Warren Buffett’s Top Plays: #22 Associated Cotton Shops

In 1966, Warren Buffett, Charlie Munger, and David Gottesman formed the company Diversified Retailing. Charlie Munger has been the Vice-Chairman of Berkshire Hathaway since 1984 and has had a major influence on Buffett’s investment decisions. In 1967, Diversified Retailing purchased Associated Cotton Shops (later renamed Associated Retail Stores), a company of popular priced women’s apparel stores, for $4 million. The deal represented 11% of Buffett’s net worth and was made at a P/E of 4. The results of the investment are not separately identifiable, but Buffett has mentioned the management’s ability to produce large earnings relative to capital employed. This investment shows Buffett’s preference for businesses with a high return on assets and his belief that Associated Cotton Shops had earnings on capital employed around 20%.