Berkshire Hathaway's letters to shareholders are oft-quoted and Berkshire's annual shareholder meeting is well-followed, as value investors try to glean the wisdom of the world's greatest investor. But before he ran Berkshire, Warren Buffett was far less followed and ran his partnership with a sum of money much smaller than he employs today. The issues he faced then are probably far more relevant to the individual investor today than are Berkshire's current challenges. The following series attempts to summarize the key takeaways from Buffett's partnership letters.
You Can't Time Your Returns
In the previous year, Buffett lamented that new ideas were hard to find and therefore he projected a future performance that could not match that of the past. However, 1968 had still turned out to be spectacular, yielding a portfolio gain of 58%! This was the result of the price performance of a security Buffett called "simple but sound" whose time had finally come. Buffett quips that "investment ideas, like women, are often more exciting than punctual".
Stick With Logic
Buffett quotes a few market observers with views dissimilar to his. One argues that a basket of securities can no longer be maintained over a period of weeks, as they must be studied minute-to-minute. Buffett finds this type of "investing" fascinating to watch, but in another sense appalling. Buffett also quotes an observer who writes that security analysts over 40 "know too much that isn't true". Buffett refuses to change his investing philosophy, however. He writes that an over-the-hill, overweight ballplayer with poor eyesight can hit a home-run every once in a while, but that doesn't mean you change your line-up because of it.
The conditions described above and in the previous year are party responsible for the following:
In his letter dated May of 1969, Buffett announces that he is retiring. It has become increasingly frustrating for him to invest over the years as speculation has slowly taken over the market. He argues that opportunities have disappeared, and the $100 million size of the fund now precludes him from investing in companies that are smaller than $100 million. Buffett does not know what he will be doing next. To redeem their partnership interests, Buffett offers investors cash and/or shares of Berkshire Hathaway, a company controlled by the fund. We know which turned out to be the better choice!