Buffett's Early Investments: A New Survey from Decades in which Warren Buffett scored the highest returns. 2024. Brett Gardner. Harriman's house.
I noticed Warren Buffett in the early 1980s when my graduate classmates recommended reading John Train. Master of money. At the time, Buffett was not known to the public, or even to many of the business community. About 40 years later, it will probably be written about him more than other businessmen and investors. His works include biographies by journalists, friends and former employees. There are books that detail his investment strategies and words of wisdom, as well as articles from magazines and academic journals. The question is what Brett Gardner can offer about Buffett's investments that have not been written before.
Fortunately, Gardner, a value investor and analyst at the private investment partnership Disderene Group, has gone a different path than other investment book authors. Rather than scrutinizing Buffett's shareholder letters at Berkshire Hathaway, he delves into Buffett's early Bergshire investments. The result is a new look on the origins of Buffett's investment approach.
We've read about Buffett's transformation before. From value investors who chose to invest from investors to investors who wanted great business at a fair price just because they were cheap and “cigar butt” investments. Gardner takes us through this journey by examining 10 shares from Buffett's early investment days. Of the 10 people, only American Express and Disney are common names. Most others may be little known even to the most dedicated Buffett followers.
The book is divided into pre-partnership years and partnership years, with each section highlighting five stocks. In trying to understand Buffett's methods more deeply, Gardner takes a unique approach to getting a glimpse into Buffett's mind. Rather than simply looking for clues in his words, Gardner uses the financial information available to Buffett when he makes an investment.
Three criteria selected ten investments by the author. First, can he obtain relevant financial documents? Moody's Industrial Manual And the company's annual report? Secondly, he wanted to add value by not rehashing the widely written investment. Finally, how interesting was the story behind the investment? Did that price embed any misconceptions he could fix?
Gardner began with a purchase by Buffett in 1950 from Marshall Wells Company, the largest hardware wholesaler in North America. Going back in time, Gardner attempts to draw information from Moody's manual and identify Marshall Wells' values that Buffett may have perceived. Gardner asks, “Why did Buffett invest in the company?” In his early years as an investor, Buffett focused on the philosophy of seeking cheap stocks in Benjamin Graham.
As the authors go through the years before the partnership, we get a glimpse of the model Buffett follows as he transforms from a New England textile company into one of America's biggest conglomerates.
The lesson comes from Mickey Newman, son of Benjamin Graham's partner Jerome Newman. The 1954 Philadelphia purchase of stocks and Leading Railroad (P&R) was the beginning of a model in which Buffett used cash from the Molibund Company to acquire profitable companies. Newman, who later became president of P&R, used cash from liquidating inventory at P&R for such an acquisition. He preferred a company whose management continued to operate the subsidiary, a distinctive feature of Buffett's acquisition with Berkshire.
One more interesting investment was when Buffett bought American Express shares in 1964. This chapter began with an interesting view of the famous salad oil scandal and offered the opportunity to buy American Express at an attractive price. Gardner doesn't have much information about Buffett's ideas, but he tries to piece together Buffett's logic in buying American Express.
The biggest concern for investors was salad oil responsibility. Buffett not only bought stocks, but rather realized the importance of American Express' reputation. To determine whether the scandal had impacted American Express's traveller's core business, he surveyed local restaurants to measure credit card usage. Buffett contacted American Express CEO Clark to praise him for respecting the debts of his subsidiary, rather than using bankruptcy to sell the matter. This appears to be the beginning of Buffett's evolution from passive investors to activist shareholders.
in Buffett's Early InvestmentsGardner dispels the myth that Buffett sat in the room together and succeeded. Moody's Industrial Manual. Buffett's analysis was far beyond finances. His purchase of Studebaker provides an example of a practical approach to investing. Studebaker, a car company that was so successful that it was included in the Dow in 1916, fell into a difficult time. In 1965, the company's single-digit price-to-return rate and tax declines intrigued Buffett.
At the time, Studebaker had 10 divisions, but First Manhattan founders Buffett and Sandy Gottesman believed STP motor oil additives were the most important. To estimate the demand for STP, Buffett traveled to Kansas City to count STP rail cars. In another example of Buffett's thorough leg work, he and Charlie Munger used family visits on their visit to Disneyland to assess the profitability of the ride. The book not only produced Buffett's success, but also produced lessons that shaped Buffett's investment philosophy, including the Cleveland Worthed Mills Company, retailer Horschchild and Corn & Company.
Complementing his meticulous analysis, Gardner writes in a fluid and attractive style Buffett's Early Investments It's also a fun read for those who don't want to dig deep into Buffett's strategy. His insight into companies like Disney is worth reading his historical overview.
By examining Buffett's early investments, we can see Buffett's transformation from passive value investors to activist shareholders. Gardner concludes the book by summarizing four factors that he considers as the core of Buffett's success: activism, focus, fluid and creative research process, and discerning filters.
Activism may seem to be in the large and well-known shareholder range, but Buffett was relatively unknown to most things in the business world when he contacted the CEO of American Express to help handle the salad oil scandal. Buffett's actions provide the lesson that investors with modest positions may still be able to produce management to pursue goals that can benefit all shareholders. Although it is not easy to apply, the four factors behind Gardner's Buffett's success represent actions that are likely to support the pursuit of investment excellence.
