Buffett Letter: 1960 semi-annual 1

1960

Semi-annual 1

• The letters now have become 2 in a year. Not sure for long this will continue.
• Buffett reemphasizes that the DJIA couldn't be beaten by even 10% of the stocks a year ago. I think he has been pro Index Investing since eternity. History now makes sense to me on this subject. In 1960 the DJIA declined but more stocks lost than won.
• He is curt in saying that if the partnerships don't perform better than the index i.e. DJIA there is no reason for the partnerships to exist. Like this approach.
• Buffett always has said it is better that his funds hold or lose little value in a declining market that gain disproportionately in an upward market. Love this approach. I find it conservative and cautious too.
• He talks a lot about details of his partnerships. More related to operational issues. These can be avoided.
• The first case study: Sanborn Map
• The investment mentioned in the previous 1959 letter which took 35% of the portfolio value was that in Sanborn Map.
• Sanborn was or is (I wonder) engaged in creating extremely detailed maps of cities. For instance insurance agencies and fire services would know how ducts flow, where are water outlets etc. 
• For 3/4 of a century the company operated in a monopolistic environment. Every year they generated profits without much sales efforts. The insurance agencies were afraid that Sanborn would become too powerful so they put executives on its board.
• In 1950s a competitive method of underwriting by these insurance companies came into force, it was called 'carding' (I am unaware what it exactly was). Essentially the company was losing its monopoly and revenues fell. 
• But Sanborn being smart in the 1930s began an investment portfolio. There was no capital requirements for Sanborn so it devoted large sums of money for investments.
• Overtime in 1958 the embedded valuation of the maps business was priced negatively in the stock price and all the positive value was because of Sanborn's investments.
• It now had a sales of $2 Mn and an investment portfolio of $7 Mn.
• Buffett talks about the complexity of the deal and how existing shareholders navigated. This is not of importance to me personally.
• After his investment the existing shareholders were essentially rewarded with improved asset value, higher earnings per share and increased dividends.
• This case is more to do with a takeover where Buffett felt he could unlock value for existing shareholders. This serves as a good learning for me but not something from which I can apply in my own investing.