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What to make of Warren Buffett's murky early years

Berkshire Hathaway Chairman Warren Buffett wanders the company trade show before his company's annual meeting in Omaha, Nebraska April 30, 2011.

RICK WILKING/Reuters

Imagine a money manager who claimed a return greater than 1,100 per cent over 10 years, beating the stock market nearly tenfold. He also reported gains from 10 per cent to 22 per cent during the four down years in the market during that time. Might this seem too good to be true?

Furthermore, one of his biographers wrote that when he pitched investors for contributions, he:

" …warned that he would disclose nothing about where their money was invested. He would give them a yearly summary of results, nothing more…. Also, [he] would be 'open for business' only one day a year. On December 31, [the investors] could add or withdraw capital."

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This lack of transparency and liquidity raises more red flags. A skeptical observer might even suspect a Ponzi scheme of some sort: What's to stop the manager from using cash received from new investors to augment the returns of investors withdrawing funds on Dec. 31?

Those were my thoughts when I first read the description of Warren Buffett's investment partnerships from 1957 to 1967 in Roger Lowenstein's book, Buffett: The Making of an American Capitalist.

Now, I'm not saying Mr. Buffett actually engaged in any sleight of hand. But I've always wondered since reading Lowenstein's biography if it is such a straightforward matter to claim Mr. Buffett's example disproves the efficient market theorem, or otherwise demonstrates that someone with brains and the right temperament can beat the market over the long term.

There is no public record or data to confirm the out-of-this-world returns that launched his track record, reputation and switch in the early 1970s to running a financial conglomerate.

READERS: Does Mr. Buffett's early career cast a shadow of doubt for you on his later success?

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