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Berkshire Hathaway
When Focused Investing Goes Bad

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By EliasFardo
February 5, 2004

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Let me tell you about my sixth common stock purchase in August, 1976. The company was named Sentry Manufacturing Company. It made quartz crystals and was located in Chickasha, Oklahoma, a small town not far South of where I then lived. There was the occasional story about it in the local press, and it sounded like an interesting investment. I was working in public accounting at the time and conducting an audit on an electronic parts distributor. This, I thought, gave me the opportunity to do some due diligence on Sentry. So I asked the purchasing manager about quartz crystals. "They are in everything," he said. So satisfied to the extent of my research, I made my purchase.

Of course my decision to buy stock in this company was brilliant, an opinion shared by the Chairman of the Board of Sentry. Just listen to what he wrote in the third quarter report for 1976. "Due to the quartz crystal watch technology I believe the quartz crystal industry offers the greatest potential and opportunity of any industry in America today." I am a 100% certified, gold plated, investment genius! Just my sixth common stock purchase and I have invested in the one industry that has the greatest potential and opportunity of any industry in America today! My best thinking was going to pay off big! Someday, books will be written about me!

However, I started noticing an unhappy trend in the stock price. It was going down. How could this happen to a company that had placed itself in the middle of the largest river of opportunity in the nation? How could this happen to someone who had been so responsible in his DD as to have talked to a purchasing manager at an electronic parts distributor? What would that book really say about me?

The explanation for the fall in stock price was made evident when the local paper carried an article describing a large layoff of employees at Sentry. And the annual report for 1977 carried the fateful news. "All watch crystal operations were suspended due to Japanese crystal manufacturers buying the domestic market with help from their government and academic community. Sixty percent of the American quartz industry employment was lost during 1977. An American watch crystal industry doesn't exist today."

So the industry that had the greatest potential and opportunity of any industry in America in the last few months of 1976, completely disappeared in 1977. I have the appropriate pages from Sentry's quarterly and annual reports that chronicle these sad affairs framed and hanging in my study. The shares I purchased in 1976 for $6 were finally sold in 1980 for $1.50 each.

And, since this was only my sixth common stock purchase of all time, by definition I had a focused portfolio at the time. You guys would have been so proud of me. But, one of my best ideas was in an industry that had only a few months of life to its name. Now, at the time I was a very new investor, and I have learned much since then. But, can I make as bad a mistake again? You bet. It will be different, of course, but the results will be the same.


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