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/TBV	0.53
ROE	1.4 %
LT Debt/Equity	0.25

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!