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  • Writer's pictureIshfaaq Peerally

Warren Buffett Investment Strategy from Partnership Letters (1957 - 1969)

Warren Buffett is without any doubt the greatest investor in the world with returns of 20% in the last 56 years as CEO of Berkshire Hathaway $BRK.B compared to 10% for the S&P 500 $SPX500 . However, his returns before Berkshire Hathaway were even bigger. The Buffett Partnership returned 31% per year for 13 years. What was his strategy?

Warren Buffett was a deep value investor back then following the footstep of his mentor, Benjamin Graham. He was making three types of investments: Generals, Control, and Workouts.

Generals are investments in stocks where he has little influence on the management. This is what most of us do today. Controls are activism, where the investor has an influence on the management. Workouts are special situation investments such as arbitrage.

What's interesting about the Buffett Partnership is the fee structure. The partners were guaranteed a 4% return. And he was only paid when he beat the market, something he did for all 13 years. The fee structure was in such a way that for the partners, the risk was very limited with high reward and for Warren Buffett, the risk was bigger but for an even bigger reward. This genius fee structure enabled Warren Buffett to become rich from the partnership without charging management fees.

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