Warren Buffett’s Uncharacteristic Early-Stage InvestmentBack to home
I shared a few days ago that I’m reading the letters Warren Buffet wrote to the limited partners in his Buffett Partnership, Ltd. This partnership, basically a start-up focused on investing, was the precursor to Berkshire Hathaway. I wanted to learn more about those early days and Buffet’s mindset as a founder.
I found an interesting fact that most people don’t know. Buffet is known for investing in public companies and large, established private companies. What people don’t know is that Buffett has done early-stage investing too.
Buffet had most of his wealth tied up in the partnership to make sure his interests were aligned with those of his limited partners. But in 1960, he made an investment, using his personal capital, in Mid-Continent Tab Card Co. He invested $60,000 initially.
The partnership annual letters don’t discuss this investment, so I did some digging. Alice Schroder, who wrote The Snowball: Warren Buffett and the Business of Life, learned more about this obscure investment by reviewing Buffett’s private files. She shared what she learned about his thought process regarding this investment and the outcome in this video.
At first, because of concern that IBM would be a too-formidable competitor, Buffett didn’t invest. But the founders persevered, and the company was able to compete against IBM. The founders approached Buffett again and shared their traction and metrics (40% net margins, turning capital 7x yearly, etc.).
Alice did a great job in the video of detailing Buffett’s analytical process and how he came up with his target return. Interestingly, he relied on historical data and made no projections. He ended up making the investment, invested an additional $1 million over time, and owned his position for 18 years until the company was sold. Buffett’s early-stage investment earned him a 33% annual compounded return, which is amazing.