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What did Buffett pay for his investments?

One of the things missing from much of the Buffett literature is valuation details on how much he actually paid for his investments. This is useful both for understanding whether the opportunities that were available in the early days of the partnership are still available today, as well as learning from his investments through the lens of valuation.

The table above is compiled using information from Inside the Investments of Warren Buffett: Twenty Cases by Yefei Lu. Several trends are apparent:

  1. The often discussed evolution from asset plays to higher quality businesses took place relatively early

  2. Later in his career he focuses much more on either compounders or high quality businesses with temporary problems (I’ve lumped them in with the Turnaround column for simplicity)

  3. He increasingly uses preferred shares and convertibles for downside protection in investments like Salomon, US Air and MidAmerican Energy.

Most of the preferred and convertible investments have a return profile around 10%. Not bad but I can’t help but think that Buffett’s investment style has become more conservative and risk averse over time. The best investments in this list probably happened between 1967 and 1983, ten years after he first started the partnership and after his style evolved from investing in asset plays. National Indemnity, See’s Candies, the Washington Post and Nebraska Furniture Mart were quality business that Buffett was able to acquire 5-11x PEs. GEICO and the Buffalo Evening Post both look like turnaround plays that were trading at 2-3x and 3-4x normalized earnings respectively.

One final great buy in the temporarily distressed category was Wells Fargo in 1990 with a 5x PE handle. Studying these examples is useful as it helps us sharpen our pattern recognition skills when a great opportunity like the ones above arises.

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