1959 Letter

WARREN E. BUFFETT

5202 Underwood Ave. Omaha, Nebraska

The General Stock Market in 1959:

The Dow-Jones Industrial Average, undoubtedly the most widely used index of stock market behavior, presented a somewhat faulty picture in 1959. This index recorded an advance from 583 to 679, or 16.4% for the year. When the dividends which would have been received through ownership of the average are added, an overall gain of 19.9% indicated for 1959.

Despite this indication of a robust market, more stocks declined than advanced on the New York Stock Exchange during the year by a margin of 710 to 628. Both the Dow-Jones Railroad Average and Utility Average registered declines.

Most investment trusts had a difficult time in comparison with the Industrial Average. Tri-Continental Corp. the nation's largest closed-end investment company (total asset \$400 million) had an overall gain of about 5.7% for the year. Fred Brown, its President, had this to say about the 1959 marked in a recent speech to the Analysts Society:

"But, even though we like the portfolio, the market performance of Tri-Continental's holdings in 1959 was disappointing to us. Markets in which investor sentiment and enthusiasm play so large a part as those of 1959, are difficult for investment managers trained in values and tuned to investing for the long-term. Perhaps we haven't had our space boots adjusted properly. However, we believe that there is a limit to risks that an investing institution such as Tri-Continental should take with its stockholders' money, and we believe that the portfolio is in shape for the year ahead."

Massachusetts Investors Trust, the country's largest mutual fund with assets of \$1.5 billion showed an overall gain of about 9% for the year.

Most of you know I have been very apprehensive about general stock market levels for several years. To date, this caution has been unnecessary. By previous standards, the present level of "blue chip" security prices contains a substantial speculative component with a corresponding risk of loss. Perhaps other standards of valuation are evolving which will permanently replace the old standard. I don't think so. I may very well be wrong; however, I would rather sustain the penalties resulting from over-conservatism than face the consequences of error, perhaps with permanent capital loss, resulting from the adoption of a "New Era" philosophy where trees really do grow to the sky.

Results in 1959:

There has been emphasis in previous letters on a suggested standard of performance involving relatively good results (compared to the general market indices and leading investment trusts) in periods of declining or level prices but relatively unimpressive results in rapidly rising markets.

We were fortunate to achieve reasonably good results in 1959. The six partnerships that operated throughout the year achieved overall net gains ranging from 22.3% to 30.0%, and averaging about 25.9%. Portfolios of these partnerships are now about 80%comparable, but there is some difference due to securities and cash becoming available at varying times, payments made to partners, etc. Over the past few years, there hasn't been any partnership which has consistently been at the top or bottom of performance from year to year, and the variance is narrowing as the portfolios tend to become comparable.

The overall net gain is determined on the basis of market values at the beginning and end of the year adjusted for payments made to partners or contributions received from them. It is not based on actual realized profits during the year, but is intended to measure the change in liquidating value for the year. It is before interest allowed to partners (where that is specified in the partnership agreement) and before any division of profit to the general partner, but after operating expenses.

The principal operating expense is the Nebraska Intangibles Tax which amounts to .4% of market value on practically all securities. Last year represented the first time that this tax had been effectively enforced and, of course penalized our results to the extent of .4%.

The present portfolio:

Last year, I mentioned a new commitment which involved about 25% of assets of the various partnerships. Presently this investment is about 35% of assets. This is an unusually large percentage, but has been made for strong reasons. In effect, this company is partially an investment trust owing some thirty or forty other securities of high quality. Our investment was made and is carried at a substantial discount from asset value based on market value of their securities and a conservative appraisal of the operating business.

We are the company’s largest stockholder by a considerable margin, and the two other large holders agree with our ideas. The probability is extremely high that the performance of this investment will be superior to that of the general market until its disposition, and I am hopeful that this will take place this year.

The remaining 65% of the portfolio is in securities which I consider undervalued and work-out operations. To the extent possible, I continue to attempt to invest in situations at least partially insulated from the behavior of the general market.

This policy should lead to superior results in bear markets and average performance in bull markets. The first prediction may be subject to test this year since, at this writing, the Dow-Jones Industrials have retraced over half of their 1959 advance.

Should you have any questions or if I have not been clear in any respect, I would be very happy to hear from you.

Warren E. Buffett

2-20-60

1959年致股东信

WARREN E. BUFFETT

5202 Underwood Ave. Omaha, Nebraska

1959年总体股票市场

道琼斯工业平均指数——无疑是衡量股市表现最广泛使用的指标——在1959年给出的画面有些失真。该指数从583点上涨至679点，全年涨幅16.4%。加上通过持有该指数所含股票可获得的股息，1959年的总回报率达到19.9%。

尽管指数显示市场强劲，但这一年纽约证券交易所下跌的股票数量却超过上涨的，比例为710只对628只。道琼斯铁路平均指数和公用事业平均指数均出现下跌。

多数投资信托的表现与工业平均指数相比颇为吃力。全美最大的封闭式投资公司Tri-Continental Corp.（总资产4亿美元）全年总回报率约为5.7%。其总裁Fred Brown最近在一次面向分析师协会的演讲中这样评价1959年的市场：

“不过，尽管我们喜欢自己的投资组合，但1959年Tri-Continental持股的市场表现令我们失望。在投资者情绪和热情扮演如此重要角色的市场（如1959年）中，那些训练有素、专注于价值投资且着眼长期的投资经理很难适应。也许我们的太空靴还没调好。然而，我们相信，像Tri-Continental这样的投资机构，在用股东的钱冒险时有一个限度，我们也相信投资组合已经为来年做好了准备。”

全美最大的共同基金、资产达15亿美元的Massachusetts Investors Trust，全年总回报率约为9%。

你们大多数人都知道，几年来我一直对总体股市水平忧心忡忡。迄今为止，这种谨慎是多余的。按照以往的标准，当前“蓝筹股”的价格水平包含大量投机成分，伴随相应的亏损风险。或许正在形成一套新的估值标准，将永久取代旧标准。我不这么认为。我很可能错了；但我宁愿承受过度保守带来的惩罚，也不愿接受因拥抱“新时代”哲学——认为树真的能长到天上去——而犯错的后果，那可能导致永久性的资本损失。

1959年的业绩

之前的信中一再强调一种业绩衡量标准：在下跌或横盘市场中相对优秀（与主要市场指数和领先投资信托相比），在快速上涨的市场中相对平淡。

1959年，我们很幸运地取得了相当不错的业绩。全年运营的六家合伙基金实现的净收益率介于22.3%至30.0%，平均约25.9%。这些合伙基金的组合目前约有80%是相似的，但由于证券和现金到账时间不同、向合伙人分配款项等原因，仍存在一些差异。过去几年，没有任何一家合伙基金的业绩持续处于每年排名的顶端或底部，而且随着组合趋于一致，差异正在缩小。

总体净收益是根据年初和年末的市场价值，并调整向合伙人支付的款项或从他们那里收到的出资后计算得出的。它并非基于年内实际已实现的利润，而是旨在衡量年内清算价值的变化。该数字是在向合伙人支付利息（若合伙协议中明确规定）以及向普通合伙人分配利润之前，但在扣除运营费用之后得出的。

主要的运营费用是内布拉斯加州无形资产税，该税按几乎所有证券市值的0.4%征收。去年是该税首次被有效执行，当然这使我们的业绩受到了0.4%的影响。

当前投资组合

去年，我提到一项新的投资，约占各合伙基金资产的25%。目前，这项投资约占资产的35%。这是一个异常高的比例，但背后有强有力的理由。实际上，这家公司部分是一个投资信托，持有约三四十种高质量的证券。我们的投资是以其证券市值加运营业务保守估值所得资产价值的大幅折扣买入并持有的。

我们是该公司遥遥领先的最大股东，另外两位大股东也认同我们的想法。这项投资在处置之前，其表现极有可能优于总体市场。我希望今年内就能实现。

剩余65%的投资组合持有我认为是低估类股票和套利类投资的证券。只要有可能，我会继续尝试投资于那些至少在一定程度上与总体市场行为无关的标的。

这一策略应当在熊市中带来优于市场的表现，在牛市中则达到平均水准。前一个预测今年或许就会接受检验，因为在我写这封信时，道琼斯工业平均指数已经回吐了1959年涨幅的一半以上。

如果您有任何疑问，或者我在任何方面表述不清，我将非常乐意收到您的来信。

Warren E. Buffett

1960年2月20日