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Graham's 1950s method was almost purely quantitative: buy stocks trading below net current assets (cash plus receivables plus inventory, minus all liabilities), ignoring business quality, because the gap between price and liquidation value provides a margin of safety. Buffett called these 'cigar butts,' discarded stocks with one free puff left. The profit came from closing the gap or forcing it closed, not from the business compounding.
The Buffett Partnership charged no management fee. Partners received all annual gains up to 6%, and Buffett took 25% of profits above that hurdle, with shortfalls carried forward. Buffett was paid only when he beat a reasonable baseline, and he put his own money in the fund, so his incentives matched his partners' and asset-gathering for its own sake did not pay.
In 1963–64 Tino De Angelis's fraudulent salad-oil inventory left American Express exposed to large liabilities, and its stock roughly halved. Buffett checked whether customers still trusted the brand, for example by watching diners at Omaha restaurants who kept paying with Amex cards. Concluding the franchise was intact, he committed about 40% of the partnership's capital, an early departure from pure Graham arithmetic toward judging a business's intangible competitive strength.
By the late 1960s Graham-style bargains had largely disappeared from a speculative market, and the partnership's growing capital could not be deployed in small cheap stocks. Buffett also found that his cigar-butt controls, such as the Berkshire Hathaway textile mill, tied up capital in declining businesses. He refused to lower his standards, closed the partnership in 1969, and shifted toward buying high-quality businesses at fair prices, an evolution shaped by Charlie Munger.