and the stock market...Warren's numbers and math skill's continued to improve at a young age...He bought his first stock at age eleven...He bought three shares of Cities Service Preferred at $38 per share...The stock dropped to $27 and then went up to $40...Warren sold at $40...Cities Service then went to $200...A lesson about equities that Warren would remember to this day...Always the reader, one of Warren's favorite book, in his youth, was One Thousand Ways to Make a Thousand Dollars...In 1942 Warren's dad, Howard is elected to Congress...In 1943 Warren's family moves to Fredericksburg, Virginia and later to Washington D.C...Warren attended Alice Deal Junior High School in Washington D. C...

Warren's mother Leila had emotional moments...Warren would try to ignore his mother when she had those situations, but they seem not to impact his talent and love for numbers...Warren would continue as a paperboy, work multiple routes and develop a love for newspapers...Warren who liked Coke would switch to Pepsi, because Pepsi was twelve ounces and Coke had six ounce bottles, but the price was the same...Twice as much soda, for the same price...Warren's frugality has begun...