Tuesday, February 18, 2014

Warren Wednesday: H1 1961

Quite a hectic time for me right now and thus a delay in Warren Wednesday. I'm doing the online college thing and work seems to be blowing up with mergers of teams. It's been quite the distraction but it also has reinforced why I am focusing on learning about investing: to become financially independent.
Thusly this Warren Wednesday is for last Wednesday and I'm sticking with the schedule.

H1 1961
Written: Jul 22, 1961
Length: 3 pages
Dow Jones: 13%
Buffett's return:
Major events: President Eisenhower gives his final State of the Union address and warns of the power of the U.S. military-industrial complex. 

Two B-52 bombers carrying nuclear weapons crash in different accidents in the U.S.
23rd Amendment to the U.S. Constitution allows Washington D.C. residence to vote in presidential elections. They however do not have representation in Congress.
Bay of Pigs invasion of Cuba fails.
President Kennedy announces the U.S. will put a man on the moon by the end of the decade. In related news record shipments of coffee and antacids are ordered by NASA.

Warren changes over to a twice a year letter format starting with this update. He stresses that 6 months is far too short a time to measure success and would prefer to look at a 5 year time frame. Thinking about the average person today... there is no way that would be tolerated by investors and people would be pulling money away from him.

Normally I calculate the return for the S&P but I have done that yearly not half a year so will use Buffett's own comparisons on his performance. He cautions that if things keep going like they did for the first half year then he probably won't beat it.

He is so long term focused in his discussion here that he mentions a position they have that he hopes does nothing for at least a year. Presumably to buy more shares and this is something I have noticed is a problem with retail investors. We tend to make one purchase and if it doesn't go up we start getting impatient and whiney. My reply is always "So you to planned to never add to your position again? You want it to go sideways to keep buying shares then rise before you plan to cash out."
The responses I usually get is that I am a short seller trying to manipulate the market. I have to wonder if Warren ever had to deal with that.

The majority of this letter was in partnership rules, reorganization and bookkeeping but I still found it interesting to read. Buffett mentions that he is working on combining the partnerships together into one. I read is biography "The Snowball" and know that he was starting up a lot of partnerships. Often they were with different family and friends and it started to get unamanageable. He goes on to discuss how the partnership is split up and discloses some interesting things.
He will contribute 1/6th of the assets placing his personal wealth at stake alongside his investors.
He will not be buying anything else outside of the partnerships.

Perhaps most surprising to me is that he allowed a 6% monthly withdraw rate for people who want income.
For those that don't they can have the money rolled back in to increase their stake. For someone who is so adamant against paying out dividends this had to drive him nuts. He probably didn't have much choice though as these were partnerships and they had a say in what happens to the money. Not in where it's invested but in if it was to be with Buffett or someone else.

New partners needed a minimum of $25,000 to join. That is $195,000 in today's money so this was not a Joe Six Pack friendly investment.

Disclaimer: The investments and trades discussed are not recommendations for others. I am not a financial planner, financial adviser, accountant, or tax adviser. The financial actions I talk about are for my own portfolio and money and only suited for my own risk tolerance, strategy, and ideas. Copying another person's financial moves can lead to large losses. Each person needs to do their due diligence in researching and planning their own actions in the financial markets.


  1. You mean 6 months isn't long-term investing?

    And have you really received the response that you're a short-seller trying to manipulate the market? Those people do realize you have to have a pretty big presence to do anything to the share price of a company. I can't remember what it is you do for a living, and no offense but I'm guessing you aren't getting the kind of media attention to actually manipulate the prices of companies.

    It's a hard emotional hurdle to get over to see a company you just bought decline in price, but it's great for the rational investor. If you're wanting to add more shares, now you have an opportunity. I'm thinking of doing the same with PEP if it declines a bit more.

    Thanks for another WW, I was missing it last week.

    1. Yeah I don't write articles for SA nor promote my blog so the acqusations that I am a short seller trying to flex my social media muscle are beyond ridiculous. More often then not though its in regards to some over priced land trust (GYRO, GNI, BPT, WHX) that I am trying to warn people that its about to blow up. Oh well no skin off my back and I do get some people to understand what it is their money is invested in before its too late.

  2. I wonder if it is the juggling of various investors and requests for payouts as income that changed him into someone who hates paying dividends. Perhaps up to this point he previously wasn't as concerned with it until he realized how much "dry powder" was being absorbed by these early partners.

    Funny that in today's dollars you only get one full share of BRK.A with that investment...

    1. You make a good point. It is ironic that its about the price of one share.
      I'm curious what future letters will bring in his evolving strategies. The Snowball is more of a family and personal biography. It was interesting but not a whole lot of investment advice.