BUFFETT PARTNERSHIP. LTD.
610 KIEWIT PLAZA
OMAHA, NEBRASKA 68131
TELEPHONE 042-4110
July 12, 1966
First Half Performance
During the first half of 1966, the Dow-Jones Industrial Average (hereinafter called the "Dow") declined from 969.26 to 870.10. If one had owned the Dow during this period, dividends of approximately 14.70 would have been received, reducing the overall loss of the Dow to about 8.7%.
It is my objective and my hope (but not my prediction!) that we achieve over a long period of time, an average yearly advantage of ten percentage points relative to the Dow. During the first half we did considerably better than expected with an overall gain of approximately 8.2%. Such results should be regarded as decidedly abnormal. I have previously complimented partners on the good-natured tolerance they display in shrugging off such unexpected positive variances. The nature of our business is such that over the years, we will not disappoint the many of you who must also desire a test of your capacity for tolerance of negative variances.
The following summarizes the year-by-year performance of the Dow, the performance of the Partnership before allocation to the general partner, and the results for limited partners:
| 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% |
| 1965 | 14.2% | 47.2% | 36.9% |
| First half of 1966 | -8.7% | 8.2% | 7.7% |
| Cumulative Results | 141.1% | 1028.7% | 641.5% |
| Annual Compounded Rate | 9.7% | 29.0% | 23.5% |
- 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.
- 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.
- 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.
Even Samson gets clipped occasionally. If you had invested \$100.000 on January 1 equally among -
a. the world's largest auto company (General Motors);
b. the world's largest oil company (Standard of New Jersey);
c. the world's largest retailing company (Sears Roebuck);
d. the world's largest chemical company (Dupont);
e. the world's largest steel company (U.S. Steel);
f. the world's largest stockholder-owned insurance company (Aetna);
g. the world’s largest public utility (American Telephone & Telegraph);
h. the world's largest bank (Bank of America);
your total portfolio (including dividends received) would have been worth \$83,370 on June 30 for a loss of 16.6%. The total market value on January 1 of these eight giants was well over \$100 billion. Everyone of them was selling lower on June 30.
Investment Companies
On the next page we bring up to date our regular comparison with the results of 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 closed-end investment companies.
YEARLY RESULTS
| 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% | 18.3% | 20.6% | 30.5% |
| 1964 | 15.9% | 14.3% | 13.6% | 12.6% | 18.7% | 22.3% |
| 1965 | 10.2% | 9.8% | 19.0% | 10.7% | 14.2% | 36.9% |
| First half 1966 | -7.9% | -7.9% | -1.0% | -5.2% | -8.7% | 7.7% |
| Cumulative Results | 118.1% | 106.3% | 142.8% | 126.9% | 141.1% | 641.5% |
| Annual Compounded Rate | 8.6% | 7.9% | 9.8% | 9.0% | 9.7% | 23.5% |
(1) Computed from changes in asset value plus any distributions to holders of record during year.
(2) From 1966 Moody's Bank & Finance Manual for 1957-1965. Estimated for first half of 1966.
Proponents of institutional investing frequently cite its conservative nature. If “conservative” is interpreted to mean "productive of results varying only slightly from average experience" I believe the characterization is proper. Such results are almost bound to flow from wide diversification among high grade securities. Since, over a long period, "average experience" is likely to be good experience, there is nothing wrong with the typical investor utilizing this form of investment medium.
However, I believe that conservatism is more properly interpreted to mean "subject to substantially less temporary or permanent shrinkage in value than total experience". This simply has not been achieved, as the record of the four largest funds (presently managing over \$5 billion) illustrates. Specifically, the Dow declined in 1957, 1960, 1962 and the first half of 1966. Cumulating the shrinkage in the Dow during the three full year periods produces a decline of 20.6%. Following a similar technique for the four largest funds produces declines of 9.7%, 20.9%, 22.3% and 24.6%. Including the interim performance for the first half of 1966 results in a decline in the Dow of 27.5% and for the funds declines of 14.4%, 23.1%, 27.1% and 30.6%. Such funds (and I believe their results are quite typical of institutional experience in common stocks) seem to meet the first definition of conservatism but not the second one.
Most investors would climb a rung intellectually if they clearly delineated between the above two interpretations of conservatism. The first might be better labeled "conventionalism" - what it really says is that “when others are making money in the general run of securities, so will we and to about the same degree; when they are losing money, we'll do it at about the same rate." This is not to be equated with "when others are making it, we'll make as much and when they are losing it, we will lose less.” Very few investment programs accomplish the latter - we certainly don't promise it but we do intend to keep trying. (I have always felt our objectives should be somewhat loftier than those Herman Hickman articulated during the desperate years when Yale was losing eight games a season. Said Herman, "I see my job as one of keeping the alumni sullen but not mutinous.”)
Hochschild, Kohn & Co.
During the first half we, and two 10% partners, purchased all of the stock of Hochschild, Kohn & Co., a privately owned Baltimore department store. This is the first time in the history of the Partnership that an entire business has been purchased by negotiation, although we have, from time to time, negotiated purchase of specific important blocks of marketable securities. However, no new principles are involved. The quantitative and qualitative aspects of the business are evaluated and weighed against price, both on an absolute basis and relative to other investment opportunities. HK (learn to call it that - I didn't find out how to pronounce it until the deal was concluded) stacks up fine in all respects.
We have topnotch people (both from a personal and business standpoint) handling the operation. Despite the edge that my extensive 75 cents an hour experience at the Penney's store in Omaha some years back gives us (I became an authority on the Minimum Wage Act), they will continue to run the business as in the past. Even if the price had been cheaper but the management had been run-of-the-mill, we would not have bought the business.
It is impossible to avoid some public notice when a business with several thousand employees is acquired. However, it is important that you do not infer the degree of financial importance to BPL from its news value to the public. We have something over \$50 million invested, primarily in marketable securities, of which only about 10% is represented by our net investment in HK. We have an investment of over three times this much in a marketable security where our ownership will never come to public attention. This is not to say an HK is not important - a 10% holding definitely is. However, it is not as significant relative to our total operation as it would be easy to think. I still prefer the iceberg approach toward investment disclosure.
It is my intention to value HK at yearend at cost plus our share of retained earnings since purchase. This policy will be followed in future years unless there is a demonstrable change in our position relative to other department stores or in other objective standards of value. Naturally we wouldn't have purchased HK unless we felt the price was quite attractive. Therefore, a valuation policy based upon cost may somewhat undervalue our holdings. Nevertheless, it seems the most objective figure to apply. All of our investments usually appear undervalued to me - otherwise we wouldn't own them.
Market Forecasting
Ground Rule No.6 (from our November packet) says: “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.”
Of course, this rule can be attacked as fuzzy, complex, ambiguous, vague, etc. Nevertheless, I think the point is well understood by the great majority of our partners. We don't buy and sell stocks based upon what other people think the stock market is going to do (I never have an opinion) but rather upon what we think the company is going to do. The course of the stock market will determine, to a great degree, when we will be right, but the accuracy of our analysis of the company will largely determine whether we will be right. In other words, we tend to concentrate on what should happen, not when it should happen.
In our department store business I can say with considerable assurance that December will be better than July. (Notice how sophisticated I have already become about retailing.) What really counts is whether December is better than last December by a margin greater than our competitors' and what we are doing to set the stage for future Decembers. However, in our partnership business I not only can't say whether December will be better than July, but I can't even say that December won't produce a very large loss. It sometimes does. Our investments are simply not aware that it takes 365-1/4 days for the earth to make it around the sun. Even worse, they are not aware that your celestial orientation (and that of the IRS) requires that I report to you upon the conclusion of each orbit (the earth's - not ours). Therefore, we have to use a standard other than the calendar to measure our progress. This yardstick is obviously the general experience in securities as measured by the Dow. We have a strong feeling that this competitor will do quite decently over a period of years (Christmas will come even if it's in July) and if we keep beating our competitor we will have to do something better than "quite decently". It's something like a retailer measuring his sales gains and profit margins against Sears' - beat them every year and somehow you'll see daylight.
I resurrect this "market-guessing" section only because after the Dow declined from 995 at the peak in February to about 865 in May, I received a few calls from partners suggesting that they thought stocks were going a lot lower. This always raises two questions in my mind: (1) if they knew in February that the Dow was going to 865 in May, why didn't they let me in on it then; and, (2) if they didn't know what was going to happen during the ensuing three months back in February, how do they know in May? There is also a voice or two after any hundred point or so decline suggesting we sell and wait until the future is clearer. Let me again suggest two points: (1) the future has never been clear to me (give us a call when the next few months are obvious to you – or, for that matter the next few hours); and, (2) no one ever seems to call after the market has gone up one hundred points to focus my attention on how unclear everything is, even though the view back in February doesn't look so clear in retrospect.
If we start deciding, based on guesses or emotions, whether we will or won't participate in a business where we should have some long run edge, we're in trouble. We will not sell our interests in businesses (stocks) when they are attractively priced just because some astrologer thinks the quotations may go lower even though such forecasts are obviously going to be right some of the time. Similarly, we will not buy fully priced securities because "experts" think prices are going higher. Who would think of buying or selling a private business because of someone's guess on the stock market? The availability of a question for your business interest (stock) should always be an asset to be utilized if desired. If it gets silly enough in either direction, you take advantage of it. Its availability should never be turned into a liability whereby its periodic aberrations in turn formulate your judgments. A marvelous articulation of this idea is contained in chapter two (The Investor and Stock Market Fluctuations) of Benjamin Graham's "The Intelligent Investor". In my opinion, this chapter has more investment importance than anything else that has been written.
We will have a letter out about November 1 with the Commitment Letter for 1967 and an estimate of the 1966 tax situation.
Cordially,
Warren Buffett
WEB eh
BUFFETT PARTNERSHIP. LTD.
610 KIEWIT PLAZA
OMAHA, NEBRASKA 68131
电话 042-4110
1966年7月12日
上半年业绩
1966年上半年，道琼斯工业平均指数（以下简称"道指"）从969.26点跌至870.10点。如果在此期间持有道指，可获得约14.70点的股息，使道指的整体跌幅缩减至约8.7%。
我的目标和希望是（但这可不是预测！）在长期内，我们每年能比道指平均领先十个百分点。上半年我们的表现远超预期，整体收益约为8.2%。这样的结果绝对属于异常。我之前曾称赞过合伙人们，面对这种意料之外的正向偏差，你们展现出了豁达的容忍度。我们这个行当的性质决定了，在未来的岁月里，我们不会让那些同样渴望测试自己对负面偏差容忍能力的合伙人们失望。
以下是道指逐年表现、合伙企业分配普通合伙人前的业绩，以及有限合伙人的结果汇总：
| 年份 | 道指整体结果 (1) | 合伙企业结果 (2) | 有限合伙人结果 (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% |
| 1965 | 14.2% | 47.2% | 36.9% |
| 1966年上半年 | -8.7% | 8.2% | 7.7% |
| 累计结果 | 141.1% | 1028.7% | 641.5% |
| 年复合收益率 | 9.7% | 29.0% | 23.5% |
- 基于道指年度价值变动加上当年持有道指可获得的股息。表中包含合伙企业所有完整经营年份的数据。
- 1957-1961年为所有前身有限合伙企业在整个年度内的综合业绩，扣除所有费用后，在向合伙人分配或向普通合伙人分配之前的数值。
- 1957-1961年基于前一个"合伙企业结果"列计算，并按照现行合伙协议向普通合伙人进行分配，但在有限合伙人每月提款之前。
就连参孙（Samson）也难免有被剃头的时候。假如你在1月1日将10万美元等额投资于——
a. 全球最大的汽车公司（通用汽车 General Motors）；
b. 全球最大的石油公司（新泽西标准石油 Standard of New Jersey）；
c. 全球最大的零售公司（西尔斯罗巴克 Sears Roebuck）；
d. 全球最大的化学公司（杜邦 Dupont）；
e. 全球最大的钢铁公司（美国钢铁 U.S. Steel）；
f. 全球最大的股东持有型保险公司（安泰保险 Aetna）；
g. 全球最大的公用事业公司（美国电话电报 American Telephone & Telegraph）；
h. 全球最大的银行（美国银行 Bank of America）；
那么到6月30日，你的总投资组合（含股息）将只剩83,370美元，亏损16.6%。这八家巨头在1月1日的总市值超过1000亿美元。到了6月30日，它们每一家都跌得更低了。
投资公司
下一页是我们定期更新的对比，比较对象是两家最大的开放式投资公司（共同基金），它们通常保持95-100%投资于普通股，以及两家最大的多元化封闭式投资公司。
年度结果
| 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% | 18.3% | 20.6% | 30.5% |
| 1964 | 15.9% | 14.3% | 13.6% | 12.6% | 18.7% | 22.3% |
| 1965 | 10.2% | 9.8% | 19.0% | 10.7% | 14.2% | 36.9% |
| 1966年上半年 | -7.9% | -7.9% | -1.0% | -5.2% | -8.7% | 7.7% |
| 累计结果 | 118.1% | 106.3% | 142.8% | 126.9% | 141.1% | 641.5% |
| 年复合收益率 | 8.6% | 7.9% | 9.8% | 9.0% | 9.7% | 23.5% |
(1) 根据资产价值变动加上当年向登记持有人发放的任何分红计算。
(2) 1957-1965年数据来自1966年《穆迪银行与金融手册》。1966年上半年为估算值。
机构投资的倡导者经常吹捧其"保守"特性。如果把"保守"解释为"收益结果仅与平均经验略有偏差"，我认为这个定性是恰当的。这种结果几乎必然来自对高等级证券的广泛分散投资。由于长期来看，"平均经验"很可能是好的经验，普通投资者使用这种投资媒介并没有什么错。
但在我看来，"保守"更恰当的解释应该是"价值发生的临时或永久性萎缩，在程度上显著低于整体经验"。而这一点，四大基金（目前管理超过50亿美元）的记录表明，它们根本没有做到。具体来说，道指在1957年、1960年、1962年和1966年上半年均出现下跌。将这三个完整年度道指的跌幅累计起来，总跌幅为20.6%。用同样的方法计算四大基金，它们的跌幅分别是9.7%、20.9%、22.3%和24.6%。如果加入1966年上半年的阶段性表现，道指的累计跌幅为27.5%，而四大基金的跌幅则为14.4%、23.1%、27.1%和30.6%。这类基金（我认为它们的业绩在普通股投资中非常有代表性）似乎符合保守的第一个定义，但不符合第二个。
大多数投资者如果能把上面这两种"保守"的定义区分清楚，智力水平就能往上爬一阶。第一种可能更应该叫"随大流"——它真正说的是："别人在普通证券上赚钱的时候，我们也赚钱，幅度也差不多；别人亏钱的时候，我们也亏，幅度也差不多。"这可不能等同于"别人赚钱时我们赚得一样多，别人亏钱时我们亏得更少"。几乎没有哪个投资计划能做到后者——我们当然也不敢打包票，但我们一定会继续努力。（我一直觉得，我们的目标应该比Herman Hickman在耶鲁连输八个赛季那绝望年代里说的要崇高一点。Herman说："我的任务就是让校友们保持阴沉，但别闹到叛变。"）
Hochschild, Kohn & Co.
上半年，我们和两位持有10%股权的合伙人，收购了Hochschild, Kohn & Co.（一家私人拥有的巴尔的摩百货公司）的全部股份。这是合伙企业历史上第一次通过谈判收购一家完整的企业，尽管我们过去也曾谈判购买过某些重大可流通证券的特定大宗股份。但这并没有涉及任何新原则。我们评估企业的数量和质量因素，并结合价格进行权衡——既看绝对价格，也与其他投资机会做相对比较。HK（学会这么叫它——我是直到交易谈妥了才知道这名字怎么发音的）在所有方面都表现优异。
我们有顶尖的人才（无论在个人层面还是商业层面）来打理这家公司。尽管我多年前在奥马哈的Penney's百货店做每小时75美分的经验给了我们一些优势（我成了《最低工资法案》的权威），但他们还是会像以前一样继续经营这家企业。就算价格更便宜，但管理层平庸，我们也不会买下它。
当一家拥有几千名员工的企业被收购时，不可避免地会引起一些公众关注。但重要的是，你们不要因为这件事的新闻价值，就推断它对BPL的财务重要性。我们投资了超过5000万美元，主要是在可流通证券上，其中对HK的净投资只占大约10%。我们在某一只可流通证券上的投资规模是HK的三倍多，而且这只证券的所有权永远不会引起公众注意。这不是说HK不重要——10%的持股当然重要——但它相对于我们整体业务的重要性，不像人们容易想得那么高。我在投资披露方面，仍然更喜欢冰山的方式。
我打算在年底按成本加我们购买以来的留存收益份额来对HK进行估值。除非我们相对其他百货公司的地位发生明显变化，或者其他客观估值标准发生变化，未来几年会一直沿用这个政策。我们买HK当然是因为觉得价格相当有吸引力。因此，基于成本的估值政策可能会在一定程度上低估我们的持股。不过，这似乎是最客观的标准。在我看来，我们所有的投资通常都显得被低估——否则我们也不会持有它们。
市场预测
基本原则第六条（来自我们十一月的资料包）说："我预测不了股市整体或商业的波动。如果你觉得我能干这个，或者认为这对投资计划至关重要，那你就不该待在合伙企业里。"
当然，这条规则可以被攻击为含糊、复杂、模棱两可等等。但我相信大多数合伙人都能很好地理解这一点。我们买卖股票，不是基于别人对股市走向的看法（我从来就没有什么看法），而是基于我们对公司未来走向的判断。股市的走势，在很大程度上决定了我们什么时候是对的；但我们对公司分析的准确性，则在很大程度上决定了我们到底对不对。换句话说，我们倾向于关注"应该发生什么"，而不是"什么时候发生"。
在我们那家百货公司的生意里，我可以相当有把握地说，十二月会比七月好卖。（瞧，我对零售业已经变得多么内行了。）真正要紧的是，十二月比去年十二月好多少，这个增幅是否超过了竞争对手，以及我们正在为未来的十二月做什么铺垫。但在我们的合伙企业业务里，我不但说不准十二月会不会比七月好，我甚至不能说十二月就不会亏一大笔钱。有时候确实会亏。我们的投资根本不关心地球绕太阳一圈要花365又1/4天。更糟糕的是，它们也不关心你和国税局（IRS）的天文历法要求我在地球（不是我们）每绕完一圈时就汇报一次。所以，我们不得不用日历之外的标准来衡量我们的进展。这个标尺显然是证券市场的整体经验，也就是道指。我们有强烈的感觉，这个竞争对手在未来几年里会表现得相当不错（圣诞节总会来的，哪怕是在七月），而如果我们能持续打败这个竞争对手，那我们的表现就肯定不止是"相当不错"了。这有点像零售商用西尔斯（Sears）的销售增长和利润率来对标自己——每年都超过他们，你总能看到光明。
我重新提起这段"猜测市场"的内容，只是因为道指从二月的高点995点跌到五月的大约865点之后，我接到了几位合伙人的电话，暗示他们觉得股市还会跌很多。这总是让我脑子里冒出两个问题：（1）如果他们二月份就知道道指五月会跌到865点，为什么当时不告诉我？（2）如果二月份他们不知道接下来三个月会发生什么，那五月份他们又是怎么知道的？每次指数跌个一百点左右，也总有一两个人建议我们卖出，等未来更明朗了再说。让我再次提出两点：（1）未来对我来说从来就没有明朗过（等你对接下来几个月——甚至接下来几个小时——看得一清二楚时，记得给我打个电话）；（2）股市涨了一百点之后，似乎从来没人打电话来提醒我，说一切其实都不明朗——尽管回过头看，二月份的景象也一点不算明朗。
如果我们开始基于猜测或情绪来决定是否参与一个我们本应有长期优势的生意，那我们就麻烦了。我们不会因为某个占星家认为股价可能会继续下跌，就卖掉我们在那些价格有吸引力的企业（股票）中的权益——尽管这种预测有时显然是对的。同样，我们也不会因为"专家"觉得股价还会涨，就去买那些价格已充分反映价值的证券。谁会因为有人对股市的猜测，就去买或卖一家私人企业呢？你的企业权益（股票）随时可以变现，这本来是一件可以按需使用的资产。如果市场价格变得足够愚蠢（不管是涨还是跌），你就利用它。它的存在绝不应该变成一种负债，让你因为它周期性的反常波动来左右你的判断。本杰明·格雷厄姆（Benjamin Graham）的《聪明的投资者》（The Intelligent Investor）第二章（投资者与股市波动）对这一点阐述得精彩至极。在我看来，这一章的重要性超过了其他任何关于投资的作品。
我们将在11月1日左右发一封信，附上1967年的承诺函以及对1966年税务情况的估算。
此致，
Warren Buffett
WEB eh