BUFFETT PARTNERSHIP, LTD. 810 KIEWIT PLAZA OMAHA 31, NEBRASKA
July 6, 1962
A Reminder:
In my letter of January 24, 1962 reporting on 1961, I inserted a section entitled. "And a Prediction." While I have no desire to inflict cruel and unusual punishment upon my readers, nevertheless, a reprinting of that section, in its entirety, may be worthwhile:
And a Prediction
Regular readers (I may be flattering myself) will feel I have left the tracks when I start talking about predictions. This is one thing from which I have always shied away and I still do in the normal sense.
I am certainly not going to predict what general business or the stock market are going to do in the next year or two since I don't have the faintest idea.
I think you can be quite sure that over the next ten years there are going to be a few years when the general market is plus 20% or 25%, a few when it is minus on the same order, and a majority when it is in between. I haven't any notion as to the sequence in which these will occur, nor do I think it is of any great importance for the long-term investor.
Over any long period of years, I think it likely that the Dow will probably produce something like 5% to 7% per year compounded from a combination of dividends and market value gain. Despite the experience of recent years, anyone expecting substantially better than that from the general market probably faces disappointment.
Our job is to pile up yearly advantages over the performance of the Dow without worrying too much about whether the absolute results in a given year are a plus or a minus. I would consider a year in which we were down 15% and the Dow declined 25% to be much superior to a year when both the partnership and the Dow advanced 20%. I have stressed this point in talking with partners and have watched them nod their heads with varying degrees of enthusiasm.
It is most important to me that you fully understand my reasoning in this regard and agree with me not only in your cerebral regions, but also down in the pit of your stomach.
For the reasons outlined in my method of operation, our best years relative to the Dow are likely to be in declining or static markets. Therefore, the advantage we seek will probably come in sharply varying amounts. There are bound to be years when we are surpassed by the Dow, but if over a long period we can average ten percentage points per year better than it, I will feel the results have been satisfactory.
Specifically, if the market should be down 35% or 40% in a year (and I feel this has a high probability of occurring one year in the next ten--no one knows which one), we should be down only 15% or 20%. If it is more or less unchanged during the year, we would hope to be up about ten percentage points. If it is up 20% or more, we would struggle to be up as much. The consequence of performance such as this over a period of years would mean that if the Dow produces a 5% to 7% per year over-all gain compounded, I would hope our results might be 15% to 17% per year.
The above expectations may sound somewhat rash, and there is no question but that they may appear very much so when viewed from the vantage point of 1965 or 1970. It may turn out that I am completely wrong. However, I feel the partners are certainly entitled to know what I am thinking in this regard even though the nature of the business is such as to introduce a high probability of error in such expectations. In anyone year, the variations may be quite substantial. This happened in 1961, but fortunately the variation was on the pleasant side. They won't all be!
The First Half of 1962:
Between yearend 1961 and June 30, 1962 the Dow declined from 731.14 to 561.28. If one had owned the Dow during this period, dividends of approximately \$11.00 would have been received so that overall a loss of 21.7% would have been the result of investing in the Dow. For the statistical minded, Appendix A gives the results of the Dow by years since formation of the predecessor partnerships.
As stated above, a declining Dow gives us our chance to shine and pile up the percentage advantages which, coupled with only an average performance during advancing markets, will give us quite satisfactory long-term results. Our target is an approximately 1/2% decline for each 1% decline in the Dow and if achieved, means we have a considerably more conservative vehicle for investment in stocks than practically any alternative.
As outlined in Appendix B, showing combined predecessor partnership results, during the first half of 1962 we had one of the best periods in our history, achieving a minus 7.5% result before payments to partners, compared to the minus 21.7% overall result on the Dow. This 14.2 percentage points advantage can be expected to widen during the second half if the decline in the general market continues, but will probably narrow should the market turn upward. Please keep in mind my continuing admonition that six-months' or even one-year's results are not to be taken too seriously. Short periods of measurement exaggerate chance fluctuations in performance. While circumstances contributed to an unusually good first half, there are bound to be periods when we do relatively poorly. The figures for our performance involve no change in the valuation of our controlling interest in Dempster Mill Manufacturing Company, although developments in recent months point toward a probable higher realization.
Investment Companies during the First Half:
Past letters have stressed our belief that the Dow is no pushover as a yardstick for investment performance. To the extent that funds are invested in common stocks, whether the manner of investment be through investment companies, investment counselors, bank trust departments, or do-it-yourself, our belief is that the overwhelming majority will achieve results roughly comparable to the Dow. Our opinion is that the deviations from the Dow are much more likely to be toward a poorer performance than a superior one.
To illustrate this point, we have continually measured the Dow and limited partners' results against the two largest open-end investment companies (mutual funds) following a program of common stock investment and the two largest closed-end investment companies. The tabulation in Appendix C shows the five -years' results, and you will note the figures are extraordinarily close to those of the Dow. These companies have total assets of about \$3.5 billion.
In the interest of getting this letter out promptly, we are mailing it before results are available for the closed-end companies. However, the two mutual funds both did poorer than the Dow, with Massachusetts Investors Trust having a minus 23% overall performance, and Investors Stock Fund realizing a minus 25.4%. This is not unusual as witness the lead article in the WALL STREET JOURNAL of June 13, 1962 headed "Funds vs. Market.” Of the 17 large common stock funds studied, everyone had a record poorer than the Dow from the peak on the Dow of 734, to the date of the article, although in some cases the margin of inferiority was minor.
Particularly hard hit in the first half were the so-called “growth” funds which, almost without exception, were down considerably more than the Dow. The three large "growth" (the quotation marks are more applicable now) funds with the best record in the preceding few years, Fidelity Capital Fund, Putnam Growth Fund, and Wellington Equity Fund averaged an overall minus 32.3% for the first half. It is only fair to point out that because of their excellent records in 1959-61, their overall performance to date is still better than average, as it may well be in the future. Ironically, however, this earlier superior performance had caused such a rush of new investors to come to them that the poor performance this year was experienced by very many more holders than enjoyed the excellent performance of earlier years. This experience tends to confirm my hypothesis that investment performance must be judged over a period of time with such a period including both advancing and declining markets. There will continue to be both; a point perhaps better understood now than six months ago.
In outlining the results of investment companies, I do so not because we operate in a manner comparable to them or because our investments are similar to theirs. It is done because such funds represent a public batting average of professional, highly-paid investment management handling a very significant \$20 billion of securities. Such management, I believe, is typical of management handling even larger sums. As an alternative to an interest in the partnership, I believe it reasonable to assume that many partners would have investments managed similarly.
Asset Values:
The above calculations of results are before allocation to the General Partner and monthly payments to partners. Of course, whenever the overall results for the year are not plus 6% on a market value basis (with deficiencies carried forward) there is no allocation to the General Partner. Therefore, non-withdrawing partners have had a decrease in their market value equity during the first six months of 7.5% and partners who have withdrawn at the rate of 6% per annum have had a decrease in their market value equity during the first half of 10.5%. Should our results for the year be less than plus 6% (and unless there should be a material advance in the Dow, this is very probable) partners receiving monthly payments will have a decrease in their market value equity at December 31, 1962. This means that monthly payments at 6% on this new market equity next year will be on a proportionately reduced basis. For example, if our results were an overall minus 7% for the year, a partner receiving monthly payments who had a market value interest of \$100,000 on January 1, 1962 would have an equity at December 31, 1962 of \$87,000. This reduction would arise from the minus 7% result, or \$7, 000 plus monthly payments of \$500 for an additional \$6,000. Thus, with \$87,000 of market equity on January 1, 1963, monthly payments next year would be \$435.00.
None of the above, of course, has any applicability to advance payments received during 1962 which do not participate in profits or losses, but earn a straight 6%.
APPENDIX A
DOW-JONES INDUSTRIAL AVERAGE
| Year | Closing Dow | Change for Year | Dow Dividend | Overall Result from Dow | Percentage Result |
| 1956 | 499.47 | -- | -- | -- | -- |
| 1957 | 435.69 | -63.78 | 21.61 | -42.17 | -8.4% |
| 1958 | 583.65 | 147.96 | 20.00 | 167.96 | 38.5% |
| 1959 | 679.36 | 95.71 | 20.74 | 116.45 | 20.0% |
| 1960 | 615.89 | 63.47 | 21.36 | 42.11 | -6.2% |
| 1961 | 731.14 | 115.25 | 22.61 | 137.86 | 22.4% |
| 6/30/62 | 561.28 | 169.86 | 11.00 Est. | -158.86 | -21.7% |
APPENDIX B
PARTNERSHIP PERFORMANCE
| Year | Partnership Result (1) | Limited Partners’ Results (2) |
| 1957 | 10.4% | 9.3% |
| 1958 | 40.9% | 32.2% |
| 1959 | 25.9% | 20.9% |
| 1960 | 22.8% | 18.6% |
| 1961 | 45.9% | 35.9% |
| 6/30/62 | -7.5% | -7.5% |
(1) For 1957-61 consists of combined results of all predecessor limited partnerships operating throughout entire year after all expenses but before distributions to partners or allocations to the general partners.
(2) For 1957-61 computed on basis of preceding column of partnership results allowing for allocation to general partner based upon present partnership agreement.
APPENDIX C
YEARLY RESULTS
| Year | Mass. Inv. Trust (1) | Investors Stock (1) | Lehman (2) | Tri-Cont. (2) |
| 1957 | -11.4% | -12.4% | -11.4% | -2.4% |
| 1958 | 42.7% | 47.5% | 40.8% | 33.2% |
| 1959 | 9.0% | 10.3% | 8.1% | 8.4% |
| 1960 | -1.0% | -0.6% | 2.5% | 2.8% |
| 1961 | 25.6% | 24.9% | 23.6% | 22.5% |
| 6/30/92 | 23.0% | -25.4% | N.A. | N.A. |
(1) Computed from changes in asset value plus any distributions to holders of record during year.
(2) From Moody's Bank & Finance Manual - 1962.
CUMULATIVE RESULTS
| Years | Mass. Inv. Trust | Investors Stock | Lehman | Tri-Cont. | Dow | Limited Partners |
| 1957 | -11.4% | -12.4% | -11.4% | -2.4% | -8.4% | 9.3% |
| 1957-58 | 26.4% | 29.2% | 24.7% | 30.0% | 26.9% | 44.5% |
| 1957-59 | 37.8% | 42.5% | 34.8% | 40.9% | 52.3% | 74.7% |
| 1957-60 | 36.4% | 41.6% | 38.2% | 44.8% | 42.9% | 107.2 |
| 1957-61 | 71.4% | 76.9% | 70.8% | 77.4% | 74.9% | 181.6 |
| 1957-6/30/62 | 31.9% | 32.0% | N.A. | N.A. | 37.0% | 160.5% |
BUFFETT PARTNERSHIP, LTD. 810 KIEWIT PLAZA OMAHA 31, NEBRASKA
1962年7月6日
提醒：
在1962年1月24日关于1961年业绩的报告中，我插入了一节内容，标题是"一个预言"。虽然我无意对读者施加残忍且不寻常的惩罚，但将这一整节重新刊印出来，或许仍值得一读：
一个预言
常读我信的读者（或许是我在自作多情）会发现，当我开始谈论"预测"时，简直像跑题了。预测是我一直回避的事情，在正常意义上，我至今仍然回避。
我当然不会去预测未来一两年的大市或股市走向，因为我对此毫无头绪。
我相信你可以相当肯定的是，未来十年里，会有那么几年大市上涨20%或25%，有几年会同样幅度的下跌，而大多数年份则在两者之间。我完全不知道这些年份会以什么顺序出现，也不认为这对长期投资者有任何重大意义。
从长期来看，我觉得道指很可能通过股息和市值增长，产生每年约5%到7%的复合回报。尽管近年来的经历不同，任何期望大市长期表现远超这个水平的人，恐怕都会失望。
我们的工作是在每年的业绩中累积相对于道指的优势，而不必过于担心某一年绝对结果是正数还是负数。我认为，在我们下跌15%而道指下跌25%的年份，要比合伙企业和道指都上涨20%的年份优秀得多。我在与合伙人交谈时反复强调这一点，看着他们以不同程度的热情点头表示同意。
最重要的是，你完全理解我在这方面的推理，并且不仅在理智上，而是从心底里认同我。
在我运作方法的框架下，我们相对于道指表现最好的年份，很可能出现在下跌或横盘的市场中。因此，我们追求的优势可能会以剧烈波动的形式出现。必然会有那么几年，我们的表现被道指超越；但如果长期来看，我们平均每年能比道指好上10个百分点，我就会觉得结果令人满意。
具体来说，如果一年内市场下跌35%或40%（我认为这在未来十年中某一年发生的概率很高——没人知道是哪一年），我们的跌幅应该只有15%或20%。如果市场全年基本持平，我们希望业绩能超出约10个百分点。如果市场上涨20%或更多，我们只能努力跟上。如果这样的业绩持续多年，意味着若道指每年综合（股息加增值）产生5%到7%的复合增长，我希望我们的结果能达到每年15%到17%。
上述预期听起来可能有些草率，毫无疑问，从1965年或1970年的后见之明来看，它们可能会显得非常草率。结果可能证明我完全错了。然而，我仍然认为合伙人完全有权知道我在这个问题上的想法，尽管业务的本质决定了这类预期有很大可能出错。任何一年，偏差都相当大。1961年确实如此，幸运的是，那次的偏差是令人愉快的。但不会每次都这样！
1962年上半年：
从1961年底到1962年6月30日，道指从731.14点跌至561.28点。在此期间，如果持有道指，会收到约11.00美元的股息，因此投资道指的总回报为亏损21.7%。对于有统计兴趣的朋友，附录A列出了自前身合伙企业成立以来道指每年的业绩。
如上所述，下跌的道指给了我们大放异彩的机会，能够累积百分比优势。再结合在上涨市场中仅仅跟上的表现，长期来看就能产生相当令人满意的结果。我们的目标大约是道指每跌1%，我们只跌0.5%。如果实现这一点，就意味着我们的投资工具比几乎所有其他股票投资方式都更为保守。
如附录B所示，综合前身合伙企业的业绩，1962年上半年是我们历史上最好的时期之一，在向合伙人分配前实现了亏损7.5%，而道指总回报亏损21.7%。如果大市继续下跌，这14.2个百分点的优势在下半年有望扩大；但如果市场转向上涨，则可能缩小。请牢记我一再的告诫：六个月甚至一年的业绩都不应过分看重。短期的衡量会夸大业绩中的随机波动。虽然环境因素促成了这个异常好的上半年，但一定会有我们表现相对较差的时期。我们的业绩数据中，对我们在Dempster Mill Manufacturing Company（登普斯特磨坊制造公司）的控制类投资的估值没有变化，尽管近几个月的发展表明可能实现更高的价值。
上半年投资公司的表现：
过去的信函曾强调我们的信念：以道指作为投资业绩的衡量标准并非易事。只要资金投资于普通股，无论投资方式是投资公司、投资顾问、银行信托部门还是自己动手，我们的信念是，绝大多数人会取得与道指大致相当的结果。我们的观点是，偏离道指的表现，更可能是跑输，而不是跑赢。
为了说明这一点，我们一直将道指和有限合伙人的业绩，与两家最大的投资于普通股的开放式投资公司（共同基金）以及两家最大的封闭式投资公司进行对比。附录C中的表格显示了五年的结果，你会发现这些数字与道指的结果异常接近。这些公司的总资产约为35亿美元。
为了及时发出这封信，我们在封闭式公司结果出来之前就寄出了。不过，那两只共同基金的表现都不如道指，Massachusetts Investors Trust（马萨诸塞投资者信托基金）总回报亏损23%，Investors Stock Fund（投资者股票基金）亏损25.4%。这并不罕见，正如1962年6月13日《华尔街日报》头版文章《基金 vs. 市场》所指出的。在被研究的17只大型普通股基金中，从道指的最高点734点到文章发表之日，每一只基金的业绩都逊于道指，尽管在某些情况下，差距很小。
上半年跌幅特别大的是所谓的"成长"基金，几乎无一例外，它们的跌幅都远大于道指。三只此前几年业绩最佳的大型"成长"基金（如今引号更为适用）—— Fidelity Capital Fund（富达资本基金）、Putnam Growth Fund（普特南成长基金）和Wellington Equity Fund（惠灵顿股票基金），上半年平均总回报亏损32.3%。公平地说，由于在1959-61年的出色表现，它们至今的整体业绩仍高于平均水平，未来也可能如此。但讽刺的是，因为它们之前的卓越表现，吸引了大量新投资者涌入，以至于今年糟糕业绩的承受者远多于享受此前优异业绩的人。这种经历倾向于证实我的假设：投资业绩必须在一个既包含上涨也包含下跌市场的时期内进行判断。两者会一直存在——这一点，现在可能比六个月前理解得更透彻了。
我列出投资公司的结果，并非因为我们的运作方式与他们类似，或我们的投资与他们相似。之所以这样做，是因为这些基金代表了专业、高薪的投资管理所创造的一个公开"平均击打率"，它们管理着相当庞大的200亿美元证券。我相信，这种管理模式是典型的，甚至对于管理更大规模资金也是如此。作为持有合伙企业权益之外的选择，我认为可以合理假设，许多合伙人会将资产交予类似的管理方式。
资产价值：
上述业绩计算是在向普通合伙人分配和向合伙人进行月度支付之前进行的。当然，当年度总业绩在市值基础上未达到正6%（亏损可结转）时，不会向普通合伙人进行分配。因此，未提现的合伙人在前六个月市值权益减少了7.5%，而按年率6%提现的合伙人在前六个月市值权益减少了10.5%。如果我们今年的总业绩低于正6%（除非道指大幅上涨，这非常有可能），那么接受月度支付的合伙人，其1962年12月31日的市值权益将会减少。这意味着，明年基于这个新的市场权益按6%进行的月度支付，金额将按比例减少。例如，如果我们的全年总业绩为负7%，那么一位在1962年1月1日拥有10万美元市值权益并接受月度支付的合伙人，在1962年12月31日的权益将为87,000美元。这个减少来自负7%的业绩（即7,000美元），加上每月500美元的支付（合计6,000美元）。因此，到1963年1月1日，市场权益为87,000美元，明年的月度支付将为435.00美元。
当然，上述内容完全不适用于1962年收到的预付款项，这些款项不参与损益，而是直接赚取6%的利息。
附录A
道琼斯工业平均指数
| 年份 | 道指收盘价 | 年度变化 | 道指股息 | 道指总回报 | 百分比结果 |
|---|---|---|---|---|---|
| 1956 | 499.47 | -- | -- | -- | -- |
| 1957 | 435.69 | -63.78 | 21.61 | -42.17 | -8.4% |
| 1958 | 583.65 | 147.96 | 20.00 | 167.96 | 38.5% |
| 1959 | 679.36 | 95.71 | 20.74 | 116.45 | 20.0% |
| 1960 | 615.89 | -63.47 | 21.36 | -42.11 | -6.2% |
| 1961 | 731.14 | 115.25 | 22.61 | 137.86 | 22.4% |
| 6/30/62 | 561.28 | -169.86 | 11.00 估 | -158.86 | -21.7% |
附录B
合伙企业业绩
| 年份 | 合伙企业结果(1) | 有限合伙人结果(2) |
|---|---|---|
| 1957 | 10.4% | 9.3% |
| 1958 | 40.9% | 32.2% |
| 1959 | 25.9% | 20.9% |
| 1960 | 22.8% | 18.6% |
| 1961 | 45.9% | 35.9% |
| 6/30/62 | -7.5% | -7.5% |
(1) 1957-61年为所有前身有限合伙企业在整个年度经营的综合结果，已扣除所有费用，但在分配给合伙人或普通合伙人之前。
(2) 1957-61年基于前一列的合伙企业结果计算，已根据当前合伙协议向普通合伙人进行分配。
附录C
年度结果
| 年份 | Mass. Inv. Trust(1) | Investors Stock(1) | Lehman(2) | Tri-Cont.(2) |
|---|---|---|---|---|
| 1957 | -11.4% | -12.4% | -11.4% | -2.4% |
| 1958 | 42.7% | 47.5% | 40.8% | 33.2% |
| 1959 | 9.0% | 10.3% | 8.1% | 8.4% |
| 1960 | -1.0% | -0.6% | 2.5% | 2.8% |
| 1961 | 25.6% | 24.9% | 23.6% | 22.5% |
| 6/30/92 | -23.0% | -25.4% | N.A. | N.A. |
(1) 根据资产净值变化加上年度内登记持有人获得的任何分配计算。
(2) 来自穆迪银行与金融手册 - 1962年。
累计结果
| 年份 | Mass. Inv. Trust | Investors Stock | Lehman | Tri-Cont. | 道指 | 有限合伙人 |
|---|---|---|---|---|---|---|
| 1957 | -11.4% | -12.4% | -11.4% | -2.4% | -8.4% | 9.3% |
| 1957-58 | 26.4% | 29.2% | 24.7% | 30.0% | 26.9% | 44.5% |
| 1957-59 | 37.8% | 42.5% | 34.8% | 40.9% | 52.3% | 74.7% |
| 1957-60 | 36.4% | 41.6% | 38.2% | 44.8% | 42.9% | 107.2% |
| 1957-61 | 71.4% | 76.9% | 70.8% | 77.4% | 74.9% | 181.6% |
| 1957-6/30/62 | 31.9% | 32.0% | N.A. | N.A. | 37.0% | 160.5% |