Buffet Partnership letters 1956-1969

 

I’ve just done a rather quick reread of all the Buffet Partnership letters which I found via Market folly and Above Average Odds Investing. Some observations: 

1. The simplicity and consistency of performance measurement are delightful,
2. The humor and understatement are classic,
3. The sections regarding specific positions – always those that had been closed  by the time the letter was sent – are perhaps the most interesting,
4. The categorization of investment types (Generals, Workouts and Control) gives a bit of flavor for the way WEB was thinking about opportunities, and
5. From several comments it can be gleaned that the number of positions in the portfolio was rather limited. At one point in the 60’s one position accounted for 40% of the entire portfolio, the maximum allowed under the partnership agreements.

What are the takeaways for my own investing? The most important one is that my portfolio is not focused enough. I have had between 45 and 55 positions at any one time during the past year. On reading the WEB partnership levels I realize this is too many. It’s not compatible with out-performance. I am diversifying myself back to ‘average’. And besides, one person can’t reasonably be expected to follow 50 companies, not to speak of uncovering new investment ideas. Unfortunately, the current dispersion of my portfolio probably reflects the dispersion of my thought process and allows a low-level of commitment for each position. If on the one hand each small position can’t really hurt a portfolio’s performance, on the other it can’t really help either. I am tempted to create a minimum size of, say, 2% for any single position in my portfolio (except maybe for microcaps where a little bit more diversification is needed). Well, I’m tempted, but perhaps not really ready for that kind of discipline yet. But I will set myself a goal along these lines: reduce my current portfolio to 40 positions by the end of the next quarter and then to 30-35 by the end of the following quarter. This will accomplish two things: force me to 1) focus on which of my present investments are the best, and 2) be more disciplined about the analysis behind each position.