Warren Buffett partnership The Early Years — Part Two: Expanding

Warren Buffett partnership The Early Years — Part Two: Expanding

This is the second part of a multi-part series on Warren Buffett’s early years.

Before he acquired Berkshire Hathaway Inc. (NYSE:BRK.A) (NYSE:BRK.B), Warren Buffett managed a number of partnership for select investors, family and friends. And it was the management of these partnerships and his actions in the first few years of managing Berkshire that laid the foundations for him to become arguably the greatest investor of all time. Part one of this series can be found here.

 Warren Buffett the early years — Part two: Expanding

Warren Buffett’s first three partnerships, set up during, 1956 outperformed the market significantly during their early years and attracted plenty of attention. As a result, more potential investors began to approach Warren and ask him to manage their money.

So, to meet demand during June of 1957, Buffett started another partnership calledUnderwood, with one of the original partners of Buffett Associates, Ltd., Elizabeth Peters, with $85,000. Then, on August 5, 1957, Warren Buffett started his fifth partnership, which was called Dacee. Eddie Davis and his wife Dorothy Davis had Buffett manage $100,000 for themselves and their three children. The year after, on May 5, 1958, Dan Monen and his wife, Mary Ellen, formed the basis of Warren’s next partnership, called Mo-Buff.  They put in $70,000.

The five partnerships that were in operation during 1958 posted returns of 36.7% to 46.2%. As Buffett wrote in his annual letter to partners at the end of 1958:

“The latter sentence describes the type of year we had in 1958 and my forecast worked out. The Dow-Jones Industrial average advanced from 435 to 583 which, after adding back dividends of about 20 points, gave an overall gain of 38.5% from the Dow-Jones unit. The five partnerships that operated throughout the entire year obtained results averaging slightly better than this 38.5%. Based on market values at the end of both years, their gains ranged from 36.7% to 46.2%. Considering the fact that a substantial portion of assets has been and still is invested in securities, which benefit very little from a fast-rising market, I believe these results are reasonably good. I will continue to forecast that our results will be above average in a declining or level market, but it will be all we can do to keep pace with a rising market.” — Warren Buffett 1958 annual letter to partners.

You can find the rest of the article at ValueWalk.com

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