The story of how the vice chairman of Berkshire Hathaway bought the distressed securities of a mundane industrial business in the depths of recession, netting an 800% return in three years' time.
Surely the most interesting thing to look at would be the original Barrons article? What exactly triggered his interest? Maybe there was something there that suggested v low risk to Munger..?
I did a test of a Buffett like strategy of using leverage and investing in equities on something like a 2 to 1 ratio. What was interesting about my thought experiment was it started to track the book value per share growth that Buffett would brag about, but the more interesting outcome was that in order to achieve the Berkshire type growth you need to large acquisitions every so many years to in a sense relever your portfolio. The write up is on my humble DailyScreenz wordpress. Cheers!
this is a fantastic write-up - thanks for sharing it! The one key parameter missing is how much of his net worth at the time he put into this. The numbers look absolutely horrific - so I bet it was a high risk high reward investment and hence only a small bet. BUt who knows. Remember, he levered up and put almost everything into a single M&A arb dea in the 70s - his definition of "low risk" is definitely not a standard one.
Thank you. That is a very good point, which had occurred to me while writing, but which I forgot to mention. As of February 2001, Charles T. Munger held 17,611 Class A shares of Berkshire Hathaway, valued in the autumn of 2001 at more than $70,000 per share. So he was a billionaire. Hence the cost of this investment amounted to less than 1% of his net worth. The position size seemed to match the risk, so it may have been an entirely rational bet. As you point out, his investment in the early 1970s, with borrowed funds, of more than 100% of his fund in British Columbia Power certainly was bold.
This is a great article.
Wonder why he didn't buy it again in 2008/2009
Surely the most interesting thing to look at would be the original Barrons article? What exactly triggered his interest? Maybe there was something there that suggested v low risk to Munger..?
I did a test of a Buffett like strategy of using leverage and investing in equities on something like a 2 to 1 ratio. What was interesting about my thought experiment was it started to track the book value per share growth that Buffett would brag about, but the more interesting outcome was that in order to achieve the Berkshire type growth you need to large acquisitions every so many years to in a sense relever your portfolio. The write up is on my humble DailyScreenz wordpress. Cheers!
this is a fantastic write-up - thanks for sharing it! The one key parameter missing is how much of his net worth at the time he put into this. The numbers look absolutely horrific - so I bet it was a high risk high reward investment and hence only a small bet. BUt who knows. Remember, he levered up and put almost everything into a single M&A arb dea in the 70s - his definition of "low risk" is definitely not a standard one.
Thank you. That is a very good point, which had occurred to me while writing, but which I forgot to mention. As of February 2001, Charles T. Munger held 17,611 Class A shares of Berkshire Hathaway, valued in the autumn of 2001 at more than $70,000 per share. So he was a billionaire. Hence the cost of this investment amounted to less than 1% of his net worth. The position size seemed to match the risk, so it may have been an entirely rational bet. As you point out, his investment in the early 1970s, with borrowed funds, of more than 100% of his fund in British Columbia Power certainly was bold.