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The Wesco story is most interesting, not for the subsequent success of the original business, but for the clever things that Buffett and Charlie Munger did with the resources held within the firm over the following 30 years outside of the original business.
Instead of leaving the bulk of the money supporting a savings and loan organisation providing mortgages, they followed the path trodden by Berkshire Hathaway by buying and building up other important businesses, such as in insurance; and they invested in a portfolio of stock market shares, bonds and preferred stock, ranging from RJ Reynolds to Wells Fargo.
Indeed, many Buffett followers referred to Wesco as a mini-Berkshire due to its mix of wholly-owned operating businesses, especially insurance, and its collection of tradable securities, many of which were common to both Berkshire’s and Wesco’s portfolios. A major attraction for small investors wanting to ride on Buffett and Munger’s coattails was that Wesco’s shares could be picked up for tens or hundreds of dollars each, whereas Berkshire’s rose into the tens of thousands – it was a “cheap” way in.
There was the added bonus that Wesco shareholders were invited to the annual general meeting, presided over by Charlie Munger. Attendees were guaranteed to walk away from the meetings held in Wesco’s cafeteria in Pasadena, California, with inspirational pearls of wisdom.
The business
Wesco Financial was the holding company for Mutual Savings and Loans Association of Pasadena. This was founded in the 1920s by Rudolph W. Caspers. It did well in the building boom following the Second World War, and floated its shares on the American Stock Exchange in 1959.
But from then until 1972, while it was regarded as well managed, with high vigilance over costs and decent profits, it was viewed as sleepy, not bound for fast growth. Its shares drifted into the low teens.
By then the key shareholders were various descendants of the Rudolph W. Casper, but even between them they did not own a majority. This group was led by Elizabeth “Betty” Caspers Peters. She served on the board but otherwise this 47-year old woman had school-aged children and land in the fertile Napa Valley to attend to. Today, she is still on the board, now a 90-year old.
Another key person in this story joined Wesco in 1955, Louis R Vincenti. He quickly worked his way up to become President in 1961.
Munger and Buffett get interested
For some time, Buffett had taken a keen interest in savings and loan companies. He had read hundreds of their reports and accounts. In the summer of 1972 Wesco Financial had a market capitalisation under $30m, which was about one-half of the net asset value. Buffett and Munger instructed Blue Chip Stamps to buy 8% of the shares for about $2m.
In the second half of 1972 Betty Caspers Peters was continuing to encour……To read the rest of this article, and more like it, subscribe to my premium newsletter Deep Value Shares – click here http://newsletters.advfn.com/deepvalueshares/subscribe-1
