On January 19, 2007 I flew to Omaha, Nebraska to hand deliver a written question to 
Warren Buffett. A copy of the letter included as Appendix I. 

The letter essentially addressed Mr. Buffett’s early investments and asked: 

  If you were today 20-something years old, again looking to allocate 
  less than $10 million, and free to allocate capital into well over 
  8,000 opportunities (before even considering anything overseas), 
  would your Latticework of Mental Models primarily be searching 
  for: 

  a) Situations reminiscent of 1957 – akin to Daehan Flour Mills, 
  or 
  b) Situations reminiscent of 1987 – akin to Moody’s Corporation? 

In response to my 1,091 word question, Mr. Buffett handwrote a response of eight 
words. See Appendix II. 

Respectfully, 

Shai Dardashti 

 Appendix I: Text of Letter to Warren Buffett 

  January 19, 2007 
 Warren Buffett 
 1440 Kiewit Plaza 
 Omaha, Nebraska 68131 

 Dear Warren: 

  Like the thousands of other young people who try to contact you, I’ve always 
 been the kid in school who used to read the business section of the paper rather than the 
 sports section while in high school and would check “yahoo finance” rather than “yahoo 
 sports” while in college. 

  I first read The Warren Buffett Way when I was 13 and I walked into the local 
 library looking for a book about investing. I first wrote to you when I was 17 when I 
 figured I actually had a reason to make a plea for your attention. I first had the privilege 
 to shake your hand at age 21 when I organized a student trip from University of 
 Maryland. 

  I just traveled 1,000 miles on 48 hours of notice to shake your hand for a second 
 time. And to hand deliver this letter to you. 

  My father escaped from Iran in 1967 – as a 12 year old, leaving his parents 
 behind and surviving on his own in Philadelphia with an aunt. My mother is from a 
 small town in Pennsylvania – many in her family were victims of the Holocaust. If you 
 are actually reading this message, I am indeed one of the luckier people in the world. 

  I consider the luck to be able to deliver this communication to you on par with 
 that of a philosophy student conversing with Plato; the odds for “time, technology, and 
 temperament” to all align is a statistical anomaly. I could not have been handed a better 
 ticket in the Ovarian Lottery. 

  I’ve read your Partnership Letters, the Letters to Berkshire Shareholders, and my 
 fair share of articles that you have written and books that have been written about you - 
yet still have a single looming question. 

  Any guidance would be deeply appreciated. 

  My sincerest thanks, 

  Shai Dardashti (signed) 

Mr. Buffett, on June 23, 1999 you shared with Business Week: 

  If I was running $1 million today, or $ 10 million for that matter, I'd be fully 
  invested. Anyone who says that size does not hurt investment performance is selling. 
  The highest rates of return I've ever achieved were in the 1950s. I 
  killed the Dow. You ought to see the numbers. But I was investing peanuts then. 
  It's a huge structural advantage not to ha ve a lot of money. I think I could make 
  you 50% a year on $1 million. No, I know I could. I guarantee that. 

More recently, Morningstar reported: 

  Munger also recalled a comment made by Buffett at the Berkshire annual meeting 
  concerning how cheap Korean stocks had become during that country's financial 
  meltdown in 2002: "There were flour mills trading at two times earnings. Warren 
  thought he was young again ." 

As I understand things, I recognize two “mental models” from your investment patterns 
over the years: 

  The “1957” Graham Approach 

At a talk to Columbia students in 1993 you shared: 

  When I got out of Columbia the first place I went to work was a five-person 
  brokerage firm with operations in Omaha. It subscribed to Moody's industrial 
  manual, banks and finance manual and public utilities manual. I went through all 
  those page by page. 

  I found a little company called Genesee Valley Gas near Rochester . It had 
  22,000 shares out. It was a public utility that was earning about $5 per share, and 
  1 
  the nice thing about it was you could buy it at $5 per share. 

  I found Western Insurance in Fort Scott, Kansas. The price range in Moody's 
  financial manual...was $12-$20. Earnings were $16 a share . I ran an ad in the 
  Fort Scott paper to buy that stock. 

  I found the Union Street Railway , in New Bedford, a bus company. At that 
  time it was selling at about $45 and, as I remember, had $120 a share in cash and 
  no liabilities. 

1 Even adjusting for inflation, 22K shares at $5 each implies a market cap well below $1 million. 

Along similar lines, in late 2005 I understand you explained to a group of Harvard 
students the following: 

  Citicorp sent a manual on Korean stocks. Within 5 or 6 hours, twenty stocks 
  selling at 2 or 3x earnings with strong balance sheets were identified. Korea 
  rebuilt itself in a big way post 1998. Companies overbuilt their balance sheets – 
  including Daehan Flour Mill with 15,000 won/year earning power and selling at 
  “2 and change” times earnings. The strategy was to buy the securities of twenty 
  companies thereby spreading the risk that some of the companies will be run by 
  crooks. $100 million was quickly put to work. 

  The “1987” Fisher Approach 

The following excerpts from an article written by Carol Loomis published on April 
11, 1988 in Fortune provide interesting clarity on the modus-operandi of Berkshire 
circa 1987: 

Unusual Profitability (High ROE with Low Debt; i.e. high ROIC) 

  …But in his 1987 annual report, Buffett the businessman comes out of the closet to 
  point out just how good these enterprises and their managers are. Had the Sainted 
  Seven operated as a single business in 1987, he says, they would have employed 
  $175 million in equity capital, paid only a net $2 million in interest, and earned, 
  after taxes, $100 million. That's a return on equity of 57%, and it is exceptional. 
  As Buffett says, ''You'll seldom see such a percentage anywhere, let alone at large, 
  diversified companies with nominal leverage. '' 

Unusual Growth (Opportunities for Reinvestment of Retained Earnings) 

  …Some folks of the right sort, by the name of Heldman, read that ad and brought 
  him their uniform business, Fechheimer, in 1986. The business had only about $6 
  million in profits, which is an operation smaller than Buffett thinks ideal. 

  …A few hundred miles away at Fechheimer (…1987 sales: $75 million) 

Paying for Quality 

  …By 1972, Blue Chip Stamps, a Berkshire affiliate that has since been merged 
  into the parent, was paying three times book value to buy See's Candies, and the 
  good-business era was launched. ''I have been shaped tremendously by Charlie,'' 
  says Buffett. ''Boy, if I had listened only to Ben, would I ever be a lot poorer. 

  Appendix II: Warren Buffett’s Eight Word Response 
  (Handwritten on final page of original letter) 

Either Better for small sums. 
 is “ “ large “ 
  fine.