Welcome to Episode 5 of the "Becoming Buffett" Series!
This week we discuss the 1969 letter to Berkshire Hathaway shareholders.
Buffett's annual letters book: http://amzn.to/2ogVi4U
Some brief notes:
- Proceeds from funds temporarily utilized in marketable securities were able to fund major purchase of 1969 (The Illinois National Bank and Trust Co.).
- Used money from stock investments to make an acquisition
- Perhaps someday we could take money out of an IRA or other account and acquire a company?
- Allocating capital into securities like this allowed BH to see annual returns of more than 10% as compared to the return in textile operations of only 5%
- Buffett saw that BH’s core business was struggling and diversified into stronger sectors (insurance, stocks, etc)
- Do you have a metric or means for measuring the total return on capital for your household, factoring in all data points (ex: your salary, raise, investments, etc.)?
- “We anticipate no further purchases of marketable securities, but our search for desirable acquisitions continues.”
- Any such acquisition would be dependent upon obtaining proper financing.
- BH was open to borrowing in order to take advantage of the right opportunity, how do you feel about that for yourself?
- Textile business is struggling, slowdown greater than expected and recovery for the sector appears dependent upon Federal Gov intervention
- Insurance company continues to perform wonderfully
- New California operation will take a few years before an intelligent verdict can be made about operating results
- Yet another reminder to be patient with investments when the buy thesis is still intact
- When was last time you were patient (meaning years) in waiting for an investment to finally materialize?
- What is your patience threshold? Years? Months? Weeks?
- Acquired a bank
- Bank is operating at peak profits and performance
- BH bought a bank performing at the top of it’s game, did not go into details as to the price of acquisition. Was okay buying at it’s peak because of value it could bring to BH overall and in future.
- Don’t have to limit ourselves to companies that are struggling (often mindset in value investing)