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...
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...
No comments:
Post a Comment