Warren Wednesday: H1 1963

Warren Wednesday is back. I won't be able to promise consistent every other Wednesday but I will be getting it out when I can. The ability to learn from the greatest investor ever is too big a chance to pass up.

H1 1963Written: July 10, 1963
Length: 13 pages
Source: RPCPA.com

Dow return for H1 1963: +10%
Buffett's return:  +14%
Major events: In Gideon v. Wainwright the Supreme Court rules that states have to provide an attorney to those who cannot afford one. Coca-Cola releases its first diet soda, Tab. The first James Bond film, Dr. No, is released in theaters.

Warren starts off by making a good point of comparisons between himself and the Dow. Him being +4% with profit is less satisfactory then when he had a 14.2 margin with him being -7.5% when the Dow was -21.7%. If someone is paying Warren to manage their money you'd expect him to protect it as much as try to make more money and prove his worth over indexes.
Incidentally this was my reasoning why I was in mutual funds in 2008. I learned the hard way that not all fund managers think this way.

Next he talks about his "Generals" and his "Work-outs" as far as sometime one will do good and the other will cause drag on his portfolio numbers. Then later the reverse is occurs. He doesn't come out and use the word diversification but its something we in the present day can look at. Yes all his categories hold equities but diversification can come in many forms, not just asset classes. He has split up his portfolio by how much work needs to be done to unlock profit in each category of equities he invests in. So if his efforts on a board of directors fails, he still has a backup plan. Multiple strategies in a portfolio can be powerful.

That's a big reason I have bond ETFs within my portfolio. At a 10%-15% weighting, I have enough to give some stability to my income and portfolio stats without compromising the overall investing strategy.

Returning to Buffett, he then moves on to talk about Dempster Mill Manufacturing Company. Harry Bottle was brought in to turn the company around and he did. A lot of unproductive assets were turned into productive ones and generated cash which was then used to invest in various securities. They turned the company from a value of $35/share up to $64 mostly from clearing out inventory.

We won't be able to buy out a company outright and turn them around but we can look for similar scenarios where the market miss-values a company. Aileron from No Nonsense Trading originally pointed me to STX. At the time I bought them they were incredibly undervalued and the company announced they were going to buy 1/3rd of their shares back within 3 years. Its because of situations like this where in the day and age of high frequency trading and everyone having computers and analysis that I don't believe in Efficient Market Theory. Not every company is going to turn around. I'm looking at you Staples (SPLS) but if we as investors and stock pickers can be patient enough and not swing for every ball thrown our way, we can wait for the easy pitches and get a hit.

He goes into people taking money out and some tax talk before ending on what I found was an interesting comment.

My closing plea for questions regarding anything not clear always draws a blank. Maybe no one reads this far. Anyway the offer is still open.

Funny how he goes from making this comment and others that his letters are to long to today where 30,000 people come to hear what he has to say.


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.

Warren Wednesday: H2 1962

Warren's letters are starting to grow in size and you can tell with his writing that he is getting used to reporting and giving updates...

H2 1962
Written: January 18, 1963
Length: 13 pages
Source: RPCPA.com
S&P return for 1962: -11.81%
Buffett's return for 1962:  +13.9%
Major events: Marylin Monroe dies. Nelson Mandela is arrested for incitement to rebellion. Cuban Missile Crisis.
I find it humorous that Warren talks about people wanting his annual letter to be shorter. I guess 7 pages a year is too much to read for someone making you ridiculously rich especially this year where he absolutely demolishes the markets. Tripling them over a 6 year average

He goes over (again) some basics that there are no guarantees of returns, problems of taking out monthly payments etc. The same warnings he gives each year. He also reviews his numbers compared to two big investment funds which he also beats handily. He talks about the power of compounding interest which after having read the Snowball where he tells his kids not to sell their shares, I have to take this as a warning to the monthly payment partners.

Alright now for something we in the 21st century can use... how he breaks down his portfolio.
1: "Generals":  Regular investments where Buffett has no say on the boards.
5-6 positions of 5%-10% each
10-15 positions of smaller size. 
But isn't Warren famous for saying only invest in your 6 best ideas because the 7th one won't make as much money. THIS is exactly why I wanted to read his letters. Separate the sound bites and quotes he gives to general public. What is he thinking and do with his own money.

2: "Work Outs": Companies that take some corporate action to be profitable. Selling of assets, merger and acquisition, spin off.
5-10 positions.
Interesting comment her by Warren...

I believe in using borrowed money to offset a portion of our work-out portfolio, since there is a high degree of safety in this category in terms of both eventual results as well as intermediate market behavior.

He will borrow 10%-20% of the partnership's assets up to 25% maximum. He mentions 5% interest rates. Boy who wouldn't kill for some of that right now in ZIRP.
I don't know if this strategy would work in this day and age. Taking a loan to buy stock with the hope of them being bought out or spinning off a new company. To me it seems way to risky in this day and age.

3: "Control" Companies that he is working on buying out or just activist investing in. The smallest category and one where he says will take years to play out.

     Next he talks about the highlight of 1962, Dempster Mill Manufacturing Company. Dempster made farming instruments, water supplies, and well equipment and Buffett owned 73% of the company. His dollar cost average was $28 and he calculated book value as being $35. You really aren't going to find many companies under book these days but I think we can do something similar with P/E ratios in evaluating undervalued companies. I've owned a few 3 P/E ratio companies in the past.
     So Warren tried to work with management to get them to start being profitable instead of lagging sales and low inventory turnover. They didn't so he put a man named Harry Bottle in charge. By the end of the year the book value had risen to $51.
     I am not entirely sure but from the sound of it he turned the financials around and got an unsecured loan. Still had $16 a share worth of manufacturing but the $35 left over was financial which they then used to by more "generals" stock of other companies. 

He repeats a section that he had in a previous year that I think is critical and will repost it...

You will not be right simply because a large number of people momentarily agree with you. You will not be right simply because important people agree with you. In many quarters the simultaneous occurance of the two above factors is enough to make a course of action meet the test of conservatism.

You will be right, over the course of many transaction, if your hypotheses is correct, your factors are correct, and your reasoning is correct. True conservatism is only possible through knowledge and reason

He next goes into discussion of total return isn't his goal but in beating the market. He did have one section of wording that really stuck out to me...

Our job is to pile up yearly advantages...

Note he didn't say his goal or job is to make a lot of money. Or buy cheap undervalued companies. Its to get advantages. This pleases me because its something I have tried to focus on in my own investing. An advantage to me is a reason why the company will outperform others. 
It could be a 5%-10% yearly share buyback rate that gives management a big cushion in growing EPS. (SWY, AAPL, STX)
It could be hugely undervalued (CIG, AFL, AFSI)
It could have a high but staple yield that you can get profit from that regardless of what the share price does (ARCP, PSEC).
Though I am in no way comparing myself to Buffett, just that I am happy to be thinking along similar lines as he did.

Warren ends his letter with some personal call outs and general miscellaneous discussion.


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.

Warren Wednesdayish: H1 1962

A rather uninspiring letter but it does only cover half a year and they all can't be groundbreaking works of financial wisdom...

H1 1962
Written: July 6, 1962
Length: 7 pages
Source: RPCPA.com
DOW return for H1 1962: -21.7%
Buffett's return for H1 1962:  -7.5%
Major events: The U.S. Navy Seals are created.
Bob Dylan releases his debut album

Warren starts of this letter with reprinting his prediction warning from a previous letter. Essentially reminding everyone that he doesn't make predictions and that he doesn't expect to beat the Dow every year. When it drops he does plan to do better then a rising market.
What is new this time around is that he mentions his declining market goal of only losing 0.5% for every 1% loss in the Dow which he beat this time around.

He again discusses how large funds are doing as way of comparing himself and the Dow to other professional money managers.

The next sectional really has to make you wonder about where his partners are right now. He mentions people taking monthly payments and others taking 6% annually out of their partnerships. Wonder how much that set people back vs the potential of being billionares. I'm sure they still did good assuming they staid with Warren.

Warren must be getting popular as his lawyers advice him to take on only another dozen new people and the entrance fee is raised to $100,000

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.

Warren Wednesday: H2 1961

Getting back on track with my Warren Wednesday series on the actual Wednesday its to come out...

H2 1961
Written: Jan 24, 1962
Length: 11 pages
Source: RPCPA.com
S&P 500 return for all of 1961: +23.13%
Buffett's return for all of 1961: +45.9%
Major events: Construction begins on the Berlin Wall. 
Roger Maris breaks Babe Ruth's home runs in a season record. 
The book Catch-22 is published. 
The Vietnam War begins for the U.S.

This letter right here is exactly why I wanted to read his letters. He really gives us a big serving of meaty portfolio management ideas. Buffett discusses how he breaks up his portfolio.
1: "Generals": Undervalued non activist securities: Companies he is passively invested in with no specific time table on when they want to sell.
5 large positions (5%-10% total assets) and 10-15 smaller ones.
He discusses how his timing of purchase is better then the timing of sales. Isn't that the truth. It is one of the few things you can control. When you get into a position and at what price.
These generals won't outperform the Dow by much but over time of several years they should.

2:  "Work-Outs": Positions requiring corporate action to unlock the profit potential. Well we have our answer as to what a work-out is that first came up in the 1959 Warren Wednesday. 10-15 workouts at a given time. Buffett mentions that he will borrow money for this section of the portfolio and I get the impression that this is the only reason he would.

3: "Control": Positions in which they control the company itself or have a big enough position to be an activist. These positions he wants to have nothing happen for possibly years while he buys up more to increase his position. Then the big payoff comes similar to the Sanborn map business from the 1960 letter.

I find this interesting that he is famous for telling people to go with your 6 or 7 best ideas because your 8th idea won't make as much money. Yet here he is in 25-30 positions excluding their "control" activist positions. It's important to keep in mind though that a person's strategy and process will change over time. For Buffett, he had a big change when Charlie Munger enters the picture. Though they met in 1959, Munger will gain more and more interaction and work with Buffett over time.

To me it appears he breaks up his portfolio based upon how much work he has to do and how much control of that work. The generals are pretty passive. Work-outs are activist that he doesn't have control over so presumably he has less he can do. Control obviously is where he is sitting on the board of directors and having to spend his time with.

On the topic of conservatism in how he doesn't jump in to high P/E companies because the market is moving up...

You will not be right simply because a large number of people momentarily agree with you. You will not be right simply because important people agree with you. In many quarters the simultaneous occurance of the two above factors is enough to make a course of action meet the test of conservatism.

You will be right, over the course of many transaction, if your hypotheses is correct, your factors are correct, and your reasoning is correct. True conservatism is only possible through knowledge and reason.

Dempster Mill Manufacturing. Buffett reveals they own 70% of the company and that there are only 150 total stockholders. To me that's very risky as there is no liquidity here to exit a position if one so wanted. His cost basis is $28 a share and book value is $75. That's quite a large margin of safety so I can understand why he went in heavy. This one position accounts for 21% of all partnership assets.

Later in this letter he again goes over their strategy of matching or struggling in a rising market but beating the Dow in a declining market. He mentions something I think is important. That his partners fully understand this not only in their cerberal regions but also in the pit of their stomach. Psychology in investing and trading is so huge, far more important than most people think. You can say you will do one thing or follow one strategy then it get tested by the markets and you fold like a house of cards.

All in all this was a great letter. I find Buffett's ideas of portfolio management as similar to mine: broken down by my work load.

My rental is managed by a property manager and I am in contact with them about every two weeks for various things however it's for getting my input and permission for various requirements.

Next is Lending Club which I just run my screen and pick some notes. Then wait for the payments to add up alongside a deposit before I buy again. This amounts to perhaps 30 minutes every two weeks.

Third is dividend investing taking up a bit more of my time in reading and researching how they are doing and looking out for any news worthy events.

Lastly is Forex. I do plan to return to it at some point but as it will be taking up most of my financial time I need to finish college first so I can have a clear head.

So I have to admit I take a little pride that I am doing some of the things Buffett did. I won't be shadowing him, that would be disastrous but the underlying concepts of what he did and why he did them is what I am after here to learn about.

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.

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
Source: RPCPA.com
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.

Warren Wednesday: 1960

I am surprised at the response I am getting from my Warren Wednesday posts. Several people asked last week "Where is my Warren Wednesday!". I'm glad to see that these are being enjoyed...

1960
Written: Jan 30, 1961
Length: 8 pages
Source: RPCPA.com
S&P 500 return: -2.97% (Dow was -9.6%)
Buffett's return: +22.8%
Major events: The first CERN particle accelerator became operational in Switzerland. Interesting to know we had these back then. 
Colonialism is on its death bed with Chad, Niger, and most of French Africa getting independence from France, the Congo gets independence from Belgium, and Nigeria from the U.K. Sadly this year also begins the cycle of military dictators taking over these countries in coups.
Elvis Presley is honorably discharged from the military and begins his music career.
The laser is first patented.
Harper Lee writes, To Kill a Mockingbird.
OPEC is formed.
Domino's Pizza was founded. Hey what can I say, I love going to Dominos' website, they ask if I want to order the same thing as last time and I one click purchase a $6 pizza to be delivered!

This letter I found incredibly interesting as Buffett goes into great detail about his large position that had 35% of the partnerships assets that he mentioned in the previous year. He exited that position and talked about it.
Sanborn Map Company made extremely detailed maps. The map of Omaha would weigh 50 lbs. This company made maps for utility and insurance companies. Now these insurance companies relied on this company so much that they had worked their way into 9 of the 14 director spots so as to protect themselves. However they only had a total stock ownership of 46 shares. Two other board members were a banker with 10 shares and Sanborn's attorney also with 10 shares. The company had 105,000 shares at the time. Quite the different make up of board of director stock ownership then we have today.

Back in the 1930s, Sanborn was doing great but business started to slow down. So they started buying other company stocks and government bonds so they could use the dividends and interest to pass on to their shareholders and keep them happy while their own business of mapping struggled. By 1958 when Buffett enters the picture the stock could be bought for $45 however they owned $66/share of investments. So Buffett steps up and buys 22.8% of the company and says "We should split the company and let investors cash out if they want." The insurance company board members could have cared less because their interests were not aligned with Sanborn. They just wanted to get rid of this noisy Buffett guy. Investors were given the opportunity to cash out by redeeming their Sanborn shares for these other company stock and US bonds. If my numbers are right then those that cashed out (including Buffett) ended up getting $76 worth of investments. The company was left with about $12/share of bonds. Buffett even got all the stocks and left the bonds. It sounds like the shares were retired because Buffett talks how the remaining shareholders were happy with a higher EPS and higher dividend rate. They probably weren't happy a couple years later when they found out those stocks they gave away were the only thing keeping the business going.

Its interesting that this is the sort of thing we hear Ackman and Icahn do now a days. I knew Buffett was on various boards of companies over the years but nothing like this.
Analyzing this investment though I can see why Buffett went in heavy with a 1/3rd of his portfolio. It was a no brainer since it was essentially buying investments at $0.50 on the dollar. If someone offered to sell you Coca Cola (KO) stock for $19 today how much of your money would you put in? Even if the company ended up not splitting the company, when you buy a company for less than 0.5 P/B it's hard to lose money.

Buffett then comments that this was the need for secrecy in what was going on with the partnership money. He calls the above scenario a "control situation".

In overall market news he comments that the majority of all investment firms were +/-5% of what the Dow did. Even back then fund managers couldn't consistantly outperform.

Buffett is all about benchmarking. He says he would rather lose -15% when the market lost -30% then have a winning +20% year and the market also did +20%. As he goes on to say "Unless we do achieve this superior performance there is no reason for existence of the parnterships.

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.

Warren Wednesday: 1959

1959 
Written: Feb 20, 1960
Length: 3 pages
Source: RPCPA.com
S&P 500 return: +8.48%
Buffett's return: +25.9%
Major events: Fidel Castro takes power in Cuba, Women's suffrage is not approved in a vote in Switzerland (they wouldn't have it until 1971?!?), Alaska and Hawaii become the 49th and 50th state. Disney's Sleeping Beauty is in theaters and The Twilight Zone premiers on CBS.

While the S&P 500 only had +8.48% the Dow did +19.9% (including dividends). In today's markets of tight correlations it seems odd they wouldn't be so close.

He discusses that while the market was up investment companies and funds struggled. Tri-Continental Corp was the largest closed ended company at $400m AUM and Massachusetts Investors Trust the largest mutual fund at the time with $1.5b both got single digit.

Warren then goes on to talk about how the stock market seems a bit overpriced. Given his investing style it really doesn't matter since he invests in such deeply valued stock. In 2013 we know how well getting a big margin of safety has worked for him. 

I found the next part to be insightful...

"I would rather sustain the penalties resulting from over-conservatism than face the consequences of error, perhaps with permanent capital loss, resulting from the adoption of "New-Era" philosophy where trees really grow to the sky."

I've been in the markets since 2000 though not "seriously" into them since 2009. My personal experience has been that the long something goes great capital gains wise, the more people will start talking about how its different this time. Right now its Bitcoins, before that was gold in 2011, before that was housing in 2008, before that was tech stocks in 2000. Each time there is some new model to be used in generating wealth. Stock investing wise I think this is true too and it seems like there is always some new technical analysis tool to use. Then the strategy of buying an undervalued stock with a wide moat of protection that has worked for decades is set aside. Funny how when things blow up people return to it. Perhaps they should never leave it in the first place.

He discusses how one of his positions is at a 35% weighting of his portfolio. That is a crazy high amount for me. I do not have the self confidence or conviction that he does. In fact I recently sold some of my STX stake because it had risen to 12% of the account. Note that this is NOT in my blog portfolio. That was in other portfolios not receiving deposits. Deposits give protection of time in that something overweight now will not be next year. However I have noticed that I am becoming more self confident. I used to never ever ever go above a 5% weighting and would start panicking about a 7% position.
On the other hand I should keep in mind that Warren got his masters degree in economics in 1951 so he had been doing this for 8 years after that education.

Near the end he discusses something he mentioned in the previous year's letter that I am not sure about. He talks about the rest of the portfolio being invested in undervalued and work-out operations. I have no idea what a work-out operation is. I have searched online but found nothing. I contacted Berkshire Hathaway and left a voice mail message asking what it is. No idea if I will get a response but what the heck.


Disclaimer: The investments and trades discussed are not recommendations for others. I am not a financial planner, financial advisor, 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.

Warren Wednesdays: 1958

This is the first entry in a new series I am starting up. Every other Wednesday I will be reading and reviewing a shareholder letter from Warren Buffett. Much is written about Buffett and there are tons of biographies out there. However there is also a lot of material he has written for free that is filled with a lot of investing and general life wisdom. I find Buffett to be a humble human being and successful in many areas of life that I want to emulate so I will read and study what he has done. I am less interested in what he bought and when vs why he bought it and what his thought process was at the time he made his decisions. While I think at this point in time there is too much competition for there ever to be another Buffett, we can still learn a great deal.

1958 
Written: Feb 2, 1959
Length: 4 pages
Source: RPCPA.com
S&P 500 return: +36.90%
Buffett's return: +36.7% - +46.2%
Major events: NASA is created. Khrushchev comes to power in the U.S.S.R

At this point in time Buffett was running partnerships which he started in 1956 or 1957 but I am unable to find any letters covering those years. To be honest considering the time back then of storing copies I consider myself lucky to have found what I did. He would not buy Berkshire Hathaway until 1964.

Even though Buffett compares his returns to the Dow, I will use the S&P 500. I feel its a better barometer of the economy then the Dow. I also want to put up major news events as it reminds us of what a different time he was investing in.  Ok enough preamble, on to the letter itself...

I can find nothing more fitting then with Buffett starting off in the beginning of this first letter I review than talking about market psychology. Everyone was going nuts and piling into the market. I can't help but reflect at our own market returns of +33.7% (including dividends) that we had for 2013 and how similar everyone seems to think of the stock market.

I've read The Snowball and have watched countless Youtube videos and feel I get his general outlook, but how he estimates his performance in bear and bull markets was new to me. He expects to do better in a bear market vs the market and in a bull market he expect to do the same. That does make sense as he is a value investor. If everything is dropping then his investments will have a margin of safety in them and not drop as much. But in a bull market... everything goes up no matter what. Here in 2013 there were a lot of garbage stocks that rose.

He goes on to give an example of his methods to his partners. Its in his best interest for his investments to drop 10% - 20% so they can buy more. This is an important concept way too many new investors fail to understand. If you only plan to buy a stock once then yes you want it to go up. But if you plan to keep buying then you want it to drop so you can dollar cost average down. I just want to face palm when I read of a person who just bought shares and they are asking why their stock is dropping and what is wrong. I suppose they would be happy to keep buying as it rises and costs them more.

He closes with talk about an investment, Commonwealth Trust Co. This bank had a P/E of 5. 10 EPS, $50 share price and an intrinsic value of $125. He ended up selling at around $80 as the margin of safety from $80 for a then intrinsic value of $135 wasn't enough vs profit taking. What a world he was living in where a stock at a 40% discount to its value after a +36% year wasn't good enough and he could do better then a P/E 8 company. This seems to contradict what he tells people later about wanting to be a holder forever. That mentality might not pop up until later.

Well that covers the first Warren Wednesday. I'm curious to see how this shapes out and takes form as I get more of these completed.

Disclaimer: The investments and trades discussed are not recommendations for others. I am not a financial planner, financial advisor, 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.