BUFFETT PARTNERSHIP. LTD.
610 KIEWIT PLAZA
OMAHA, NEBRASKA 68131
TELEPHONE 042-4110
July 11th, 1968
First Half Performance
During the first half of 1968, the Dow-Jones Industrial Average declined fractionally from 905 to 898.
Ownership of the Dow would also have produced dividends of about \$15 during the half, resulting in an overall gain of 0.9% for that Average. The Dow, once again, was an anemic competitor for most investment managers, although it was not surpassed by anything like the margins of 1967.
Our own performance was unusually good during the first half, with an overall gain of 16% excluding any change in valuation for controlled companies (which represented slightly over one-third of net assets at the beginning of the year). However, any release of adrenalin is unwarranted. Our marketable security investments are heavily concentrated in a few situations, making relative performance potentially more volatile than in widely diversified investment vehicles. Our long term performance goals are as stated in the revised "Ground Rules" and I will be quite happy if we achieve those limited objectives over a period of years. The following table summarizes performance to date on the usual basis:
| 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% |
| 1966 | -15.6% | 20.4% | 16.8% |
| 1967 | 19.0% | 35.9% | 28.4% |
| First Half 1968 | 0.9% | 16.0% | 13.5% |
| Cumulative Results | 167.7% | 1880.0% | 1072.0% |
| Annual Compounded Rate | 8.9% | 29.6% | 23.8% |
(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.
Although we revise valuations of our controlled companies only at yearend, it presently appears that our share of their 1968 earnings will be something over \$3 million. Those with primary responsibility for their operations, Ken Chace at Berkshire Hathaway, Louis Kohn at Hochschild Kohn, Jack Ringwalt at National Indemnity and Ben Rosner at Associated Cotton Shops, continue to meld effort and ability into results.
This year, Diversified Retailing Company (owner of Hochschild Kohn and Associated Cotton Shops) issued its first published annual report. This was occasioned by the public sale of debentures to approximately 1,000 investors last December. Thus, DRC is in the rather unusual position of being a public company from a creditors' viewpoint, but a private one (there are three stockholders -BPL owns 80%) for ownership purposes. I am enclosing the DRC report with this letter (except where duplicates go to one house hold) and plan to continue to send them along with future mid-year letters.
As I have mentioned before, we cannot make the same sort of money out of permanent ownership of controlled businesses that can be made from buying and reselling such businesses, or from skilled investment in marketable securities. Nevertheless, they offer a pleasant long term form of activity (when conducted in conjunction with high grade, able people) at satisfactory rates of return.
Investment Companies
On the following page is the form sheet on the usual investment companies:
| 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% |
| 1966 | -7.7% | -10.0% | -2.6% | -6.9% | -15.6% | 16.8% |
| 1967 | 20.0% | 22.8% | 28.0% | 25.4% | 19.0% | 28.4% |
| First Half 1968 | 5.1% | 2.8% | 4.4% | 2.0% | 0.9% | 13.5% |
| Cumulative Results | 175.7% | 154.5% | 218.6% | 186.7% | 167.7% | 1072.0% |
| Annual Compounded Rate | 9.2% | 8.5% | 10.6% | 9.6% | 8.9% | 23.8% |
(1) Computed from changes in asset value plus any distributions to holders of record during year.
(2) From 1968 Moody's Bank & Finance Manual for 1957 -1967. Estimated for first half of 1968.
Due to a sluggish performance by the Dow in the last few years, the four big funds now have, on average, about a one-half point per annum advantage over the Dow for the full period.
The Present Environment
I make no effort to predict the course of general business or the stock market. Period. However, currently there are practices snowballing in the security markets and business world which, while devoid of short term predictive value, bother me as to possible long term consequences.
I know that some of you are not particularly interested (and shouldn't be) in what is taking place on the financial stage. For those who are, I am enclosing a reprint of an unusually clear and simple article which lays bare just what is occurring on a mushrooming scale. Spectacular amounts of money are being made by those participating (whether as originators, top employees. professional advisors, investment bankers, stock speculators, etc… ) in the chain-letter type stock-promotion vogue. The game is being played by the gullible, the self-hypnotized, and the cynical. To create the proper illusions, it frequently requires accounting distortions (one particularly progressive entrepreneur told me he believed in "bold, imaginative accounting"), tricks of capitalization and camouflage of the true nature of the operating businesses involved. The end product is popular, respectable and immensely profitable (I'll let the philosophers figure in which order those adjectives should be placed).
Quite candidly, our own performance has been substantially improved on an indirect basis because of the fallout from such activities. To create an ever widening circle of chain letters requires increasing amounts of corporate raw material and this has caused many intrinsically cheap (and not so cheap) stocks to come to life. When we have been the owners of such stocks, we have reaped market rewards much more promptly than might otherwise have been the case. The appetite for such companies, however, tends to substantially diminish the number of fundamentally attractive investments which remain.
I believe the odds are good that, when the stock market and business history of this period is being written, the phenomenon described in Mr. May's article will be regarded as of major importance, and perhaps characterized as a mania. You should realize, however, that his "The Emperor Has No Clothes" approach is at odds (or dismissed with a “SO What?” or an "Enjoy, Enjoy”) with the views of most investment banking houses and currently successful investment managers. We live in an investment world, populated not by those who must be logically persuaded to believe, but by the hopeful, credulous and greedy, grasping for an excuse to believe.
Finally, for a magnificent account of the current financial scene, you should hurry out and get a copy of “The Money Game” by Adam Smith. It is loaded with insights and supreme wit. (Note: Despite my current “Support Your Local Postmaster” drive, I am not enclosing the book with this letter - it retails for \$6.95.)
Taxes
Several unusual factors make the tax figure even more difficult than usual to estimate this year. We will undoubtedly have an above average amount of ordinary income. The picture on short term and long term capital gain is subject to unusually substantial variance. At the beginning of the year, I suggested that you use an 8% ordinary income factor (it won't come in this manner but this figure embodies an adjustment for long term capital gain) applied to your BPL capital account on an interim basis to compute quarterly tax estimates. If a figure different from 8% seems more appropriate for your September 15th quarterly estimate. I will let you know by September 5th. If no change is necessary, you will next hear from me on November 1st with the Commitment Letter for 1969.
Cordially,
Warren E. Buffett
WEB/glk
BUFFETT PARTNERSHIP. LTD.
610 KIEWIT PLAZA
OMAHA, NEBRASKA 68131
TELEPHONE 042-4110
1968年7月11日
上半年业绩
1968年上半年，道琼斯工业平均指数从905点小幅下跌至898点。
持有道指在上半年还会获得约15美元的股息，使该平均指数整体收益率为0.9%。道指再次成为大多数投资经理的疲软对手，尽管差距远不如1967年那么悬殊。
我们自己的上半年业绩异常出色，整体收益率达到16%，这一数字尚未包含对控制类公司（年初约占净资产的略超三分之一）估值的任何变动。不过，肾上腺素大可不必因此飙升。我们的可流通证券投资高度集中在少数几个标的上，这使得相对业绩的波动性可能远高于广泛分散的投资工具。我们的长期业绩目标已在修订后的"基本原则"中阐明，只要能在多年内实现这些有限目标，我就非常满意了。下表按常规口径汇总了至今的业绩：
| 年份 | 道指整体收益率 (1) | 合伙企业收益率 (2) | 有限合伙人收益率 (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 | -15.6% | 20.4% | 16.8% |
| 1967 | 19.0% | 35.9% | 28.4% |
| 1968年上半年 | 0.9% | 16.0% | 13.5% |
| 累计收益率 | 167.7% | 1880.0% | 1072.0% |
| 年化复合收益率 | 8.9% | 29.6% | 23.8% |
(1) 基于道指年度价值变化加上当年持有道指可获得的股息。本表包含合伙企业经营的全部完整年份。
(2) 1957-1961年为所有前身有限合伙企业全年经营的综合结果，已扣除全部费用，但未扣除向合伙人分配或向普通合伙人分配。
(3) 1957-1961年基于上一列合伙企业收益率，按现行合伙协议向普通合伙人进行分配后计算，但未扣除有限合伙人的月度提款。
虽然我们只在年底对控制类公司进行估值调整，但目前看来，我们享有的1968年收益份额将超过300万美元。负责这些公司运营的主要人员——Berkshire Hathaway（伯克希尔·哈撒韦）的Ken Chace、Hochschild Kohn（霍克希尔德·科恩）的Louis Kohn、National Indemnity（国民赔偿）的Jack Ringwalt以及Associated Cotton Shops（联合棉布店）的Ben Rosner——继续将努力与能力转化为成果。
今年，Diversified Retailing Company（多元化零售公司，旗下拥有Hochschild Kohn和Associated Cotton Shops）发布了首份公开年报。这是因为去年12月该公司向约1000名投资者公开发行了债券。因此，DRC处于一个相当独特的位置：从债权人角度看，它是上市公司；但从所有权角度看，它又是私人公司（只有三位股东——BPL持有80%）。随信附上DRC的报告（同一地址的多份信件除外），并计划在未来的年中信中继续附上。
正如我之前提到过的，我们无法通过永久持有控制类企业赚到与买卖这类企业或熟练投资可流通证券同样多的钱。不过，当与高素质、有能力的人一起经营时，这类企业能以令人满意的回报率提供一种惬意的长期活动形式。
投资公司
下一页是常见投资公司的业绩对照表：
| 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 | -7.7% | -10.0% | -2.6% | -6.9% | -15.6% | 16.8% |
| 1967 | 20.0% | 22.8% | 28.0% | 25.4% | 19.0% | 28.4% |
| 1968年上半年 | 5.1% | 2.8% | 4.4% | 2.0% | 0.9% | 13.5% |
| 累计收益率 | 175.7% | 154.5% | 218.6% | 186.7% | 167.7% | 1072.0% |
| 年化复合收益率 | 9.2% | 8.5% | 10.6% | 9.6% | 8.9% | 23.8% |
(1) 根据资产价值变化加上当年登记持有人的任何分配计算。
(2) 1957-1967年数据来自1968年穆迪银行与金融手册。1968年上半年为估计值。
由于过去几年道指表现疲软，这四大基金在整个期间内平均每年比道指仅高出约半个百分点。
当前环境
我不试图预测整体商业或股票市场的走势。到此为止。然而，目前证券市场和商业世界中出现了一些愈演愈烈的做法，虽然短期没有预测价值，但我担心其可能的长期后果。
我知道你们有些人对此并不特别感兴趣（也不应该感兴趣）。对于感兴趣的人，我附上一份异常清晰易懂的文章的翻印件，它揭示的正是当前呈雪崩式蔓延的现象。参与其中的（无论是发起人、高管、专业顾问、投资银行家、股票投机者等）正通过这种传销式的股票推广热潮赚取巨额金钱。这场游戏由轻信者、自我催眠者和愤世嫉俗者共同上演。为了制造适当的幻觉，常常需要扭曲会计（一位特别激进的创业者告诉我，他相信"大胆、富有想象力的会计"）、玩弄资本化花招、并掩盖所涉及经营业务的真实性质。最终的产品是流行的、受人尊敬且利润丰厚的（让哲学家们去琢磨这些形容词的顺序吧）。
坦率地说，我们自己的业绩也因这类活动的"辐射效应"而间接大幅提升。要创造越来越大的传销圈子，就需要越来越多的公司原材料，这使许多内在廉价（以及不那么廉价）的股票活跃起来。当我们持有这类股票时，我们从中获得了比正常情况下更快的市场回报。然而，对这些公司的渴求往往会大大减少仍具根本吸引力的投资机会的数量。
我相信，当这段时期的股票市场和商业历史被书写时，梅先生文章中描述的现象将被视为重要事件，或许会被定性为一种狂热。但你们应该意识到，他那"皇帝没穿衣服"的论调与大多数投资银行及当前成功的投资经理的观点相左（或被视为"那又怎样？"或"享受吧"）。我们生活在一个投资世界里，这里聚集的不是那些必须被逻辑说服才相信的人，而是那些满怀希望、轻信贪婪、在拼命寻找相信借口的人。
最后，如果想了解当下金融界的一幅绝妙图景，你应该赶紧去买一本亚当·斯密的《金钱游戏》。这本书充满了洞见和绝妙的机智。（注：尽管我正在发起"支持你当地的邮政局长"运动，但我不会随信附上这本书——它零售价6.95美元。）
税收
今年有几项不寻常的因素使税收数字的估算比往常更加困难。毫无疑问，我们的普通收入将高于平均水平。短期和长期资本利得的情况则具有异常巨大的变数。年初，我建议你临时按8%的普通收入因子（最终不会以这种方式出现，但这个数字已包含对长期资本利得的调整）乘以你的BPL资本账户，来计算季度预估税款。如果对于9月15日的季度预估，8%以外的数字更合适，我会在9月5日前通知你。如果无需变更，你将在11月1日收到我关于1969年的承诺函。
此致，
Warren E. Buffett
WEB/glk