BUFFETT PARTNERSHIP, LTD. 810 KIEWIT PLAZA OMAHA 31, NEBRASKA

November 1, 1962

TO MY PARTNERS FOR 1963:

Here we go on the annual paper flurry. Two copies of an amended partnership agreement for 1963 are enclosed. The one with the General Provisions attached is to be kept by you and the other single-page agreement should be returned. There are no substantive changes of any sort from last year's agreement. This amendment is merely to allow for a few new partners and in several places to reword in clearer (we hope) language provisions of the present agreement. Practically all of the rewording is in General Provision 5 (paragraph 7 in last year's agreement). Rather than have a separate amending document, we have incorporated the changes into one complete document embodying the entire agreement.

We are also enclosing two commitment letters (one for you--one to be returned) on which you are to indicate your wishes regarding additions or withdrawals at January 1st. We would like to have the agreement and the commitment letter back by December 1st. However, the commitment letter can be amended right up until the end of the year (not after) so if you should have a change of plans and you have already mailed us your commitment letter, all you have to do is get in touch with me, and I will make whatever changes you desire.

Any withdrawals will be paid immediately after January 1st. Any additions must reach us by January 10th, and should they be paid in during November, they will take on the status of advance payments and draw interest at the rate of 6% until yearend.

Please be sure the signature on your partnership agreement is notarized. Partners in Omaha may obtain the notarization at our office if they wish. Also, be sure to let us know by an appropriate circle on the commitment letter whether you wish to receive monthly payments in 1963. In order to be sure everyone understands this, let me again state that these monthly payments are in no sense guaranteed earnings or anything of the sort. They represent a convenient form of regular withdrawal, which to the extent we earn better than 6% are payments from earnings, and to the extent we don't, are payments from capital.

Complete tax information for your 1962 return will be in your hands by January 20th. If you should need an estimate of your tax position before that time, let me know and I will give you a rough idea. We will also send out a short letter on taxes in late December.

Having read this far, you are entitled to a report on how we have done to date in 1962. For the period ending October 31st, the Dow-Jones Industrials showed an overall loss, including dividends received, of approximately 16.8%. We intend to use the same method or valuing our controlling interest in Dempster Mill Manufacturing at this yearend that we did at the end of last year. This involved applying various discounts to the balance sheet items to reflect my opinion as to what could be realized on a very prompt sale. Last year this involved a 40% discount on inventories, a 15% discount on receivables, estimated auction value of fixed assets, etc., which led to an approximate value or \$35.00 per share.

The successful conversion of substantial portions of the assets of Dempster to cash, at virtually 100 cents on the dollar, has been the high point of 1962. For example, inventory of \$4.2 million at last yearend will probably be about \$1.9 million this yearend, reducing the discount on this item by about \$920,000 (40% of \$2.3 million reduction). I will give this story my full journalistic treatment in my annual letter. Suffice to say at this point that applying the same discounts described above will probably result in a yearend value of at least \$50.00 per share. The extent of the asset conversion job can perhaps best be illustrated in a sentence by pointing out that whereas we had \$166,000 of cash and \$2,315,000 of liabilities at November 30, 1961 (Dempster fiscal yearend), we expect this year to have about \$1 million in cash and investments (of the type the Partnership buys) against total liabilities of \$250,000. Prospects for further improvement in this situation in 1963 appear good, and we expect a substantially expanded investment portfolio in Dempster next year.

Valuing Dempster at \$50 per share, our overall gain (before any payments to partners) to October 31st for the Partnership has been 5.5%. This 22.3 percentage-points advantage over the Dow, if maintained until the end of the year, will be among the largest we have ever had. About 60% of this advantage was accomplished by the portfolio other than Dempster, and 40% was the result of increased value at Dempster.

I want all partners and prospective partners to realize the results described above are distinctly abnormal and will recur infrequently, if at all. This performance is mainly the result of having a large portion of our money in controlled assets and workout situations rather than general market situations at a time when the Dow declined substantially. If the Dow had advanced materially in 1962, we could have looked very bad on a relative basis, and our success to date in 1962 certainly does not reflect any ability on my part to guess the market (I never try), but merely reflects the fact that the high prices of generals partially forced me into other categories or investment. If the Dow had continued to soar, we would have been low man on the totem pole. We fully expect to have years when our method of operation will not even match the results of the Dow, although obviously I don't expect this on any long-term basis or I would throw in the towel and buy the Dow.

I’ll cut this sermon short with the conclusion that I certainly do not want anyone to think that the pattern of the last few years is likely to be repeated; I expect future performance to reflect much smaller advantages on average over the Dow.

Each letter ends with the request that you let me know about anything that isn't clear. Please be sure that you do this. We are all geared up with secretarial help, a new typewriter, etc., and we want to be sure that this letter and agreement are understood by all.

Cordially,

Warren E. Buffett

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P/S: There are no prizes for being the last ones to get in the agreement and commitment letter, so please get to it as soon as possible. Remember the commitment letter can be amended by a postcard or a phone call--we are just trying to get the bulk of the work out of the way well before December 31st so we can concentrate on getting the audit, tax information, etc., out pronto at yearend.

BUFFETT PARTNERSHIP, LTD. 810 KIEWIT PLAZA OMAHA 31, NEBRASKA

1962年11月1日

致1963年的合伙人：

又到了一年一度的文件轰炸季。随信附上两份修订后的1963年合伙协议。附有总则的那份由您留存，另一份单页协议请寄回。相比去年的协议，没有任何实质性的变动。这份修订只是为了接纳几位新的合伙人，并在几处用更清晰（希望如此）的措辞重述了现行协议中的条款。几乎所有重写的内容都在总则第5条（去年协议的第7段）。我们没有单独起草一份修订文件，而是将所有改动整合成一份完整的协议文件。

我们还附上了两份承诺函（一份您留存，一份请寄回），请在上面注明您在1月1日增资或撤资的意愿。我们希望您在12月1日前寄回协议和承诺函。不过，承诺函可以在年底之前（但不包括之后）随时修改，所以如果您计划有变，而您已经寄出了承诺函，只需联系我，我会按您的意愿做任何修改。

任何撤资将在1月1日后立即支付。任何增资必须在1月10日前到账；如果是在11月内支付的，将被视为预付款，并按6%的利率计息至年底。

请确保您的合伙协议签名已经过公证。奥马哈的合伙人可来我们办公室办理公证。另外，请在承诺函上相应圆圈处注明您是否希望在1963年按月领取款项。为确保每个人都理解这一点，我再说一遍：这些月度款项绝非保底收益或类似性质。它们只是一种方便的定期提取方式——如果我们赚到了超过6%的收益，这些钱就来自收益；如果没赚到，就来自本金。

您1962年报税所需的完整税务信息将在1月20日前送达您手中。如果您在此之前需要预估纳税情况，请告诉我，我会给您一个大概数字。我们还会在12月底寄出一封简短的税务说明信。

读到这里的各位，有权了解一下我们在1962年迄今为止的表现。截至10月31日，道指（含股息）整体下跌约16.8%。我们打算采用与去年年末相同的方法来评估我们对登普斯特磨坊制造公司（Dempster Mill Manufacturing）的控制权价值。该方法是对资产负债表各项目应用各种折价，以反映我个人对迅速变现时能收回多少钱的判断。去年对存货折价40%、应收账款折价15%、固定资产按拍卖估值等，结果得出每股约35美元的价值。

1962年的一大亮点是，我们成功地将登普斯特的大量资产以几乎100%的面值转换成了现金。例如，去年年末420万美元的存货，今年年末可能降至约190万美元，仅这一项的折价就减少了约92万美元（40% × 230万美元的减少额）。我会在年度信中详细讲述这个故事。目前只需说，应用上述相同的折价，今年年末的每股价值很可能至少达到50美元。资产转换工作的程度，也许可以用一句话来概括：1961年11月30日（登普斯特财年结束日），我们仅有16.6万美元现金和231.5万美元负债；而今年，我们预计将有约100万美元现金及投资（合伙企业投资的那类），而总负债仅为25万美元。1963年这一局面进一步改善的前景看好，我们预计明年登普斯特的投资组合将大幅扩张。

按每股50美元估值登普斯特，截至10月31日，合伙企业整体收益（未扣除任何合伙人分配）为5.5%。这一成绩领先道指22.3个百分点，如果保持到年底，将是我们有史以来最大的领先幅度之一。其中约60%的领先来自登普斯特以外的投资组合，40%来自登普斯特价值的提升。

我希望所有合伙人和潜在合伙人都明白，上述结果明显异常，将来即使再出现，也极为罕见。这一表现主要得益于我们在道指大幅下跌期间，将大部分资金投入了控制类资产和套利类投资，而非一般市场投资。如果1962年道指大幅上涨，我们在相对收益上可能会非常难看；而我至今在1962年的成功，绝不反映我有任何预测市场的能力（我从不尝试），仅仅反映了低估类投资的高价迫使我部分转向了其他类别。如果道指继续飙升，我们就会是图腾柱上最底层的那个。我们完全预期未来会有那么几年，我们的运作方式连道指的表现都赶不上——尽管从长期来看，我显然不指望这样，否则我就会认输，直接去买道指了。

我这番说教就到此为止。结论是：我当然不希望任何人认为过去几年的模式还会重演；我预计未来的业绩平均来看，相比于道指的领先优势会小得多。

每封信结尾都是那句话：如果有什么不清楚的，请务必告诉我。请一定这样做。我们配备了秘书、新打字机等一切就绪，希望您能完全理解这封信和协议。

此致，

沃伦·E·巴菲特

WEB:bf

又及：最后一个寄回协议和承诺函的人没有奖品，所以请尽快处理。记住，承诺函可以通过明信片或电话修改——我们只是想在12月31日之前处理完大部分工作，这样就能专心在年底迅速完成审计、税务信息等事宜。