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Warren Buffett The Early Years — Part Seven: Work-Outs

Warren Buffett The Early Years — Part Seven: Work-Outs

As covered in the last part of this series, Warren Buffett had three different types of investments when he was managing his partnerships. These three categories were: generals, workouts and control situations.

Workouts, or special situations (corporate events such as mergers, liquidations, reorganizations, spin-offs,) are by far the most interesting of this group.

Due to their nature, Buffett was able to predict what kind of a return he would generate from each workout, over a specified period of time, and to some extent, this reduced risk.

“The gross profits in many workouts appear quite small. A friend refers to this as getting the last nickel after the other fellow has made the first ninety-five cents. However, the predictability coupled with a short holding period produces quite decent annual rates of return. This category produces more steady absolute profits from year to year than generals do.”

Warren Buffett considered some of his workouts to be so low risk — Warren Buffett used the term “high degree of safety” — that he often borrowed money to increase returns.

In his 1962 letter to investors, Warren Buffett gave a detailed explanation of his workout plays undertaken during the year. And at the time, Buffett was finding deals in the oil sector. Specifically, sell-outs by oil producers to major integrated oil companies.

Warren Buffett: Borrowing to increase returns

At any one time, Buffett was involved in five to ten workouts. Some just beginning and others in the late stage of their development.

Continued at http://www.valuewalk.com/2015/06/warren-buffett-work-outs/

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