The S&P 500 was down -26% in 1974. How was Warren Buffett doing in that environment? At the end of 1974, Buffett’s stock picks were significantly underwater. Had he been a hedge fund manager, things would not have been pretty. But, he had no limited partners that could yank his capital. On one hand, he was probably not to pleased with the returns for that year. On the other hand, the market sell-off did provide him with an opportunity to add to his positions with incoming insurance premiums.
In August, Mohnish Pabrai took part in Brown University's Value Investing Speaker Series, answering a series of questions from students. Q3 2021 hedge fund letters, conferences and more One of the topics he covered was the issue of finding cheap equities, a process the value investor has plenty of experience with. Cheap Stocks In the Read More
During 1974, he had suffered declines in the market value of his preferred and common stock investments made by Berkshire’s insurance group such that he was -32% below his cost basis.
What were some of his holdings at this time? Washington Post was a major holding. To see the rest of his holdings, see below. Note: Berkshire’s investment in Blue Chip Stamps is not shown in the table below.
How was Buffett doing on his bond investments? Not much better! He was underwater -18% below his cost basis with his bond investments at the end of 1974.
What did Buffett have to say about all this in the 1974 10-K? In the following excerpt from the 10-K below, he touches on the temporary nature of these markdowns and explains that “management believes over the long term, no significant net loss to the Company will result from its continued holding or sale of securities which constituted its portfolio at December 31, 1974.”