To the surprise and sorrow of many, Warren Buffett has written his retirement letter. He stated that the opportunities for investment for those who stress quantitative factors has greatly diminished, and that the extremely large size of the assets that he controls has further eliminated “a large portion of this seemingly barren investment world”.
As usually he showed his concern for his partners and investors by carefully giving several options for them to retrieve and reinvest their money. At the end of the letter, he speculated as to what he will do with the rest of his life. He expressed desire to not continue to be frustrated by constantly being “occupied with out-pacing an investment rabbit” all his life. He’s not sure what he’s going to do next, but one of the final sentences says it all: “Therefore, unless I now divorce myself from the activity that has consumed virtually all of my time and energies during… my adult life, I am unlikely to develop activities that will be appropriate to new circumstances in subsequent years.” It would seem to readers that Warren Buffett is finally done with the investing world.
In 1969, that is. The letter just described is the letter that Warren Buffett wrote to his partners in his investment partnership, Buffett Partnership Ltd. After running his partnership for nearly two decades with phenomenal success, he became frustrated and closed shop. From reading the letter, you would be lead to believe that he is done with the investing world forever. Fortunately for everyone (including the good of society in light of his future philanthropic gift), he must have changed his mind, buying Berkshire Hathaway and developing it in to one of the best long-term investment vehicles of all time. You know the rest of the story.
Most value investors already know that Warren Buffett’s annual letters from Berkshire Hathaway are great tools to learn about value investing from the absolute best. The reason that I bring up the 1969 retirement letter is because I think that as great as the Berkshire letters are, his limited partnership letters are even better. They are generally less entertaining, but they are far more relevant for the majority of us because back then he was running a much smaller amount of money, and because of that, he had much higher returns. It is a great way to learn what Warren Buffett might do if he was running our much smaller personal portfolios.
His thought process back then, characterizing his investments in to such categories as “work-outs” and “generals” is unlike anything I have read elsewhere, and may prove invaluable for the majority of us running much smaller portfolios. As an added bonus, in the retirement letter described above, you will find what is in my opinion the most unintentionally funny one-liner that Warren Buffett has ever written. But to avoid crudeness, I won’t quote it here; you’ll have to read from yourself.
You can find links to his partnership letters here: http://www.ticonline.com/buffett.partner.letters.html
The retirement letter described above can be found here:
One other point that can be brought up from Buffett’s 1969 retirement letter is the nonparallel between him and Eddie Lampert. Many Lampert fans have pointed out how similar his career path has been to Warren Buffett’s. They both started their own investment funds in their mid 20’s (ESL for Lampert and BPL for Buffett). As they reached their middle ages they both gained control of a company and ran it nontraditionally as a potential investment vehicle (Sears Holdings for Lampert and Berkshire Hathaway for Buffett). It is well documented that Lampert is a fan of Buffett, and has studied him extensively. Finally, many people speculate that Eddie will now end his hedge fund and run Sears Holdings full time and turn it in to the next Berkshire Hathaway.
I disagree. We can see from his 1969 retirement letter that Buffett was in a completely different state of mind at the time. When he decided to end his partnership, he wasn’t set on continuing to invest or turning Berkshire in to what it has become. If anything you get the impression that he was frustrated with investing and might aim his future efforts elsewhere.
So will Eddie Lampert discontinue ESL investments? I don’t think so. Unlike Buffett, he is not showing signs of burnout. Add to that the fact that there are rumors that he personally made over a billion dollars at his hedge fund last year and no income at Sears, and I see little reason for him to end ESL investments. Would you give up continuing to potentially earn a billion dollars a year?
This doesn’t mean that he won’t turn Sears Holdings in to a legendary investment vehicle rather than just a retail store. I hope he does and he certainly has the motivation to considering that his hedge fund owns a majority stake in it. But I prefer to think of it as the FIRST Sears Holdings, rather than the NEXT Berkshire Hathaway.
For full disclosure, I (author: Matt Clarke) do own shares of Sears Holdings (SHLD). I can be reached by email at firstname.lastname@example.org.