[2025–2026] Week 10: Warren Buffett: Berkshire Hathaway Years
Reading assignment and questions for week 10 of the Value Investing Seminar
(Note: If you are just joining the seminar, please start by reading the Introduction)
Buffett started out the partnership years as a Graham-style value investor. However, as Brett Gardner points out in Buffett’s Early Investments he was also very much an activist investor or at the very least was looking for a catalyst to realize the value.
This is well illustrated in the Sanborn Maps case. This was a classic Graham stock – it was selling at a discount to the portfolio of blue-chip stocks that the company owned. The map business, which was troubled, was completely irrelevant to the investment case.
There was only one problem – the stock was trading to the discount of the market price of the security portfolio. That price could change. So, unless the portfolio were liquidated soon Buffett would be taking on a risk that the discount would vanish, or worse yet reverse.
Rather than passively waiting, he astutely made the management an offer they couldn’t refuse. He probably didn’t phrase it that way, but it might have sounded something like this:
“Guys, I get that you want to sit there and collect your paychecks. I also get that the security portfolio, which you have no legitimate reason to hold, helps your job security given the troubles in the business itself. So let me make it easy on you: give me, and any other shareholder who wants it, the option to receive their share of the securities, and you can keep the business (and your paychecks) for free.”
The shrewd understanding of the human element of incentives and how they drive business behavior, allowed Buffett to convert what might have been a long slog with an uncertain outcome into a quick, high-IRR win for the portfolio.
Regarding Question 1 Navin wrote “Generals: Investments in broadly undervalued securities bought for their margin of safety and long term appreciation, often moving with the Dow but delivering superior results over time despite vulnerability in downturns.
Work outs: Special situations driven by corporate actions like mergers, liquidations, reorganizations, spin-offs, etc that provide predictable, stable returns, often insulated from general market swings and sometimes financed with modest borrowing. These are securities whose financial results depend on corporate action rather than supply and demand factors created by buyers and sellers of securities
Control situations: Large or controlling stakes in companies aimed at influencing policies, requiring multi year horizons and patience, occasionally evolving from generals when prices stay low long enough to accumulate significant ownership.”
Regarding Question 3 James wrote “The early years were a straight application of Graham’s principles. Gradually, however, he became more aware of quality and management and more prepared to buy a business and do real work on it to improve it, something that Graham never did. Finally he went the whole hog and started to buy entire businesses. Towards the end of the letters, he makes an admission that I found to be probably the most revealing thing he says in the letters:
“Interestingly enough, although I consider myself to be primarily in the quantitative school (and as I write this no one has come back from recess - I may be the only one left in the class), the really sensational ideas I have had over the years have been heavily weighted toward the qualitative side where I have had a “high-probability insight”. This is what causes the cash register to really sing. However, it is an infrequent occurrence, as insights usually are, and, of course, no insight is required on the quantitative side - the figures should hit you over the head with a baseball bat. So the really big money tends to be made by investors who are right on qualitative decisions but, at least in my opinion, the more sure money tends to be made on the obvious quantitative decisions.”
Quite. And putting this together with his increasing difficulty finding quantitative winners, this is admitting that he had outgrown Benjamin Graham and knew that numbers alone were increasingly not the answer.”
Week 10 assignment is to read Buffett’s Berkshire Hathaway annual letters and answer the following questions:
Question 1: What were the differences and similarities between Buffett’s investing during the Partnership days as compared with the Berkshire Hathaway days?
Question 2: What were the differences and similarities between Buffett’s investing during the early days at Berkshire Hathaway vs. the later years?
Question 3: What were your favorite investments that Buffett made? Why?
Question 4: What were your least favorite investments that Buffett made? Why?
Question 5: What aspects of Buffett’s approach would you like to incorporate into your process? Why?
Question 6: What aspects of Buffett’s approach would you rather not incorporate into your process? Why?
Question 7: How would Buffett invest today if he were managing $100M?
Question 8: Please put Buffett on as many dimensions of investment style as possible, and talk about how, if at all, he has changed his positioning on that dimension from the early partnership days to now. Use 1-10.
Question 9: Come up with an AI prompt based on Warren Buffett’s investing approach.
Note: Our next reading will be John Train’s The New Money Masters. It can take some time to obtain so I suggest ordering early.
Now it’s your turn:
Submit your answers in the comments below this article with all your answers in a single comment. I will engage with some of the answers each week and highlight some of the ones I find most insightful in next week’s seminar assignment article.
Engage with the answers of some of your fellow seminar members in the comments below. Remember – the goal is to learn together. Be kind, be respectful and try to add to our learning as a community.
Feel free to ask any questions about the reading in your comment.
Until next week,
Gary
About the author
Gary Mishuris, CFA is the Managing Partner and Chief Investment Officer of Silver Ring Value Partners, an investment firm that seeks to apply its intrinsic value approach to safely compound capital over the long-term. He also teaches the Value Investing Seminar at the F.W. Olin Graduate School of Business.
Q1:
Differences:
- Willingness to pay for endurance and quality instead of buying cheap mediocre companies.
- Increased holding period length instead of flipping stock or squeezing out the last minutes on the parking meter.
- Many more whole-business acquisitions due to availability of permanent capital
- Increased belief that $1 in one company is not the same as $1 in another company. Value is not just 'numbers'.
Similarities: Intrinsic value emphasis, MOS based on purchase price, disciplined and patient temperament, business ownership mindset
Q2:
Differences:
- Yardstick of measurement changes from intrinsic value proxy of book value/ROE to market price.
- Gained clarity about the role of growth potential in valuation calculations
- Even more willing to pay for quality. Price criteria changed from 'very attractive' to 'attractive'.
- Slightly more accepting of exposure to tech
- Purchase opportunities limited by size.
Q3:
- National Indemnity: Essential part of float creation which was the basis for funding his future investments. It was genius way to get 'free money' to invest in. I believe he said something about insurance business being his sphere of competence and a business he understood; if so, his money was where his mouth was as far as what to invest in.
- BNSF: Granted this is capital intensive, likely to continue to be a challenge going forward, and not a big returner. That said, I agree that it is a vital part of infrastructure and I like his attitude towards pouring into to it to ensure it is safe, stable and productive.
Q4:
- Dexter Shoe: Banked on the longevity of producing a single product that could be produced by cheaper labor offshore. I still wonder if this was lack of attention to changing global landscape and its effects.
- General Reinsurance: Although it resolved, this was a time eater, complicated and messy. Not sure he would have bought it if he had been more aware of the complicated derivatives.
Q5:
There are too many points to write here, but I have a few big picture thoughts.
Goal: Grow purchasing power at reasonable rate while minimizing losses. I'm not a business, but I do have a net worth and like a business, I want to maximize my net worth in the long run. Invest in companies "whose aggregate earnings march upward over the years" and my value will grow. Immediate returns may not happen right away; there will be bad years and good years.
Focus: Business analyst focus (industry stability, return on capital, sustainable low-cost operator, responsible use of debt, shareholder focused management, etc.). Theses fundamentals make sense to me, and I enjoy learning about business realities.
Risk Management: I appreciate his honesty about his mistakes when he made a bad move and am encouraged that making mistakes is part of the deal. That is why MOS is so important. MOS is not just protection against unknowable but also to take care of MY mistakes! In addition to the Graham style MOS elements, I would add Buffet's thoughts on sticking to understandable companies in my sphere of competence and limit portfolio percentage of risky turnarounds/new ventures.
Q6:
Seems like with both Berkshire and Dexter, a bit more macro awareness could have been useful. I'd look to integrate the big picture.
I don't expect to hold forever when a company has proven it cannot produce. If I can make better return at just as good of a company, I would probably switch. While I understand the obligation he felt to continue to hold to 'mistake' companies that they bought, I think selling them might have been better in the long run.
I'm also not interested in arbitrage situations, owning businesses or participating in decision making. I don't have skills, experience or resources for this style of investment.
Q7:
He might be able to take advantage of smaller ideas. He would have less ownership opportunities in companies (I'm assuming less money would be cost prohibitive on purchasing companies).
Q8:
1. Depth of Research (shallow to deep): 5 -- paid attention to numbers, but hard to tell how much time he spent
2. Portfolio Concentration (concentrated to diversified): 10 -- Beginning days of Berkshire he's fairly concentrated, but by 2025 there are a massive number of subsidiaries in diverse sectors.
3. Quantitative vs. Qualitative: 8 -- He's not as qualitative as Fisher (who almost feels 'carelessly' qualitative), but he's way more qualitative than Graham.
4. Business Analyst vs. Security Analyst: 1 -- shifts pretty quickly once Munger comes along
5. Time Horizon (short to long): 10
6. Investing Universe: Asset Class -- Used a variety of instruments, especially as they grew and needed a place to put their funds.
7. Investing Universe: Market Cap: Large -- due to size and need to purchase larger portion.
8. Investing Universe: Geography: USA, but started expanding in later years.
9. Investing Universe: Sector Focus: Any
10. Absolute Return Focus vs. Relative Return Focus: 10 (relative to S&P 500…Just wanted to beat it, but it didn't have to be by much)
11. Risk Tolerance (low to high): 3
12. Bottom-Up (micro) vs. Top-Down (macro): 1
13. Financial Leverage (no debt to any): 5 -- wise debt is fine, but less debt is preferred.
14. Growth Rate (any to high): 1
15. Activism (passive vs. active): 10
16. Focus on Earnings vs. Assets: 2
17. Technical Analysis vs. Fundamental Analysis: 10
18. Reversion to the Mean vs. Escape from the Mean: 5
19. Management Interaction (none to detailed): 10
20. Primary Research (none to in-depth): 10
21. Long Only vs. Long/Short: 2 -- less inclined to sell
Q9:
Using Buffet's advice to investors from the Berkshire shareholder letters, analyze this TIKR. What would his perspective be on the quality of this company? Would it be speculative to him? How would he evaluate the management? Would he find them pleasing to work with? What would his perspective be on the usage of the capital? Note any red flags.
1. Buffett's partnership investments were primarily grounded in Graham's principles of "cigar butt" or mis-priced securities. He also included some degree of assessment of the quality of management. Charlie's influence was introduced in the Berkshire years to include good companies at reasonable prices.
2. Warren still looked for mis-priced securities; those that were undervalued on an increased variety of metrics. He was disciplined to wait until he found candidates for investment that fit his criteria. HIs inclusion of insurance companies added larger volumes of float that allowed him to consider larger companies for purchase.
3. See's and Coca-Cola. It is easy to understand how these companies can compound. I make regular annual contributions to See's profit margins.
4. Dexter Shoes. It was purchased with shares of store, which he rarely did. Then the company fell apart.
5. Most all of them. The one area that I have questioned is holding periods to allow compounding to happen given the inclusion of tech into many companies. My number one is holding cash until an appropriate opportunity presents itself.
6. I wouldn't be able to be a private buyer of large companies.
7. I think he would focus on smaller cap and international companies.
8. Long-term - 9
Deep research - 9
Compounders - 9
Buying good companies - 9
Quality management - 10
Large companies - 10
9. Look for companies with large economic moats. sustainable competitive advantages, solid financials, quality management, low debt, small caps and international equities.