Issue No. 20: Buffett in the 1980s Pt. 1, Portfolio Review
Lesson's from the Berkshire's Public Equity Portfolio during the 80s, Personal Portfolio Review, Personal Lessons from Actively Managing my Own Investments
Contents:
Buffett in the 1980's Pt. 1
Portfolio Update
Buffett in the 1980's Pt. 1
One of the most popular segments this newsletter has ever had has been a break down of Buffett’s publicly traded security portfolio in the 1970s. If I may say, it was also the segment I have had the most fun writing. The reason for both, I think it’s fair to say, is that this was Buffett at his quality investing peak.
I believe the chief reason for this is that he had sufficiently modest capital to have a wide investment universe. He was able to invest significant sums of Berkshire’s capital into severely mispriced opportunities - the initial stakes in GEICO and the Washington Post was acquired during this time period.
There was also an intense focus on opportunities that exhibited Royalty-like characteristics. Capital light toll booths dominated the portfolio, and generated significant returns during a lost decade for most equity investors.
Thirdly, it appears that he had no serious marked-to-market (or realised for that matter) losses during these years. Virtually every significant commitment of capital was a winner - some were enormous winners.
Onto the 1980’s….
1980:
1980 ended with much of the same portfolio as Buffett had in the late 1970s: heavily invested in media, insurance, a few special situations (the Kaiser companies), and consumer staples - including a decent sized position in R. J. Reynolds, the exposure for which was through Wesco Financial.
The standout performers are Newspaper conglomerates. Nothing we haven’t covered before.
1981:
Forgive the slant, hard sources can be very hard to negotiate with.
An interesting inclusion during the 1981 reporting period is GATX Corporation - a railcar lessor that owns fleets in North America, Europe, and Asia. Certain types of leasing businesses can generate very high returns, and GATX has done this for 125 years now. Notably the company is still publicly traded and has returned about a 30x since Buffett first bought it.
Another notable inclusion is Pinkerton’s, Inc. A detective agency that gained notoriety as strike breakers and the on-again-off-again private army of various Robber Barons. Amazingly, even to this day, the firm is engaged in the anti-labour efforts of large corporations like Starbucks and Amazon. Pinkerton’s was purchased by a rival in 1999 and is no longer a public company.
1982:
1982 was a year of incredible volatility in markets which was marked by Volker breaking the back of inflation. This culminated with overnight rates being hiked to 20%. Buffett has often commented that this year presented one of the best buying opportunities for public equities in recent decades. The larger components of the portfolio became more concentrated, and several positions were sold off.
1983:
The most notable change in 1983 was the extremely concentrated bets in Wesco’s portfolio (denoted here by the small (a) against the relevant securities). At cost this represented almost 90% of Berkshire’s portfolio and 40% at market.
General Foods, known for owning Kool-Aid and Tang, would also have an interesting corporate history. They would acquire a cereal business from Nabisco before being acquired by Altria. Ultimately, they would be rearranged as a subsidiary of Kraft Heinz, a company Buffett would take a major position in with 3G Capital Partners. All things come full circle.
Berkshires’s Private Businesses
The two stand-out private businesses of the era were the Buffalo News and See’s Candy and their operating performances are something else.
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