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...