Warren Buffet's Early Day of Value Investing - The Buffet Partnership Letters
The famous value investor, Warren Buffet ran his partnership between the years of 1957 and 1969
. During this time he was just like you and me. He was neither super-rich or famous.Initiallyhe was managing less than one million dollars in capital. By the time he closed his partnership he was a multimillionaire. And he had beaten the return of the stock market by over 22% per year.
He achieved this in a variety of ways. However, there are a few common themes between his investments. Almost all of his investments were long term. He didn't trade stocks monthly, it seems that he would hold most of his investments over one year. However he would often participate in "workouts" or "special situations." These were held only for a short period of time, and he would even sometimes use margin (borrowed money) to become involved in these situations. However he did say that he would never borrow more than 25% of the amount of capital that he was managing.
An example of a"specialsituation" would be this: buying a stock for $10.00 that is going to be bought-out by another company for $10.25 in one month's time. We also assume that all of the information is publicly available and that it is almost 100% certain that the deal will go through. This is only a 2.5% return on your initial investment, but it is a 31% annualized return.
In his early partnership these kinds of deals helped keep Buffet's returns positive in years when the overall stock market was negative. While the returns from these "special situations" were almost always positive and would beat the stock market's returns in down years, they were often not enough to beat the stock market in large up years.
To do this, Buffet used a variety of other methods. I detail the "special situation" method and many of Buffets other methods on my we website for free. If you are interested in finding out more about Warren Buffet's early approach to value investing you can find a link to my website and to a site containing Buffet's partnership letters below.
Thanks for reading!
Warren Buffet's Early Day of Value Investing - The Buffet Partnership Letters