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10-13-2006, 03:30 PM
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Motley Fool
Using Buffett's Geiger Counter
Friday October 13, 3:32 pm ET
By Emil Lee
In 1956, Warren Buffett started a small hedge fund and, over the next decade, trounced the market with a 930% cumulative return, compared to the Dow Jones' 165% return. Keep in mind, this is after fees. Buffett's return, before fees, was 1,600%.
How was Buffett able to achieve such stellar returns? Charlie Munger once said that he and Warren made their first hundred million or so by running their Geiger counter over everything. By turning over enough rocks, they eventually found hidden treasures lying there for the taking.
The $60 wallet
After reading Buffett's shareholder letters from those early days, I see that Munger wasn't lying. For example, one of Buffett's largest holdings in the late '50s and early '60s was a company called Sanborn Maps, which eventually became a whopping 35% of Buffet's fund. Amazingly, Sanborn Maps had a securities portfolio worth $65 per share, but the stock sold at $45 per share. The mapping business, although declining, was still profitable, and it had a positive intrinsic value. Buffett was able to buy up enough stock to gain control of the company and liquidate the securities portfolio, giving him a fabulous return. In essence, Buffett bought a wallet with $100 in it for $60, and not only got to keep the money, but also sell the wallet.
complete article here... (http://us.rd.yahoo.com/finance/news/rss/story/*http://biz.yahoo.com/fool/061013/116076793723.html?.v=1)
Motley Fool
Using Buffett's Geiger Counter
Friday October 13, 3:32 pm ET
By Emil Lee
In 1956, Warren Buffett started a small hedge fund and, over the next decade, trounced the market with a 930% cumulative return, compared to the Dow Jones' 165% return. Keep in mind, this is after fees. Buffett's return, before fees, was 1,600%.
How was Buffett able to achieve such stellar returns? Charlie Munger once said that he and Warren made their first hundred million or so by running their Geiger counter over everything. By turning over enough rocks, they eventually found hidden treasures lying there for the taking.
The $60 wallet
After reading Buffett's shareholder letters from those early days, I see that Munger wasn't lying. For example, one of Buffett's largest holdings in the late '50s and early '60s was a company called Sanborn Maps, which eventually became a whopping 35% of Buffet's fund. Amazingly, Sanborn Maps had a securities portfolio worth $65 per share, but the stock sold at $45 per share. The mapping business, although declining, was still profitable, and it had a positive intrinsic value. Buffett was able to buy up enough stock to gain control of the company and liquidate the securities portfolio, giving him a fabulous return. In essence, Buffett bought a wallet with $100 in it for $60, and not only got to keep the money, but also sell the wallet.
complete article here... (http://us.rd.yahoo.com/finance/news/rss/story/*http://biz.yahoo.com/fool/061013/116076793723.html?.v=1)