A very good article. I alwas enjoy reading about the partnership letters.

But, I did want to mention a few minor quibbles / elaborations:

Sanborn Map should not be spelled "Sandborn Map"

The mention of "40% of the partnership's capital" was related to American Express – although this is not obvious from the partnership letters alone. Previously, he had not put more than 25% in a single idea – although it appears he did opt for the max more than once. However, where we know he put that much in it is often an "influence" if not "control" type position, in that he was a big enough shareholder that he would have to be wooed by management if they wanted to effect a major corporate change. This isn't quite the same thing as Dempster, Berkshire, etc. – but, it's worth noting. Also, with the exception of American Express, these were likely deep value asset plays. Two examples he mentions are Sanborn and a New Jersey bank. From what little I know about them, they were extremely "safe and cheap" more like the Marty Whitman of today than the Warren Buffett of today.

The leverage was to offset "workouts" which were really operations in announced events. Also, there's a big hint in a couple of the letters, that the partnership is somehow hedged in a way that will capture relative performance between stocks. Here, it's safe to assume, Buffett is departing from Graham's playbook in some way and needs protection against a huge contraction in market multiples (across the board) that wouldn't be needed if he was invested purely in NCAV bargains, workouts, etc. He had a lot more money at this point, and valuations had gotten high in some places, so this was probably Buffett's most conventional looking value portfolio. In other periods, he's not even playing the same game other value investors play, he's in very safe, very cheap stuff – NCAV bargains, workouts, control / influence positions, and deep asset plays. In other words, in most years, moves in the market shouldn't have done much to his portfolio – but, it may have become harder to maintain this insulation fully in later years.

Finally, on the Pepsi to Coke conversion, Keough tells a nice story about introducing Buffett to Cherry Coke after reading a magazine profile of Buffett in which it was mentioned he consumed something like a half dozen cans of Pepsi a day – of course, being a Coca-Cola man, Keough doesn't actually speak the competitor's forbidden name when he tells the story.

Finally, I just wanted to note that Buffett was buying some very small stocks for the partnership. Adjusted for inflation, most people would be surprised how small some of these stocks were - he was definitely into micro-caps for as long as his investing career allowed it. Because he was such a great investor it was a short period in his carreer, but that fact shouldn't lead people to think he abandoned the approach because it doesn't work - he abandoned it because it couldn't work for him.

Also, everyones leaves this little detail out, but Buffett was personally rather well-off when he returned to Omaha, because he didn't put his money into Graham Newman – rather he quickly turned about $10,000 into $100,000 through a few concentrated bets in small, spectacular bargains. I know a hundred grand doesn’t sound like that much – but, a dollar was worth a lot more back then and Buffett was a great investor, so he knew he didn't need to work another day in his life. He could have invested his own money and would have become a very rich man – not Forbes list rich, but rich nonetheless.

So, Buffett's early days were mostly spent in much smaller and more obscure stocks than people seem to remember today. That's often left out of the Graham / Fisher debate – and it's something that leaves its fingerprints over the early days of Berkshire and occasionally pops up even in later years at Berkshire. The problem is, you can't put billions to work in Graham type bargains – but, Buffett's views about how to manage millions (rather than billions) are a lot closer to the Graham Newman playbook than most people seem to think.

I don't mean to minimize the "paying up for quality" purchases, but sometimes people emphasis that part of Buffett's career to an unhealthy extreme, he doesn't just buy anything with a wide moat, and if you stress that side of Buffett too much you can overlook the conspicuously cheap stuff and pay too high a premium for the wide moat franchises of today.

Just my thoughts – regardless, it's a good article.