“Archaeology” Buffett's holdings 60 years ago! This is the most worth reading price investment article of the year

Investments cannot bypass Buffett. It is estimated that there are 100 books related to him, and even countless articles. What else is there that everyone doesn't know?

I originally wanted to write a tidbit about Buffett and introduce some of his lesser-known stories, but which I found interesting.

The materials are being prepared in a great deal of detail. One night I received the following picture from a friend who loves investment sent me:

It took a lot of effort to find out from the tight English text and numbers that these are the shareholding details of Buffett Partnership Ltd. (Buffett Partnership Ltd.) as of December 31, 1962.

At first, I didn't dare to be completely sure; English handwriting was more difficult to recognize. Some can be seen clearly, such as BCP, LNC, and TNP, but I'm not familiar with these companies and can't get in touch with Buffett's holdings. I can't even recognize the signature on the bottom right corner. How can I confirm that this is an investment from a stock god?

I can only find the letter Buffett wrote to his partner in 1962. I hope there are some places I can read about it. There were four letters relating to the time, all of which mentioned the company Dempster Mill Manufacturing Company (Dempster Mill Manufacturing Company). Comparing this picture, haha, I found it! 44,177 shares, Dempster is $51.26 per share, and the amount is $2,264,513.02, which is in line with the figures in the partner's letter.

Reminded by a friend, I then identified Berkshire: 30,952 shares, 7 and 9/16 per share, with a value of 234,074.5 US dollars.

As a result, confidence in this picture, which is like a book of heaven, has greatly increased, and interest in deciphering Buffett's holdings back then has also greatly increased. The rest of the night was mostly spent in front of a computer and desk lamp.

At the time, Buffett was 32 years old and a millionaire.

Some friends around me think they should learn more about the investment ideas of the stock market at this time. He didn't manage that much money in his early years, and he is just getting started, so there are more places to learn from now on.

Buffett himself said on various occasions that if time went back to the way it was and managed millions of dollars, the yield would be better.

“Reading history makes people wise,” so let's go back 60 years and see how Buffett did it in 1962.

Buffett in 1962

1962 Buffett was interviewed
After working for less than two years at Graham-Newman Corporation (Graham-Newman Corporation), the financial company of his mentor Graham, the mentor decided to retire, Buffett returned to his hometown of Omaha and began working from home for seven years. He handled everything from raising capital to communicating with customers, screening targets to filing tax forms.

The management scale ranged from $105,100 and 3 partner accounts in 1956 to the partnership fund's net assets of more than 7 million US dollars in early 1962, 11 accounts, and nearly 100 investors.

Only then did they move their office from their home building to Kiewit Plaza (Kiewit Plaza). Since then, they have continued to work in this building. It can be called a “government office without a clean house.”

On January 1, 1962, Buffett merged all of his partnership accounts into one. The name was changed from Buffett Associates to Buffett Partnership Ltd. You can see the new name, new address, new phone number, and new team on the letterhead in the image below.

The rise of Buffett's letter to partners in January 1962
There have been drastic changes in the market over the past year. It is considered a scene where the “boiling years” have seen a surge in popularity. (On the cover of the 2006 Chinese edition of the book of the same name, it is clearly written: “In the 1960s, the US stock market soared, and there were ten years where collapse and rise coexisted!”)

Harry Botel in his later years
Harry was a former soldier in war. After being demobilized, he ran an accounting firm. After being given a heavy responsibility, he immediately began a series of drastic actions, such as clearing inventory, debt repayment, cutting expenses, closing the company (closing down five branches that were not profitable, leaving three), and layoffs, which caused major changes in the company's balance sheet structure, and the company's valuation improved markedly.

Detailed data can be found in the table below (Source: Buffett's Letter to Partners.)

Buffett never hesitated to praise Harry, likening him to a hero, and saying he would need help in a similar situation. However, the next time Harry reappears in Buffett's message will not be until 24 years from now.

It wasn't because Harry didn't have time, or because there was a problem between people, but Buffett avoided this kind of “control” investment opportunity that required intervention in corporate governance.

Dempster's investment ended well (an average purchase price of $28 per share, then sold for $80, making a total profit of $2.3 million), but the whole process of monetizing value did not go smoothly.

The firing of the former president gave Buffett a lot of headaches. The reduction in staff and efficiency introduced by Harry was even more strongly resisted by the former management, local residents, and media.

At the time, people all over the town looked at Buffett with hate, thought he was a heartless capitalist, a ruthless liquidator, and initiated actions such as security fund-raising. Mr. Buffett, who is very affectionate, felt very aggrieved and wanted to be without him. This company would have gone bankrupt a long time ago, but no one bought the money.

Relevant reports published in newspapers at the time
If Buffett continues to play according to Dempster's style of play, it is estimated that his reputation will not be much better than that of “financial predators” and “The Wolf of Wall Street” who pursue proactive investment.

However, the stock market has taken a different path: buying a good company at a reasonable price, and at the same time promising not to sell the acquired company except under special circumstances, and to retain the original management. All of this is probably related to Buffett's painful experience this time.

To him, Dempster is considered a person who has never come before or since.

() “Arbitrage” category: TNP and Yizhong Petroleum Company

Graham personally passed down this craft. As soon as Buffett took office, he looked at all arbitrage operations from 1926 to 1926 to the 1950s and found that the return on arbitrage was uncertain and not easily influenced by the macro and market. If the trading time was controllable, the annualized return could surpass the index.

The full name of TNP is Texas National Petroleum (Texas National Petroleum). It was announced in April 1962 that it would be acquired by Union Oil of California (Union Oil of California). The offer price was higher than the market price, so there was an opportunity for arbitrage.

Buffett immediately bought TNP's bonds, common stock, and warrants. The total holdings at the end of the year were 561,333 US dollars, accounting for 6% of the partnership fund, ranking fourth. The investment is detailed in an appendix to the 1964 partnership letter.

M&A arbitrage generally has two major uncertainties: 1) whether the transaction can be approved; 2) the completion time of the transaction is uncertain.

The completion of the merger and acquisition requires the approval of the three parties involved in the acquisition, the acquirer, and the supervisory authorities. The management of TNP, the acquirer, held 40% of the shares; the acquirer, California United Petroleum, had always bought and bought; yet, there were many mergers and acquisitions of this type at the time, and there were no regulatory and regulatory issues.

This removes the first uncertain factor; the merger can be approved.

From the announcement to the end of the final transaction, this TNP investment was completed within five months despite some twists and turns on the tax side in the middle. The annualized return on investment reached 22%, and the Dow fell 10% during the same period.

After the official establishment of OPEC (OPEC) with the Middle East as its base in 1960, the oil industry is preparing for drastic changes. At the time, there were many acquisitions and restructuring of oil and natural gas companies in the Midwestern United States. Buffett carefully reads newspapers and oil-related business magazines every day, diligently searching for investment opportunities.

He only began arbitrage operations after the company announced it to the outside world, and never made investment decisions based on gossip. Many oil companies in their shareholding details (Getty Oil, Houston Oil, Maracaibo Oil, No. European Oil and Plymouth Oil) are estimated to be in this category.

The stock market is familiar with arbitrage and light vehicles, and they enjoy it without getting tired of it. This year he will also be acquired by Microsoft because Activision Blizzard (Activision Blizzard) will be acquired by Microsoft. After the announcement, he added his position on Blizzard, so let's wait and see for the final results of this arbitrage.

“No one else, only skilled.”

(3) “Undervalued” companies

The “undervalued” companies on the shareholding details are distributed in various industries: coal, railways, real estate, manufacturing, etc., mainly in the US, but also Canadian companies.

For various reasons, such as stagnant sales, entrenched lawsuits, and uncertain prospects, etc., the company's transaction price is far from reflecting its intrinsic value; some are even lower than the liquidation value.

These companies are obviously not popular companies, and no one will take the initiative to tell you about them. Buffett used the methods taught by Graham to discover these cigarette butts day and night by reading “Moody's Manual” (Moody's Manual), etc. Below is a brief overview of some companies.

Alco: The full name is American Locomotive Company. Established in 1872, it mainly produces automobile headsets, and sales are declining year by year. At the end of 1962, Buffett held 4,800 shares at $19.875 per share, for a total of $95,400, accounting for 1% of the partnership fund.

In the first edition of “Securities Analysis,” Graham wrote that the company's stock price is lower than cash per share (footnote 3), and Buffett, a good student, deeply believes that “the book has its own gold house.”

BCP: The full name is British Columbia Power. This is a Canadian company that has had a long-standing lawsuit with the local government over the purchase price of its subsidiary.

Munger, who has extensive legal expertise, is very optimistic about this opportunity. Not only did he finance his own 3 million full stock purchase, but he also recommended it to Buffett, who saw it as usual (footnote 4).

Since they met in 1959, the two have often exchanged investment experiences. At the end of the year, Buffett held 60,035 shares of BCP at $18.375 per share, accounting for 11% of the partnership base, making it the most heavily held stock. You can see their mutual trust!

Berkshire: This is Berkshire, which later became famous. It was first discovered by friend Daniel Cowin (Daniel Cowin). Daniel works for a small brokerage firm called Hettleman (Hettleman) in New York and specializes in investing in multi-million dollar companies (footnote 5).

Friends like this have a good reputation. More famous ones include Bill Ruane (Bill Ruane, who introduced Fisher to Buffett) (footnote 6), Sandy Gottesman (Sandy Gottesman), etc.

Everyone is either a college student or Graham's student. They have similar ideas, share with each other, and prosper together. In November 1962, Buffett bought Berkshire for the first time. At the time, it was 7.5625 US dollars per share (think about the current stock price), and continued to buy for the next two years, changing from “undervaluation” to “control.”

However, Berkshire did not become a copy of previous companies such as Dempster, but followed a completely different path and became a legend in the investment world.

BS&B: Full name Black, Sivalls & Bryson, Inc., which mainly produces oil refining and chemical industry equipment. Net current assets (net-net: current assets minus all liabilities) were $24.25 per share at the end of 1961. At the same time, the company owned real estate in Missouri, Oklahoma, and Texas. Buffett holds 13,353 shares of the company at $13.31 each, and there is a margin of safety.

Crane: Produces pipe valve products that still exist today. The stock code is CR. Buffett holds 4,850 shares at US$42.25 each, for a total of US$204,912.5, accounting for 2% of the partnership fund.

Grinnel: Mainly produces fire sprinklers and alarms. Because of anti-monopoly, the government and Grinnel lawsuits went all the way to the highest court. In the end, the company lost the lawsuit and was asked to divest ADT and the other two subsidiaries.

Buffett holds 3,727.48 shares of Grinnel at $74.5 per share, for a total of $277,697.26, accounting for 2.8% of the partnership fund. Graham gave a more detailed introduction to Grinnel in the third and fourth editions of “Securities Analysis” (footnote 7).

LehCoal & Nav: The full name is Lehigh Coal & Navigation Company. As the name suggests, it has two businesses: a coal mine and a railway. The coal mine has been losing money, and the railway is leased to another company to operate, and a large part of the lessee's business is transporting coal to the lessor's loss-making coal mine. The company was reorganized in 1962, as described in the fourth edition of “Securities Analysis” (footnote 8).

Stanrock: The full name is Stanrock Uranium Ltd., a Canadian uranium mining company. The uranium mining industry was hit hard at the time, and mining companies went bankrupt one after another, including Stanrock. Buffett may have discovered an opportunity during the asset liquidation process and bought bonds at a low price of $496,260, accounting for 5% of the partnership base.

YoungSpring & Wire Corp.: Producing automotive springs and electronic parts. Losses over the past two years have led to low stock prices. The company has no debt and a net asset of 48.36 US dollars per share. Buffett held an average share price of 25.5 US dollars, totaling 19,165 shares, or 488,707 US dollars, accounting for 5% of the partnership base. This company was mentioned in the fourth edition of “Securities Analysis” (footnote 9).

……

Walter Schloss (1916-2012), who is also a Graham disciple, has always focused on these undervalued opportunities, often buying dozens of companies to diversify his investments and wait patiently.

Graham wrote in his book that this often takes “one and a half to two and a half years” (footnote 10). In order to return to his previous reputation on Dempster, Buffett sold shares of five companies he held to Schloss at current prices (footnote 11), including Jeddo-Highland Coal, Merchants National Properties, Vermont Marble, and Genessee & Wyoming Railroad.

The return of funds managed by Schloss reached 11% in 1962, which also outperformed the market, showing that Graham's approach was very effective at the time. The two books “Securities Analysis” and “The Smart Investor” feel like stock pools for Graham's disciples.

However, this kind of undervalued company became more and more difficult to find later. This helped me understand Buffett's choice of investment targets in the mid to late sixties, as well as the final decision to disband the partnership fund.

In addition to the anger caused by the difference of 0.125 yuan per share (footnote 12), stock god, Berkshire, estimates are also closely related to the investment environment and investment opportunities at the time.

(4) Shorting

In addition to the three categories of control, arbitrage, and underestimation, Buffett also shorted four companies in 1962, three of which were insurance companies.

INA is the predecessor of CIGNA, which is now a household name. Hartford Fire, a company that still exists, has broadened its business line and simplified its name to Hartford. Buffett believes that the stock prices of all three companies were expensive at the time.

Another shorted company, Kratter, deals in real estate. The stock market felt that there was a problem with its financial statements, inflated profits, and pushed up valuations, so it submitted an article in “Barron's”, which was published on page 12 of the December 24, 1962 issue. However, both Buffett and Munger later shied away from shorting.

(5) Bill Scott

Scott and Mrs.
The signer of this shareholding statement, Bill Scott (BillScott), is the first employee hired by Buffett's partnership fund. Bill previously worked for the U.S. National Bank (U.S. National Bank) and signed up for Buffett's evening investment course because he saw an article published by Buffett in the “Commercial & Financial Chronicle” (Commercial & Financial Chronicle).

The two often talked about stocks. After chatting, Bill went to work at Buffett's house. At first, he helped handle Dempster's inventory, and later he was responsible for bond investments.

The names of Bill and his wife also often appear in Buffett's letters to investors. Apart from praising Bill's work, what is most mentioned is that they invest all of their family money in a partnership fund.

It turns out that this is also very wise.

Bill Bee Buffett is less than one year younger. He is 92 years old and retired in his sixties. Investing in Berkshire made him a billionaire, and the couple signed a commitment to donate all of their wealth to charity.

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Regarding this shareholding statement, there are still many local explanations worth interpreting. The length is limited, so I'll leave a paragraph for now. For me, one of the greatest values of this statement is that it restores the stock market's actual positions in 1962. Using history as a guide to add to the situation, it explains a lot.

Through extensive investment in these companies, Buffett laid an extremely solid foundation, completed capital accumulation for later Berkshire's majority shareholder, made a group of like-minded friends, and gradually evolved his own investment philosophy in practice, becoming a generation of grandmasters.

1962 to the present, changed and unchanged

In 1962, Munger came out of his former law firm and formed an investment partnership, bought BCP with full leverage, and an annual yield of 30%.

That year, Buffett visited Fisher in Los Angeles, similar to his GEICO trip more than 10 years ago, without prior arrangement (footnote 13). Previously, Fisher's famous book Common Stocks and Uncommon Stocks and Other Writings (“How to Choose Growth Stocks”) was published in 1958.

That year, the fourth edition of “Securities Analysis” came to market. This was also the last edition Graham personally revised, which was very helpful in understanding the market and companies at the time. Three years later, the third edition of “The Smart Investor” was completed. If you compare closely, you can see that Buffett's style of writing at the time and the Master's two books are quite similar in some places.

However, Buffett's shareholding philosophy in 1962 was even more obvious; however, after that, he did not limit himself to his existing framework and became a butterfly. This aspect is certainly influenced by Munger and Fisher, but it comes more from his own tireless learning and deep understanding of values.

Subsequently, he bought American Express in 1963, National Indeminty (National Indeminty), the first insurance company, in 1967, and Heishi Candy in 1972...

Buffett has both adhered to principles and kept pace with the times, gradually shifting from emphasizing quantitative analysis to focusing on qualitative analysis at the same time. From calculating the liquidation value of assets to focusing on corporate profitability (earning power), from focusing on tangible assets to valuing intangible assets, and from settling down pockets in a timely manner to implementing long-term investments.

If Buffett's 1962 shareholding and Berkshire's latest 13F are on the same page, it's hard to believe that this actually comes from the same person. People are amazed by his changes, and admired for his diligence, openness, and optimism.

The astonishing focus and enterprising attitude enabled Buffett to surpass his mentor Graham. His broad vision, pattern, and circle of friends did not make him another Schloss. At the same time, he was more patient and deeply engraved “no loss of money” in his life, so he was able to avoid Waterloo, where some of the investment gurus of the same generation ended their lives.

From 1962 to 2022, Buffett added another level of strength. Whether you like Buffett in his 30s or a stock connoisseur later, spending time getting to know him and his investments will always bring new benefits. Buffett's wisdom is not limited to stock investment; he has too many places worth learning from:

——Learn about his adherence to safety margins and energy circles, and his aversion to permanent loss of capital, and always remember that the first and second principles of investment are “never lose money”;

——Learn his ability to continuously accumulate knowledge and develop compound interest. From peddling Cola bottles to neighbors at age 7 to buying a large number of Cola stocks at age 60, not a single share has been sold since then.

From buying three preferred shares of Cities Service (Cities Service) at age 11 (footnote 14) to investing heavily in Western Petroleum at age 92 (Western Petroleum acquired Cities Service for 3.8 billion dollars in 1983).

From researching GEICO for the first time at age 20 to buying all of GEICO at age 65 and building what is probably the strongest insurance group in the universe... His interest and understanding of the insurance, newspapers, railways, and other industries permeates the world;

——Learn his ability to choose friends and the honesty with which he treats his friends. People were moved by the trust and understanding between him and Munger; they solved the code of longevity and wealth;

——Learn from his spirit of evangelizing and selfless sharing to the world, teaching people to fish as well as fishing;

——Also learn from his attitude towards difficult situations.

This story is recorded in the biography “Snowball” (footnote 15), which is used as an end:

In 1962, Buffett once went to New York to raise capital. The downturn in the market was an opportunity to buy. He also plans to develop his neighbor Don Keough (Don Keough), who became Coca-Cola's president many years later, into his own financial client.

At first, he told Kio that he only needed to invest 25,000 US dollars, but the other party didn't agree. Buffett then reduced the investment amount to 10,000 US dollars, 5,000 US dollars, and finally even considered whether to reduce it to 2,500 US dollars.

When Buffett visited Kio's family for the last time, no matter how much he rang the doorbell or knocked on the door, no one answered. But he's pretty sure the other person has family members.

The lacquered house expressed the other party's rejection.

It was the night of June 21, 1962. The stock market was close to the lowest point of that year, and Buffett experienced the situation at that moment.

I think everyone probably has a dark time like this. Buffett had a million family at the time, and his career was still successful, not to mention those of us on the road.

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