Commonwealth Trust and Co of Union City

The Buffett Partnership Feb 2nd, 1959

The Buffett Partnership had amased as 12% stake in Commonwealth for an average price of $51. At the time it was trading cheaply at $50 a share. It paid no dividend, and had an EPS of around $10. Buffett had “conservatively” computed intrinsic value at $125 per share and commented it was “well managed bank” and shareholder friendly.

The catalyst was its largest shareholder (First National) had for many years a desire to merge. Post merger, Buffett thought it could be worth north of $250 per share. Commonwealth had about half the assets of First National ($100M).

The thesis was that it was a cheap stock that had a large margin of safetly with a catalyst for unlocking value. In the end, Buffett was able to sell the shares for $80 before the catalyst played out. He found a better opportunity elsewhere to deploy capital.

This was a very typical setup for Buffett in his early days. He called these Generals. “I believe that a program of investing in such undervalued well protected securities offers the surest means of long term profits in securities.”