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Toward the end of 1969 the Buffett Partnership held a substantial stake in Blue Chip Stamps worth about 6% of the fund. Alongside other holdings he tried to sell the 371,400 shares (7.5% of BCS shares) so he could hand the cash to his partners.
He thought he had a deal at about $24. Then the Dow-Jones fell and the buyer wanted a much lower price, and then a lower price still.
In the end a small amount were sold elsewhere, but the bulk were retained until Warren could find a “more advantageous disposal or eventual distribution to our partners…even if it takes a year or two.” (Letter to partners, December 26, 1969).
Well, in turns out that this forced hold became very profitable – but those stories are for a number of future Newsletters. For now we’ll look at the origins of Blue Chip Stamp and the reasons for Warren’s interest.
Charlie Munger and Rick Guerin play central roles
Following their initial meeting in 1959 Charlie Munger returned to California and in 1962 established an investment partnership, Wheeler, Munger & Co. He also spoke with Warren on a daily (or even hourly!) basis.
Rick Guerin, another Grahamite and friend of Munger, had also spotted the opportunity.
All three bought shares in Blue Chip Stamps starting in 1968 when its market capitalisation was around $40m.
The stamps business
In the late 1960s and early 1970s it was fashionable to collect stamps from retailers. You walked in, bought something, and, along with your change you got dozens of stamps – petrol stations handed out a lot of them.
You took the stamps home and stuck them in a book, many pages long. I remember my mother collecting “Green Shield Stamps” here in the UK – in California there was Blue Chip Stamps.
The books of stamps could be swapped for toasters, kettles, tables, etc.
The beauty of the business was that BCS received a fee – cash upfront – from retailers for the stamps. The cash was used later to buy toasters, etc.
So, between retailers paying for the stamps and the……………
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