Warren Buffett - Coca Cola 1988

One of the things we like to do is reverse engineer some of Warren Buffett's historical investments. Coca-Cola is possibly the best investment he ever made. From Berkshire's 1993 Annual Report, only 5 years after the investment was made:

The Coca-Cola Company. ............... Cost: 1,023,920 Market: 4,167,975

Not many people can claim to have made investments as successful as that; especially in companies as mature as Coca-Cola was at the time of his purchase. Of course, this type of investment is very different from when Buffett was running his Partnerships and investing in net-nets.

For educational purposes only, and for those who are interested, like we are in learning from history, we present the 1987 and 1988 Annual Reports of the Coca Cola company. Since these are not available from Coca-Cola's website or generally on the internet, we managed to dig them up at the library:

KO - Annual Report 1987
KO - Annual Report 1988


Note: No holding.

Sanborn Map Company - 1960

McGill's library has a collection of the Moody's manuals going back to 1950. My natural reaction when I discovered this fact was to look up some of Warren Buffett's investments from the Buffett Partnership days. He has talked about Sanborn Map Company several times at his annual meetings and it was mentioned in the 1960 Buffett Partnership letter. From the 1960 letter:

Last year mention was made of an investment which accounted for a very high and unusual proportion (35%) of our new assets along with the comment that I had some hope this investment would be concluded in 1960. This hope materialized. The history of an investment of this magnitude may be of interest you.

Sanborn Map Co. is engaged in the publication and continuous revision of extremely detailed maps of all cities in the United States. For example, the volumes mapping Omaha would weigh perhaps fifty pounds and provide minute details on each structure. The map would be revised by the paste-over method of showing new construction, changed occupancy, new fire protected facilities, changed structural materials, etc. These revisions would be done approximately annually and a new map would be published every twenty or thirty years when further paste-over became impractical. The cost of keeping the map revised to the Omaha customer would run around $100 a year.
...
There was considerable opposition on the Board to change of any type, particularly when initiated by an “outsider,” although management was in complete accord with our plan and a similar plan had been recommended by Booz, Allen & Hamilton, Management Experts. To avoid a proxy fight (which very probably would not have been forthcoming and which we would have been certain of winning) and to avoid time delay with a large portion of Sanborn’s money tied up in blue chip stocks which I didn’t care for at current prices, a plan was evolved taking out all stockholders at fair value who wanted out. The SEC ruled favorably on the fairness of the plan. About 72% of the Sanborn stock, including 50% of the 1,600 stockholders, was exchanged for portfolio securities at fair value. The map business was left with over $1¼ million in government and municipal bonds as a reserve find, and a potential corporate capital gains tax of over $1million was eliminated. The remaining stockholders were left with a slightly improved asset value, substantially higher earnings per share, and an increased dividend rate.

It is easy to see that the stock is trading at less than the market value of the investment portfolio. Situations akin to this are a rarity these days, although if you flip over enough stones you can find a few in the smaller capitalization area.

More to come.

SG

Warren Buffett's Hedge Fund Days...(or more politely "partnership")

Probably the best thing I've ever read.

Buffett Partnership Letters 1959-1969

SG

Walter Schloss Collection - From Valueinvestingpro.com

A collection of 13 articles written by Walter Schloss who has a 5 decade investment record averaging 16% annually and is touted by Warren Buffett as a superinvestor in his 2006 annual report.

Walter Schloss Collection

Young Warren Buffett - Writings from 1951 and 1952

Here are articles on 2 companies Warren Buffett wrote about in 1951 and 1952:

GEICO

Western Insurance Company

SG

Check out Buffett on CNBC

Check out Buffett on CNBC this morning!

3 hr interview with Buffett

His comment about the economy going "off a cliff", has been all over the news today. The media has a delightful way of spreading pessimism. He also says that he sees the economic "machine" functioning well within 5 years, and that we have put systems into effect that should help us recover before then. Another interesting point is that he thinks the worst is over. He stated that he could not get the 10% preferred yields today that he got from Goldman Sachs and GE a few months ago.

SG

Warren Buffett's 2008 Letter to Shareholders

Here's a well written overview of Buffett's 2008 Berkshire Hathaway letter to shareholders. Written by fatpitchfinancials.com.
Warren Buffett's 2008 Letter to Shareholders



One of the most interesting parts in the letter is the debunking of the black-scholes formula for valuing long-term contracts. I agree with Buffett. In the short-term volatility is an accurate representation of risk, because the mark is unpredictable. And therefore, the Black-Scholes formula is about as good an indication of option value as possible.
However, in the long-term the economy will grow and the stock market will follow it. Therefore, volatility is no longer an accurate representation of investment risk. Investment risk in the long-term should be redefined as the probability of investment loss, and in the long term this risk, on average, will be next to 0%.

Of course, the definition of "long-term" depends on market valuation at the time of purchase. Purchases made 2-years ago, at the market peak, will not see break even levels for possibly 5-10 years. But Buffett's recently booked contracts were booked at depressed market levels and the contracts are set to expire in 10-25 years. Therefore, the probability of the market being at a level less then where it was recently, in 10-25 years is far less then 1%. These contracts can the be estimated at having a 99% probability of being profitable.


Disclosure: I do not own BRK shares.

SG