BUFFETT PARTNERSHIP, LTD. 810 KIEWIT PLAZA OMAHA 31, NEBRASKA
January 18, 1963
The Ground Rules
Some partners have confessed (that's the proper word) that they sometimes find it difficult to wade through my entire annual letter. Since I seem to be getting more long-winded each year, I have decided to emphasize certain axioms on the first pages. Everyone should be entirely clear on these points. To most of you this material will seem unduly repetitious, but I would rather have nine partners out of ten mildly bored than have one out of ten with any basic misconceptions.
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In no sense is any rate of return guaranteed to partners. Partners who withdraw one-half of 1% monthly are doing just that--withdrawing. If we earn more than 6% per annum over a period of years, the withdrawals will be covered by earnings and the principal will increase. If we don't earn 6%, the monthly payments are partially or wholly a return of capital.
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Any year in which we fail to achieve at least a plus 6% performance will be followed by a year when partners receiving monthly payments will find those payments lowered.
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Whenever we talk of yearly gains or losses, we are talking about market values; that is, how we stand with assets valued at market at yearend against how we stood on the same basis at the beginning of the year. This may bear very little relationship to the realized results for tax purposes in a given year.
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Whether we do a good job or a poor job is not to be measured by whether we are plus or minus for the year. It is instead to be measured against the general experience in securities as measured by the Dow-Jones Industrial Average, leading investment companies, etc. If our record is better than that of these yardsticks, we consider it a good year whether we are plus or minus. If we do poorer, we deserve the tomatoes.
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While I much prefer a five-year test, I feel three years is an absolute minimum for judging performance. It is a certainty that we will have years when the partnership performance is poorer, perhaps substantially so, than the Dow. If any three-year or longer period produces poor results, we all should start looking around for other places to have our money. An exception to the latter statement would be three years covering a speculative explosion in a bull market.
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I am not in the business of predicting general stock market or business fluctuations. If you think I can do this, or think it is essential to an investment program, you should not be in the partnership.
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I cannot promise results to partners. What I can and do promise is that:
a. Our investments will be chosen on the basis of value, not popularity;
b. That we will attempt to bring risk of permanent capital loss (not short-term quotational loss) to an absolute minimum by obtaining a wide margin of safety in each commitment and a diversity of commitments; and
c. My wife, children and I will have virtually our entire net worth invested in the partnership.
I have consistently told partners that we expect to shine on a relative basis during minus years for the Dow, whereas plus years of any magnitude may find us blushing. This held true in 1962.
Because of a strong rally in the last few months, the general market as measured by the Dow really did not have such a frightening decline as many might think. From 731 at the beginning of the year, it dipped to 535 in June, but closed at 652. At the end of 1960, the Dow stood at 616, so you can see that while there has been a good deal of action the past few years, the investing public as a whole is not too far from where it was in 1959 or 1960. If one had owned the Dow last year (and I imagine there are a few people playing the high flyers of 1961 who wish they had), they would have had a shrinkage in market value of 79.04 or 10.8%. However, dividends of approximately 23.30 would have been received to bring the overall results from the Dow for the year to minus 7.6%. Our own overall record was plus 13.9%. Below we show the year-by-year performance of the Dow, the partnership before allocation to the general partner, and the limited partners' results for all full years of Buffett Partnership, Ltd.'s and predecessor partnerships' activities:
| Year | Overall Results from Dow | Partnership Results (1) | Limited Partners Results (2) |
| 1957 | -8.4% | 10.4% | 9.3% |
| 1958 | 38.5% | 40.9% | 32.2% |
| 1959 | 20.0% | 25.9% | 20.9% |
| 1960 | -6.2% | 22.8% | 18.6% |
| 1961 | 22.4% | 45.9% | 35.9% |
| 1962 | -7.6% | 13.9% | 11.9% |
(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 partner.
(2) For 1957-61 computed on basis of preceding column of partnership results allowing for allocation to general partner based upon present partnership agreement.
The following table shows the cumulative or compounded results in the same three categories, as well as the average annual compounded rate:
| Year | Overall Results from Dow | Partnership Results | Limited Partners Results |
| 1957 | -8.4% | 10.4% | 9.3% |
| 1957-58 | 26.9% | 55.6% | 44.5% |
| 1957-59 | 52.3% | 95.9% | 74.7% |
| 1957-60 | 42.9% | 140.6% | 107.2% |
| 1957-61 | 74.9% | 251.0% | 181.6% |
| 1957-62 | 61.6% | 299.8% | 215.1% |
| Annual Compounded Rate | 8.3% | 26.0% | 21.1% |
My (unscientific) opinion is that a margin of ten percentage points per annum over the Dow is the very maximum that can be achieved with invested funds over any long period of years, so it may be well to mentally modify some of the above figures.
Partners have sometimes expressed concern as to the effect of size upon performance. This subject was reflected upon in last year’s annual letter. The conclusion reached was that there were some situations where larger sums helped and some where they hindered, but on balance, I did not feel they would penalize performance. I promised to inform partners if my conclusions on this should change. At the beginning of 1957, combined limited partnership assets totaled \$303,726 and grew to \$7,178,500 at the beginning or 1962. To date, anyway, our margin over the Dow has indicated no tendency to narrow as funds increase.
Investment Companies
Along with the results of the Dow, we have regularly included the tabulations on the two largest open-end investment companies (mutual funds) following a common stock policy, and the two largest diversified closedend investment companies. These four companies, Massachusetts Investors Trust, Investors Stock Fund, Tri-Continental Corp. and Lehman Corp. manage over \$3 billion and are probably typical of most of the \$20 billion investment company industry. My opinion is that their results parallel those of most bank trust departments and investment counseling organizations which handle, in aggregate, vastly greater sums.
The purpose of this tabulation, which is shown below, is to illustrate that the Dow is no pushover as an index of investment achievement. The advisory talent managing just the four companies shown commands annual fees of approximately \$7 million and this represents a very small fraction of the industry. Nevertheless, the public batting average of this highly-paid talent indicates results slightly less favorable than the Dow. In no sense is this statement intended as criticism. Within their institutional framework and handling the many billions of dollars involved, I consider such average results virtually the only possible ones. Their merits lie in other than superior results.
Both our portfolio and method of operation differ substantially from the companies mentioned above. However, most partners, as an alternative to their interest in the partnership would probably have their funds invested in media producing results comparable with investment companies, and I, therefore feel they offer a meaningful test of performance.
| Year | Mass. Inv. Trust (1) | Investors Stock (1) | Lehman (2) | Tri-Cont. (2) | Dow | Limited Partners |
| 1957 | -11.4% | -12.4% | -11.4% | -2.4% | -8.4% | 9.3% |
| 1958 | 42.7% | 47.5% | 40.8% | 33.2% | 38.5% | 32.2% |
| 1959 | 9.0% | 10.3% | 8.1% | 8.4% | 20.0% | 20.9% |
| 1960 | -1.0% | -0.6% | 2.5% | 2.8% | -6.2% | 18.6% |
| 1961 | 25.6% | 24.9% | 23.6% | 22.5% | 22.4% | 35.9% |
| 1962 | -9.8% | -13.4% | -13.0% | -10.0% | -7.6% | 11.9% |
(1) Computed from changes in asset value plus any distributions to holders of record during year.
(2) From 1962 Moody's Bank & Finance Manual for 1957-61. Estimated for 1962.
COMPOUNDED
| Year | Mass. Inv. Trust | Investor 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 | 71.3% | 76.9% | 70.8% | 77.4% | 74.9% | 181.6% |
| 1957-62 | 54.5% | 53.2% | 48.6% | 59.7% | 61.6% | 215.1% |
| Annual Compounded Rate | 7.5% | 7.4% | 6.8% | 8.1% | 8.3% | 21.1% |
The Joys of Compounding
I have it from unreliable sources that the cost of the voyage Isabella originally underwrote for Columbus was approximately \$30,000. This has been considered at least a moderately successful utilization of venture capital. Without attempting to evaluate the psychic income derived from finding a new hemisphere, it must be pointed out that even had squatter's rights prevailed, the whole deal was not exactly another IBM. Figured very roughly, the \$30,000 invested at 4% compounded annually would have amounted to something like \$2,000,000,000,000 (that's \$2 trillion for those of you who are not government statisticians) by 1962. Historical apologists for the Indians of Manhattan may find refuge in similar calculations. Such fanciful geometric progressions illustrate the value of either living a long time, or compounding your money at a decent rate. I have nothing particularly helpful to say on the former point.
The following table indicates the compounded value of \$100,000 at 5%, 10% and 15% for 10, 20 and 30 years. It is always startling to see how relatively small differences in rates add up to very significant sums over a period of years. That is why, even though we are shooting for more, we feel that a few percentage points advantage over the Dow is a very worthwhile achievement. It can mean a lot of dollars over a decade or two.
| 5% | 10% | 15% | |
| 10 Years | $162,889 | $259,374 | $404,553 |
| 20 Years | $265,328 | $672,748 | $1,636,640 |
| 30 Years | $432,191 | $1,744,930 | $6,621,140 |
Our Method of Operation
Our avenues of investment break down into three categories. These categories have different behavior characteristics, and the way our money is divided among them will have an important effect on our results, relative to the Dow, in any given year. The actual percentage division among categories is to some degree planned, but to a great extent, accidental, based upon availability factors.
The first section consists of generally undervalued securities (hereinafter called “generals”) where we have nothing to say about corporate policies and no timetable as to when the undervaluation may correct itself .Over the years, this has been our largest category of investment, and more money has been made here than in either of the other categories. We usually have fairly large positions (5% to 10% of our total assets) in each of five or six generals, with smaller positions in another ten or fifteen.
Sometimes these work out very fast; many times they take years. It is difficult at the time of purchase to know any compelling reason why they should appreciate in price. However, because of this lack of glamour or anything pending which might create immediate favorable market action, they are available at very cheap prices. A lot of value can be obtained for the price paid. This substantial excess of value creates a comfortable margin of safety in each transaction. Combining this individual margin of safety with a diversity of commitments creates a most attractive package of safety and appreciation potential. We do not go into these generals with the idea of getting the last nickel, but are usually quite content selling out at some intermediate level between our purchase price and what we regard as fair value to a private owner.
Many times generals represent a form of "coattail riding" where we feel the dominating stockholder group has plans for the conversion of unprofitable or under-utilized assets to a better use. We have done that ourselves in
Sanborn and Dempster, but everything else equal we would rather let others do the work. Obviously, not only do the values have to be ample in a case like this, but we also have to be careful whose coat we are holding.
The generals tend to behave market-wise very much in sympathy with the Dow. Just because something is cheap does not mean it is not going to go down. During abrupt downward movements in the market, this segment may very well go down percentage-wise just as much as the Dow. Over a period of years, I believe the generals will outperform the Dow, and during sharply advancing years like 1961. This is the section of our portfolio that turns in the best results. It is, of course, also the most vulnerable in a declining market, and in 1962, not only did we not make any money out of our general category, but I am even doubtful if it did better than the Dow.
Our second category consists of "work-outs. These are securities whose financial results depend on corporate action rather than supply and demand factors created by buyers and sellers of securities. In other words, they are securities with a timetable where we can predict, within reasonable error limits, when we will get how much and what might upset the applecart. Corporate events such as mergers, liquidations, reorganizations, spin-offs, etc., I lead to work-outs. An important source in recent years has been sell-outs by oil producers to major integrated oil companies.
This category will produce reasonably stable earnings from year to year, to a large extent irrespective of the course of the Dow. Obviously, if we operate throughout a year with a large portion of our portfolio in workouts, we will look extremely good if it turns out to be a declining year for the Dow, or quite bad if it is a strongly advancing year.
We were fortunate in that we had a good portion of our portfolio in work outs in 1962. As I have said before, this was not due to any notion on my part as to what the market would do, but rather because I could get more of what I wanted in this category than in the generals. This same concentration in work-outs hurt our performance during the market advance in the second half of the year.
Over the years, work-outs have provided our second largest category. At any given time, we may be in five to ten of these; some just beginning and others in the late stage of their development. I believe in using borrowed money to offset a portion of our work-out portfolio, since there is a high degree of safety in this category in terms of both eventual results and intermediate market behavior. For instance, you will note when you receive our audit report, that we paid \$75,000 of interest to banks and brokers during the year. Since our borrowing was at approximately 5%, this means we had an average of \$1,500,000 borrowed from such sources. Since 1962 was a down year in the market, you might think that such borrowing would hurt results. However, all of our loans were to offset work-outs, and this category turned in a good profit for the year. Results, excluding the benefits derived from the use of borrowed money, usually fall in the 10% to 20% per annum range. My self-imposed standard limit regarding borrowing is 25% of partnership net worth, although something extraordinary could result in modifying this for a limited period of time.
You will note on our yearend balance sheet (part of the audit you will receive) securities sold short totaling some \$340,000. Most of this occurred in conjunction with a work-out entered into late in the year. In this case, we had very little competition for a period of time and were able to create a 10% or better profit (gross, not annualized) for a few months tie-up of money. The short sales eliminated the general market risk.
The final category is I “control” situations, where we either control the company or take a very large position and attempt to influence policies of the company. Such operations should definitely be measured on the basis of several years. In a given year, they may produce nothing as it is usually to our advantage to have the stock be stagnant market-wise for a long period while we are acquiring it. These situations, too, have relatively little in common with the behavior of the Dow. Sometimes, of course, we buy into a general with the thought in mind that it might develop into a control situation. If the price remains low enough for a long period, this might very well happen. Usually, it moves up before we have a substantial percentage of the company's stock, and we sell at higher levels and complete a successful general operation.
Dempster Mill Manufacturing Company
The high point of 1962 from a performance standpoint was our present control situation --73% owned Dempster Mill. Dempster has been primarily in farm implements (mostly items retailing for \$1,000 or under), water systems, water well supplies and jobbed plumbing lines.
The operations for the past decade have been characterized by static sales, low inventory turnover and virtually no profits in relation to invested capital.
We obtained control in August, 1961 at an average price of about \$28 per share, having bought some stock as low as \$16 in earlier years, but the vast majority in an offer of \$30.25 in August. When control of a company is obtained, obviously what then becomes all-important is the value of assets, not the market quotation for a piece of paper (stock certificate).
Last year, our Dempster holding was valued by applying what I felt were appropriate discounts to the various assets. These valuations were based on their status as non-earning assets and were not assessed on the basis of potential, but on the basis of what I thought a prompt sale would produce at that date. Our job was to compound these values at a decent rate. The consolidated balance sheet last year and the calculation of fair value are shown below.
| (000’s omitted) | |||||
| Assets | Book Figure | Valued @ | Adjusted Valuation | Liabilities | |
| Cash | $166 | 100% | $166 | Notes Payable | $1,230 |
| Accts. Rec. (net) | $1,040 | 85% | $884 | Other Liabilities | $1,088 |
| Inventory | $4,203 | 60% | $2,522 | ||
| Ppd. Exp. Etc. | $82 | 25% | $21 | ||
| Current Assets | $5,491 | $3,593 | Total Liabilities | $2,318 | |
| Cash Value Life ins., etc. | $45 | 100Est. net auction value | $45 | Net Work per Books: | $4,601 |
| Net Plant Equipment | $1383 | $800 | Net Work as Adjusted to Quickly Realizable Values | $2,120 | |
| Total Assets | $6,919 | $4,438 | Shares outstanding 60,146 Adj. Value per Share | $35.25 | |
Dempster's fiscal year ends November 30th, and because the audit was unavailable in complete form, I approximated some of the figures and rounded to \$35 per share last year.
Initially, we worked with the old management toward more effective utilization of capital, better operating margins, reduction of overhead, etc. These efforts were completely fruitless. After spinning our wheels for about six months, it became obvious that while lip service was being given to our objective, either through inability or unwillingness, nothing was being accomplished. A change was necessary.
A good friend, whose inclination is not toward enthusiastic descriptions, highly recommended Harry Bottle for our type of problem. On April 17, 1962 I met Harry in Los Angeles, presented a deal which provided for rewards to him based upon our objectives being met, and on April 23rd he was sitting in the president's chair in Beatrice.
Harry is unquestionably the man of the year. Every goal we have set for Harry has been met, and all the surprises have been on the pleasant side. He has accomplished one thing after another that has been labeled as impossible, and has always taken the tough things first. Our breakeven point has been cut virtually in half, slowmoving or dead merchandise has been sold or written off, marketing procedures have been revamped, and unprofitable facilities have been sold.
The results of this program are partially shown in the balance sheet below, which, since it still represents nonearning assets, is valued on the same basis as last year.
(000’s omitted)
| Assets | Book Figure | Valued @ | Adjusted Valuation | Liabilities | |
| Cash | $60 | 100% | $60 | Notes payable | $0 |
| Marketable securities | $758 | Mrkt. 12/31/62 | $834 | Other liabilities | $346 |
| Accts. Rec. (net) | $796 | 85% | $676 | Total liabilities | $346 |
| Inventory | $1,634 | 60% | $981 | ||
| Cash value life ins. | $41 | 100% | $41 | Net Worth: | |
| Recoverable Income Tax | $170 | 100% | $170 | Per Books | $4,077 |
| Ppd. Exp. Etc. | $14 | 25% | $4 | As Adjusted to quickly realizable valuesAdd: proceeds from potential exercise of option to Harry Bottle | $3,125$60 |
| Current Assets | $3,473 | $2,766 | Shares outstanding 60,146 | ||
| Misc. Invest. | $5 | 100% | $5 | Add: shs. Potentially outstanding under option 2000Total shs. 62,146 | |
| Net Plant Equipment | $945 | Est. net auction value | $700 | ||
| Adjusted value per share | $51.26 | ||||
| Total Assets | $4,423 | $3,471 |
Three facts stand out: (1) Although net worth has been reduced somewhat by the housecleaning and writedowns (\$550,000 was written out of inventory; fixed assets overall brought more than book value), we have converted assets to cash at a rate far superior to that implied in our year-earlier valuation. (2) To some extent, we have converted the assets from the manufacturing business (which has been a poor business) to a business which we think is a good business --securities. (3) By buying assets at a bargain price, we don't need to pull any rabbits out of a hat to get extremely good percentage gains. This is the cornerstone of our investment philosophy: “Never count on making a good sale. Have the purchase price be so attractive that even a mediocre sale gives good results. The better sales will be the frosting on the cake.”
On January 2, 1963, Dempster received an unsecured term loan of \$1,250,000. These funds, together with the funds all ready "freed-up" will enable us to have a security portfolio of about \$35 per share at Dempster, or considerably more than we paid for the whole company. Thus our present valuation will involve a net of about \$16 per share in the manufacturing operation and \$35 in a security operation comparable to that of Buffett Partnership, Ltd.
We, of course, are devoted to compounding the \$16 in manufacturing at an attractive rate and believe we have some good ideas as to how to accomplish this. While this will be easy if the business as presently conducted earns money, we have some promising ideas even if it shouldn't.
It should be pointed out that Dempster last year was 100% an asset conversion problem and therefore, completely unaffected by the stock market and tremendously affected by our success with the assets. In 1963, the manufacturing assets will still be important, but from a valuation standpoint it will behave considerably more like a general since we will have a large portion of its money invested in generals pretty much identical with those in Buffett Partnership, Ltd. For tax reasons, we will probably not put workouts in Dempster. Therefore, if the Dow should drop substantially, it would have a significant effect on the Dempster valuation. Likewise, Dempster would benefit this year from an advancing Dow which would not have been the case most of last year.
There is one final point of real significance for Buffett Partnership, Ltd. We now have a relationship with an operating man which could be of great benefit in future control situations. Harry had never thought of running an implement company six days before he took over. He is mobile, hardworking and carries out policies once they are set. He likes to get paid well for doing well, and I like dealing with someone who is not trying to figure how to get the fixtures in the executive washroom gold-plated.
Harry and I like each other, and his relationship with Buffett Partnership, Ltd. should be profitable for all of us.
The Question of Conservatism
Because I believe it may be even more meaningful after the events of 1962 I would like to repeat this section from last year’s letter:
"The above description of our various areas of operation may provide some clues as to how conservatively our portfolio is invested. Many people some years back thought they were behaving in the most conservative manner by purchasing medium or long-term municipal or government bonds. This policy has produced substantial market depreciation in many cases, and most certainly has failed to maintain or increase real buying power.
"Conscious, perhaps overly conscious, of inflation, many people now feel that they are behaving in a conservative manner by buying blue chip securities almost regardless of price-earnings ratios, dividend yields, etc. Without the benefit of hindsight as in the bond example, I feel this course of action is fraught with danger. There is nothing at all conservative, in my opinion, about speculating as to just how high a multiplier a greedy and capricious public will put on earnings.
You will not be right simply because a large number of people momentarily agree with you. You will not be right simply because important people agree with you. In many quarters the simultaneous occurrence of the two above factors is enough to make a course of action meet the test of conservatism.
“You will be right, over the course of many transactions, if your hypotheses are correct, your facts are correct, and your reasoning is correct. True conservatism is only possible through knowledge and reason.
I might add that in no way does the fact that our portfolio is not conventional prove that we are more conservative or less conservative than standard methods of investing. This can only be determined by examining the methods or examining the results.
I feel the most objective test as to just how conservative our manner of investing is arises through evaluation of performance in down markets. Preferably these should involve a substantial decline in the Dow. Our performance in the rather mild declines of 1957 and 1960 would confirm my hypothesis that we invest in an extremely conservative manner. I would welcome any partner's suggesting objective tests as to conservatism to see how we stack up. We have never suffered a realized loss of more than ½ of 1% of total net assets and our ratio of total dollars of realized gains to total realized losses is something like 100 to 1. Of course, this reflects the fact that on balance we have been operating in an up market. However there have been many opportunities for loss transactions even in markets such as these (you may have found out about a few of these yourselves) so I think the above facts have some significance.
In 1962, we did realize a loss on one commitment or 1.0% and our ratio or realized gains to losses was only slightly over 3 to 1. However, compared to more conventional (often termed conservative which is not synonymous) methods of common stock investing, it would appear that our method involved considerably less risk. Our advantage over the Dow was all achieved when the market was going down; we lost a bit of this edge on the way up.
The Usual Prediction
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. If you will take the first table on page 3 and shuffle the years around, the compounded result will stay the same. If the next four years are going to involve, say, a +40%, -30%, +10% and –6%, the order in which they fall is completely unimportant for our purposes as long as we all are around at the end of the four years. Over a long period of years, I think it likely that the Dow will probably produce something like 5% per year compounded from a combination of dividends and market value gain. Despite the experience of the last decade, 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%.
For the reasons outlined in our 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. It is certainly doubtful we could match a 20% or 25% advance from the December 31, 1962 level. The consequence of performance such as this over a period of years would mean that if the Dow produces a 5% per year overall gain compounded, I would hope our results might be 15% 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. Variations in any given year from the behavior described above would be wide, even if the long-term expectation was correct. Certainly, you have to recognize the possibility of substantial personal bias in such hopes.
Miscellaneous
This year marked the transition from the office off the bedroom to one a bit (quite a bit) more conventional. Surprising as it may seem, the return to a time clock life has not been unpleasant. As a matter of fact, I enjoy not keeping track of everything on the backs of envelopes.
We are starting off this year with net assets of \$9,405,400.00. At the start of 1962, Susie and I had three “nonmarketable security” investments of other than nominal size, and two of these have been sold. The third will be continued indefinitely. From the proceeds of the two sales, we have added to our partnership interest so that we now have an interest of \$1,377,400.00. Also, my three children, mother, father, two sisters, two brothers-in-law, father-in-law, three aunts, four cousins, five nieces and nephews have interests directly or indirectly totaling \$893,600.00.
Bill Scott who has fit into our operation splendidly has an interest (with his wife) of \$167,400.00; A very large portion of his net worth. So we are all eating our own cooking.
You will note from the auditor's certificate that they made a surprise check during the year and this will be a continuing part of their procedure. Peat, Marwick, Mitchell & Co. again did an excellent job on the audit, meeting our rather demanding time schedules.
Susie was in charge of equipping the office which means we did not follow my “orange crate" approach to interior decorating. We have an ample supply of Pepsi on hand and look forward to partners dropping in.
Beth Feehan continues to demonstrate why she is the high priestess of the CPS (certified professional secretary, that is) group.
Partners did a wonderful job of cooperating in the return of agreements and commitment letters, and I am most appreciative of this. It makes life a lot easier. Enclosed you will find Schedule “A” to your partnership agreement. You will be receiving your audit and tax figures very soon, and if you have questions on any of this be sure to let me hear from you.
Cordially,
Warren E. Buffett
巴菲特合伙公司 地址：内布拉斯加州奥马哈市31区基威特广场810号
1963年1月18日
基本规则
有些合伙人承认（用这个词没错），他们有时觉得很难通读我的全年信件。既然我每年似乎越来越啰嗦，我决定在前几页强调某些基本原则。每个人对这些要点都应完全清楚。对大多数人来说，这些内容可能显得过分重复，但我宁愿十个合伙人中有九个略感无聊，也不愿有一个存在任何根本性误解。
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任何情况下都不向合伙人保证任何收益率。每月支取0.5%的合伙人，其行为本身就是在"支取"。如果我们在多年期内年均收益率超过6%，这些支取将被收益覆盖，本金还会增加。如果我们达不到6%的收益，那么月度支付将部分或全部来自本金的返还。
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在任何一年，如果我们未能实现至少6%的业绩（正收益），那么随后一年中，那些每月支取收益的合伙人将会发现他们的月度支付金额下调。
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当我们谈论年度盈亏时，我们谈论的是市值——即年底按市场价值估值的资产相对于年初同口径的变动。这与特定年度的税务实现结果可能关系甚微。
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我们做得好还是不好，不能用当年是正收益还是负收益来衡量。相反，应该与以道琼斯工业平均指数、主要投资公司等衡量的证券市场总体表现进行比较。如果我们的业绩优于这些标杆，无论当年是正还是负，我们都认为是个好年份。如果表现更差，那我们就该挨骂。
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虽然我更倾向于五年评估期，但我认为三年是判断业绩的绝对最低期限。可以确定的是，我们会有一些年份的表现逊于道指，有时候可能大幅落后。如果任何三年或更长时间段内产生糟糕的业绩，我们所有人都应该开始寻找其他地方来投钱。但有一个例外：如果三年期恰好覆盖了牛市的投机性爆发阶段，那么这个说法不适用。
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我的工作不是预测大盘或商业波动。如果你认为我能做到这一点，或者认为这对投资计划至关重要，那么你不应该加入这个合伙企业。
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我无法向合伙人承诺结果。我能做的并且确实承诺的是：
a. 我们的投资将基于价值而非流行度来选择；
b. 我们将通过在每个投资标的中获得广泛的安全边际并实现投资品种多样化，努力将永久性资本损失（非短期报价损失）的风险降至绝对最低；
c. 我的妻子、孩子和我本人将把几乎全部净资产投入合伙企业。
我一贯告诉合伙人，我们期望在道指下跌的年份相对表现优异，而在道指无论多大上涨的年份，我们可能反而会脸红。1962年确实如此。
由于最后几个月的强劲反弹，以道指衡量的总体市场实际上并没有许多人想象的那么可怕。从年初的731点，6月跌至535点，但年底收于652点。1960年底道指为616点，所以你可以看到，尽管过去几年市场动作频繁，但总体而言，投资大众与1959年或1960年的位置相去不远。如果去年某人持有道指（我猜1961年炒作高价股的那些人现在会希望他们当时持有的是道指），其市值将缩水79.04点，即10.8%。不过，约23.30点的股息收入将使道指全年总体业绩为负7.6%。我们自己的总体业绩为正13.9%。以下是巴菲特合伙公司及其前身合伙企业在所有完整年度的道指业绩、合伙企业（在向普通合伙人分配前）业绩以及有限合伙人业绩的逐年对比：
| 年份 | 道指总体业绩 | 合伙企业业绩(1) | 有限合伙人业绩(2) |
| 1957 | -8.4% | 10.4% | 9.3% |
| 1958 | 38.5% | 40.9% | 32.2% |
| 1959 | 20.0% | 25.9% | 20.9% |
| 1960 | -6.2% | 22.8% | 18.6% |
| 1961 | 22.4% | 45.9% | 35.9% |
| 1962 | -7.6% | 13.9% | 11.9% |
(1) 1957-1961年为所有前身有限合伙企业在整个年度经营后的综合结果，已扣除所有费用，但未进行合伙人分配或向普通合伙人分配。
(2) 1957-1961年基于前一列合伙企业结果计算，并根据现行合伙协议考虑了向普通合伙人的分配。
下表显示了相同三个类别的累计或复利结果，以及年均复利收益率：
| 年份 | 道指总体业绩 | 合伙企业业绩 | 有限合伙人业绩 |
| 1957 | -8.4% | 10.4% | 9.3% |
| 1957-58 | 26.9% | 55.6% | 44.5% |
| 1957-59 | 52.3% | 95.9% | 74.7% |
| 1957-60 | 42.9% | 140.6% | 107.2% |
| 1957-61 | 74.9% | 251.0% | 181.6% |
| 1957-62 | 61.6% | 299.8% | 215.1% |
| 年均复利收益率 | 8.3% | 26.0% | 21.1% |
我（非科学的）观点是，在任何长期内，投资资金相对于道指每年实现十个百分点以上的超额收益是极限，因此以上部分数据可能需要你在心里打个折扣。
合伙人有时会担心规模对业绩的影响。这个话题在去年的年度信件中已经讨论过。当时的结论是，有些情况下更大的资金有帮助，有些情况下则碍事，但总体而言，我不认为规模会损害业绩。我承诺如果这个结论有变化，会告知合伙人。1957年初，合并有限合伙资产总额为303,726美元，到1962年初增长到7,178,500美元。至少到目前为止，随着资金增加，我们相对于道指的超额收益并未显示出缩窄的趋势。
投资公司
除了道指业绩，我们还定期列出两个最大的遵循普通股政策的开放式投资公司（共同基金）以及两个最大的多元化封闭式投资公司的数据。这四家公司——Massachusetts Investors Trust（马萨诸塞投资者信托）、Investors Stock Fund（投资者股票基金）、Tri-Continental Corp.（三大陆公司）和Lehman Corp.（雷曼公司）——管理着超过30亿美元资金，可能代表了整个200亿美元投资公司行业的典型情况。我认为它们的业绩与大多数银行信托部门和投资咨询机构（它们总计管理着大得多的资金）的业绩相似。
下面这个表格的目的在于说明道指作为投资业绩的衡量指标并非易事。仅展示的这四家公司所聘请的顾问人才每年收取约700万美元的费用，这仅占整个行业的一小部分。然而，这些高薪人才的公众击球率显示，其业绩略逊于道指。这一说法绝非批评。在它们的制度框架内，并管理着如此巨资的情况下，我认为这样的平均业绩几乎是唯一可能的结果。它们的优点不在于卓越的业绩。
我们的投资组合和运作方式都与上述公司有本质区别。然而，大多数合伙人作为持有合伙企业权益的替代方案，很可能会将资金投资于能产生与投资公司相当业绩的媒介，因此我认为它们提供了一个有意义的业绩检验标准。
| 年份 | Mass. Inv. Trust(1) | Investors Stock(1) | Lehman(2) | Tri-Cont.(2) | 道指 | 有限合伙人 |
| 1957 | -11.4% | -12.4% | -11.4% | -2.4% | -8.4% | 9.3% |
| 1958 | 42.7% | 47.5% | 40.8% | 33.2% | 38.5% | 32.2% |
| 1959 | 9.0% | 10.3% | 8.1% | 8.4% | 20.0% | 20.9% |
| 1960 | -1.0% | -0.6% | 2.5% | 2.8% | -6.2% | 18.6% |
| 1961 | 25.6% | 24.9% | 23.6% | 22.5% | 22.4% | 35.9% |
| 1962 | -9.8% | -13.4% | -13.0% | -10.0% | -7.6% | 11.9% |
(1) 根据资产值变动加上年度内向登记持有人的任何分配计算。
(2) 1957-1961年来自1962年穆迪银行与金融手册。1962年为估计值。
复利累计
| 年份 | Mass. Inv. Trust | Investor 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 | 71.3% | 76.9% | 70.8% | 77.4% | 74.9% | 181.6% |
| 1957-62 | 54.5% | 53.2% | 48.6% | 59.7% | 61.6% | 215.1% |
| 年均复利收益率 | 7.5% | 7.4% | 6.8% | 8.1% | 8.3% | 21.1% |
复利的乐趣
我从不可靠的消息来源得知，伊莎贝拉女王最初为哥伦布航海出资的大约30,000美元。这被认为至少是一次相当成功的风险资本运用。在不试图评估发现新大陆所带来的精神收益的前提下，必须指出的是，即使当时有"占地权"在起作用，整笔交易也完全不能与另一家IBM相提并论。粗略计算，这30,000美元如果以每年4%复利增长，到1962年将变成大约2,000,000,000,000美元（对你们当中不是政府统计师的人来说，这是2万亿美元）。曼哈顿印第安人的历史辩护者们可能会在类似的计算中找到慰藉。这种奇妙的几何级数增长说明了要么活得长，要么以不错的利率复利投资的价值。关于前者，我没有什么特别有用的建议。
下表显示了100,000美元在5%、10%和15%的复利下，10年、20年和30年后的价值。看到相对较小的利率差异如何在多年后累积成非常可观的金额，总是令人震惊。这就是为什么，尽管我们追求更高，但我们仍觉得相对于道指每年多出几个百分点的优势是非常值得的成就。在一二十年里，这可能意味着很多钱。
| 5% | 10% | 15% | |
| 10年 | $162,889 | $259,374 | $404,553 |
| 20年 | $265,328 | $672,748 | $1,636,640 |
| 30年 | $432,191 | $1,744,930 | $6,621,140 |
我们的操作方法
我们的投资途径分为三类。这些类别具有不同的行为特征，资金在它们之间的分配方式将在任何给定年份对我们的业绩（相对于道指）产生重要影响。各类别之间的实际比例划分在某种程度上是有计划的，但在很大程度上是偶然的，取决于可用性因素。
第一类包括一般性的"低估类证券"（以下简称"低估类投资"），在这类投资中，我们无法影响公司政策，也没有时间表来预测低估何时会得到纠正。多年来，这是我们的最大投资类别，从这里赚的钱比另外两类总和都多。我们通常在每五六个低估类标的中持有相当大的仓位（占我们总资产的5%到10%），另外在十到十五个标的中持有较小的仓位。
有时候这些标的见效很快；很多情况下则需要数年。在买入时很难知道有什么令人信服的理由会导致价格上涨。然而，正是因为缺乏吸引力或任何可能立即引发有利市场行动的事件，它们才能以非常低廉的价格获得。用支付的价格可以买到很多价值。这种大量的超额价值为每笔交易创造了舒适的安全边际。将这种个体安全边际与投资品种多样化相结合，就形成了一个兼具安全性和增值潜力、极富吸引力的组合。我们进入这些低估类投资时并不抱着赚到最后一个铜板的想法，而是通常在我们买入价和我们认为的私人所有者合理价值之间的某个中间水平卖出，就已经相当满足了。
很多时候，低估类投资代表一种"搭顺风车"的形式，我们认为有控股权的股东群体有计划将不盈利或未充分利用的资产转化为更好的用途。我们在Sanborn和Dempster就做过这样的事，但在其他条件相同的情况下，我们宁愿让别人去做这些工作。显然，在这种情况下，不仅价值必须充足，我们还必须小心选择搭谁的"顺风车"。
从市场行为来看，低估类投资往往与道指高度同步。仅仅因为某样东西便宜，并不意味着它不会下跌。在市场急剧下跌期间，这个部分的跌幅百分比很可能与道指差不多。但经过多年时间，我相信低估类投资将跑赢道指，特别是在像1961年这样大幅上涨的年份，这是我们投资组合中表现最好的部分。当然，在下跌市场中它也是最脆弱的，1962年，我们不仅没有从低估类投资中赚到钱，我甚至怀疑这部分的表现是否好过道指。
我们的第二类包括"套利类投资"。这些证券的财务结果取决于公司行动，而非证券买卖双方创造的供需因素。换言之，这些证券有一个时间表，我们可以合理地预测在何时获得多少回报，以及什么可能破坏计划。公司事件如并购、清算、重组、分拆等都会导致套利类投资机会。近年来的一个重要来源是石油生产商被大型综合石油公司收购。
这类投资将产生相当稳定的逐年收益，在很大程度上与道指的走势无关。显然，如果我们在全年以较大比例投资于套利类，那么当道指下跌时我们看起来会非常好，而当道指强劲上涨时则相当糟糕。
幸运的是，我们在1962年将相当大的投资组合比例放在了套利类投资中。正如我之前所说，这并非因为我对市场走势有任何看法，而是因为在这个类别中我能够得到更多我想要的东西，而不是在低估类投资中。同样的这种集中在套利类的配置，在当年下半年市场上涨时损害了我们的业绩。
多年来，套利类投资一直是我们的第二大类别。在任何时候，我们可能持有五到十个这样的标的；有些刚刚开始，有些处于后半段。我相信使用借入资金来对冲一部分套利类投资组合，因为这个类别在最终结果和中间市场行为方面都有很高的安全性。例如，当你收到审计报告时会注意到，我们当年向银行和经纪商支付了75,000美元的利息。由于我们的借款利率约为5%，这意味着我们从这些来源平均借入了1,500,000美元。既然1962年是市场下跌年，你可能认为这样的借款会损害业绩。然而，我们所有的贷款都是为了对冲套利类投资，而这个类别当年却取得了良好的利润。排除使用借入资金带来的收益，这类投资的年收益通常在10%到20%之间。我给自己设定的借款限制为不超过合伙企业净资产的25%，当然，特殊情况可能会导致在有限时间内偏离这一限制。
你会注意到我们的年底资产负债表（审计报告的一部分）上列有约340,000美元的卖空证券。大部分发生在年底进入的一个套利类投资中。在这种情况下，我们在一段时间内几乎没有竞争，能够用几个月的资金占用创造出10%或更高的利润（毛利润，非年化）。卖空操作消除了总体市场风险。
最后一类是"控制类投资"，即我们控制公司或持有非常大的仓位并试图影响公司政策的投资。这类操作必须以数年为周期来衡量。在某个特定年份，它们可能毫无产出，因为通常对我们有利的是，在收购股票期间让股价长期停滞不前。这些情况也与道指的走势关系不大。当然，有时候我们买入一个低估类标的时，心里就想着它可能发展为控制类投资。如果价格长期保持在足够低的水平，这种情况就很可能发生。通常，在我们持有公司相当比例的股份之前，股价已经上涨，于是我们在更高价位卖出，完成一次成功的低估类操作。
德姆斯特磨坊制造公司
1962年从业绩角度看的高光时刻是我们目前的控制类投资——持有73%股权的德姆斯特磨坊（Dempster Mill Manufacturing Company）。德姆斯特主要生产农具（多数产品零售价在1,000美元以下）、水系统、水井供应设备和管道工程配件。
过去十年的经营特点是：销售额停滞、库存周转率低、相对于投入资本几乎没有任何利润。
我们于1961年8月获得控制权，平均买入价约为每股28美元，早期曾以低至16美元的价格买过一些股票，但绝大多数是在8月以30.25美元的要约收购价买到的。当获得一家公司的控制权后，显然最重要的就是资产的价值，而不是一张纸（股票凭证）的市场报价。
去年，我们对德姆斯特持股的估值，是对各项资产应用我认为适当的折让率。这些估值基于其作为非盈利资产的状态，不是按潜力评估，而是基于我认为当时能迅速变现的价格。我们的任务是以合理的复利增值这些价值。去年合并资产负债表和公允价值的计算如下表所示。
| （单位：千美元） | |||||
| 资产 | 账面值 | 估值比率 | 调整后估值 | 负债 | |
| 现金 | $166 | 100% | $166 | 应付票据 | $1,230 |
| 应收账款（净值） | $1,040 | 85% | $884 | 其他负债 | $1,088 |
| 存货 | $4,203 | 60% | $2,522 | ||
| 预付费用等 | $82 | 25% | $21 | ||
| 流动资产 | $5,491 | $3,593 | 总负债 | $2,318 | |
| 寿险现金价值等 | $45 | 100% | $45 | 按账面计算的净资产： | $4,601 |
| 厂房设备净值 | $1,383 | 估计拍卖净值 | $800 | 按可快速变现价值调整后的净资产： | $2,120 |
| 总资产 | $6,919 | $4,438 | 流通股数 60,146 股调整后每股价值 | $35.25 | |
德姆斯特的财年截止于11月30日，由于审计报告不完整，我去年近似估算了部分数字并四舍五入为每股35美元。
最初，我们与旧管理层合作，希望更有效地利用资本、改善运营利润率、削减间接费用等。这些努力完全徒劳。在空转了大约六个月后，情况变得明显：无论是因为能力不足还是意愿不足，他们对我们的目标只是口头敷衍，实际上什么也没做成。必须做出改变。
一位不爱夸张的好朋友强烈推荐了Harry Bottle来解决我们这类问题。1962年4月17日，我在洛杉矶见到了Harry，提出了一个根据目标完成情况向他提供奖励的方案，4月23日，他就坐在了比阿特丽斯市的公司总裁办公室里。
Harry无疑是年度人物。我们为他设定的每个目标他都实现了，而且所有意外之喜都是好事。他接二连三地完成了那些被认为不可能的任务，而且总是先啃硬骨头。我们的盈亏平衡点几乎降低了一半，滞销或过时的商品被卖掉或核销，营销流程被重新设计，不盈利的设施也被出售。
这个计划的结果部分体现在下表的资产负债表中，由于它仍然代表非盈利资产，因此按照与去年相同的基础进行估值。
（单位：千美元）
| 资产 | 账面值 | 估值比率 | 调整后估值 | 负债 | |
| 现金 | $60 | 100% | $60 | 应付票据 | $0 |
| 有价证券 | $758 | 1962年12月31日市价 | $834 | 其他负债 | $346 |
| 应收账款（净值） | $796 | 85% | $676 | 总负债 | $346 |
| 存货 | $1,634 | 60% | $981 | ||
| 寿险现金价值 | $41 | 100% | $41 | 净资产： | |
| 可收回所得税 | $170 | 100% | $170 | 按账面计算 | $4,077 |
| 预付费用等 | $14 | 25% | $4 | 按可快速变现价值调整后 | $3,125 |
| 流动资产 | $3,473 | $2,766 | 加：Harry Bottle期权潜在行权所得 | $60 | |
| 杂项投资 | $5 | 100% | $5 | 流通股数 60,146 股 | |
| 厂房设备净值 | $945 | 估计拍卖净值 | $700 | 加：期权下潜在流通股数 2,000 股总股数 62,146 股 | |
| 调整后每股价值 | $51.26 | ||||
| 总资产 | $4,423 | $3,471 |
三个事实很突出：（1）尽管经过清理和减值后净资产有所减少（存货核销了55万美元；固定资产整体变现价格高于账面值），但我们将资产转换为现金的比率远高于一年前的估值所隐含的水平。（2）在某种程度上，我们将资产从制造业（一直是糟糕的生意）转换成了我们认为的好生意——证券。（3）通过以廉价购买资产，我们不需要变什么戏法就能获得极高的收益率。这是我们投资哲学的基石："永远不要指望靠卖得好赚钱。要让买入价格足够有吸引力，以至于即便平庸的卖出也能获得不错的结果。更好的卖出只是蛋糕上的糖霜。"
1963年1月2日，德姆斯特获得了一笔125万美元的无担保定期贷款。这笔资金，加上已经"释放"出来的资金，将使我们在德姆斯特拥有大约每股35美元的证券组合——远远超过我们收购整个公司所支付的价格。因此，我们目前的估值将包括每股约16美元的制造业务净值和35美元的证券业务（与巴菲特合伙公司的业务相当）的净值。
当然，我们致力于以有吸引力的复利增值这16美元的制造业资产，并且相信我们有一些好主意来实现这一点。如果目前运营的业务能赚钱，这很容易达成；即使不能，我们也有一些有前途的想法。
需要指出的是，德姆斯特去年完全是一个资产转换问题，因此完全不受股市影响，而极大地受到我们在资产方面的成功影响。1963年，制造资产仍然重要，但从估值角度看，它会更像一只低估类标的，因为我们将其大部分资金投资于与巴菲特合伙公司几乎完全相同的低估类投资。出于税务原因，我们可能不会将套利类投资放在德姆斯特。因此，如果道指大幅下跌，将对德姆斯特的估值产生显著影响。同样，今年如果道指上涨，德姆斯特也将受益，而去年大部分时间情况并非如此。
还有一点对巴菲特合伙公司真正重要。我们现在与一位运营型管理者建立了关系，这在未来的控制类投资中可能大有裨益。Harry在他接手前的六天从未想过要管理一家农具公司。他机动灵活、勤奋努力，一旦政策确定就贯彻执行。他喜欢做得好拿高薪，而我喜欢与那些不想办法把高管洗手间弄成镀金的人打交道。
Harry和我彼此欣赏，他与巴菲特合伙公司的关系应该对大家都有利。
关于保守主义
因为我相信，在1962年的事件之后，这一点可能更有意义，我想重复去年信中的这一段：
"以上对我们各个运作领域的描述可能会提供一些线索，说明我们的投资组合有多么保守。许多年前，一些人认为购买中期或长期市政债券或国债是最保守的行为。这一政策在许多情况下导致了巨额市场贬值，而且肯定未能维持或增加实际购买力。
出于对通货膨胀的有意识（也许过于有意识）的担忧，现在许多人认为，几乎不考虑市盈率、股息收益率等因素购买蓝筹股是保守行为。如果没有债券案例那样的事后诸葛亮的优势，我认为这种做法充满危险。在我看来，就贪婪而善变的公众愿意给收益多少倍的市盈率进行投机，这根本不是保守。
你不会仅仅因为大量人群暂时同意你的观点就正确。你也不会仅仅因为重要人物同意你的观点就正确。在许多地方，如果上述两个因素同时出现，就足以使一种做法符合保守性的检验。
在众多交易中，如果你的假设正确、事实正确、推理正确，你就会正确。真正的保守主义只有通过知识和理性才能实现。
我还要补充一点，我们的投资组合非常规，这绝不证明我们比标准投资方法更保守或更不保守。只有通过检查方法或检查结果才能确定。
我认为，检验我们投资方式是否保守的最客观标准，是在下跌市场中对业绩进行评估。最好这些下跌应包括道指的大幅下跌。我们在1957年和1960年相当温和的下跌中的表现可以证实我的假设：我们以极其保守的方式投资。我欢迎任何合伙人提出关于保守性的客观检验，看看我们的表现如何。我们从未因实现的损失超过总净资产的0.5%，而实现的总收益与总损失之比大约为100:1。当然，这反映了我们总体上在上涨市场中运作的事实。然而，即使在这样的市场中，也有许多亏损交易的机会（你们自己可能也遇到过一些），所以我认为上述事实具有一定的意义。
1962年，我们确实在一个标的上实现了1.0%的损失，实现收益与损失之比仅为略高于3:1。然而，与更常规的（通常被称为"保守"——但两者不是同义词）普通股投资方法相比，我们的方法似乎涉及的风险要小得多。我们相对于道指的优势全部是在市场下跌时实现的；在上涨过程中我们失去了部分优势。
通常的预测
我当然不会预测未来一两年内总体商业或股市会怎么走，因为我一点头绪也没有。
我可以相当肯定地告诉你，未来十年里，会有几年大盘上涨20%或25%，有几年会下跌同样的幅度，大多数年份则介于两者之间。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什么重要意义。如果你把第3页的第一个表格，把各年份的顺序打乱，复利结果将保持不变。如果未来四年分别是+40%、-30%、+10%和-6%，那么只要我们都活过这四年，这些年份的先后顺序对我们的目标来说完全无关紧要。在很长的年份里，我认为道指可能每年产生大约5%的复利总回报（包含股息和市值增长）。尽管过去十年的经验如此，但任何期望大盘获得远超此收益的人可能都会失望。
我们的任务是在每年积累相对于道指业绩的优势，而不必过分担心特定年度的绝对结果是正还是负。我认为，在我们下跌15%而道指下跌25%的年份里，表现远远优于合伙企业和我都上涨20%的年份。
基于我们操作方法中概述的原因，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，我们所追求的优势可能会以极不均衡的幅度出现。必然会有一些年份我们被道指超越，但如果长期内我们平均每年比道指好十个百分点，我就会觉得结果令人满意。
具体来说，如果市场在某一年下跌35%或40%（我认为未来十年内有很高概率发生这种情况——但没人知道是哪一年），我们的跌幅应该只有15%或20%。如果市场当年基本持平，我们希望能有大约十个百分点以上的正收益。如果市场上涨20%或更多，我们要想跟上恐怕会非常吃力。从1962年12月31日的水平起步，要想跟上20%或25%的涨幅，几乎肯定是不现实的。按此业绩多年持续的结果意味着，如果道指每年产生5%的总体复利收益，我期望我们的结果可能是每年15%。
上述预期听起来可能有些鲁莽，毫无疑问，从1965年或1970年的角度来看，它们可能显得非常片面。即使长期预期正确，在任意给定年份中，与所述行为模式的偏差也会很大。当然，你必须意识到这种期望中可能存在着相当大的个人偏见。
杂项
今年，我们从卧室旁边的办公室搬到了一个稍微（相当）更正规的地方。令人惊讶的是，回到打卡上班的生活并不令人不快。事实上，我很享受不用在信封背面记录所有事情的生活。
今年年初，我们的净资产为9,405,400.00美元。1962年初，Susie和我有三笔非名义规模的"非有价证券"投资，其中两笔已经卖出。第三笔将无限期持有。从两笔卖出所得中，我们增加了在合伙企业的权益，现在我们拥有1,377,400.00美元的权益。另外，我的三个孩子、母亲、父亲、两个姐妹、两个连襟、岳父、三个姨妈、四个堂表亲、五个侄甥直接或间接持有总计893,600.00美元的权益。
Bill Scott已完美融入我们的运作，他（和妻子）持有167,400.00美元的权益；这占他净资产的很大一部分。所以，我们都吃自己做的饭。
你会从审计师证明中注意到，他们在年内进行了一次突击检查，这将成为他们程序的持续部分。Peat, Marwick, Mitchell & Co.再次出色地完成了审计工作，满足了我们相当紧迫的时间要求。
Susie负责配备办公室——这意味着我没有采用我的"橙箱"式室内装饰风格。办公室储备了充足的百事可乐，欢迎合伙人随时来访。
Beth Feehan继续证明她为什么是CPS（当然是注册专业秘书）群体的高级女祭司。
合伙人在签署协议和承诺书方面给予了极好的配合，对此我深表感谢。这让生活轻松了很多。随函附上你的合伙协议附表"A"。你很快就会收到审计和税务数据，如果对其中任何内容有疑问，一定请告诉我。
诚挚的，
沃伦·E·巴菲特