Most people know Warren Buffett as the folksy Omaha billionaire who buys wonderful companies at fair prices and holds them forever. Coca-Cola. Apple. American Express. That's the Buffett of the last 40 years.

But that is not how he started.

The young Buffett — the Buffett of the 1950s and early 1960s running his limited partnerships out of a spare bedroom in Omaha — was a pure Graham disciple. He read The Intelligent Investor at 19, took Graham's class at Columbia, then went to work for Graham-Newman Corporation directly. And when he struck out on his own in 1956, net-nets were the backbone of what he did.

He called them "cigar butts" — a term that became legendary in value investing circles. The idea was this: a cigar butt lying on the street might only have one puff left in it, but if you can pick it up for free, that one puff is all profit. Net-nets were the investing equivalent. Ugly, discarded, often half-smoked — but free.

Sanborn Map Company (1958–1960)

One of Buffett's most instructive early net-net plays was Sanborn Map, a company that made detailed fire insurance maps of U.S. cities — a business that had been in slow decline for years as insurance companies started building their own data. The stock was depressed, ignored, and frankly, the map business itself wasn't very exciting.

But Buffett noticed something hiding in plain sight on the balance sheet: Sanborn's investment portfolio — a collection of stocks and bonds accumulated over decades — was worth more than the entire market cap of the company. You were essentially getting the map business for free, and actually being paid to own it in the form of the excess investment assets.

Buffett's partnership accumulated roughly 35% of Sanborn's shares. He then got himself elected to the board and pushed management to distribute the investment portfolio to shareholders, unlocking the embedded value. The position generated excellent returns and became a template for how he'd think about asset-rich, operationally-ignored businesses for years to come.

Dempster Mill Manufacturing (1961–1963)

Dempster Mill was a Nebraska-based manufacturer of farm equipment and water systems. It was exactly the kind of business that screams "pass" on first glance — a small, unglamorous industrial company in a competitive industry with mediocre economics.

Buffett didn't care. He cared that the stock was trading at a deep discount to the company's net current assets. He spent several years accumulating shares at prices well below NCAV, eventually acquiring a controlling stake of around 70%. When he couldn't get management to improve the business's capital efficiency, he brought in a turnaround operator named Harry Bottle, who slashed costs, liquidated unproductive inventory, and freed up enormous amounts of cash. The position ultimately generated a return of around 45% annually over the holding period — an extraordinary result from what looked like a dying farm equipment maker.

The Buffett Partnership Years in Context

During the period from 1957 to 1969, Buffett's partnerships compounded at roughly 29.5% annually, net of fees — versus about 7.4% for the Dow. Net-nets and "workout" situations (special situations like mergers and liquidations) were a core driver of those results during the early years.

What's remarkable is how mechanical the early approach was. Buffett wasn't making grand macro calls or betting on industry disruption. He was sitting at his desk, flipping through Moody's manuals page by page, looking for balance sheets where the math didn't add up — where the market was offering a dollar of assets for sixty cents. He found dozens of them. He bought baskets. He waited.

Charlie Munger eventually nudged Buffett away from pure net-nets — arguing that the strategy had capacity limits (true) and that wonderful businesses at fair prices were a superior long-term model (also true, especially at the scale Berkshire eventually reached). Buffett himself has said that net-nets become harder to work with as you scale: there simply aren't enough of them large enough to move the needle once you're managing billions.

But here's the crucial insight for individual investors: you are not managing billions. The capacity constraints that forced Buffett to evolve don't apply to you. The strategy that produced his greatest early returns — and that he himself credits as foundational to his development — is still available, right now, to anyone willing to do the unglamorous work of reading balance sheets.

Buffett once said that if he were managing a small amount of money today, he'd be doing exactly what he did in the 1950s. That's worth sitting with.