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Blue Chip Stamps letters


maxprogram
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Just published a free digital book of Blue Chip Stamps annual letters, written by Charlie Munger, from 1978-1982:

 

https://www.gitbook.io/book/maxolson/blue-chip-stamps

 

You can read it as is (or send to Instapaper), in PDF, EPUB, or MOBI. I also put up Blue Chip's financials (or at least filled in all available info from old Blue Chip & BRK reports -- pre-73 Blue Chip financials aren't in the BRK reports as consolidated ownership wasn't high enough). If anyone has access to more financial info let me know and I can include.

 

https://docs.google.com/spreadsheets/d/1M_pui2-0EDdvo4ndIVbBJ-UrwpCQ9gpuo1dkP2WWWYo/edit?usp=sharing

 

The letters have good discussions from Munger on investing, See's Candies, Buffalo News, Mutual Savings, and the declining stamp business.

 

(P.S. for those interested the raw letters the Github repo is up at https://github.com/maxprogram/blue-chip-stamps)

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I just read through the letters, and it was delightful. Some takeaways:

 

1) we often hear Munger quoted as saying that he'd just own maybe 4-5 businesses max in a portfolio. That's what he's done within Blue Chips

 

2) the spreadsheet was really helpful in illustrating in the most simple way what a "float business" looks like. It provides an extremely powerful form of leverage. BC had very little debt otherwise

 

3) BC achieved ROEs close to 15%, after, Munger admits, making a lot of errors. Later he admits that Buffalo Evening News might have been a mistake, depending on how you look at it. For 5 years after purchase, Buffalo made losses for a variety of reasons (weekend paper war, labor, legal injunction, etc), but the final outcome was ok since the competitor folded and Buffalo jacked up its circulation. Munger wisely says not to judge this investment by the outcome (which ended positively) but look at all the risks it took to get there... maybe not such a great investment after all. In any case, 15% ROE with this big drag... still pretty good returns

 

4) purchased Precision Steel for 11x 1yr forward P/E

 

5)  Garrett Hardin Princinple for the soft sciences: bad ideas are born good. Even back then, Munger was showing his interest and knowledge of the psychology of misjudgment. Few sentences later, he makes a reference about cognitive dissonance (this is in 1981)

 

6) very focused on businesses that generate a lot of cash and have low reinvestment needs (reflects worries about inflationary environment)

 

7) articulates that BC is adamantly opposed to issuing new stock, which would dilute shareholders

 

---

 

Some questions for all of you:

 

1) Anyone know what the business model for Blue Chips actually is? In other words, how does it make money? What are its costs? The letters mention Blue Chips has customers like supermarkets and gas stations. The letters mention "revenue from the trading stamps segment". I've never really understood how this business works.

 

2) Anyone know off the top of their head, how Munger or Buffett got control of Blue Chips? Is it simply a matter of buying up a bunch of shares in the open market? I'm not a lawyer or a P/E guy, so I just want to understand how an individual or a fund can get control of a company, such that they can control an important aspect of the business such as its float. 

 

3) What small / mid cap float businesses exist today?

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