L-1959
In the 1959 letter, Mr. Buffett highlights how the DJIA represented a misleadingly strong market, with a gain of 19.9% despite more stocks declining than advancing. This observation indicates the need for investors to look beyond market indices when evaluating the overall health of the stock market, as they can sometimes paint a distorted picture of the actual market behaviour.
Mr. Buffett discusses the difficulty that major investment trusts faced in outperforming the market in 1959, He cites two examples:
- Tri-Continental Corp. The nation’s largest closed-end investment company had an overall gain of about 5.7% for the year,
- Massachusetts Investors Trust, the country’s largest mutual fund showed an overall gain of about 9% for the year.
The six partnerships that Mr. Buffett operated throughout the year, on the other hand, achieved net gains ranging from 22.3% to 30.0% and averaged about 25.9%. He attributes this success to market behaviour shaped by investor sentiment and enthusiasm, thereby emphasizing the necessity for a more disciplined, value-based approach to investing.
In the 1959 letter, Mr. Buffett also mentions a significant investment in one company, which accounted for about 35% of the partnership’s assets (Mr. Buffett increased the weightage from 25% to 35% in Sanborn Map Co. and the remaining 65% was employed in undervalued and work-out operations.). He believed this investment was undervalued and had the potential for superior returns. This concentrated investment showcases Buffett’s willingness to commit a substantial portion of his capital to high-conviction opportunities.
Mr. Buffett also spoke about being cautious when determining the value of valuable “blue chip” investments. He believes it’s wiser to be extra cautious than to take a significant risk with a “New Era” mindset that could result in a permanent loss of our capital.
Finally, Mr. Buffett’s 1959 letter emphasizes an investment strategy that focuses on undervalued securities and work-out operations to achieve better performance during bear markets. This approach aims to insulate investments from the general market’s behaviour, leading to superior results in bear markets and average performance in bull markets.
This was one of Mr. Buffett’s shorter letters.
Fun Fact: In 1959, Warren Buffett and Charlie Munger met for the first time.
Subscribe To Our Free Newsletter |