Liquidating limited company
My research has uncovered that this “good price” did not involve a low price to trailing earnings multiple.
Instead, it refers to a good price in relation to the value of the assets.
Stock purchases of that kind had proved reasonably rewarding in my early years, though by the time Berkshire came along in 1965 I was becoming aware that the strategy was not ideal.
If you buy a stock at a sufficiently low price, there will usually be some hiccup in the fortunes of the business that gives you a chance to unload at a decent profit, even though the long- term performance of the business may be terrible.
In his January 1966 letter, further details were provided.
There was at least some market value in the property plant and equipment. The book value of .46 per share, at the end of fiscal 1964, can be broken down, on a percentage basis, as follows: Cash 3% Accounts Receivable and Inventory 69% Net Property, Plant and Equipment 27% Other Assets 1% This indicates that the assets which were purchased for 76% of book value were relatively high quality assets.Buffett also noted that in “a very pleasant surprise” existing management employees were found to be excellent.Ken Chace, he said, was now running the business in a first-class manner and it also had several of the best sales people in the business.In a 1963 letter he said: Because results can take years, “in controls we look for wide margins of profit — if it looks at all close, we pass.” He also said he would only become active in the management when it was warranted.
On at least one previous occasion Buffett had taken full control of a public company.
Why did Warren Buffett Buy Berkshire Hathaway in 1965?