In simple terms: Several 'upset applecarts' demonstrated that deal failure, not market direction, is the central workout risk. The 1967 failed workout book is included in the Buffett Partnership special-situations record with an evidence grade of A- - category totals directly reported; underlying cases anonymous.

What Buffett saw

Buffett describes a year of multiple 'upset applecarts': corporate actions that did not progress as expected. The exact securities remain unknown, but the category data are unusually revealing.

This is perhaps the most useful corrective to the romance of arbitrage. Buffett put more than twice the previous year's average capital into workouts, yet the category earned less than one percent. The clock kept running while several expected actions went wrong or were delayed.

How the situation was meant to work

A workout works only when the expected cash, securities or asset value ultimately reaches holders. A modest spread can be attractive when break value is close to purchase price, but not when a failed action exposes a much lower standalone value.

Average workout capital was more than twice the 1966 level, yet the category's dollar profit was negligible. Scale did not substitute for the quality of the underlying probability tree.

The timeline, capital and risk

Capital disclosed: $17,246,879 average investment in workouts.

Time frame: 1967.

Deal risks also correlate. A difficult financing market, regulatory shift or change in tax treatment can damage several apparently unrelated positions at once, so a long list of tickers is not the same as a diversified risk book.

What happened

Outcome: The disclosed workout book barely earned a profit despite much higher capital than the prior year.

What the return means - and the lasting lesson

Return record: $153,273 gain, or 0.89% on average investment.

A spread is not free money. The break value, the chance of a changed term and the correlation between several regulatory or financing risks must be part of the original underwriting.

This guide is educational information, not a recommendation, investment advice or a substitute for reading the underlying disclosure.