The Snowball_ Warren Buffett and the Business of Life - Alice Schroeder [528]
5. Letter to Stockholders of Rockwood & Co., September 28, 1954.
6. From the 1988 chairman’s letter in the Berkshire annual report to shareholders, which contains a brief description of the Rockwood transaction.
7. The speculator’s return on the contract also reflects his funding cost. For example, if the speculator broke even on a three-month contract—net of his fee—the contract would actually be unprofitable, considering the speculator’s funding cost.
8. In the futures market, the difference between a speculator and a hedger (or “insured”) is essentially whether an underlying position in the commodity exists to be hedged.
9. Interviews with Tom Knapp and Walter Schloss, as well as Buffett.
10. Warren Buffett letter to David Elliott, February 5, 1955.
11. Based on its profile in Moody’s Industrial Manual, Rockwood traded between $14.75 and $85 in 1954 and between $76 and $105 in 1955. Buffett held on to the shares through 1956. Profit on the trade is estimated. Rockwood traded above $80 a share during early 1956, based on the Graham-Newman annual report.
12. In the letter to David Elliott noted above (February 5, 1955), Buffett explains that Rockwood is his second-largest position (after Philadelphia & Reading, which he did not disclose) and writes that Pritzker “has operated quite fast in the past. He bought the Colson Corp. a couple years ago and after selling the bicycle division to Evans Products sold the balance to F. L. Jacobs. He bought Hiller & Hart about a year ago and immediately discontinued the pork-slaughtering business and changed it into a more or less real estate company.” Pritzker, he writes, “has about half the stock of Rockwood, which represents about $3 million in cocoa value. I am quite sure he is not happy about sitting with this kind of money in inventory of this type and will be looking for a merger of some sort promptly.” He had studied not just the numbers but Jay Pritzker.
13. Initially he had bought the stock from Graham-Newman when he was a stockbroker, after a minor mistake on an order from them caused them to DK (“don’t know,” or repudiate) the order. Warren kept the stock.
14. Before 2000, investors and analysts routinely sought and received nonpublic information that would be an advantage to them in trading stocks. This gradual flow of information, which benefited some investors at the expense of others, was considered part of the efficient workings of the capital markets and a reward for diligent research. Warren Buffett and his network of investor friends profited significantly from the old state of affairs. Ben Graham was questioned extensively about this practice before Congress in 1955. He commented that “a good deal of information from day to day and month to month naturally comes to the attention of directors and officers. It is not at all feasible to publish every day a report on the progress of the company…on the other hand, as a practical matter, there is no oath of secrecy imposed upon the officers or directors so that they cannot say anything about information that may come to their attention from week to week. The basic point involved is that where there is a matter of major importance it is generally felt that prompt disclosure should be made to all the stockholders so that nobody would get a substantial advantage in knowing that. But there are all degrees of importance, and it is very difficult to determine exactly what kind of information should or must be published and what kind should just go the usual grapevine route.” He added that all investors may not be aware of the grapevine, but, “I think that the average experienced person would assume that some people are bound to know more about the company