1957 Letter

WARREN E. BUFFETT

5202 Underwood Ave. Omaha, Nebraska

SECOND ANNUAL LETTER TO LIMITED PARTNERS

The General Stock Market Picture in 1957

In last year's letter to partners, I said the following:

My view of the general market level is that it is priced above intrinsic value. This view relates to blue-chip securities. This view, if accurate, carries with it the possibility of a substantial decline in all stock prices, both undervalued and otherwise. In any event I think the probability is very slight that current market levels will be thought of as cheap five years from now. Even a full-scale bear market, however, should not hurt the market value of our work-outs substantially.

If the general market were to return to an undervalued status our capital might be employed exclusively in general issues and perhaps some borrowed money would be used in this operation at that time. Conversely, if the market should go considerably higher our policy will be to reduce our general issues as profits present themselves and increase the work-out portfolio.

All of the above is not intended to imply that market analysis is foremost in my mind. Primary attention is given at all times to the detection of substantially undervalued securities.

The past year witnessed a moderate decline in stock prices. I stress the word "moderate" since casual reading of the press or conversing with those who have had only recent experience with stocks would tend to create an impression of a much greater decline. Actually, it appears to me that the decline in stock prices has been considerably less than the decline in corporate earning power under present business conditions. This means that the public is still very bullish on blue chip stocks and the general economic picture. I make no attempt to forecast either business or the stock market; the above is simply intended to dispel any notions that stocks have suffered any drastic decline or that the general market, is at a low level. I still consider the general market to be priced on the high side based on long term investment value.

Our Activities in 1957

The market decline has created greater opportunity among undervalued situations so that, generally, our portfolio is heavier in undervalued situations relative to work-outs than it was last year. Perhaps an explanation of the term "work-out" is in order. A work-out is an investment which is dependent on a specific corporate action for its profit rather than a general advance in the price of the stock as in the case of undervalued situations. Work-outs come about through: sales, mergers, liquidations, tenders, etc. In each case, the risk is that something will upset the applecart and cause the abandonment of the planned action, not that the economic picture will deteriorate and stocks decline generally. At the end of 1956, we had a ratio of about 70-30 between general issues and work-outs. Now it is about 85-15.

During the past year we have taken positions in two situations which have reached a size where we may expect to take some part in corporate decisions. One of these positions accounts for between 10% and 20% of the portfolio of the various partnerships and the other accounts for about 5%. Both of these will probably take in the neighborhood of three to five years of work but they presently appear to have potential for a high average annual rate of return with a minimum of risk. While not in the classification of work-outs, they have very little

dependence on the general action of the stock market. Should the general market have a substantial rise, of course, I would expect this section of our portfolio to lag behind the action of the market.

Results for 1957

In 1957 the three partnerships which we formed in 1956 did substantially better than the general market. At the beginning of the year, the Dow-Jones Industrials stood at 499 and at the end of the year it was at 435 for a loss of 64 points. If one had owned the Averages, he would have received 22 points in dividends reducing the overall loss to 42 points or 8.470% for the year. This loss is roughly equivalent to what would have been achieved by investing in most investment funds and, to my knowledge, no investment fund invested in stocks showed a gain for the year.

All three of the 1956 partnerships showed a gain during the year amounting to about 6.2%, 7.8% and 25% on yearend 1956 net worth. Naturally a question is created as to the vastly superior performance of the last partnership, particularly in the mind of the partners of the first two. This performance emphasizes the importance of luck in the short run, particularly in regard to when funds are received. The third partnership was started the latest in 1956 when the market was at a lower level and when several securities were particularly attractive. Because of the availability of funds, large positions were taken in these issues. Whereas the two partnerships formed earlier were already substantially invested so that they could only take relatively small positions in these issues.

Basically, all partnerships are invested in the same securities and in approximately the same percentages. However, particularly during the initial stages, money becomes available at varying times and varying levels of the market so there is more variation in results than is likely to be the case in later years. Over the years, I will be quite satisfied with a performance that is 10% per year better than the Averages, so in respect to these three partnerships, 1957 was a successful and probably better than average, year.

Two partnerships were started during the middle of 1957 and their results for the balance of the year were roughly the same as the performance of the Averages which were down about 12% for the period since inception of the 1957 partnerships. Their portfolios are now starting to approximate those of the 1956 partnerships and performance of the entire group should be much more comparable in the future.

Interpretation of results

To some extent our better than average performance in 1957 was due to the fact that it was a generally poor year for most stocks. Our performance, relatively, is likely to be better in a bear market than in a bull market so that deductions made from the above results should be tempered by the fact that it was the type of year when we should have done relatively well. In a year when the general market had a substantial advance I would be well satisfied to match the advance of the Averages.

I can definitely say that our portfolio represents better value at the end of 1957 than it did at the end of 1956. This is due to both generally lower prices and the fact that we have had more time to acquire the more substantially undervalued securities which can only be acquired with patience. Earlier I mentioned our largest position which comprised 10% to 20% of the assets of the various partnerships. In time I plan to have this represent 20% of the assets of all partnerships but this cannot be hurried. Obviously during any acquisition period, our primary interest is to have the stock do nothing or decline rather than advance. Therefore, at any given time, a fair proportion of our portfolio may be in the sterile stage. This policy, while requiring patience, should maximize long term profits.

I have tried to cover points which I felt might be of interest and disclose as much of our philosophy as may be imparted without talking of individual issues. If there are any questions concerning any phase of the operation, I would welcome hearing from you.

1957年信函

沃伦·E·巴菲特
内布拉斯加州奥马哈市Underwood Ave. 5202号

致有限合伙人的第二封年度信函

1957年大市概况

在去年给合伙人的信中，我曾这样写道：

我对当前市场整体水平的看法是：价格已高于内在价值。这一判断针对蓝筹股而言。如果这一判断准确，那么所有股票价格——无论是低估类还是其他——都可能面临大幅下跌。无论如何，我认为五年后回头看，当前市场水平被视作便宜的可能性微乎其微。不过，即便是全面熊市，对我们的套利类投资市值也不应造成太大冲击。

如果大市重新回到低估状态，我们的资本可能会全部投入低估类投资，届时甚至可能动用部分借入资金用于此操作。反之，如果市场大幅上涨，我们的策略将是：趁利润出现时减持低估类投资，同时增持套利类投资组合。

以上所有陈述并非暗示市场分析是我首要考虑的。我始终将主要精力放在发掘严重低估的证券上。

过去一年，股票价格温和下跌。我强调“温和”一词，因为但凡随便翻翻报纸，或跟那些只有近期炒股经验的人聊几句，就容易形成跌幅更大的错觉。实际上，在我看来，在当前商业环境下，股价的下跌幅度远小于企业盈利能力的下滑幅度。这意味着公众对蓝筹股和整体经济前景仍然非常看多。我不试图预测商业或股市走向；上述内容只是为了打消任何认为股票已遭遇暴跌、或大市已处于低位的念头。我仍然认为，基于长期投资价值，当前大市定价偏高。

1957年我们的活动

市场下跌在低估类标的中创造了更大机会，因此，总体来说，我们的投资组合中低估类标的相对于套利类的比重比去年更高了。或许有必要解释一下“套利类投资”这个术语。套利类投资是指其利润依赖于某个特定的公司行动，而非像低估类标的那样依赖股价普遍上涨。套利类机会来源于：出售、并购、清算、要约收购等。在每种情况下，风险在于有事情会推翻苹果车（注：指搞砸计划），导致既定行动被放弃，而不是经济状况恶化、股票普遍下跌。1956年底，我们的低估类投资与套利类投资的比例约为70-30。现在大约是85-15。

在过去一年里，我们在两个标的上建立了仓位，规模已达到我们有望在相关公司决策中发挥一定作用的程度。其中一个仓位占各合伙企业组合的10%到20%之间，另一个约占5%。这两个仓位很可能需要三到五年的运作，但目前看来，它们具备以最低风险获得较高年均回报率的潜力。虽然它们不属于套利类，但与大市的整体走势关联度很低。当然，如果大市大幅上涨，我预计这部分投资组合的表现会落后于市场。

1957年业绩

1957年，我们在1956年成立的三家合伙企业的表现远超大市。年初道指报499点，年末报435点，下跌64点。如果持有道指，投资者可获得22点股息，使全年总损失降至42点，即8.470%。这一亏损大致相当于投资大多数投资基金的业绩；据我所知，没有一只投资股票的基金在当年取得正收益。

三家1956年合伙企业当年均实现正收益，按1956年底净资产计算，增幅分别约为6.2%、7.8%和25%。自然，人们会对最后一家合伙企业的卓越表现产生疑问，尤其是前两家合伙企业的合伙人。这一表现突显了运气在短期内的作用，尤其是在资金到账时点上。第三家合伙企业在1956年成立最晚，当时市场处于较低水平，几只证券特别有吸引力。由于资金可用，我们在这些标的上建立了大仓位。而前两家合伙企业早已基本完成投资，只能在这些标的上持有相对较小的仓位。

基本上，所有合伙企业投资于相同的证券，且比例大致相同。不过，尤其在初始阶段，资金在不同时间、不同市场水平下到账，因此业绩差异会比后期更大。多年来看，只要业绩比道指每年好10%，我就非常满意了。因此，就这三家合伙企业而言，1957年是成功的一年，很可能高于平均水平。

两家合伙企业在1957年年中成立，其下半年业绩大致与道指表现相当——自成立以来，道指下跌了约12%。目前它们的投资组合开始接近1956年合伙企业的配置，未来整个群体的业绩可比性应会大大增强。

业绩解读

在一定程度上，我们1957年优于平均的表现得益于当年对大多数股票而言是普遍糟糕的一年。我们的相对业绩在熊市中可能比牛市中更好，因此对上述结果的推论应有所保留——毕竟这是我们应该表现相对较好的年份。如果大市大幅上涨，我若能跟平道指的涨幅就很满意了。

我可以肯定地说，截至1957年底，我们的投资组合比1956年底更具价值。这既是因为股价普遍更低，也是因为我们有更多时间收购那些只能靠耐心获取的、严重低估的证券。前面我提到过我们的最大仓位，占各合伙企业资产的10%至20%。随着时间推移，我计划让这个仓位占所有合伙企业资产的20%，但这不能操之过急。显然，在任何收购期内，我们的主要兴趣是让股价不动或下跌，而不是上涨。因此，在任意时点上，我们的投资组合中相当一部分可能处于休眠期。这一策略虽然需要耐心，但应当能最大化长期利润。

我已尽力涵盖那些我认为可能有趣的内容，并在不谈论个股的前提下尽可能透露我们的投资理念。如果对运作的任何方面有疑问，欢迎来信。