Sunday, October 30, 2011


Buffett's portfolio strategy
I present a summary of a webpage that I saw about Buffett's early days. For the period 1957-1968, the DJIA returned 9.1% pa, compared with 31.6% pa for Buffett's partnership, and 25.3% for his Limited Partners. His method of operations for 1969 are broken down into the following ratios:
  • 30% Controls -rarities, but of significant size. It happens where a cheap security does nothing for a long time, allowing a significant accumulation, allowing some or complete control of the company's activities.
  • 20% Generals (Private Owner) - quantitatively undervalued stocks first, with considerable attention paid to qualitative factors second. There is often little to indicate immediate market improvement, and the shares lack glamour. He likes good management, a decent industry.
  • 11% Generals (Relatively Undervalued) - companies trading relatively cheaply compared to securities of the same general quality.
  • 23% Workouts -  sell outs, mergers, reorgs, spinoffs, etc.. The risks aren't primarily due to general market behaviour, but to unexpected developments. The profits and holding periods tend to be small per deal, with the occasional substantial loss. It produces steadier profits than generals, with the expectation of big relative gains in bear markets, and contrariwise in bull markets. The blog author warns that there will be blowups.
  • 16% Misc/US T-Bills
The page also point the reader to futher information about workout opportunities.

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