1. By Warren E. Buffett
THE SUPERINVESTORS
OF GRAHAM-AND-DODDSVILLE
2. 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.”
3. 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.
4. 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.
5. WALTER SCHLOSS
Background
- 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
Trading Characteristics
- Margin of Safety principle
- Diversified: owning over 100 stocks
6. WALTER SCHLOSS
28 years record of Walter J. Schloss
S&P Year Compounded gain: 397.2%
WJS Ltd. Partners Year Compounded gain: 5678.8%
WJS Partnership Year Compounded gain: 23164.7%
60
50
40
30 S&P Overall Gain, including
Dividends(%)
20
WJS Ltd Partners Overall Gain
10
per year(%)
WJS Partnership Overall Gain
0 per year(%)
1956
1957
1958
1959
1960
1961
1962
1963
1964
1965
1966
1967
1968
1969
1970
1971
1972
1973
1974
1975
1976
1977
1978
1979
1980
1981
1982
1983
1984 1st Qtr.
-10
-20
-30
7. TOM KNAPP
Background
- 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
Trading Characteristics
- Very wide diversification
- Occasionally bought control of businesses;
Passive investments = Control Investments
8. TOM KNAPP, TWEEDY.BROWNE INC.
15 years record of TRK
S&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 Dow Jones (%)
S&P 500 (%)
0
TBK Overall (%)
-10 TBK Ltd. Partners (%)
-20
-30
-40
-50
9. WARREN E. BUFFETT
Background
- 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.
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.
10. 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%
70
60
50
40
30 Dow Jones (%)
Partnership Results (%)
20 Ltd. Partners' Results (%)
10
0
1957 1958 1959 1960 1961 1962 1963 1964 1965 1966 1967 1968 1969
-10
-20
11. BILL RUANE
Background
- Harvard Business School.
- Wall Street.
- Attended Graham’s class at Columbia University.
Trading Characteristics
- Applied margin of safety principle.
12. 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%
80
60
40
Sequoia Fund(%)
20
S&P 500 Index(%)
0
1970 1971 1972 1973 1974 1975 1976 1977 1978 1979 1980 1981 1982 1983 1984
(from 1st
July qtr.
-20
15th)
-40
13. CHARLES MUNGER
Background
- Harvard Law graduate.
- Set up a law firm.
- Set up a partnership after Buffett ran into him.
Trading Characteristics
- Very few securities, so much more volatile.
- Based on the same discount-from-value approach.
14. CHARLES MUNGER
14 years record of the Partnership
DOW Year Compounded gain: 96.8%
Ltd Partnership Year Compounded gain: 500.1%
Partnership Year Compounded gain: 1156.7%
80
60
40
Dow(%)
20 Over-all Partnership(%)
Limited Partners(%)
0
1962 1963 1964 1965 1966 1967 1968 1969 1970 1971 1972 1973 1974 1975
-20
-40
15. RICK GUERIN
Background
- USC math major.
- IBM salesman.
- Took him 5 mins to embrace the value approach.
Trading Characteristics
- Regards as statistically significant.
- Based on the same discount-from-value approach.
16. RICK GUERIN
19 years record of the Pacific Partnership
S&P500 Year Compounded gain: 316.4%
Ltd Partnership Year Compounded gain: 5530.2%
Partnership Year Compounded gain: 22200%
350
300
250
200
150 S&P 500 (%)
Limited Partnership Results(%)
100
Overall Partnership Results(%)
50
0
-50
-100
17. STAN PERLMETER
Background
- 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.
Trading Characteristics
- Value approach.
- Getting more for his money than he’s paying.
- Simply asking: What is the business worth?
19. 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.
20. 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.”
21. 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.”
