together for 30-odd years — and he ’ s finally got that down .” Gottesman was elected to the Berkshire Hathaway Board of Directors in 2004 and served until 2021 .
First Manhattan
By 1964 , after 14 years at Hallgarten , Gottesman decided he wanted to set up his own company . As quoted in First Manhattan Co .: A Personal History :
I had become disenchanted with the way things were going at Hallgarten … Frits Markus had a small clearing firm and was interested in bringing in some new blood . Frits had spoken with my friend , Richard Abrons , who was then at Loeb Rhoades . Richard and I discussed the possibility of joining Frits , and these discussions led to a formal agreement .
We agreed that Frits and I would be co-managing partners . Other partners included Abrons , Herman Stone , Hugo Van Itallie , and John Wallace . After much thought , we selected the name First Manhattan . Our reason was that we wanted the partners to bring in most of the business and , therefore , did not want to slight anyone . Prior to moving ahead with actual steps to form a firm , I gave much thought to my goals and the steps needed to reach them . To help clarify my thinking , I wrote them down :
• Provide a good living in a collegial atmosphere .
• Start with a high-quality commission business generating enough income to cover costs and provide for future growth .
• Create a strong research department capable of identifying profitable situations in which to invest our own and client funds .
• Avoid undue risks .
• Build a strong organization .
• Earn a reputation for excellence .
First Manhattan originally sought out companies that were good investments for a three-to-five-year period , though Gottesman noted that “ some of my better research ideas , including Berkshire Hathaway , have been held for much longer . Clients , of course , have profited immensely through the compounding of their accounts on a tax-free basis over a long period .”
Gottesman recalled one humorous example of venturing outside of basic research :
In 1968 , we retained Arthur Burns , a distinguished economist , who had been on President Eisenhower ’ s Council of Economic Advisors … To take advantage of his wisdom and global contacts , we embarked on a series of monthly meetings , to which we invited a select group of clients . One such gathering was unforgettable . On a Friday afternoon , Dr . Burns had just returned from a trip to London , where he had interviewed the head of the Bank of England and various other notable banking officials charged with setting Britain ’ s economic policy . In reporting to us , Dr . Burns said that he studied the situation and was confident there would be no devaluation for at least another year . On Monday morning , the Bank of England announced that it was devaluing the pound . We learned from that experience that even a well-informed economist with good connections is sometimes right and sometimes wrong … The best approach to investing , we have found , is a careful hands-on look at one company at a time and thorough knowledge of its fundamentals .
First Manhattan initially operated as a broker and underwriter serving institutional clients , but it transitioned into an investment manager operating with the same philosophy as Buffett . Gottesman affirmed that , “ Looking back on 40 years of operation , I am grateful that through a combination of foresight and good fortune we achieved our original objectives .” To this day , First Manhattan research remains fundamental , avoids fashions and is long term-oriented and risk averse .
In 1969 , Buffett decided to liquidate the Buffett Partnership . The Dow Jones Industrial Average was trading at an all-time high of 1,000 , and there were no bargains to be found . He advised his clients to invest the proceeds of their holdings in either First Manhattan or Ruane , Cunniff and Stires . In an interview for Alice Schroeder ’ s book , The Snowball , he recalled , “ I recommended two people to the partners whom I knew were exceptionally good and exceptionally honest : Sandy Gottesman and Bill
Ruane … I not only know their results , but I know how they ’ d accomplished their results , which was terribly important .”
Many of the big partners chose to go to Gottesman at First Manhattan . Buffett formally recommended Ruane in his 1969 partnership letter . Ruane was leaving Kidder , Peabody to set up his own investment advisory firm ( Ruane , Cunniff and Stires ) with two partners — Rick Cunniff , Sandy ’ s classmate at HBS , and Sidney Stires . Ruane would go on to create the Sequoia Fund to serve many of Buffett ’ s smaller partners .
Both Gottesman and Ruane produced stellar returns for Buffett ’ s partners . Ruane ’ s Sequoia Fund became the top-performing mutual fund , earning 17 % per year over the next 31 years . ( First Manhattan ’ s client assets were held in individual accounts rather than commingled in a mutual fund , so there is no comparable public record available .) The investment returns of both First Manhattan and the Sequoia Fund were significantly boosted by their large holdings of Berkshire Hathaway stock over the ensuing decades . Berkshire Hathaway ’ s stock price has grown at a compounded annual growth rate of 19.7 % per year for 57 years .
Tom Russo , the founder of Gardner , Russo & Quinn , remembers that when he was an analyst at Ruane , Cunniff & Stires in the 1980s , the portfolio managers and analysts maintained a very cordial relationship with their counterparts at First Manhattan , sharing conversations about the market on an informal basis . He also remembers that Gottesman assembled an eclectic group of opinionated specialists in a variety of sectors and disciplines , including arbitrage , who managed client portfolios and advised on investing the firm ’ s capital . Russo also remembers Gottesman as being very frugal , taking the bus from Wall Street to his apartment uptown . “ Sandy was an inspiration , always operating his company quietly , and with great patience in holding investments .”
As of March 31 , 2023 , First Manhattan managed $ 26 billion . The largest investments were Berkshire Hathaway , Microsoft and Apple . The top 10 holdings accounted for 59 % of total assets .
Ruth Gottesman
Ruth Levy was born in 1930 and grew up in Baltimore . Her father , Lester Levy , was vice president of M . S . Levy & Sons , a manufacturer of men ’ s hats . His grandfather
26 FINANCIAL HISTORY | Fall 2023 | www . MoAF . org