Commonwealth Trust Co

Commonwealth Trust Co. of Union City, New Jersey, was a major holding of the Buffett partnerships and served as a key case study in the 1958 Letter.

📝 Background

• Industry: Banking.
• Assets: ~$50 Million at the time of the investment.
• Ownership: 25.5% owned by a larger bank at the start of Buffett's involvement.

💰 Investment Details (1958)

• Entry Price: Buffett acquired ~12% of the company at an average price of $51/share.
• Valuation: Intrinsic value was computed at $125/share on a conservative basis.
• The Opportunity: Despite earnings of $10/share, the company paid zero dividends, which depressed the stock price.
• The Position: By becoming the second-largest stockholder, Buffett gained enough voting power to warrant consultation on merger proposals.

📉 Outcome

• Sale: Sold late in 1958 at $80/share.
• Rationale: Buffett found a "special situation" that was "somewhat larger" than Commonwealth and represented ~25% of the partnership's assets. He sold Commonwealth to fund this new, larger position.
• Legacy: Commonwealth serves as an example of how Undervalued Securities can generate profit through corporate events or size-driven influence (the precursor to control investing).

🔗 Connections

• Source: 1958 Letter
• Concept: Active Value Investing