Buffett Partnership Letters: 1962 Part 3

by on July 20, 2012  •  In Warren Buffett - Partnership Letters

This is a continuation in a series on portfolio management and the Buffett Partnership Letters. Please see our previous articles for more details.

A slightly off tangent and random fact, in 1962, Buffett into new office space stocked with – hold on to your knickers – “an ample supply of Pepsi on hand.”


Team Management

“On April 17, 1962, I met Harry [Bottle] in Los Angeles, presented a deal which provided for rewards to him based upon our objectives being met, and on April 23rd he was sitting in the president’s chair in Beatrice. Harry is unquestionably the man of the year. Every goal we have set for Harry has been met, and all the surprises have been on the pleasant side. He has accomplished one thing after another that has been labeled as impossible, and has always taken the tough things first…He likes to get paid well for doing well, and I like dealing with someone who is not trying to figure how to get the fixtures in the executive washroom gold-plated. Harry and I like each other, and his relationship with Buffett Partnership, Ltd. should be profitable for all of us.”

The quote above is the start of Buffett’s tendency to mention and praise employees / operating partners. This habit would continue in his letters over the next 50 years. Here, we see two important items related to team management.

  1. Alignment of Interest – “rewards to him based upon our objectives being met,” which included 2,000 options (out of 60,146 total shares outstanding) equating to ~3% ownership, therefore a mutually beneficial relationship that’s “profitable for all…”
  1. Appreciation / Praise – an underutilized strategy with the potential to work wonders for talent retention. It’s in each of our natures to want to feel appreciated, and to hear praise. This is something that too often people in the finance industry fail to understand. Throwing money at the problem unfortunately doesn’t work in every instance and instead starts bidding wars for talent (compensation, unfortunately, is not a competitive advantage when it comes to employee retention). There are other subtler and perhaps more effective ways to attract and retain employees.



“The actual percentage division among categories is to some degree planned, but to a great extent, accidental, based upon availability factors…We were fortunate in that we had a good portion of our portfolio in work-outs in 1962. As I have said before, this was not due to any notion on my part as to what the market would do, but rather because I could get more of what I wanted in this category than in generals. This same concentration in work-outs hurt our performance during the market advance in the second half of the year.”

Due to “availability factors,” portfolio sizing involves a certain degree of we-get-lemons-and-therefore-we-make-lemonade.

Although Buffett had the optimal and “actual percentage division among categories” in “some degress[s] planned” in his head, he remained flexible and made do with what market offerings were available at the time.

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