After 12 years of crushing Lehman Brothers, the Massachusetts Trust, and the Dow Industrial Average, Warren Buffett retired from investing in May 1969, and he was still telling people he was retired in 1974.
If you missed my first blog post about Buffett’s retirement, best to start with that one, which left off at the cliffhanger asking how he got from there to Berkshire Hathaway.
Halfway through Roger Lowentein’s biography Buffett: The Making of an American Capitalist, it is 1974 and Buffett is chairman and actively involved at Berkshire Hathaway, which by then was already down the path of a diversified investment holding company, but he still considered himself retired. Retired enough that in 1973, when Bob Mallot of FMC Corp asked Buffett to manage some of the FMC pension fund, Buffett agreed.
The biography did help explain why Buffett chose to retire. That decision dates back to 1967, when the stock market began a huge run up, a.k.a. a bull market, unlike any seen prior to the 1920s before the big crash in 1929. Reading a bit more about it elsewhere across the internet, it looks like the 1967-1968 bull market was a lot like the dot-com bubble. The History of Computer Communications talks about as a euphoric market. The hot tech companies included IBM, Xerox, Polaroid and Kodak. The PE ratio of the most popular public companies exceeded 50.
The problem for Buffett was that he was (and still is) a value investor. There were no underpriced shares in that market. His portfolio was going up up and up, but only because the market as a whole was in a frenzy, not because he has found any bargain companies to buy.
After two years where it seemed like the market was headed in a direction he didn’t understand or desire, he decided to cash out and retire. By the middle of 1969 his own personal wealthy, 95% of which was shares in Berkshire Partnerships Ltd. had grown past $10 million. Buffett could live without working. So he did.
Berkshire Partnerships Ltd. spent the second half of 1969 selling all of its holdings except for Diversified Retail and Berkshire Hathaway. Buffett told his partners he’d distribute those shares to the partners, or that they could sell. Buffett personally bought up shares of (at least) Berkshire Hathaway for anyone who wanted cash. So by 1970, Warren Buffett was the largest single owner of Berkshire Hathaway Inc., and appointed himself the new Chairman of the Board.
How did he then get from there to actively running Berkshire Hathaway with Charlie Munger at his side? The next blog post should have that answer, as Munger is a friend of Buffett by 1974 but not yet a business partner. The next chapter in the book is all about Munger, so I suspect to have those answers by the next blog post.
FOLLOW-UP: The SEC created Berkshire Hathaway???