Booking a Double With Buffett's Second-Ever Investment

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Most 11-year-olds spend their savings on toys and candy...

Warren Buffett spent his on three shares of preferred stock for himself and his sister.

The young Buffett had been saving every penny since he was 6 years old. He sold everything from golf balls to peanuts and popcorn... until he had enough to afford Cities Service, an oil and gas supplier, at $38.25 per share.

Buffett's investing career got off to a rocky start. Cities Service quickly plunged. Every day on their walk to school, Warren's sister Doris reminded him that their stock was falling.

Cities Service eventually fell about 30%, down to $27 per share. Buffett was sick to his stomach. He knew he was losing his sister's money. So the moment the stock rebounded, he sold for a small $5 profit.

Shares kept climbing, though. Buffett watched as they skyrocketed to $202 per share... up almost 430% from when he'd bought in. If he'd waited, he'd have more than quintupled their investment.

Buffett never wanted to make such a big mistake with someone else's money again. He waited another two years before diving back into the market.

And this time, he was far more careful with his research...

At 13 years old, Buffett found a stock that he could count on for the next 90 years...

Even in the 1940s, the company stood out to him.

Buffett's second-ever investment owned about 3 million acres in West Texas outright... and it didn't pay a cent for that land.

Those 3 million acres were nothing special at the time. The special part was this...

The business was built to make shareholders money.

Its charter stated that whenever it sold off some of its land, it would use that money to buy back shares. By a teenage Buffett's math, if he lived to 100, he'd own the entire business.

Now, even Warren Buffett wasn't doing perfect calculations at 13. At the Berkshire Hathaway 2022 annual meeting, he admitted that while he's getting close to 100, he doesn't actually own all of Texas Pacific Land (TPL).

But shareholders who have stuck around for decades aren't complaining...

The company's land has only gotten more valuable since the 1940s. It's mostly in the Permian Basin... one of the world's premier oil and gas basins.

Instead of just selling off land, Texas Pacific collects royalties when companies drill oil and gas from its property. And because the business doesn't have many costs, most of that money goes right back to shareholders.

We don't know exactly how much Buffett made on his 80-plus-year position. The data only goes back to the late 1960s. As we put this research together, shares were up an unbelievable split-adjusted 570,055% since then.

If you account for dividends, that number rises to more than 1,000,000%.

What we do know is that Texas Pacific is still the kind of business Warren Buffett would pay attention to today...

Not only does it still make money selling land and collecting oil and gas royalties... it's finding new ways to reward its shareholders.

The stock has been getting more attention since Buffett mentioned it in 2022. But over the summer, it still wasn't priced like a buy-and-hold gem.

Texas Pacific first caught our eye this past June, when we recommended it to our Hidden Alpha subscribers. We were excited about the business's growth potential...

You see, Texas Pacific's land is perfectly suited for renewable-energy systems and data centers that rely on consistent power sources. Although the company hadn't mentioned data centers yet, we knew it was only a matter of time.

Sure enough, in its third-quarter earnings call in November, Texas Pacific revealed that it has been working on this opportunity for some time.

It was exactly what investors were hoping to hear. Shares rocketed higher... pushing our position to a double in about five months.

Texas Pacific was the perfect combination – a boring, stable business that was starting to gain market attention. 

We identified an important catalyst... and bought in at the exact right time to benefit.

Then, all we had to do was sit back and ride the wave.

Regards,

Joel Litman
December 31, 2024

P.S. The setup we saw with Texas Pacific wasn't a one-off...

Much of the market looks downright expensive right now. However, that doesn't mean there aren't any opportunities.

We teamed up with our corporate affiliate, Chaikin Analytics, to curate a list of "Perfect Stocks" for 2025. These are companies with strong fundamentals... that gave us a recent screaming buy signal.

I've been pounding the table on this approach for the past week. When you see how these stocks performed after "turning perfect" in both of our systems... you'll understand why. Click here for the full story.