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Turtle Bay

@turtlebay_io

May 8, 2024

How Warren Buffett earns 50% on small sums:

Bayuk Cigars

In 1982, Buffett bought 6% of Bayuk for his private account. His $572,907 investment produced a 50% IRR with "virtually no risk."

Here's the story…

Bayuk was the US's fourth-largest cigar maker. Their low-priced Phillies and Garcia Y Vega brands earned $3M pre-tax but "had been in decline over the past decade." Bayuk also owned $15M of securities. The board wanted to sell these assets "without paying [capital gains] taxes."

The solution? Liquidate.

On December 21, 1981, shareholders voted to (a) sell the cigar assets to American Maize, (b) convert the securities to cash and (c) liquidate the company and distribute the proceeds to shareholders.

Liquidation value: $27M ($15 a share)

Read 11 tweets

Turtle Bay

@turtlebay_io

Apr 26, 2024

Warren Buffett on American Express:

"That was my partnership's best investment"

In 1964, Buffett put $2.8M of his $17.5M fund into AMEX. AMEX grew to a 40% holding, "the largest investment the partnership ever made," and compounded at 50% for four years.

Here's the story…

"Things had never looked rosier at AMEX than they did in mid-November 1963." Traveler's checks. Charge cards. Deposits. Earnings. The stock. Everything was "growing by leaps and bounds." AMEX was a "true growth stock of prime investment quality.

But that was about to change.

On December 2, 1963, the WSJ broke a story about fraud at an AMEX subsidiary. American Express Warehousing, Ltd. issued $82M of receipts against salad oil inventory that "was either missing or had never existed." And this subsidiary had just $100K of net worth to back the claims.

Read 19 tweets

Turtle Bay

@turtlebay_io

Mar 25, 2024

A Case Study in Capital Allocation: Philadelphia & Reading

In 1955, Ben Graham took control of P&R. Over the next 12 years, Graham transformed P&R from a failing coal mine into a high-return holding company.

Here's why P&R was Buffett's
- Largest investment
- Berkshire template

P&R was "a leading producer of anthracite coal." Anthracite was a dying market that had been "artificially inflated" by a postwar boom. And the boom allowed P&R to do "pretty well from 1946 on" despite management that ran the company "like a fine old nonprofit."

Enter Ben Graham

Why'd Graham like P&R?

Three reasons: "room for smart management to make improvements"; an "overcapitalized" balance sheet and "enormous" inventories; and an $18 stock vs $2 of EPS and $32 of equity.

"It was tailored to Ben Graham's specifications as an attractive investment."

Read 14 tweets

Turtle Bay

@turtlebay_io

Mar 12, 2024

A Buffett 1950s stock:

National American Fire Insurance

NAFI was a long-forgotten fraud. It didn’t file with the SEC or trade on an exchange, and the guy who ran it “hated stockholders.” Yet Buffett went door-to-door buying 10% of the float. Why? See below to find out.

NAFI began in 1919 as a stock promotion. The promoters sold shares to “Nebraska and Iowa farmers and small-town merchants who had little idea what it was worth.” These retail investors soon learned their shares were “worthless” and “lost hope ever seeing their money again.”

For the next 30 years, shares sat “crumbling in drawers.” But NAFI had been transformed from a fraud into a thriving business. Howard Ahmanson, the original promoter’s son, took control and “was feeding top-drawer insurance business into NAFI” through his California S&L empire.

Read 8 tweets

Turtle Bay

@turtlebay_io

Sep 19, 2023

Constellation Software Memo

"Once the commitment to outsource is made, it becomes increasingly difficult for the customer to change service providers."

Top-performing VMS attributes:
- Outsourcers → Recurring revenues
- Acquisitions → Low-cost CAC
- Cash deals → No dilution

ADP:

ADP biography:

Read 9 tweets

Turtle Bay

@turtlebay_io

Sep 13, 2023

The birthplace of modern railroading:

Illinois Central

In 1989, Hunter Harrison joined a group that acquired IC. Harrison transformed IC from the "worst- to best-run rail" and earned 20X over nine years. IC became the template for how to run a railroad.

Here's the story…

Illinois Central owned 2,900 miles of track between Chicago and New Orleans. The company, which began in 1851 as the first land grant railroad, used its north-south network to transport (a) Midwest coal and grains south and (b) Gulfcoast chemicals north.

Like most railroads, IC struggled with the holdover effects from the industry's pre-deregulation era.

These included:
- Excess employees
- Excess track
- Excess costs
- High prices
- Poor service

Read 18 tweets

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