BUFFETT PARTNERSHIP. LTD.610 KIEWIT PLAZAOMAHA, NEBRASKA 68131TELEPHONE 042-4110
October 9, 1967
To My Partners:
Over the past eleven years, I have consistently set forth as the BPL investment goal an average advantage in our performance of ten percentage points per annum in comparison with the Dow Jones Industrial Average. Under the environment that existed during that period. I have considered such an objective difficult but obtainable.
The following conditions now make a change in yardsticks appropriate:
- The market environment has changed progressively over the past decade, resulting in a sharp diminution in the number of obvious quantitatively based investment bargains available;
- Mushrooming interest in investment performance (which has its ironical aspects since I was among a lonely few preaching the importance of this some years ago) has created a hyper-reactive pattern of market behavior against which my analytical techniques have limited value;
- The enlargement of our capital base to about \$65 million when applied against a diminishing trickle of good investment ideas has continued to present the problems mentioned in the January, 1967 letter; and
- My own personal interests dictate a less compulsive approach to superior investment results than when I was younger and leaner.
Let's look at each of these factors in more detail.
The evaluation of securities and businesses for investment purposes has always involved a mixture of qualitative and quantitative factors. At the one extreme, the analyst exclusively oriented to qualitative factors would say. "Buy the right company (with the right prospects, inherent industry conditions, management, etc.) and the price will take care of itself.” On the other hand, the quantitative spokesman would say, “Buy at the right price and the company (and stock) will take care of itself.” As is so often the pleasant result in the securities world, money can be made with either approach. And, of course, any analyst combines the two to some extent - his classification in either school would depend on the relative weight he assigns to the various factors and not to his consideration of one group of factors to the exclusion of the other group.
Interestingly enough, although I consider myself to be primarily in the quantitative school (and as I write this no one has come back from recess - I may be the only one left in the class), the really sensational ideas I have had over the years have been heavily weighted toward the qualitative side where I have had a "high-probability insight". This is what causes the cash register to really sing. However, it is an infrequent occurrence, as insights usually are, and, of course, no insight is required on the quantitative side - the figures should hit you over the head with a baseball bat. So the really big money tends to be made by investors who are right on qualitative decisions but, at least in my opinion, the more sure money tends to be made on the obvious quantitative decisions.
Such statistical bargains have tended to disappear over the years. This may be due to the constant combing and recombing of investments that has occurred during the past twenty years, without an economic convulsion such as that of the ‘30s to create a negative bias toward equities and spawn hundreds of new bargain securities. It may be due to the new growing social acceptance, and therefore usage (or maybe it's vice versa - I'll let the behaviorists figure it out) of takeover bids which have a natural tendency to focus on bargain issues. It may be due to the exploding ranks of security analysts bringing forth an intensified scrutiny of issues far beyond what existed some years ago. Whatever the cause, the result has been the virtual disappearance of the bargain issue as determined quantitatively - and thereby of our bread and butter. There still may be a few from time to time. There will also be the occasional security where I am really competent to make an important qualitative judgment. This will offer our best chance for large profits. Such instances will. however, be rare. Much of our good performance during the past three years has been due to a single idea of this sort.
The next point of difficulty is the intensified interest in investment performance. For years I have preached the importance of measurement. Consistently I have told partners that unless our performance was better than average, the money should go elsewhere. In recent years this idea has gained momentum throughout the investment (or more importantly, the investing) community. In the last year or two it has started to look a bit like a tidal wave. I think we are witnessing the distortion of a sound idea.
I have always cautioned partners that I considered three years a minimum in determining whether we were "performing". Naturally, as the investment public has taken the bit in its teeth, the time span of expectations has been consistently reduced to the point where investment performance by large aggregates of money is being measured yearly, quarterly, monthly, and perhaps sometimes even more frequently (leading to what is known as "instant research"). The payoff for superior short term performance has become enormous, not only in compensation for results actually achieved, but in the attraction of new money for the next round. Thus a self-generating type of activity has set in which leads to larger and larger amounts of money participating on a shorter and shorter time span. A disturbing corollary is that the vehicle for participation (the particular companies or stocks) becomes progressively less important - at times virtually incidental - as the activity accelerates.
In my opinion what is resulting is speculation on an increasing scale. This is hardly a new phenomenon; however, a dimension has been added by the growing ranks of professional (in many cases formerly quite docile) investors who feel they must “get aboard”. The game is dignified, of course, by appropriate ceremonies, personages and lexicon. To date it has been highly profitable. It may also be that this is going to be the standard nature of the market in the future. Nevertheless, it is an activity at which I am sure I would not do particularly well. As I said on page five of my last annual letter,
"Furthermore, we will not follow the frequently prevalent approach of investing in securities where an attempt to anticipate market action overrides business valuations. Such so-called 'fashion' investing has frequently produced very substantial and quick profits in recent years (and currently as I write this in January). It represents an investment technique whose soundness I can neither affirm nor deny. It does not completely satisfy my intellect (or perhaps my prejudices), and most definitely does not fit my temperament. I will not invest my own money based upon such an approach – hence, I will most certainly not do so with your money.”
Any form of hyper-activity with large amounts of money in securities markets can create problems for all participants. I make no attempt to guess the action of the stock market and haven't the foggiest notion as to whether the Dow will be at 600, 900 or 1200 a year from now. Even if there are serious consequences resulting from present and future speculative activity, experience suggests estimates of timing are meaningless. However, I do believe certain conditions that now exist are likely to make activity in markets more difficult for us for the intermediate future.
The above may simply be "old-fogeyism" (after all, I am 37). When the game is no longer being played your way, it is only human to say the new approach is all wrong, bound to lead to trouble, etc. I have been scornful of such behavior by others in the past. I have also seen the penalties incurred by those who evaluate conditions as they were - not as they are. Essentially I am out of step with present conditions. On one point, however, I am clear. I will not abandon a previous approach whose logic I understand (although I find it difficult to apply) even though it may mean foregoing large and apparently easy, profits to embrace an approach which I don’t fully understand, have not practiced successfully and which, possibly, could lead to substantial permanent loss of capital.
The third point of difficulty involves our much greater base of capital. For years my investment ideas were anywhere from 110% to 1000% of our capital. It was difficult for me to conceive that a different condition could ever exist. I promised to tell partners when it did and in my January, 1967 letter had to make good on that promise. Largely because of the two conditions previously mentioned, our greater capital is now something of a drag on performance. I believe it is the least significant factor of the four mentioned, and that if we were operating with one-tenth of our present capital our performance would be little better. However, increased funds are presently a moderately negative factor.
The final, and most important, consideration concerns personal motivation. When I started the partnership I set the motor that regulated the treadmill at "ten points better than the DOW". I was younger, poorer and probably more competitive. Even without the three previously discussed external factors making for poorer performance. I would still feel that changed personal conditions make it advisable to reduce the speed of the treadmill. I have observed many cases of habit patterns in all activities of life, particularly business, continuing (and becoming accentuated as years pass) long after they ceased making sense. Bertrand Russell has related the story of two Lithuanian girls who lived at his manor subsequent to World War I. Regularly each evening after the house was dark, they would sneak out and steal vegetables from the neighbors for hoarding in their rooms; this despite the fact that food was bountiful at the Russell table. Lord Russell explained to the girls that while such behavior may have made a great deal of sense in Lithuania during the war, it was somewhat out of place in the English countryside. He received assenting nods and continued stealing.
He finally contented himself with the observation that their behavior, strange as it might seem to the neighbors, was really not so different from that of the elder Rockefeller.
Elementary self-analysis tells me that I will not be capable of less than all-out effort to achieve a publicly proclaimed goal to people who have entrusted their capital to me. All-out effort makes progressively less sense. I would like to have an economic goal which allows for considerable non-economic activity. This may mean activity outside the field of investments or it simply may mean pursuing lines within the investment field that do not promise the greatest economic reward. An example of the latter might be the continued investment in a satisfactory (but far from spectacular) controlled business where I liked the people and the nature of the business even though alternative investments offered an expectable higher rate of return. More money would be made buying businesses at attractive prices, then reselling them. However, it may be more enjoyable (particularly when the personal value of incremental capital is less) to continue to own them and hopefully improve their performance, usually in a minor way, through some decisions involving financial strategy.
Thus, I am likely to limit myself to things which are reasonably easy, safe, profitable and pleasant. This will not make our operation more conservative than in the past since I believe, undoubtedly with some bias, that we have always operated with considerable conservatism. The long-term downside risk will not be less; the upside potential will merely be less.
Specifically, our longer term goal will be to achieve the lesser of 9% per annum or a five percentage point advantage over the Dow. Thus, if the Dow averages -2% over the next five years, I would hope to average +3% but if the Dow averages +12%, I will hope to achieve an average of only +9%. These may be limited objectives, but I consider it no more likely that we will achieve even these more modest results under present conditions than I formerly did that we would achieve our previous goal of a ten percentage point average annual edge over the Dow. Furthermore, I hope limited objectives will make for more limited effort (I'm quite sure the converse is
true).
I will incorporate this new goal into the Ground Rules to be mailed you about November 1, along with the 1968 Commitment Letter. I wanted to get this letter off to you prior to that mailing so you would have ample time to consider your personal situation, and if necessary get in touch with me to clear up some of the enclosed, before making a decision on 1968. As always, I intend to continue to leave virtually all of my capital (excluding Data Documents stock), along with that of my family, in BPL. What I consider satisfactory and achievable may well be different from what you consider so. Partners with attractive alternative investment opportunities may logically decide that their funds can be better employed elsewhere, and you can be sure I will be wholly in sympathy with such a decision.
I have always found behavior most distasteful which publicly announces one set of goals and motivations when actually an entirely different set of factors prevails. Therefore, I have always tried to be l00% candid with you about my goals and personal feelings so you aren't making important decisions pursuant to phony proclamations (I've run into a few of these in our investment experience). Obviously all the conditions enumerated in this letter haven't appeared overnight. I have been thinking about some of the points involved for a long period of time. You can understand, I am sure, that I wanted to pick a time when past goals had been achieved to set forth a reduction in future goals. I would not want to reduce the speed of the treadmill unless I had fulfilled my objectives to this point.
Please let me know if I can be of any help in deciphering any portion of this letter.
Cordially,
Warren E. Buffett
WEB eh
巴菲特合伙有限公司
基维特广场610号
奥马哈，内布拉斯加州68131
电话 042-4110
1967年10月9日
致各位合伙人：
过去十一年里，我一贯将巴菲特合伙基金的投资目标设定为：年均业绩领先道琼斯工业平均指数十个百分点。在当时存在的市场环境下，我认为这个目标虽然困难，但可以实现。
如今，以下情况使得调整业绩衡量标准变得合适：
- 过去十年间，市场环境逐步变化，导致基于定量分析的明显廉价投资机会数量急剧减少；
- 对投资业绩日益升温的关注（这有些讽刺意味，因为多年前我还是少数几个强调其重要性的人之一）造就了一种过度反应的市场行为模式，而我的分析技巧对此价值有限；
- 我们的资本基础扩大到约6500万美元，同时优质投资思路却如涓涓细流日渐枯竭，这继续带来1967年1月信中提到的那些问题；
- 我个人的兴趣使我不能再像年轻时那样，对卓越投资成果抱持那种非此不可的苛求态度。
我们逐项细看这些因素。
出于投资目的对证券和企业的评估，历来涉及定性与定量因素的混合。一端是纯粹侧重于定性因素的分析师会说："买对的公司（有对的前景、固有的行业条件、管理层等），价格自然水到渠成。"另一端，定量派的代言人会说："以对的价格买入，公司（和股票）自然会自己照顾自己。"在证券世界里，常常令人愉快的结果是，两种方法都能赚钱。当然，任何分析师都会在一定程度上结合两种方法——他属于哪个流派，取决于他对各种因素赋予的相对权重，而不是他考虑一组因素而排除另一组。
有趣的是，尽管我认为自己主要属于定量派（我写到这里时，还没有人从课间休息回来——我可能是班上唯一剩下的了），但这些年我真正绝妙的主意，往往 heavily weighted 偏向定性一侧——那些我拥有"高概率洞察力"的机会。这才是让收银机真正唱起歌来的东西。然而，这种情况不常发生，洞察力本来就是稀罕物。当然，定量一侧不需要洞察力——数字应该像棒球棒一样击中你的脑袋。所以，真正的大钱往往由在定性判断上正确的人赚到，但至少在我看来，更确定的钱则是在明显的定量判断上赚到的。
这类统计意义上的廉价机会，这些年来趋于消失。这可能是因为过去二十年里，投资被反复筛了又筛，而没有像三十年代那样的经济震荡来创造对股票的负面偏见，并催生数百只新的廉价证券。也可能是由于对并购要约的社会接受度日益提高，因而使用增加（或者反过来——让行为学家去琢磨吧），而并购要约天然倾向于聚焦廉价标的。还可能是由于证券分析师队伍的爆炸式增长，对标的的审查力度远超几年前。无论原因是什么，结果就是定量意义上的廉价标的实际上已经消失——从而我们的看家本事也没了。偶尔可能还会出现几个。也会出现一些我真正有能力做出重要定性判断的证券。这将给我们带来大利润的最佳机会。但这种机会很罕见。过去三年我们良好业绩的很大一部分，都来自此类的一个单一想法。
下一个困难点是投资业绩的日益升温。多年来我一直宣扬衡量的重要性。我始终告诉合伙人，除非我们的业绩优于平均水平，否则资金应该另投他处。最近几年，这个想法在整个投资界（更重要的，是投资大众中间）获得了 momentum。过去一两年，它看起来有点像海啸了。我认为我们正在目睹一个正确观念的扭曲。
我一直提醒合伙人，我认为至少三年才能判定我们是否"表现合格"。自然而然地，随着投资大众咬住缰绳猛冲，期望的时间跨度不断缩短，以至于大笔资金的投资业绩正在按年、按季、按月、甚至有时更频繁地衡量（导致所谓的"即时研究"）。短期优异业绩的回报变得极其巨大，不仅体现在实际成果的报酬上，还体现在吸引新资金用于下一轮。因此产生了一种自我生成的活跃行为，导致越来越多的资金以越来越短的时间跨度参与其中。一个令人不安的推论是，随着活动加速，参与的工具（具体的公司或股票）变得越来越不重要——有时几乎成了附属品。
在我看来，这正导致投机规模日益扩大。这算不上什么新现象；然而，一个新增的维度是，越来越多的专业投资者（许多从前相当温顺）觉得自己必须"上车"。这个游戏当然被适当的仪式、人物和术语所美化了。到目前为止，这游戏利润丰厚。也许这将成为未来市场的常态。但无论如何，这是一种我肯定自己不会做得特别好的活动。正如我在去年年度信第5页所说：
"此外，我们不会追随那种常见的投资方法——将预测市场走势凌驾于企业估值之上。这种所谓的'时尚'投资近年来（以及我写此信的1967年1月当下）经常带来非常可观的快速利润。这是一种我既不能肯定也不能否定其可靠性的投资技巧。它不完全符合我的理智（或者也许是偏见），而且最肯定的是，它不适合我的性情。我不会基于这种方法投资自己的钱——因此，我肯定也不会用你们的钱这么做。"
在证券市场上，任何形式的大资金过度活跃都可能给所有参与者带来问题。我无意猜测股市的动向，对于一年后道指是600、900还是1200点，我毫无头绪。即使当前和未来的投机活动会导致严重后果，经验表明对时机的估计毫无意义。但我确实相信，目前存在的某些条件，很可能使我们在中期未来的市场活动中面临更多困难。
上面这些可能只是"老顽固主义"（毕竟我才37岁）。当游戏不再按你的方式玩时，说新方法全是错的、注定要惹麻烦等等，是人之常情。我过去曾蔑视别人的这种行为。我也看到过那些根据过去（而非当前）状况做判断的人所付出的代价。从根本上说，我与当前的条件格格不入。但有一点我很清楚：我不会放弃一种我理解其逻辑（尽管我发现很难应用）的原有方法，即使这意味着放弃看似唾手可得的大笔利润，去拥抱一种我不完全理解、未曾成功实践、且可能导致资本永久性重大损失的方法。
第三个困难点涉及我们大幅增加的资本基础。多年来，我的投资思路规模从资本金的110%到1000%不等。我很难想象会出现不同的情况。我承诺过，当这种情况发生时，我会告诉合伙人；在1967年1月的信中，我不得不兑现这个承诺。主要由于前两个条件，我们更大的资本现在成了业绩的某种拖累。我认为这是所提四个因素中最不重要的一个，即使我们以现有资本的十分之一运作，业绩也好不到哪里去。不过，增大的资金目前是一个中等程度的负面因素。
最后，也是最重要的考虑，关乎个人动机。当我创办合伙企业时，我把调节跑步机的马达设定为"领先道指十个百分点"。那时我更年轻、更穷，大概也更好胜。即使没有前面讨论的三个外部因素导致业绩变差，我仍然觉得，个人状况的改变使得调慢跑步机速度是明智的。我观察到许多案例，生活中所有活动（尤其是商业）中的习惯模式，在它们已经不再合理之后很久，仍然持续着（并随着岁月流逝而加深）。伯特兰·罗素曾讲过一个故事：第一次世界大战后，有两个立陶宛女孩住在他庄园里。每天晚上房子暗下来后，她们都会溜出去从邻居家偷蔬菜，囤积在自己房间里——尽管罗素家的餐桌上食物丰盛。罗素勋爵向女孩们解释说，这种行径在战争时期的立陶宛或许很有道理，但在英国乡下就有些不合时宜了。女孩们点头表示同意，然后继续偷。最后他只好自慰于这样的观察：她们的行为，尽管在邻居看来很奇怪，其实与年长的洛克菲勒并无太大不同。
基本的自我分析告诉我，对于公开向托付资本给我的人宣布的目标，我无法做到不尽全力。但全力以赴的意义越来越小。我希望有一个经济目标，能允许相当多的非经济活动。这可能意味着投资领域以外的活动，或者仅仅意味着在投资领域内追求那些不承诺最大经济回报的路线。后者的一个例子是，继续持有一个令人满意（但远非惊艳）的受控企业，我喜欢那里的人和生意性质，即使另类投资能提供预期更高的回报率。以有吸引力的价格买入企业然后转手，可以赚更多钱。然而，继续持有它们，并希望通过一些财务战略决策（通常是小幅地）改善其业绩，可能更有乐趣（尤其是当增量资本的个人价值降低时）。
因此，我可能将自己限制在那些相当容易、安全、有利可图且令人愉快的事情上。这并不会使我们的操作比过去更保守，因为我坚信（无疑带有些许偏见）我们一向以相当保守的方式运作。长期下行风险不会减少；上行潜力只是变小了。
具体来说，我们的长期目标是：实现每年9%的回报率，或领先道指五个百分点——两者取其低。因此，如果未来五年道指平均回报率为-2%，我希望平均回报率达到+3%；但如果道指平均回报率为+12%，我希望平均回报率仅达到+9%。这些目标可能有限，但在当前条件下，我认为实现这些更温和目标的可能性，并不比以前实现领先道指年均十个百分点这一旧目标的可能性更大。而且，我希望有限的目标能带来有限的努力（我确信反之亦然）。
我将把这个新目标纳入《基本规则》，该规则将于11月1日左右与《1968年承诺函》一并寄出。我想在此之前把这封信寄到各位手中，以便你们有充足的时间考虑个人情况，必要时在做出1968年决定前与我联系以澄清某些细节。一如既往，我打算继续将几乎全部个人资本（数据文档公司股票除外）以及我家人的资本留在合伙基金中。我认为满意且可实现的目标，很可能与各位认为的不同。拥有诱人另类投资机会的合伙人可能会理性地决定，他们的资金可以更好地用在他处；请放心，我完全理解这样的决定。
我一直最反感那种行为：公开宣称一套目标和动机，而实际上支配行为的完全是另一套因素。因此，我一直力求百分之百坦诚地告诉各位我的目标和个人感受，这样你们就不会根据虚假的宣言做出重要决定（在我们的投资经历中，我遇到过几次这样的情况）。显然，这封信中列举的所有情况并非一夜之间出现。其中几点我已经思考了很长时间。各位想必能理解，我想挑选一个过去目标已经达成的时间点，来提出降低未来目标。我不想在尚未实现迄今目标之前就调慢跑步机的速度。
如能帮各位解读本信的任何部分，请随时告知。
此致
沃伦·E·巴菲特
WEB/eh