by Travis Johnson, Stock Gumshoe | October 3, 2007 8:14 pm
I’ve gotten a lot of email about Porter Stansberry’s latest ad campaign, the one that teases the existence of “secret societies” that you can participate in and significantly outperform the market.
Of course, the mystique sells the newsletters … but are these “secret societies” for real? Let’s take a look.
This “Pasadena Secret Society” … what is it?
The ‘Pasadena Society’ — he’s also calling it Pasadena’s Secret Investing Syndicate — was started in 1957 by an aspiring money manager in his early 20s.
OK, so who knows this one so far?
There are a few quotes, too, which the Gumshoe loves:
“better by a mile than any mutual fund,” according to Kiplinger’s.
The NY Times chips in, “if anyone can beat the market, it’s [the Society].”
There are a few clues given about the investments of the “society:”
“Two years ago, the ‘Society’ received a 2-page letter from the chairman of a small, family-owned tool-manufacturing company based overseas. The family wanted to sell their profitable enterprise to a group of competent investors… They had heard of the ‘Society’s’ reputation from other wealthy investors, and decided it was a perfect home for their company.”
“Imagine, a wealthy foreign family literally gifting you a profitable cash-machine! You and I would never dream of getting a letter like that in the mail. The ‘Society’ bought the entire company for $4 billion. And shareholders have made twice as much money as the stock market since then.”
And several other acquisitions/investments by the Pasadena Society are teased as well:
“In 2000 and 2002, the ‘Society’ saw a trend in the commodities sector, and acquired preferred stock in an international energy company based in Iowa.”
“In the 1970s, the ‘Society’ saw an opportunity in the newspaper business. They decided to acquire a small 10% stake in a national newspaper that had a near-monopoly in the city it covered. “
That’s probably enough to figure out what this “Pasadena Society” is, though Stansberry also teases a few other investments that are built around similar “secret societies.”
And this society has a special meeting for its members every summer.
So what are we dealing with here?
Believe it or not, it’s Warren Buffett’s Berkshire Hathaway (BRK-A or BRK-B), which I think we can agree is the most famous holding company in the world.
The Kiplinger’s quote was clearly about Warren Buffett’s Berkshire Hathaway, though it’s a bit old (from 2003) … the NY Times quote is fresher, from a 2007 article also about the Sage of Omaha.
The “special meeting” that only society members may attend refers, of course, to the pilgrimage to Omaha for the Berkshire annual meeting, often referred to as “Woodstock for Capitalists.”
The specific investments that I noted above are Mid American Energy, the Washington Post, and Iscar, Buffett’s latest relatively large acquisition. A few other Buffett acquisitions were teased, too, but my fingers got lazy.
There are a few relatively unimportant factual discrepancies with the clues — I think when Buffett got the letter and invitation to buy Iscar, the Israeli metal tool and cutting company, he bought 80% of the company, not the “entire company.”
And I think Warren Buffett’s investment partnership, which predated the Berkshire Hathaway acquisition by a few years, actually started in 1956, after Ben Graham’s partnership folded and Buffett set out on his own … but no need to quibble.
And what’s up with that Pasadena part of the clue? I assume that this must be a clue about Charlie Munger, who I think still lives in Pasadena and has based his own, smaller holding company, Wesco, in that LA suburb/neighborhood. Munger is the frick to Buffett’s frack, his sounding board and investing partner for Warren for decades, though I don’t know that they were even acquaintances yet in 1957 — their tight business relationship began a bit later on, I think, in the 1960s.
So this is a first for me — I’ve seen probably dozens of teasers that purport to share with you the secrets of Warren Buffett, or to find the next Warren Buffett for you … but this is the first one I’ve seen that actually teases Berkshire Hathaway. Not exactly an unknown company, though many people consider it out of reach at close to $4,000 a share for the B shares and well over 100,000 for the A shares, but as a Berkshire Hathaway shareholder myself I certainly can’t argue with the logic.
And really, Stansberry isn’t teasing Berkshire here, though he does leave those tantalizing clues about it — that’s a buildup to his own effort to find you the next “secret society”, which in effect means that this, again, is a search for the “next Berkshire Hathaway.” So it’s true, some pursuits are genuinely evergreen — I wonder how many years we’ll spend still looking for the “next Berkshire” in the decades after Mr. Buffett passes from this mortal toil?
But … and this is where I slip in my own teaser, I’ve got more to write about and no more time. So I haven’t yet gotten to the meat of this tease — they did tease Berkshire Hathaway as the “Pasadena Secret Investment Society,” but they also noted that, yes, this is a well-known company and the shares are quite expensive — and they’ve got some presumably smaller and less expensive “secret societies” for us to invest in …
So, next time you hear from me, look for the Gumshoe to go under the hood and check out the world of holding companies with “The Five Most Important Secret Investment Societies in America.” Until then, happy investing and I hope you all find success in searching for your inner Buffett.
Update — I’ve finished going through all the Secret Societies now, here are the links to my writeups/solutions:
The Brigham Street Society
The Mt. Kisco Society
The California Club
The Canary Wharf Estate
The Boardwalk Club
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