Warren Buffett Case Study: Arbitrage

Buffett earns 39% CAGR in arb deal.

Warren Buffett’s net worth has grown 25% annually for 72 years.

He’s the best investor to ever live. And it’s not close.

He started out buying egregiously cheap shares in tiny businesses. Later, he would buy small stakes in larger businesses. And later still, he would swallow entire companies. In the beginning, it was Greif Brothers Cooperage and Western Insurance. Now it’s BNSF and Apple.

But through the years, one opportunity set persisted.

Arbitrage.

“While at Graham-Newman, I made a study of its earnings from arbitrage during the entire 1926-1956 lifespan of the company. Unleveraged returns averaged 20% per year. Starting in 1956, I applied Ben Graham’s arbitrage principles, first at Buffett Partnership and then Berkshire. Though I’ve not made an exact calculation, I have done enough work to know that the 1956-1988 returns averaged well over 20%.” - Warren Buffett

Today, we’ll dive deep into one of Buffett’s arbs.

My friend, Turtle Bay, has the best data on old investments. He has terabytes worth of Buffett history. We teamed up to write this article. If you like it, we’ll do more in the future.

If these case studies work as intended, we can all learn something together. Successful investing requires pattern recognition. How many times have you studied a situation and said, “this reminds me of XYZ from a couple years back”?

I think you’ll find practical use in today’s case.

“Give a man a fish and you will feed him for a day. Teach a man to arbitrage and you will feed him forever.” - Warren Buffett