1960 Letter
WARREN E. BUFFETT
5202 Underwood Ave. Omaha, Nebraska
The General Stock Market in 1960:
A year ago, I commented on the somewhat faulty picture presented in 1959 by the Dow-Jones Industrial Average which had advanced from 583 to 679, or 16.4%. Although practically all investment companies showed gains for that year, less than 10% of them were able to match or better the record of the Industrial Average. The Dow-Jones Utility Average had a small decline and the Railroad Average recorded a substantial one.
In 1960, the picture was reversed. The Industrial Average declined from 679 to 616, or 9.3%. Adding back the dividends which would have been received through ownership of the Average still left it with an overall loss of 6.3%. On the other hand, the Utility Average showed a good gain and, while all the results are not now available, my guess is that about 90% of all investment companies outperformed the Industrial Average. The majority of investment companies appear to have ended the year with overall results in the range of plus or minus 5%. On the New York Stock Exchange, 653 common stocks registered losses for the year while 404 showed gains.
Results in 1960:
My continual objective in managing partnership funds is to achieve a long-term performance record superior to that of the Industrial Average. I believe this Average, over a period of years, will more or less parallel the results of leading investment companies. Unless we do achieve this superior performance there is no reason for existence of the partnerships.
However, I have pointed out that any superior record which we might accomplish should not be expected to be evidenced by a relatively constant advantage in performance compared to the Average. Rather it is likely that if such an advantage is achieved, it will be through better-than-average performance in stable or declining markets and average, or perhaps even poorer- than-average performance in rising markets.
I would consider a year in which we declined 15% and the Average 30% to be much superior to a year when both we and the Average advanced 20%. Over a period of time there are going to be good and bad years; there is nothing to be gained by getting enthused or depressed about the sequence in which they occur. The important thing is to be beating par; a four on a par three hole is not as good as a five on a par five hole and it is unrealistic to assume we are not going to have our share of both par three's and par five's.
The above dose of philosophy is being dispensed since we have a number of new partners this year and I want to make sure they understand my objectives, my measure of attainment of these objectives, and some of my known limitations.
With this background it is not unexpected that 1960 was a better-than-average year for us. As contrasted with an overall loss of 6.3% for the Industrial Average, we had a 22.8% gain for the seven partnerships operating throughout the year. Our results for the four complete years of partnership operation after expenses but before interest to limited partners or allocation to the general partner are:
| Year | Partnerships Operating Entire Year | Partnership Gain | Dow-Jones Gain |
| 1957 | 3 | 10.4% | -8.4% |
| 1958 | 5 | 40.9% | 38.5% |
| 1959 | 6 | 25.9% | 19.9% |
| 1960 | 7 | 22.8% | -6.3% |
It should be emphasized again that these are the net results to the partnership; the net results to the limited partners would depend on the partnership agreement that they had selected.
The overall gain or loss is computed on a market to market basis. After allowing for any money added or withdrawn, such a method gives results based upon what would have been realized upon liquidation of the partnership at the beginning, of the year and what would have been realized upon liquidation at year end and is different, of course, from our tax results, which value securities at cost and realize gains or losses only when securities are actually sold.
On a compounded basis, the cumulative results have been:
| Year | Partnership Gain | Dow-Jones Gain |
| 1957 | 10.4% | -8.4% |
| 1958 | 55.6% | 26.9% |
| 1959 | 95.9% | 52.2% |
| 1960 | 140.6% | 42.6% |
Although four years is entirely too short a period from which to make deductions, what evidence there is points toward confirming the proposition that our results should be relatively better in moderately declining or static markets. To the extent that this is true, it indicates that our portfolio may be more conservatively, although decidedly less conventionally, invested than if we owned "blue-chip" securities. During a strongly rising market for the latter, we might have real difficulty in matching their performance.
Multiplicity of Partnerships:
A preceding table shows that the family is growing. There has been no partnership which has had a consistently superior or inferior record compared to our group average, but there has been some variance each year despite my efforts to "keep all partnerships invested in the same securities and in about the same proportions. This variation, of course, could be eliminated by combining the present partnerships into one large partnership. Such a move would also eliminate much detail and a moderate amount of expense.
Frankly, I am hopeful of doing something along this line in the next few years. The problem is that various partners have expressed preferences for varying partnership arrangements. Nothing will be done without unanimous consent of partners.
Advance Payments:
Several partners have inquired about adding money during the year to their partnership. Although an exception has been made, it is too difficult to amend partnership agreements during mid-year where we have more than one family represented among the limited partners. Therefore, in mixed partnerships an additional interest can only be acquired at the end of the year.
We do accept advance payments during the year toward a partnership interest and pay interest at 6% on this payment from the time received until the end of the year. At that time, subject to amendment of the agreement by the partners, the payment plus interest is added to the partnership capital and thereafter participates in profits and losses.
Sanborn Map:
Last year mention was made of an investment which accounted for a very high and unusual proportion (35%) of our net assets along with the comment that I had some hope this investment would be concluded in 1960. This hope materialized. The history of an investment of this magnitude may be of interest to you.
Sanborn Map Co. is engaged in the publication and continuous revision of extremely detailed maps of all cities of the United States. For example, the volumes mapping Omaha would weigh perhaps fifty pounds and provide minute details on each structure. The map would be revised by the paste-over method showing new construction, changed occupancy, new fire protection facilities, changed structural materials, etc. These revisions would be done approximately annually and a new map would be published every twenty or thirty years when further pasteovers became impractical. The cost of keeping the map revised to an Omaha customer would run around \$100 per year.
This detailed information showing diameter of water mains underlying streets, location of fire hydrants, composition of roof, etc., was primarily of use to fire insurance companies. Their underwriting departments, located in a central office, could evaluate business by agents nationally. The theory was that a picture was worth a thousand words and such evaluation would decide whether the risk was properly rated, the degree of conflagration exposure in an area, advisable reinsurance procedure, etc. The bulk of Sanborn's business was done with about thirty insurance companies although maps were also sold to customers outside the insurance industry such as public utilities, mortgage companies, and taxing authorities.
For seventy-five years the business operated in a more or less monopolistic manner, with profits realized in every year accompanied by almost complete immunity to recession and lack of need for any sales effort. In the earlier years of the business, the insurance industry became fearful that Sanborn's profits would become too great and placed a number of prominent insurance men on Sanborn's board of directors to act in a watch-dog capacity.
In the early 1950’s a competitive method of under-writing known as "carding" made inroads on Sanborn’s business and after-tax profits of the map business fell from an average annual level of over \$500,000 in the late 1930's to under \$100,000 in 1958 and 1959. Considering the upward bias in the economy during this period, this amounted to an almost complete elimination of what had been sizable, stable earning power.
However, during the early 1930's Sanborn had begun to accumulate an investment portfolio. There were no capital requirements to the business so that any retained earnings could be devoted to this project. Over a period of time, about \$2.5 million was invested, roughly half in bonds and half in stocks. Thus, in the last decade particularly, the investment portfolio blossomed while the operating map business wilted.
Let me give you some idea of the extreme divergence of these two factors. In 1938 when the Dow-Jones Industrial Average was in the 100-120 range, Sanborn sold at \$110 per share. In 1958 with the Average in the 550 area, Sanborn sold at \$45 per share. Yet during that same period the value of the Sanborn investment portfolio increased from about \$20 per share to \$65 per share. This means, in effect, that the buyer of Sanborn stock in 1938 was placing a positive valuation of \$90 per share on the map business (\$110 less the \$20 value of the investments unrelated to the map business) in a year of depressed business and stock market conditions. In the tremendously more vigorous climate of 1958 the same map business was evaluated at a minus \$20 with the buyer of the stock unwilling to pay more than 70 cents on the dollar for the investment portfolio with the map business thrown in for nothing.
How could this come about? Sanborn in 1958 as well as 1938 possessed a wealth of information of substantial value to the insurance industry. To reproduce the detailed information they had gathered over the years would have cost tens of millions of dollars. Despite “carding” over \$500 million of fire premiums were underwritten by “mapping” companies. However, the means of selling and packaging Sanborn’s product, information had remained unchanged throughout the year and finally this inertia was reflected in the earnings.
The very fact that the investment portfolio had done so well served to minimize in the eyes of most directors the need for rejuvenation of the map business. Sanborn had a sales volume of about \$2 million per year and owned about \$7 million worth of marketable securities. The income from the investment portfolio was substantial, the business had no possible financial worries, the insurance companies were satisfied with the price paid for maps, and the stockholders still received dividends. However, these dividends were cut five times in eight years although I could never find any record of suggestions pertaining to cutting salaries or director's and committee fees.
Prior to my entry on the Board, of the fourteen directors, nine were prominent men from the insurance industry who combined held 46 shares of stock out of 105,000 shares outstanding. Despite their top positions with very large companies which would suggest the financial wherewithal to make at least a modest commitment, the largest holding in this group was ten shares. In several cases, the insurance companies these men ran owned small blocks of stock but these were token investments in relation to the portfolios in which they were held. For the past decade the insurance companies had been only sellers in any transactions involving Sanborn stock.
The tenth director was the company attorney, who held ten shares. The eleventh was a banker with ten shares who recognized the problems of the company, actively pointed them out, and later added to his holdings. The next two directors were the top officers of Sanborn who owned about 300 shares combined. The officers were capable, aware of the problems of the business, but kept in a subservient role by the Board of Directors. The final member of our cast was a son of a deceased president of Sanborn. The widow owned about 15,000 shares of stock.
In late 1958, the son, unhappy with the trend of the business, demanded the top position in the company, was turned down, and submitted his resignation, which was accepted. Shortly thereafter we made a bid to his mother for her block of stock, which was accepted. At the time there were two other large holdings, one of about 10,000 shares (dispersed among customers of a brokerage firm) and one of about 8,000. These people were quite unhappy with the situation and desired a separation of the investment portfolio from the map business, as did we.
Subsequently our holdings (including associates) were increased through open market purchases to about 24,000 shares and the total represented by the three groups increased to 46,000 shares. We hoped to separate the two businesses, realize the fair value of the investment portfolio and work to re-establish the earning power of the map business. There appeared to be a real opportunity to multiply map profits through utilization of Sanborn's wealth of raw material in conjunction with electronic means of converting this data to the most usable form for the customer.
There was considerable opposition on the Board to change of any type, particularly when initiated by an outsider, although management was in complete accord with our plan and a similar plan had been recommended by Booz, Allen & Hamilton (Management Experts). To avoid a proxy fight (which very probably would not have been forthcoming and which we would have been certain of winning) and to avoid time delay with a large portion of Sanborn’s money tied up in blue-chip stocks which I didn’t care for at current prices, a plan was evolved taking out all stockholders at fair value who wanted out. The SEC ruled favorably on the fairness of the plan. About 72% of the Sanborn stock, involving 50% of the 1,600 stockholders, was exchanged for portfolio securities at fair value. The map business was left with over \$l,25 million in government and municipal bonds as a reserve fund, and a potential corporate capital gains tax of over \$1 million was eliminated. The remaining stockholders were left with a slightly improved asset value, substantially higher earnings per share, and an increased dividend rate.
Necessarily, the above little melodrama is a very abbreviated description of this investment operation. However, it does point up the necessity for secrecy regarding our portfolio operations as well as the futility of measuring our results over a short span of time such as a year. Such control situations may occur very infrequently. Our bread-and-butter business is buying undervalued securities and selling when the undervaluation is corrected along with investment in special situations where the profit is dependent on corporate rather than market action. To the extent that partnership funds continue to grow, it is possible that more opportunities will be available in “control situations.”
The auditors should be mailing your financial statement and tax information within about a week. If you have any questions at all regarding either their report or this letter, be sure to let me know.
Warren E. Buffett 1-30-61
1960年信
WARREN E. BUFFETT
5202 Underwood Ave. Omaha, Nebraska
1960年股市概况：
一年前，我曾评论1959年道指从583点涨至679点（涨幅16.4%）所呈现的某种误导性画面。尽管几乎所有投资公司当年都实现了正收益，但其中不到10%能赶上或超越道指的记录。道琼斯公用事业平均指数小幅下跌，铁路平均指数则大幅下挫。
1960年，局面反转。道指从679点跌至616点，跌幅9.3%。加回持有该指数所能获得的股息后，总体仍亏损6.3%。另一方面，公用事业平均指数录得良好涨幅，虽然眼下并非所有数据都已出炉，但我的猜测是：约90%的投资公司跑赢了道指。多数投资公司全年总收益率大致在正负5%之间。在纽约证券交易所，653只普通股全年下跌，404只上涨。
1960年业绩：
我管理合伙基金的持续目标是：实现长期业绩记录优于道指。我相信，多年下来，道指的表现与主要投资公司的结果大致相当。除非我们能取得这种超越性的业绩，否则合伙基金就没有存在的理由。
不过，我也指出过：我们可能取得的任何优异记录，不应指望表现为与道指相比相对稳定的优势。更可能的情况是，如果这种优势得以实现，它将在平稳或下跌市场中表现为优于平均水平的表现，而在上涨市场中则表现为平均水平，甚至可能逊于平均水平。
我认为，当年我们下跌15%而道指下跌30%，远优于当年我们和道指均上涨20%。长期来看，会有好年景和差年景；为它们出现的顺序而兴奋或沮丧毫无意义。重要的是击败标准杆；在标准杆三杆的球洞打出四杆，不如在标准杆五杆的球洞打出五杆，而且指望我们不会遇到自己的三杆洞和五杆洞是不现实的。
上述这番哲理之所以要在此传授，是因为今年我们多了几位新合伙人，我希望确保他们理解我的目标、我衡量这些目标实现程度的标准，以及我的一些已知局限。
有了这样的背景，1960年对我们而言是一个好于平均的年份，这并不意外。与道指总体亏损6.3%形成对比，我们全年运营的七个合伙基金取得了22.8%的收益。我们在四年完整运营（扣除费用后、但在支付有限合伙人利息或普通合伙人分配之前）的结果如下：
| 年份 | 全年运营的合伙基金数 | 合伙基金收益 | 道指收益 |
| 1957 | 3 | 10.4% | -8.4% |
| 1958 | 5 | 40.9% | 38.5% |
| 1959 | 6 | 25.9% | 19.9% |
| 1960 | 7 | 22.8% | -6.3% |
再次强调，这是合伙基金的净结果；有限合伙人获得的净结果取决于他们选择的合伙协议。
总收益或亏损按市值计价法计算。在考虑任何资金增减后，该方法给出的结果基于年初合伙基金清算可实现的金额与年末清算可实现的金额。这当然不同于我们的税务结果——后者按成本计价证券，只在证券实际出售时才确认收益或亏损。
按复利计算，累计结果如下：
| 年份 | 合伙基金收益 | 道指收益 |
| 1957 | 10.4% | -8.4% |
| 1958 | 55.6% | 26.9% |
| 1959 | 95.9% | 52.2% |
| 1960 | 140.6% | 42.6% |
虽然四年时间太短，不足以得出推论，但现有证据倾向于证实一种主张：我们的结果在温和下跌或停滞的市场中应相对更好。若果真如此，则表明我们的投资组合可能比持有"蓝筹股"更为保守（尽管远非传统）。在后者强劲上涨的市场中，我们可能很难跟上它们的表现。
合伙基金多元化：
上表显示这个家族在壮大。没有哪个合伙基金的业绩一贯优于或劣于我们组的平均水平，但每年都存在一些差异——尽管我努力"让所有合伙基金投资于同样的证券，且比例大致相同"。当然，这种差异可以通过将现有合伙基金合并为一个大型合伙基金来消除。这样的举措还将省去大量细节和适度的费用。
坦率地说，我期望接下来几年在这方面有所行动。问题在于，不同的合伙人对不同的合伙安排表达了偏好。未经合伙人一致同意，不会采取任何行动。
预付款项：
几位合伙人询问过在年内向他们的合伙基金追加资金的事宜。虽然有过例外，但在年中修改合伙协议过于困难——尤其是当有限合伙人中不止一个家庭时。因此，在混合型合伙基金中，新权益只能在年底获得。
我们确实接受年内对合伙权益的预付款项，并对这些款项从收到之日起到年底按6%支付利息。届时，经合伙人修改协议后，该款项及利息将加入合伙资本，此后参与盈亏分配。
桑伯恩地图公司：
去年我曾提到一项投资，它占我们净资产的比重非常高且不寻常（35%），并评论说我有些希望这项投资能在1960年完成。这个希望实现了。这样规模的某项投资的经历或许会让您感兴趣。
桑伯恩地图公司从事美国所有城市极其详细地图的出版和持续更新。例如，描绘奥马哈的卷册可能重达50磅，提供每座建筑的细微细节。地图通过粘贴覆盖法进行更新，显示新建筑、用途变化、新消防设施、结构材料变化等。这些更新大约每年进行一次，每二三十年当粘贴覆盖变得不可行时，会出版新地图。向奥马哈客户提供地图更新服务的年费约为100美元。
这些详细信息（街道下水管直径、消防栓位置、屋顶材料等）主要供火灾保险公司使用。它们设在总部的核保部门可以通过全国的代理人评估业务。理论上一图胜千言，这种评估将决定风险定级是否恰当、某个区域的火灾蔓延风险程度、合适的再保险程序等。桑伯恩的大部分业务来自大约30家保险公司，尽管地图也出售给保险业以外的客户，如公用事业公司、抵押贷款公司和税务当局。
七十五年来，该公司以近乎垄断的方式运营，每年都实现利润，几乎不受经济衰退影响，也无需任何销售努力。在业务早期，保险业担心桑伯恩的利润会变得过高，于是将多位知名保险界人士安排进桑伯恩董事会担任监督角色。
20世纪50年代初，一种称为"卡片化"的竞争性核保方法侵蚀了桑伯恩的业务，地图业务的税后利润从20世纪30年代末年均超过50万美元降至1958年和1959年的不足10万美元。考虑到同期经济呈上升趋势，这几乎相当于完全抹杀了原本可观且稳定的盈利能力。
然而，在20世纪30年代初，桑伯恩开始积累一个投资组合。该业务没有资本需求，因此任何留存收益都可投入这个项目。一段时间后，大约投资了250万美元，约一半债券、一半股票。因此，尤其在最近十年，投资组合蓬勃发展，而运营中的地图业务则日渐萎缩。
让我给您一些概念，了解这两个因素的极端背离。1938年，道指在100-120点区间，桑伯恩股价为每股110美元。1958年，道指在550点附近，桑伯恩股价为每股45美元。然而在同一时期，桑伯恩投资组合的价值从约每股20美元增至每股65美元。这意味着，实际上，1938年桑伯恩股票的买家对地图业务给出了每股90美元的正估值（110美元减去与地图业务无关的投资价值20美元），那是商业和股市都低迷的一年。而在1958年远为活跃的市场环境中，同一地图业务被估值为负20美元——股票买家不愿为投资组合支付超过70美分对1美元的价格，地图业务等于白送。
这怎么会发生？1958年与1938年一样，桑伯恩拥有对保险业具有重大价值的丰富信息。重现他们多年收集的详细资料将花费数千万美元。尽管"卡片化"盛行，仍有超过5亿美元的火灾保费由"地图"公司承保。然而，桑伯恩产品销售和包装信息的方式多年未变，这种惰性最终反映在盈利上。
正是投资组合表现如此出色，使得大多数董事忽视了振兴地图业务的必要性。桑伯恩年销售额约200万美元，拥有价值约700万美元的可流通证券。投资组合的收入可观，公司没有任何财务担忧，保险公司对地图价格感到满意，股东仍能获得股息。然而，这些股息在8年内被削减了5次——尽管我从未找到任何关于削减薪水或董事委员会费用的建议记录。
在我进入董事会之前，14位董事中有9位是来自保险业的知名人士，他们合计持有105,000股流通股中的46股。尽管他们在规模极大的公司身居高位（暗示有财力至少做些适度投资），但这个群体中最大的持股也不过10股。在某些情况下，这些人管理的保险公司持有少量股票，但相对于它们所持有的投资组合而言，这只是象征性投资。过去十年中，保险公司在任何涉及桑伯恩股票的交易中都只是卖方。
第十位董事是公司律师，持有10股。第十一位是银行家，持有10股，他认识到公司的问题，积极指出这些问题，后来增加了持股。接下来两位董事是桑伯恩的高管，合计持有约300股。这些高管能力出众，了解业务问题，但被董事会置于从属地位。我们这出戏的最后一位成员是桑伯恩已故总裁的儿子。遗孀持有约15,000股股票。
1958年底，这个儿子对业务趋势不满，要求获得公司最高职位，被拒绝后提交了辞呈，并被接受。此后不久，我们向他的母亲出价购买她手中的股票，被接受了。当时还有两个大股东，一个约10,000股（分散在一家经纪公司的客户中），另一个约8,000股。这些人对局势非常不满，希望将投资组合与地图业务分离开来，我们也是。
随后，我们（包括关联方）通过公开市场买入将持股增加到约24,000股，三个集团合计增加到46,000股。我们希望分拆这两项业务，实现投资组合的公平价值，并努力恢复地图业务的盈利能力。似乎有一个真正机会，通过利用桑伯恩丰富的原材料，结合电子手段将这些数据转化为客户最易用的形式，从而成倍增加地图利润。
董事会对任何形式的变革都持相当大的反对意见，特别是当变革由外部人发起时——尽管管理层完全赞同我们的计划，且类似计划已由博思艾伦咨询公司（管理专家）推荐。为避免代理权争夺（这很可能不会发生，而且我们肯定会赢），并避免时间拖延（桑伯恩大量资金被锁定在我当前价格不感兴趣的蓝筹股中），我们制定了一个计划，按公平价值让所有想退出的股东退出。SEC裁定该计划的公平性。约72%的桑伯恩股票（涉及1600名股东中的50%）换取了公平价值的投资组合证券。地图业务保留了超过125万美元的政府和市政债券作为储备金，并消除了超过100万美元的潜在公司资本利得税。剩余股东获得略高的资产价值、大幅提高的每股收益以及更高的股息率。
上述这出小闹剧必然是对此次投资操作的非常简略的描述。然而，它确实突显了对我们投资组合操作保密的必要性，以及用一年这样的短时间衡量我们结果的徒劳。这类控制类投资可能非常罕见。我们的主营业务是买入低估类股票，并在低估被纠正时卖出，同时投资于特殊情形类投资——其利润取决于公司行为而非市场行为。随着合伙基金规模的持续增长，在"控制类投资"中可能获得更多机会。
审计师应在一周内寄出您的财务报表和税务信息。如果您对他们的报告或这封信有任何疑问，请一定让我知道。
Warren E. Buffett 1961年1月30日