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Quote of the Day

“On March 11th, it will be 77 years since I first invested in an American business. The year was 1942, I was 11, and I went all in, investing $114.75 I had begun accumulating at age six. What I bought was three shares of Cities Service preferred stock. I had become a capitalist, and it felt good.”

-Warren Buffett, in his 2018 Letter to Shareholders

For more Buffett quotes, see our collection of Buffett’s best letter to shareholders quotes in our post here.

March 11th – This Day in Stock Market History

March 11th, 1942 – Warren Buffett buys his first stock, 3 shares of Cities Service for $38.25 per share.

Cities Service was one of the first companies to supply gas in the midwest of the United States. The company was not only involved in service stations, but oil and natural gas exploration, refining, and production.

What made the stock attractive to Buffett?

“I didn’t understand the stock very well when I bought it.”

Almost immediately Buffett paid the price for his purchase. Shares of Cities Service plunged to $27 per share by June.

Buffett would wait until the shares of the company recovered to $40 before selling, netting him $5. But shares of Cities Service did not stop rising after Buffett sold. In fact, they rose even faster, quickly rising to $202 per share.

This would have a profound impact on Buffett. Alice Schroeder, in her biography of Buffett “The Snowball”, would say that Buffett’s experience buying and selling Cities Service would be a lesson he would “never, never, never forget.”

By the age of twelve, Warren had saved $120. In the spring of 1942, he enlisted his sister Doris as a partner and purchased three shares of Cities Service Preferred. The stock plunged from $38.25 to $27. When the stock recovered to $40, Warren sold, netting a $5 profit for the two siblings. He was, however, shocked to see the stock then continue to rise until it hit $202 per share a short period of time later. Warren realized that if he had held off selling a little bit longer, he and his sister would have netted a profit of almost $500.

Alice Schroeder’s note: Warren learned three lessons and would call this episode one of the most important of his life. One lesson was not to overly fixate on what he had paid for a stock. The second was not to rush unthinkingly to grab a small profit. He learned those two lessons by brooding over the $492 he would have made had he been more patient. It had taken five years of work, since he was six years old, to save the $120 to buy this stock. Based on how much he currently made from selling golfballs or peddling popcorn and peanuts at the ballpark, he realized that it could take years to earn back the profit that he had ‘lost.’ He would never, never, never forget this mistake. And there was a third lesson, which was about investing other people’s money. If he made a mistake, it might get somebody upset at him. So he didn’t want to have responsibility for anybody else’s money unless he was sure that he could succeed.

Cities Service would continue to grow and expand, eventually rebranding itself as “Citgo” in 1965 – A brand many are familiar with today.

Citgo would eventually be purchased by Occidental Petroleum for $4 billion in 1982.

What would Buffett’s $114.75 investment be worth today?

According to The Conservative Income Investor, a very conservative estimate would be about $683,000 (in 2014).

Source: Berkshire Hathaway’s 2018 letter to shareholders, The American Oil and Gas Historical Society, and The Snowball: Warren Buffett and the Business of Life

March 11th, 1986 – Over 187 million shares trade on the New York Stock exchange, at the time the fifth most active day in stock market history. The Dow rises 43.10 points, to a record close of 1,746.05. The gain would be the Dow’s second highest point rise in history.

The move came after the federal reserve cut interest rates from 7 and a half percent to 7 percent.

March 11th, 1998 – The Nasdaq and the American Stock Exchange announce a deal to merge, in an attempt to challenge the New York Stock Exchange’s dominance. Still today the new york stock exchange has twice the market cap and average monthly volume as the nasdaq.

Best March 11th in Dow Jones Industrial Average History

2008 – Up 3.55%, 416.66 points.

Worst March 11th in Dow Jones Industrial Average History

1932 – Down 3.06%, 2.64 points.

Read of the Day

Warren Buffett has learned a lot since making his first investment in 1942. 

Our post here details a few criteria Buffett looks for when making investments:

9 Examples of a Competitive Advantage – And what one is Buffett’s favorite

 

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