I recently took a deep dive into Warren Buffett's early partnership letters, a resource that's often overshadowed by his more famous Berkshire Hathaway letters $BRK.B Trust me, these early letters are a goldmine of wisdom, especially for those of us who are still building our investment careers. 📈
𝙏𝙝𝙚 𝙁𝙤𝙪𝙧 𝘾𝙖𝙩𝙚𝙜𝙤𝙧𝙞𝙚𝙨 𝙤𝙛 𝙄𝙣𝙫𝙚𝙨𝙩𝙢𝙚𝙣𝙩𝙨
Buffett had a unique way of categorizing his investments into four distinct buckets:
1. Controls: Companies he could gain full control over.
2. Workouts: Special situations like mergers and acquisitions.
3. Private Owner Generals: Deep value investments evaluated as if buying the entire company.
4. Undervalued Generals: Stocks trading below their intrinsic value but not deep value.
𝙃𝙤𝙬 𝙙𝙞𝙙 𝙝𝙚 𝙖𝙘𝙝𝙞𝙚𝙫𝙚 𝙖𝙣𝙣𝙪𝙖𝙡 𝙧𝙚𝙩𝙪𝙧𝙣𝙨 𝙤𝙛 𝟯𝟮%?
Often the workouts and controls diminished the returns but with the generals he could achieve well over 50%.
The secret lies in a 1968 letter: