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THE SUPERINVESTORS
OF GRAHAM-AND-DODDSVILLE
By Warren E. Buffett
GRAHAM-AND-DODDSVILLE
Graham and Doddsville published
Security Analysis, in 1934
Investment Principles
Value Approach
Margin of Safety
“Buy a company for 40 cents, while it worth a dollar.”
NINE SUPERINVESTORS OF GRAHAM&DODDSVILLE
Four Graham Newman Corporation Members (1954 - 1956)
Walter Schloss
Tom Knapp
Warren E. Buffett
Bill Ruane
Three other friends
Charles Munger
Rick Guerin
Stan Perlmeter
Two Big Pension Funds
The Washington Post Company, Master Trust.
FMC Corporation Pension Fund.
COMMONS & DIFFERENCES
Commons
Investors that Buffett is familiar with.
Took Graham’s investment class or absorbed Graham’s value approach idea.
Differences
Diverse Education Background.
Their portfolios barely overlapped.
WALTER SCHLOSS
Background
Trading Characteristics
- Margin of Safety principle
- Diversified: owning over 100 stocks
- No college degree
- Took Graham’s night class
- No connections or access to useful info
- Looked up the numbers in the manuals and
sent for the annual reports
WALTER SCHLOSS
28 years record of Walter J. Schloss
-30
-20
-10
0
10
20
30
40
50
60
19
56
19
57
19
58
19
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19
84
1st
Qtr
.
S&P Overall Gain, including
Dividends(%)
WJS Ltd Partners Overall Gain
per year(%)
WJS Partnership Overall Gain
per year(%)
S&P Year Compounded gain: 397.2%WJS Ltd. Partners Year Compounded gain: 5678.8%WJS Partnership Year Compounded gain: 23164.7%
TOM KNAPP
Background
Trading Characteristics
- Very wide diversification
- Occasionally bought control of businesses;
Passive investments = Control Investments
- Princeton University, major in chemistry
- Came back from war, became a beach bum
- Took Dodd’s investment night course at Columbia
- Obtained MBA degree from Columbia Business School
TOM KNAPP, TWEEDY.BROWNE INC.
15 years record of TRKS&P Year Compounded gain: 191.8%S&P 500 Compounded gain: 238.5%TBK overall partners Year Compounded gain: 1661.2%TBK Ltd. Partnership Year Compounded gain: 936.4%
-50
-40
-30
-20
-10
0
10
20
30
40
50
Dow Jones (%)
S&P 500 (%)
TBK Overall (%)
TBK Ltd. Partners (%)
WARREN E. BUFFETT
Background
Trading Characteristics
- 15% Fisher and 85% Graham
- Look at stocks as business, use the market’s
fluctuations as advantage, and seek a margin of safety.
- Wharton Business School, University of
Pennsylvania, 1947 - 1949
- B.S. degree, business administration, University of
Nebraska-Lincoln.
- Took Graham and Dodd’s graduate classes.
- Obtained Master Economics degree from Columbia
University.
BUFFETT PARTNERSHIP, LTD.
13 years record of Buffett Partnership, Ltd.S&P Year Compounded gain: 152.6%Partnership Results Year Compounded gain: 2794.9%Ltd. Partners’ Results Year Compounded gain: 1502.7%
-20
-10
0
10
20
30
40
50
60
70
1957 1958 1959 1960 1961 1962 1963 1964 1965 1966 1967 1968 1969
Dow Jones (%)
Partnership Results (%)
Ltd. Partners' Results (%)
BILL RUANE
Background
Trading Characteristics
- Applied margin of safety principle.
- Harvard Business School.
- Wall Street.
- Attended Graham’s class at Columbia University.
BILL RUANE, SEQUOIA FUND, INC.
13 years record of Sequoia Fund, Inc.S&P500 Year Compounded gain: 270%Sequoia Fund Year Compounded gain: 775.3%
-40
-20
0
20
40
60
80
1970
(from
July
15th)
1971 1972 1973 1974 1975 1976 1977 1978 1979 1980 1981 1982 1983 1984
1st
qtr.
Sequoia Fund(%)
S&P 500 Index(%)
CHARLES MUNGER
Background
Trading Characteristics
- Very few securities, so much more volatile.
- Based on the same discount-from-value approach.
- Harvard Law graduate.
- Set up a law firm.
- Set up a partnership after Buffett ran into him.
CHARLES MUNGER
14 years record of the PartnershipDOW Year Compounded gain: 96.8%Ltd Partnership Year Compounded gain: 500.1%Partnership Year Compounded gain: 1156.7%
-40
-20
0
20
40
60
80
1962 1963 1964 1965 1966 1967 1968 1969 1970 1971 1972 1973 1974 1975
Dow(%)
Over-all Partnership(%)
Limited Partners(%)
RICK GUERIN
Background
Trading Characteristics
- Regards as statistically significant.
- Based on the same discount-from-value approach.
- USC math major.
- IBM salesman.
- Took him 5 mins to embrace the value approach.
RICK GUERIN
19 years record of the Pacific PartnershipS&P500 Year Compounded gain: 316.4%Ltd Partnership Year Compounded gain: 5530.2%Partnership Year Compounded gain: 22200%
-100
-50
0
50
100
150
200
250
300
350
S&P 500 (%)
Limited Partnership Results(%)
Overall Partnership Results(%)
STAN PERLMETER
Background
Trading Characteristics
- Value approach.
- Getting more for his money than he’s paying.
- Simply asking: What is the business worth?
- Liberal arts major at the University of Michigan.
- A partner in the advertising agency of Bozell &
Jacobs.
- Took 5 mins for Stan to embrace the value approach.
PERLMETER INVESTMENT
17.5 years record of Perlmeter Investment
Total Partnership % Gain: 270%Ltd. Partners % Gain: 2309.5%
Year PIL Overall(%) Ltd. Partner(%)
8/1 -12/31/65 40.6 32.5
1966 6.4 5.1
1967 73.5 58.8
1968 65 52
1969 -13.8 -13.8
1970 -6 -6
1971 55.7 49.3
1972 23.6 18.9
1973 -28.1 -28.1
1974 -12 -12
1975 38.5 38.5
1/1 - 10/31/76 38.2 34.6
11/1/76 -
10/31/7730.3 25.5
11/1/77 -
10/31/7831.8 26.6
11/1/78 -
10/31/7934.7 28.9
11/1/79 -
10/31/8041.8 34.7
11/1/80 -
10/31/814 3.3
11/1/81 -
10/31/8229.8 25.4
11/1/82 -
10/31/8322.2 18.4
TWO PENSION FUNDS’ RECORDS
The Washington Post Company, Master Trust.
In the top percentile of fund management.
FMC Corporation Pension Fund.
Ranked number one in the Becker survey of
pension funds.
Common
Hire value-oriented managers.
Difference
Master Trust kept 25% of their funds in bonds.
RISK VS. REWARD
“It’s risker to buy a dollar bill for 60 cents than
buy a dollar bill for 40 cents, but the expectation
of reward is greater in the latter case.”
VALUE APPROACH
“It does not seem to be a matter of I.Q. or
academic training.
It is instant recognition, or it is nothing.”
“Buy a company for 40 cents, while it worth a dollar.”
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