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Rupert Hargreaves
Rupert Hargreaves
Articles (542)  | Author's Website |

Quotes From Warren Buffett’s Partnership Letters

Early lessons from the Oracle of Omaha

July 14, 2017

Warren Buffett (Trades, Portfolio) is considered the world’s best investor, and today he is never far from the limelight, but when Buffett first started out managing his investment partnerships, he was almost a nobody.

This didn’t stop him from producing staggering returns; during this period he made some of his most interesting investments. As well as remaining devoted to deep value, Buffett’s investment strategy was built around achieving steady long-term returns from the very outset, something the majority of Wall Street overlooks even today.

More than five decades on, we can still learn a lot about investing from Buffett’s early investing strategy and letters to partners. Below are some of what I believe to be the best.

“Let me, however, emphasize two points. First, one year is far too short a period to form any kind of an opinion as to investment performance, and measurements based upon six months become even more unreliable. One factor that has caused some reluctance on my part to write semiannual letters is the fear that partners may begin to think in terms of short-term performance which can be most misleading. My own thinking is much more geared to five-year performance, preferably with tests of relative results in both strong and weak markets.” – Buffett's July 1961 letter to partners

“It is difficult at the time of purchase to know any specific reason why they should appreciate in price. However, because of this lack of glamour or anything pending which might create immediate favorable market action, they are available at very cheap prices. A lot of value can be obtained for the price paid. This substantial excess of value creates a comfortable margin of safety in each transaction. This individual margin of safety, coupled with a diversity of commitments, creates a most attractive package of safety and appreciation potential. Over the years our timing of quotes from Buffett’s letter between 1960 and 1965 purchases has been considerably better than our timing of sales. We do not go into these generals with the idea of getting the last nickel but are usually quite content selling out at some intermediate level between our purchase price and what we regard as fair value to a private owner.” – Buffett January 1962

“Conscious, perhaps overly conscious, of inflation, many people now feel that they are behaving in a conservative manner by buying blue-chip securities almost regardless of price-earnings (P/E) ratios, dividend yields, etc. Without the benefit of hindsight as in the bond example, I feel this course of action is fraught with danger. There is nothing at all conservative, in my opinion, about speculating as to just how high a multiplier a greedy and capricious public will put on earnings.” – Buffett January 1962.

“Our business is one requiring patience. It has little in common with a portfolio of high-flying glamour stocks, and during periods of popularity for the latter we may appear quite stodgy.

"It is to our advantage to have securities do nothing pricewise for months, or perhaps years, why we are buying them. This points up the need to measure our results over an adequate period of time. We suggest three years as a minimum.” – January 1964

“What we really like to see in situations where the company is making substantial progress in terms of improving earnings, increasing asset values, etc., but where the market price of the stock is doing very little while we continue to acquire it. This doesn't do much for our short-term performance, particularly relative to a rising market, but it is a comfortable and logical producer of longer-term profits. Such activity should usually result in either appreciation of market prices from external factors or the acquisition by us of a controlling position in a business at a bargain price. Either alternative suits me.” – July 1964

“It is unquestionably true that the investment companies have their money more conventionally invested than we do. To many people conventionality is indistinguishable from conservatism. In my view, this represents erroneous thinking. Neither a conventional nor an unconventional approach, per se, is conservative.

"Truly conservative actions arise from intelligent hypotheses, correct facts and sound reasoning. These qualities may lead to conventional acts, but there have been many times when they have led to unorthodoxy. In some corner of the world they are probably still holding regular meetings of the Flat Earth Society.

"We derive no comfort because important people, vocal people or great numbers of people agree with us. Nor do we derive comfort if they don't. A public opinion poll is no substitute for thought. When we really sit back with a smile on our face is when we run into a situation we can understand where the facts are ascertainable and clear and the course of action obvious. In that case whether other conventional or unconventional whether others agree or disagree we feel we are progressing in a conservative manner.” January 1965.

About the author:

Rupert Hargreaves
Rupert is a committed value investor and regularly writes and invests following the principles set out by Benjamin Graham. Prior to his investing and writing career, Rupert was as a proprietary currency trader. Rupert holds qualifications from the Chartered Institute for Securities & Investment and the CFA Society of the UK. He covers everything value investing for ValueWalk and other sites on a freelance basis.

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