Value Diary

Warren Buffett

Warren Buffett is a gem house of wisdom. The first time I read about him, I felt very inspired by his reading and till date, everyday I learn something out of him. I got exposed to Buffett by reading the book “Warren Buffett Way” by Roger Hagstorm. So, this article about Buffett is driven by the content of that book and some of the content in other website. The book is awesome and I highly recommend it.

Early Life: Buffett was born in 1930. He showed signs of great investor while he was a kid. He joined University of Pennsylvania for undergraduate degree, but later transferred his study to University of Nebraska. He went on to take a course of investing from the legendary Benjamin Graham on value investing which opened his eyes to the best practices of Investments. He wanted to work for Ben Graham and was initially rejected, but then he worked for Graham Partnership. In 1956, Benjamin Graham retired and closed his partnership. At this time Buffett’s personal savings were over $174,000 ($1.2 million inflation adjusted to 2009 dollars) and he started Buffett Partnership Ltd., an investment partnership in Omaha.

Buffett Partnership: By 1960, Buffett had seven partnerships operating: Buffett Associates, Buffett Fund, Dacee, Emdee, Glenoff, Mo-Buff and Underwood. The return from the partnership were phenomenal.

In 1962, Buffett became a millionaire. Some of his very good investment during Buffett Partnership were . In 1966, Buffett closed the partnership to new money. Buffett wrote in his letter: “… unless it appears that circumstances have changed (under some conditions added capital would improve results) or unless new partners can bring some asset to the partnership other than simply capital, I intend to admit no additional partners to BPL.” In 1969, following his most successful year, Buffett liquidated the partnership and transferred their assets to his partners. Among the assets paid out were shares of Berkshire Hathaway. In 1970, as chairman of Berkshire Hathaway, Buffett began writing his now-famous annual letters to shareholders.

Berkshire Hathaway: From 1970 to 2011, Buffett has generated phenomenal returns for Berkshire Hathaway shareholders. His Berkshire Hathaway returns were the following:

Some of his very famous investments are:

GEICO

First Shares Purchased: 1970′s

> Date Sold: Still Owned

> Amount Made: $2.35 billion (Unrealized)

> % Gain: roughly 5000% (Unrealized)

GEICO is one of Buffett’s first major investment and the position may have ties to his hero and mentor Benjamin Graham. Buffett began buying GEICO in the 1970′s and continued acquiring shares through 1981 with a carrying cost of $45.7 million for a 30% stake. Because of buybacks, his stake grew to some 51%. Team Buffett decided to acquire the rest of the company for $2.3 billion in 1995 and the deal closed in the first hours of 1996. That valued the company at closing at $4.7 billion for GEICO as a whole, placing Buffett’s implied cost basis around $2.35 billion. Buffett proudly noted in Berkshire’s 2009 report that GEICO’s market share has increased from 2.5% to 8.1% since the deal and he noted that “its float has grown from $2.7 billion to $9.6 billion.” What GEICO would sell for today would likely be up for debate. What would be extremely hard to debate is that Buffett added billions of dollars in value to GEICO under the Berkshire umbrella.

GENERAL RE

BLUE CHIP STAMP

SEE’S CANDY

BUFFALO NEWS

NEBRASKA FURNITURE MART

BORSHEIMS

THE FECHHEIMER BROTHERS COMPANY

SCOTT FETZER COMPANY

H H BROWN

DEXTER SHOES

WESCO

Permanent Holdings:

THE WASHINGTON POST COMPANY

> First Shares Purchased: 1973

> Date Sold: Still Held

> Amount Made: $720 million (Unrealized)

> % Gain: 6,500% (Unrealized)

In 1973, Buffett started purchasing shares of the parent company which owned the Washington Post. By the end of the year, he had about 10% in non-controlling shares. In 1974, the famous investor joined the board of directors. He became close friends with Katherine Graham, then the Post’s controlling shareholder, and who had overseen the paper during its best years, including the Watergate scandal. By the fourth quarter of 2004, Buffett owned 1.7 million shares at a cost basis of $11 million, and had increased his stake of the company to 18.1%. At that time, the market value of those shares was $1.698 billion. That represents an unrealized gain of $1.7 billion and an increase of 15,336.4%. However, since 2004 the newspaper industry has suffered, and shares of WPO have declined more than 50%, and Berkshire’s stake is now only worth about $730 million. That still represents a gain of about $720 million and a 6,500% increase. Warren Buffett has just announced he will step down from the board of directors at the Post. Multiple reports indicate that Buffett plans to hold those shares and focus more on Berkshire Hathaway.

CAPITAL CITIES/ ABC / DISNEY

> First Shares Purchased: 1979

> Date Sold: 1996

> Amount Made: $2.2 Billion (Realized and Unrealized)

> % Gain: n/a

Buffett purchased 20 million shares of Capital Cities/ABC at a cost basis of $345 million. At the end of 1995 the unrealized gains on those holdings were worth $2.5 billion. As reported in the Berkshire Hathaway Annual Report at the end of that year: “On January 4, 1996, shareholders of Capital Cities/ABC, Inc. … and The Walt Disney Company … approved an agreement and plan of merger by and between Disney and Capital Cities. In March 1996, Berkshire received about 21 million shares of Disney common stock and $1.2 billion in cash in exchange for the common shares of Capital Cities.” Berkshire reported a total realized and unrealized gain, between the shares and the cash, of $2.2 billion.

THE COCO COLA COMPANY

> First Shares Purchased: 1988

> Date Sold: Still Held

> Amount Made: $9.2 Billion (Unrealized)

> % Gain: 766% (Unrealized)

When Buffett began purchasing stock in Coca Cola in 1988, many Wall Street analysts were skeptical because it seemed only a matter of time before other beverage companies would take away its market share. In addition, Coca-Cola had reported earnings down 2% from the previous year, and had an unimpressive P/E ratio of between 14 to 19. At the time, shares of KO were worth between $35 and $45. The stock has split three times since then, and is now priced in the $60 range. By 1995, Buffett owned 100,000 shares of the company with a cost basis of roughly $1.2 billion. As of September 2010, Buffett’s unrealized gains on KO were $10.4 billion. This comes out to a 766% increase in value. This is one of Buffett’s greatest investment triumphs.

Equity Marketable Securities:

THE GILLETE COMPANY