Buffett Partnership Letter 1958 Annual
1958 annual - 40.9% gain vs 38.5% Dow, Commonwealth Trust case study
Buffett Partnership Letter 1958 Annual
Warren E. Buffett | February 11, 1959
1958 Performance
| Year | Dow | Partnership | Limited Partners |
|---|---|---|---|
| 1957 | -8.4% | 10.4% | 9.3% |
| 1958 | 38.5% | 40.9% | 32.2% |
Five partnerships operating throughout the year achieved gains ranging from 36.7% to 46.2%, averaging slightly better than 38.5%.
Market Environment
"The mercurial temperament, characteristic of the American people, produced a major transformation in 1958 and 'exuberant' would be the proper word for the stock market."
Buffett warned that widespread public belief in the inevitability of profits from stock investment would lead to eventual trouble.
Case Study: Commonwealth Trust Co.
Investment Thesis:
- Intrinsic value: $125/share
- Price: ~$50/share
- Earnings: ~$10/share (no cash dividend)
- Key attraction: Well-managed bank selling at large discount from intrinsic value
Position: Acquired about 12% of the bank at average price ~$51/share over a year. Preferred stock remain dormant to accumulate larger position.
Result: Sold at $80/share (though quoted market was ~20% lower) when a special situation presented a better opportunity.
"It is obvious that we could still be sitting with $50 stock patiently buying in dribs and drabs... The year when a situation such as Commonwealth results in a realized profit is, to a great extent, fortuitous."
Current Situation
"The higher the level of the market, the fewer the undervalued securities and I am finding some difficult in securing an adequate number of attractive investments."
Buffett was attempting to create his own work-outs by acquiring large positions in several undervalued securities.
Source
Warren E. Buffett, February 11, 1959.