BUFFETT PARTNERSHIP, LTD. 810 KIEWIT PLAZA OMAHA 31, NEBRASKA
July 9, 1965
Warren E. Buffett, General Partner
William Scott
John M. Harding
First Half Performance:
During the first half of 1965, the Dow Jones Industrial Average (hereinafter call the “Dow”) declined from 874.13 to 868.03. This minor change was accomplished in a decidedly non-Euclidian manner. The Dow instead took the scenic route, reaching a high of 939.62 on May 14th. Adding back dividends on the Dow of 13.49 gives an overall gain through ownership of the Dow for the first half of 7.39 or 0.8%.
We had one of our better periods with an overall gain, before allocation to the general partner, of 10.4% or a 9.6 percentage point advantage over the Dow. To bring the record up to date, the following summarizes the year-byyear performance of the Dow, the performance of the Partnership before allocation to the general partner, and the limited partners’ results:
| Year | Overall Results From Dow (1) | Partnership Results (2) | Limited Partners’ Results (3) |
| 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% |
| 1963 | 20.6% | 38.7% | 30.5% |
| 1964 | 18.7% | 27.8% | 22.3% |
| $1^{st}$ half 1965 | 0.8% | 10.4% | 9.3% |
| Cumulative results | 133.2% | 682.4% | 449.7% |
| Annual compounded rate | 10.5% | 27.4% | 22.2% |
(1) Based on yearly changes in the value of the Dow plus dividends that would have been received through ownership of the Dow during that year. The table includes all complete years of partnership activity.
(2) For 1957-61 consists of combined results of all predecessor limited partnerships operating throughout the entire year after all expenses but before distributions to partners or allocations to the general partner.
(3) For 1957-61 computed on the basis of the preceding column of partnership results allowing for allocation to the general partner based upon the present partnership agreement, but before monthly withdrawals by limited partners.
Our constant admonitions have been: (1) that short-term results (less than three years) have little meaning, particularly in reference to an investment operation such as ours that may devote a portion of resources to control situations; and, (2) that our results, relative to the Dow and other common-stock-form media usually will be better in declining markets and may well have a difficult time just matching such media in very strong
markets.
With the latter point in mind, it might be imagined that we struggled during the first four months of the half to stay even with the Dow and then opened up our margin as it declined in May and June. Just the opposite occurred. We actually achieved a wide margin during the upswing and then fell at a rate fully equal to the Dow during the market decline.
I don’t mention this because I am proud of such performance – on the contrary, I would prefer it if we had achieved our gain in the hypothesized manner. Rather, I mention it for two reasons: (1) you are always entitled to know when I am wrong as well as right; and, (2) it demonstrates that although we deal with probabilities and expectations, the actual results can deviate substantially from such expectations, particularly on a short-term basis. As mentioned in the most recent annual letter, our long-term goal is to achieve a ten percentage point per annum advantage over the Dow. Our advantage of 9.6 points achieved during the first six months must be regarded as substantially above average. The fortitude demonstrated by our partners in tolerating such favorable variations is commendable. We shall most certainly encounter periods when the variations are in the other direction.
During the first half, a series of purchases resulted in the acquisition of a controlling interest in one of the situations described in the “General Private Owner” section of the last annual letter. When such a controlling interest is acquired, the assets and earning power of the business become the immediate predominant factors in value. When a small minority interest in a company is held, earning power and assets are, of course, very important, but they represent an indirect influence on value which, in the short run, may or may not dominate the factors bearing on supply and demand which result in price.
When a controlling interest is held, we own a business rather then a stock, and a business valuation is appropriate. We have carried our controlling position at a conservative valuation at midyear and will reevaluate it in terms of assets and earning power at yearend. The annual letter, issued in January, 1966, will carry a full story on this current control situation. At this time it is enough to say that we are delighted with both the acquisition cost and the business operation, and even happier about the people we have managing the business.
Investment Companies:
We regularly compare our results with the two largest open-end investment companies (mutual funds) that follow a policy of being, typically, 95-100% invested in common stocks, 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 \$4 billion and are probably typical of most of the \$30 billion investment company industry. Their results are shown in the following table. My opinion is that this performance roughly parallels that of the overwhelming majority of other investment advisory organizations which handle, in aggregate, vastly greater sums.
| 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 | -14.4 | -10.0 | -7.6 | 11.9 |
| 1963 | 20.0 | 16.5 | 23.7 | 18.7 | 20.6 | 30.5 |
| 1964 | 15.9 | 14.3 | 14.0 | 13.6 | 18.7 | 22.3 |
| $1^{st}$ half 1965 | 0.0 | -0.6 | 2.7 | 0.0 | 0.8 | 9.3 |
| Cumulative Results | 114.9 | 102.8 | 111.7 | 115.4 | 133.2 | 449.7 |
| Annual Compounded Rate | 9.4 | 8.7 | 9.2 | 9.5 | 10.5 | 22.2 |
(1) Computed from changes in asset value plus any distributions to holders of record during year.
(2) From 1965 Moody’s Bank & Finance Manual for 1957-64. Estimated for first half 1965.
Last year I mentioned that the performance of these companies in some ways resembles the activity of a duck sitting on a pond. When the water (the market) rises, the duck rises; when if falls, back goes the duck. The water level was virtually unchanged during the first half of 1965. The ducks, as you can see from the table, are still sitting on the pond.
As I mentioned earlier in the letter, the ebb of the tide in May and June also substantially affected us. Nevertheless, the fact we had flapped our wings a few times in the preceding four months enabled us to gain a little altitude on the rest of the flock. Utilizing a somewhat more restrained lexicon, James H. Lorie, director of the University of Chicago’s Center for Research in Security Prices was quoted in the May 25, 1965, WALL STREET JOURNAL as saying: “There is no evidence that mutual funds select stocks better than by the random method.”
Of course, the beauty of the American economic scene has been that random results have been pretty darned good results. The water level has been rising. In our opinion, the probabilities are that over a long period of time, it will continue to rise, though, certainly not without important interruptions. It will be our policy, however, to endeavor to swim strongly, with or against the tide. If our performance declines to a level you can achieve by floating on your back, we will turn in our suits.
Advance Payments and Advance Withdrawals:
We accept advance payments from partners and prospective partners at 6% interest from date of receipt until the end of the year. While there is no obligation to convert such advance payments to a partnership interest at the end of the year, this should be the intent at the time it is paid to us.
Similarly, we allow partners to withdraw up to 20% of their partnership account prior to yearend and charge them 6% from date of withdrawal until yearend when it is charged against their capital account. Again, it is not intended that partners use us like a bank, but that they use the withdrawal right for a truly unexpected need for funds. Predictable needs for funds such as quarterly federal tax payments should be handled by a beginning-ofthe-year reduction in capital rather than through advance withdrawals from B.P.L. during the year. The withdrawal privilege is to provide for the unanticipated.
The willingness to borrow (through advance payments) and lend (through advance withdrawals) at the same 6% rate may sound downright “un-Buffettlike”. (You can be sure it doesn’t start my adrenaline flowing.) Certainly such a no-spread arbitrage is devoid of the commercial overtones an observer might impute to the preponderance of our transactions. Nevertheless, we think it makes sense and is in the best interest of all partners.
The partner who has a large investment in indirect ownership of a group of liquid assets should have some liquidity present in his partnership interest other than at yearend. As a practical matter, we are reasonably certain that advance withdrawals will be far more than covered by advance payments. For example, on June 30, 1965, we had \$98,851 of advance withdrawals and \$652,931 of advance payments.
Why then the willingness to pay 6% for the net of advance payments over advance withdrawals when we can borrow from commercial banks at substantially lower rates? The answer is that we expect on a long-term basis to earn better than 6% (the general partner’s allocation is zero unless we do) although it is largely a matter of chance whether we achieve the 6% figure in any short period. Moreover, I can adopt a different attitude regarding the investment of money that can be expected to soon be a part of our equity capital than I can on short-term borrowed money. The advance payments have the added advantage to us of spreading the investment of new money over the year, rather than having it hit us all at once in January. On the other hand, 6% is more than can be obtained in short-term dollar secure investments by our partners, so I consider it mutually profitable.
Miscellaneous:
The bold expansion program to 909 ¼ square feet described in the annual letter was carried off without a hitch (the Pepsi’s never even got warm).
John Harding joined us in April and is continuing the record whereby all the actions in the personnel field have been winning ones.
As in past years, we will have a letter out about November 1st (to partners and those who have indicated an interest to me by that time in becoming partners) with the commitment letter for 1966, estimate of the 1965 tax situation, etc.
Cordially,
Warren E. Buffett
BUFFETT PARTNERSHIP, LTD. 810 KIEWIT PLAZA OMAHA 31, NEBRASKA
1965年7月9日
Warren E. Buffett，普通合伙人
William Scott
John M. Harding
上半年业绩：
1965年上半年，道琼斯工业平均指数（以下简称“道指”）从874.13点下跌至868.03点。这微小的变化是以一种明显非欧几里得的方式完成的。道指反而走了条风景线，5月14日达到高点939.62点。加上道指13.49点的股息，上半年持有道指的总收益为7.39点，即0.8%。
我们经历了较好的时期之一，整体收益（在分配给普通合伙人之前）为10.4%，即领先道指9.6个百分点。为更新记录，以下汇总了道指历年表现、合伙企业分配前表现以及有限合伙人的业绩：
| 年份 | 道指总业绩 (1) | 合伙企业业绩 (2) | 有限合伙人业绩 (3) |
| 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% |
| 1963 | 20.6% | 38.7% | 30.5% |
| 1964 | 18.7% | 27.8% | 22.3% |
| $1^{st}$ 半年 1965 | 0.8% | 10.4% | 9.3% |
| 累计业绩 | 133.2% | 682.4% | 449.7% |
| 年复合增长率 | 10.5% | 27.4% | 22.2% |
(1) 基于道指年度价值变动加上当年持有道指所能获得的股息。该表包含合伙企业所有完整运营年份。
(2) 1957-1961年由所有前身有限合伙企业全年综合业绩构成，扣除所有费用后、但在向合伙人分配或向普通合伙人分配之前。
(3) 1957-1961年基于前一栏合伙企业业绩计算，根据现行合伙协议扣除向普通合伙人的分配，但在有限合伙人每月提款之前。
我们一贯的告诫是：(1)短期结果（低于三年）意义不大，尤其对于像我们这样可能将部分资源投入控制类投资的投资操作而言；以及(2)我们的业绩相对于道指和其他普通股投资媒介，通常在下跌市场中表现更好，而在非常强劲的市场中可能很难跑平这类媒介。
考虑到后一点，你可能会以为我们在上半年头四个月里勉强跟上道指，然后在5月、6月市场下跌时才拉开差距。实际情况恰恰相反。我们实际上是在上涨阶段大幅拉开差距，然后在市场下跌时，我们的下跌速度与道指完全相当。
我提这个并非因为我对这样的表现感到骄傲——相反，我宁愿我们是以假设的方式取得收益的。我提这个有两个原因：(1)你永远有权知道我对的时候，也有权知道我错的时候；(2)它证明了尽管我们处理的是概率和预期，实际结果可能大幅偏离这些预期，尤其在短期。正如最近年度信中所提到的，我们的长期目标是每年超越道指十个百分点。我们在头六个月取得的9.6个百分点优势必须被视为大幅高于平均水平。我们的合伙人展现出了容忍这种有利偏差的毅力，值得称赞。未来我们肯定会遇到偏差相反方向的时期。
上半年，一系列买入使得我们获得了去年年度信中“普通私人所有者”部分所述某一标的的控制权。当取得控制权时，企业的资产和盈利能力成为价值中直接的主导因素。当持有公司少数权益时，盈利能力和资产当然非常重要，但它们对价值的影响是间接的，在短期内，可能或可能不支配那些影响价格、有关供求的因素。
当持有控制权时，我们拥有的是企业而不是股票，应当采用企业估值。我们在年中以保守估值计量了我们的控制头寸，并将在年底根据资产和盈利能力重新评估。1966年1月发布的年度信将全面介绍这个当前的控制类投资情况。目前只需说我们对收购成本和业务运营都感到满意，并且对管理该企业的人更加满意。
投资公司：
我们定期将自己的业绩与两家最大的开放型投资公司（共同基金）以及两家最大的多元化封闭型投资公司进行比较，这些公司通常采取95%-100%投资于普通股的政策。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.（三洲公司）和Lehman Corp.（雷曼公司）——管理超过40亿美元，可能代表了300亿美元投资公司行业中的典型。它们的业绩如下表所示。我的意见是，这一表现大致与绝大多数其他投资咨询机构（管理总金额大得多）的表现相当。
| 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 | -14.4 | -10.0 | -7.6 | 11.9 |
| 1963 | 20.0 | 16.5 | 23.7 | 18.7 | 20.6 | 30.5 |
| 1964 | 15.9 | 14.3 | 14.0 | 13.6 | 18.7 | 22.3 |
| $1^{st}$ 半年1965 | 0.0 | -0.6 | 2.7 | 0.0 | 0.8 | 9.3 |
| 累计业绩 | 114.9 | 102.8 | 111.7 | 115.4 | 133.2 | 449.7 |
| 年复合增长率 | 9.4 | 8.7 | 9.2 | 9.5 | 10.5 | 22.2 |
(1) 根据资产价值变动加上当年向记录持有者的任何分配计算。
(2) 1957-1964年来自1965年穆迪银行与金融手册。1965年上半年为估计值。
去年我提到，这些公司的表现某种程度上类似于池塘上的鸭子。当水位（市场）上升，鸭子上升；水位下降，鸭子也下降。1965年上半年水位几乎没有变化。从表中可以看出，鸭子们仍然坐在池塘上。
正如我在这封信前面提到的，5月和6月的退潮也对我们产生了显著影响。不过，我们在前四个月里拍了几下翅膀，使我们在鸭群中稍微飞高了一些。用稍微克制一点的措辞来说，芝加哥大学证券价格研究中心主任James H. Lorie在1965年5月25日的《华尔街日报》上被引述说：“没有证据表明共同基金选股优于随机方法。”
当然，美国经济景象的美妙之处在于，随机结果已经相当不错了。水位一直在上涨。我们相信，从长期来看，水位很可能继续上涨，尽管肯定会有重大中断。但我们的政策是，无论潮起潮落，都要努力游得有力。如果我们的表现下降到你可以靠仰泳就能达到的水平，我们就交上泳衣。
预付款和预提款：
我们接受合伙人和准合伙人的预付款，从收到之日起到年底按6%计息。虽然年底没有义务将这些预付款转为合伙企业权益，但在付款给我们时应有此意图。
同样，我们允许合伙人在年底前提取其合伙账户最多20%的金额，并从提取之日起到年底按6%收取利息，届时从资本账户中扣除。同样，并非让合伙人把我们当银行用，而是让他们在真正意外需要资金时使用提款权。可预见的资金需求，如每季度的联邦税款，应通过年初减少资本来处理，而不是在年内通过B.P.L.的预提款。提款特权是为不可预见的情况准备的。
愿意以同样的6%利率借款（通过预付款）和贷款（通过预提款），听起来可能完全“非巴菲特风格”。（你可以肯定这不会让我的肾上腺素流动起来。）当然，这种无息差的套利缺乏观察者可能会归因于我们绝大多数交易的商业色彩。尽管如此，我们认为这很合理，符合所有合伙人的最佳利益。
对一组流动资产拥有间接所有权的合伙人，其合伙权益应当有一定的流动性，而不仅仅是年底。实际上，我们相当确定预提款将远远被预付款覆盖。例如，1965年6月30日，我们有98,851美元的预提款和652,931美元的预付款。
那么，当我们能以大大低于6%的利率从商业银行借款时，为什么愿意为预付款超过预提款的净额支付6%？答案是，我们预期长期来看能赚到高于6%的收益（除非我们做到，否则普通合伙人的分配为零），尽管在任何短期内能否达到6%很大程度上是运气问题。此外，对于预期即将成为我们股权资本一部分的资金，我可以用不同于短期借款资金的态度来对待其投资。预付款对我们还有一个好处，就是使新资金的投入分散在整个年度，而不是在1月份一次性涌来。另一方面，对于我们的合伙人来说，6%的收益高于他们能从短期美元安全投资中获得的收益，因此我认为这是互利共赢的。
杂项：
年度信中描述的大胆扩张计划——扩大到909¼平方英尺——顺利进行（百事可乐甚至从未变热）。
John Harding在4月份加入我们，延续了人事领域所有动作都是赢家的记录。
和往年一样，我们将在11月1日左右发出一封信（给合伙人以及届时已向我表示有兴趣成为合伙人的人），内容包括1966年的承诺书、1965年税务情况预估等。
此致，
Warren E. Buffett