Testing brands, counting railcars, and watching 'Mary Poppins': how a young Warren Buffett found winning stocks

Many people think Warren Buffett got his start by trawling through stock listings for cheap buys, but he went to far greater lengths to vet his picks.

• Warren Buffett didn't just rely on financials and listings to pick winning stocks in the early days.
• He spent weeks counting railcars, went to see "Mary Poppins," and tested the American Express brand.
• "Buffett's Early Investments" outlines how the investor vetted bosses and hunted down shares to buy.

There's a common perception that Warren Buffett struck gold as a young investor by poring over long lists of stocks and scooping up the cheapest ones. But he went to far greater lengths to understand what he was buying before he pounced, a recent book points out.

Author Brett Gardner details several examples of the Oracle of Omaha's dogged pursuit of information in "Buffett's Early Investments: A new investigation into the decades when Warren Buffett earned his best returns."

The future billionaire and Berkshire Hathaway CEO skipped class to attend annual meetings or paid others to go and ask questions for him. He flew around the US to meet company executives and looked into their personal finances, habits, and motivations.

During a 2010 interview, Buffett's biographer Alice Schroeder also discussed Buffett's technique. "He behaves like an investigative journalist. "All this stuff about flipping through Moody's Manuals picking stocks … it was a screen for him, but he didn't stop there."

Here are 6 of the most striking examples of Buffett's rigorous approach:

1. Before investing in Disney in 1966, Buffett went to see Walt Disney, who gave him a tour of Disneyland and walked him through his plans for the company.

   Buffett also went to see Disney's latest blockbuster in a New York City theater to gauge its long-term value.

   "Here I am with a briefcase at 2:00 in the afternoon, heading in to see 'Mary Poppins,'" he once told a class of college students. "I almost felt like I had to rent a kid."

2. Prior to piling into American Express in 1964, Buffett assessed whether the company's salad oil scandal had tarnished its brand.

   "Buffett started dropping in on Omaha restaurants and visiting places that took American Express cards and Travelers Cheques," Schroeder writes in "The Snowball: Warren Buffett and the Business of Life."

   He also tasked a friendly stockbroker with digging into the business, which produced a foot-high pile of research on American Express bank tellers and officers, restaurants, hotels, and credit-card holders. The investigation satisfied Buffett that the business was going strong and customers still trusted its products.

3. Buffett told Forbes that he "spent the better part of a month counting tank cars in a Kansas City railroad yard" in 1965. The investor was digging into Studebaker and wanted to gauge the demand for STP, a gasoline additive sold by one of the vehicle maker's subsidiaries.

   He knew where Studebaker was sourcing a key ingredient for STP, and how much it needed to produce one can. Tallying railcars indicated that STP production was ramping up, prompting him to pounce on the stock.

   

4. As a graduate student, Buffett took a train from New York City to Washington on a Saturday morning in 1951, only to arrive at Geico's offices and find the doors locked.

   He banged until a bemused janitor let him in and directed him to the only other person he'd seen in the building: Lorimer Davidson, the future CEO of the insurance company.

   Buffett seized the chance to pepper Davidson with questions about insurance for four hours. The answers confirmed he'd found a winner; he went on to invest about two-thirds of his net worth in the stock, and Berkshire acquired the business in full in 1996.

5. In the mid-1950s, Buffett dispatched a partner to track down shares of National American Fire Insurance held by farmers scattered across Omaha.

   "He cruised around the state in a red-and-white Chevrolet, showing up in rural county courthouses and banks, casually asking who might own shares of National American," Schroeder writes about Buffett's associate in her book.

   "He sat on front porches, drinking iced tea, eating pie with farmers and their wives, and offering cash for their stock certificates."

6. Buffett took a different tack in his search for Union Street Railway stock in 1954. The company was seeking to buy back shares by running ads in a local paper, so Buffett ran his own ad inviting stockholders to sell to him instead, Schroeder writes.

   He also woke up at about 4 a.m. on a weekend to drive to New Bedford, Massachusetts, and meet the company's boss.

Buffett is known for investing based on fundamentals like company cash flows and price-to-earnings ratios. But Gardner's examples show he ventures far beyond financials and is both persistent and creative in his information hunts and stock searches.