This episode explores Warren Buffett's early years as a money manager and how his investment style evolved. Initially, he followed Ben Graham's principles, focusing on "cigar butt" investments—stocks that were very cheap and trading below their intrinsic value.

Buffett began questioning traditional views of conservative investing, particularly the risks of purchasing "blue-chip" securities without regard for price-to-earnings ratios. He believed true conservatism came from knowledge and reason, allowing for concentrated investments.

Two key examples illustrate this period:

1. **Dempster Mill**: Buffett's partnership acquired a controlling interest and improved operations by hiring Harry Bottle, which led to significant efficiencies and a considerable increase in book value per share. This reinforced Buffett's belief that buying undervalued assets could yield substantial gains.

2. **Berkshire Hathaway**: In December 1962, Buffett invested in this unprofitable textile company at $7.50 per share, below its book value of $22.50. Initially seen as a classic Graham-style investment, Buffett believed he could sell his shares to the company's president for a profit. Despite Berkshire's struggles in the cotton market, this investment marked a pivotal moment in Buffett's career.

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