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Buffett's Early Investments

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Buffett's Early Investments

A new investigation into the decades when Warren Buffett earned his best returns

Harriman House,

15 min read
8 take-aways
Audio & text

What's inside?

A deep dive into the early moves of the investment master

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Editorial Rating

7

Qualities

  • Well Structured
  • Concrete Examples
  • For Experts

Recommendation

Legendary investor Warren Buffett has inspired a veritable library of studies and books about his career. In this slim volume, value investor Brett Gardner hones in on some of the Oracle of Omaha’s earliest moves. He recounts Buffett’s well-known wins, including stakes in American Express, Studebaker, and Disney. But there’s also a long-forgotten failure, in which neglecting demographic changes and sectoral shifts led to a losing bet. This book is a useful complement to the Buffett library for its focus on a seminal part of Buffett’s esteemed record.

Summary

One of Warren Buffett’s earliest moves was taking a stake in wholesaler Marshall-Wells.

In 1950, Buffett was 20 years old and already a graduate student at Columbia University, where renowned investor Ben Graham taught. Buffett and his father bought 25 shares of Marshall-Wells, a hardware wholesaler, for $200 a share. Graham himself owned a small stake in the company, but Buffett likely was attracted to Marshall-Wells because it was deeply undervalued. The Fortune 500 company was an obvious value play: It traded at a deep discount to asset values, and its price-to-earnings (PE) ratio was less than 4.

Buffett held the investment for less than a year, reporting a small loss. Marshall-Wells paid a robust dividend, so it’s possible he made a profit on holding the shares. Marshall-Wells didn’t perform especially well after Buffett sold: Sales declined in 1952 and were flat in 1953, as the company suffered from inefficiency and rising competition. Even though the investment was far from a home run, it did fit Graham’s model of value investing. Buffett was protected from downside risk by the company’s dramatic undervaluation.

In 1951, Buffett...

About the Author

Brett Gardner is a value investor who has worked at multiple investment firms,  including Discerene Group. He also has waged successful activist campaigns against public traded companies.

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