Buffett Partnership Letter December 1969 (1)

Warren E. Buffett | December 5, 1969

Diversified Retailing Company (80% owned)

• 800,000 of 1,000,000 shares outstanding
• Sold Hochschild Kohn to Supermarkets General Corp for ~$11 million
• Owns Associated Retail Stores (formerly Associated Cotton Shops)
  • Net worth ~$7.5 million
  • Last year: $37.5 million sales, $1 million net income
  • This year: should see new records, ~$1.1 million after taxes

Tangible net assets: ~$11.50-$12.00 per share

Berkshire Hathaway

Three main businesses:

1. Textile operation: Employs ~$16/share capital. Cannot be judged satisfactory—return on capital insufficient. Will continue as long as it produces near current levels.

2. Insurance operation (National Indemnity + National Fire & Marine): First-class business. ~$15/share in tangible assets. Estimated normal earning power: ~$4/share (vs ~$3.40 in 1968).

3. Illinois National Bank and Trust (97.7% owned): First-class business. ~$17/share in net tangible assets. Same ~$4/share earning power.

Total tangible net asset value: $43/share ($45 stated book value)

On Restricted Stock

"These securities are not freely marketable (various SEC restrictions apply to 'control' stock and non-registered stock)."

Buffett explains why registration was not done: B-H holdings are 4-5x the floating supply. Attempting to sell large quantities could create chaotic market conditions.

Source

Warren E. Buffett, December 5, 1969.