08-05-2015, 12:08 PM
Warren Buffett’s investment strategy has changed over the years. From a deep-value nets-nets investing methodology to today’s quality at a reasonable price philosophy, Buffett’s portfolio has undergone several changes.
But in the early days of Buffett’s partnerships, the then undiscovered Oracle of Omaha used an activist strategy to get results, the use of which allowed him to make big bets with a highly concentrated portfolio. Indeed, reading through Buffett’s early partnership letters to shareholders (mid 50’s to late 60’s), almost all of the investment examples he gives are activist situations. He often devoted around a fifth or more of assets under management into each situation.
Buffett’s activism in Dempster Mill
For example, Buffett started acquiring stock in Dempster Mill, a manufacturer of farm implements and water systems, during 1956 when the stock was selling at $18, while book value stood at $72 per share — current assets amounted to $50 per share.
Dempster had been highly profitable for many years, although when Buffett entered the picture the company was only breaking even, hence the low valuation.
Buffett’s Dempster position was acquired over a period of five years, from 1956 to 1961 and as Buffett sat on the board of directors, he became increasingly frustrated with the way the business was being run. Then during 1961 Buffett used his financial firepower to acquire 70% of Dempster stock, push out the management team, bring in new managers and instigate change. Eventually during 1963 Buffett sold Dempster’s assets for around $80 per share.
This kind of activism investing is common with most of Buffett’s bigger positions all the way up to the late 60s.
The Sanborn Map trade
Take the Sanborn Map trade (this can be considered a trade because Buffett was not involved for much more than a year). Before taking a position, Buffett had computed how long he was willing to hold the company’s stock and what returns he wanted to make within the time period. He expected to realize value from the deal within a year and took a huge bet, using 35% of net partnership assets to acquire stock.
Like Dempster, Sanborn offered value. The company produced maps of all cities of the United States, but due to falling profitability the company’s stock price had fallen significantly below its asset value. (Sanborn was a special situation, the company owned a portfolio of securities value at $65 per share, while the company’s stock only traded at $45. The map business was value at 0 and portfolio of securities value at $0.70 on the dollar.)
http://www.valuewalk.com/2014/10/buffett...-activism/
But in the early days of Buffett’s partnerships, the then undiscovered Oracle of Omaha used an activist strategy to get results, the use of which allowed him to make big bets with a highly concentrated portfolio. Indeed, reading through Buffett’s early partnership letters to shareholders (mid 50’s to late 60’s), almost all of the investment examples he gives are activist situations. He often devoted around a fifth or more of assets under management into each situation.
Buffett’s activism in Dempster Mill
For example, Buffett started acquiring stock in Dempster Mill, a manufacturer of farm implements and water systems, during 1956 when the stock was selling at $18, while book value stood at $72 per share — current assets amounted to $50 per share.
Dempster had been highly profitable for many years, although when Buffett entered the picture the company was only breaking even, hence the low valuation.
Buffett’s Dempster position was acquired over a period of five years, from 1956 to 1961 and as Buffett sat on the board of directors, he became increasingly frustrated with the way the business was being run. Then during 1961 Buffett used his financial firepower to acquire 70% of Dempster stock, push out the management team, bring in new managers and instigate change. Eventually during 1963 Buffett sold Dempster’s assets for around $80 per share.
This kind of activism investing is common with most of Buffett’s bigger positions all the way up to the late 60s.
The Sanborn Map trade
Take the Sanborn Map trade (this can be considered a trade because Buffett was not involved for much more than a year). Before taking a position, Buffett had computed how long he was willing to hold the company’s stock and what returns he wanted to make within the time period. He expected to realize value from the deal within a year and took a huge bet, using 35% of net partnership assets to acquire stock.
Like Dempster, Sanborn offered value. The company produced maps of all cities of the United States, but due to falling profitability the company’s stock price had fallen significantly below its asset value. (Sanborn was a special situation, the company owned a portfolio of securities value at $65 per share, while the company’s stock only traded at $45. The map business was value at 0 and portfolio of securities value at $0.70 on the dollar.)
http://www.valuewalk.com/2014/10/buffett...-activism/