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WB Letter 1966
Mr. Buffett had acquired a controlling stake in Berkshire Hathway in the year 1965. Berkshire was a textile company and Mr. Buffett had started acquiring the stake of Berkshire since 1962 at the price of $7.60 per share. During the year 1965, Berkshire had closed down certain mills and only 2 mills were working as they were profitable and with about 2300 employees. As per the calculations, networking capital alone was worth about $19 per share.
Mr. Buffett gave his view on diversification and also gave his opinion on why aren’t all managers generating superior returns.
Mr.Buffett says that he diversifies less as compared to what majority of the investment managers does. He can willingly invest upto 40% of the net worth into a single company; where the probability is higher about his facts and reasoning being appropriate in enhancing the value of the investment.
Mr. Buffett mentions that we should have a proper diversifying policy rather than behaving illogically as others do by owning one hundred securities into their portfolio. Rather, we should work as per our own view and understanding.
During the year 1966, Mr.Buffett had fully acquired Hochschild and Kohn & Co. The quantitative and qualitative aspects of the business were evaluated and weighed against price, both on an absolute basis and relative to other investment opportunities.
WB Letter 1967
During the year 1967, Mr.Buffett had faced difficulty in identifying new investment ideas. And the reason he felt was as below –
Mr. Buffett does not make an investment into the business which is difficult for him to understand (like technology business). He prefers staying away from the stocks which are in fashion into the market as such approaches don’t fit properly with his stock selection policy.
Mr. Buffett believes that big money can be made by making investment decisions based on qualitative factors whereas sure money can be made by making investment decisions based on quantitative factors. And hence, on the basis of this; he considers himself as a quantitatively focused investor.