Sunday, March 1, 2015

Buffett Partnership Investment: Alco Products

To say Warren Buffett has had a productive business career would be an understatement. He has gone from a newspaper delivery boy to a young entrepreneur to a hedge fund manager to the CEO of one of the world largest companies. And he is arguably the world's most well-known and admired capitalist.

Today he is a big-time capital allocator, and probably the best in the world. But I am more interested in learning from him when he was a small-time hedge fund manager. Buffett started several partnerships to invest his and those of close friends and family starting in 1957. Eventually they grew and grew until 1969 when he shut them down and focused on running Berkshire Hathaway.

I think that the value investing world would benefit greatly if more case studies of his partnerships were available.  Some blog articles exist and some books have written about them. Here I will add my first case study of one of his partnership investments from 1962: Alco Products. I found this company from a copy of a handwritten statement of Buffett's holdings from that year. Later, I will post links and resources about the partnerships.

1962 Alco Products
Price $ 19.250
Market Cap $ 33.77 M
P/E TTM 36.6 x
Div yield 1.0 %
P/TBV0.53
ROE1.4 %
LT Debt/Equity0.25
The partnerships had a 1% position in this company. The name Alco originally stood for American Locomotive. The company made steam and diesel locomotives. Later it also produced nuclear energy. In 1964 the Worthington Corporation acquired Alco. The company became defunct in 1969, presumably because of poor sales. Alco's locomotives were later produced by other companies and derivative locomotives are still running in some developing countries.

The company is well past it's heyday. Buffett in those days used the Moody's manual as the guide to companies. Moody's provides condensed info much like yahoo finance does today but with more accurate and useful information. The following is from the 1962 Moody's Industrial Manual, page 1841. As the income section shows, Alco revenues from 1956 to 1961 decreased from $160M to $89M. I have no details on the reasons for the decline. But clearly this is a company in trouble. So, it is puzzling why Buffett owned this back then. I can only speculate. One possibility is that Buffett bought the stock in the 1950's when it was doing well and pared his position as the fortunes went south. It doesn't appear that the low price to book ratio compensates for the horrendous earnings trend. It is also possible that I have made a mistake and Buffett didn't own this company. If anyone knows more about this please comment. Thanks!


7 comments:

  1. Maybe it was a net net? You said they got bought out so maybe a merger arb?

    I would also like more info on his partnership days. There seems to be a rule for Buffett information: the more useless it is to me the more attention it gets. I have read all the partnership letters and many Buffett books to try to piece together what he was doing during the partnership, but I have only a vague idea. I guess we mostly have to settle for reading Graham since he was supposedly mostly copying him.

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  2. Yes I find the Buffett early years is exactly what I (and presumably others like you) want to replicate...... thanks for the feedback, I am going to post more on Buffett in 1962 and on Graham from 1950's.

    Ouch I accidentally deleted your second comment but I hope you can contact me if and when you find more alco info... thanks for the link:


    http://library.syr.edu/digital/guides/a/alco.htm

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    2. Where to find the copy of this Moody page? I checked he did own share of Alco by the year end of 1962, other than PB ratio, i cannot understand why master owned it, can we have a full copy of Mooday page 1841/1842 to understand if it was a net-net reason?

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  3. Hi,

    Thanks for your posts, they are very interesting.

    Alco was in the Buffett Partnership Ltd at the 12/31/1962 ?

    I can't see the balance sheet on the moody's. What was the net tangible assets and the net current assets per share ?

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  4. Fun post. Where do you get the list of holdings? Would it be possible to get a copy of the source doc?

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    1. Hi Ruther, just email me that's the name of this blog at gmail.com

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