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+1960 Letter
+BUFFETT PARTNERSHIP, LTD.
+810 KIEWIT PLAZA
+OMAHA 31, NEBRASKA
+July, 1961
+TO MY PARTNERS:
+In the past, partners have commented that a once-a-year letter was “a long time between drinks,” and
+that a semi-annual letter would be a good idea. It really shouldn’t be too difficult to find something to say twice
+a year; at least it isn’t this year. Hence, this letter which will be continued in future years.
+During the first half of 1961, the overall gain of the Dow-Jones Industrial Average was about 13%,
+including dividends. Although this is the type of period when we should have the most difficulty in exceeding
+this standard, all partnerships that operated throughout the six months did moderately better then the Average.
+Partnerships formed during 1961 either equaled or exceeded results of the Average from the time of formation,
+depending primarily on how long they were in operation.
+Let me, however, emphasize two points. First, one year is far too short a period to form any kind of an
+opinion as to investment performance, and measurements based upon six months become even more unreliable.
+One factor that has caused some reluctance on my part to write semi-annual letters is the fear that partners may
+begin to think in terms of short-term performance which can be most misleading. My own thinking is much
+more geared to five year performance, preferably with tests of relative results in both strong and weak markets.
+The second point I want everyone to understand is that if we continue in a market which advances at the
+pace of the first half of 1961, not only do I doubt that we will continue to exceed the results of the DJIA, but it is
+very likely that our performance will fall behind the Average.
+Our holdings, which I always believe to be on the conservative side compared to general portfolios, tend
+to grow more conservative as the general market level rises. At all times, I attempt to have a portion of our
+portfolio in securities as least partially insulated from the behavior of the market, and this portion should
+increase as the market rises. However appetizing results for even the amateur cook (and perhaps particularly the
+amateur), we find that more of our portfolio is not on the stove.
+We have also begun open market acquisition of a potentially major commitment which I, of course,
+hope does nothing marketwise for at least a year. Such a commitment may be a deterrent to short range
+performance, but it gives strong promise of superior results over a several year period combined with substantial
+defensive characteristics.
+Progress has been made toward combining all partners at yearend. I have talked with all partners joining
+during this past year or so about this goal, and have also gone over the plans with representative partners of all
+earlier partnerships
+Some of the provisions will be:
+(A) A merger of all partnerships, based on market value at yearend, with provisions for proper
+allocation among partners of future tax liability due to unrealized gains at yearend. The merger itself will be tax-free, and will result in no acceleration of realization of profits;
+
+(B) A division of profits between the limited partners and general partner, with the first 6% per year to
+partners based upon beginning capital at market, and any excess divided one-fourth to the general partner and
+three-fourths to all partners proportional to their capital. Any deficiencies in earnings below the 6% would be
+carried forward against future earnings, but would not be carried back. Presently, there are three profit
+arrangements which have been optional to incoming partners:
+Interest Provision Excess to Gen. Partner Excess to Ltd. Partners
+(1) 6% 1/3 2/3
+(2) 4% 1/4 3/4
+(3) None 1/6 5/6
+In the event of profits, the new division will obviously have to be better for limited partners than the first two
+arrangements. Regarding the third, the new arrangement will be superior up to 18% per year; but above this rate
+the limited partners would do better under the present agreement. About 80% of total partnership assets have
+selected the first two arrangements, and I am hopeful, should we average better than 18% yearly, partners
+presently under the third arrangement will not feel short-changed under the new agreement;
+(C) In the event of losses, there will be no carry back against amounts previously credited to me as
+general partner. Although there will be a carry-forward against future excess earnings. However, my wife and I
+will have the largest single investment in the new partnership, probably about one-sixth of total partnership
+assets, and thereby a greater dollar stake in losses than any other partner of family group, I am inserting a
+provision in the partnership agreement which will prohibit the purchase by me or my family of any marketable
+securities. In other words, the new partnership will represent my entire investment operation in marketable
+securities, so that my results will have to be directly proportional to yours, subject to the advantage I obtain if
+we do better than 6%;
+(D) A provision for monthly payments at the rate of 6% yearly, based on beginning of the year capital
+valued at market. Partners not wishing to withdraw money currently can have this credited back to them
+automatically as an advance payment, drawing 6%, to purchase an additional equity interest in the partnership at
+yearend. This will solve one stumbling block that has heretofore existed in the path of consolidation, since many
+partners desire regular withdrawals and others wish to plow everything back;
+(E) The right to borrow during the year, up to 20% of the value of your partnership interest, at 6%, such
+loans to be liquidated at yearend or earlier. This will add a degree of liquidity to an investment which can now
+only be disposed of at yearend. It is not intended that anything but relatively permanent funds be invested in the
+partnership, and we have no desire to turn it into a bank. Rather, I expect this to be a relatively unused provision,
+which is available when something unexpected turns up and a wait until yearend to liquidate part of all of a
+partner’s interest would cause hardship;
+(F) An arrangement whereby any relatively small tax adjustment, made in later years on the
+partnership’s return will be assessed directly to me. This way, we will not be faced with the problem of asking
+eighty people, or more, to amend their earlier return over some small matter. As it stands now, a small change,
+such as a decision that a dividend received by the partnership has 63% a return of capital instead of 68%, could
+cause a multitude of paper work. To prevent this, any change amounting to less than $1,000 of tax will be
+charged directly to me.
+We have submitted the proposed agreement to Washington for a ruling that the merger would be tax-
+free, and that the partnership would be treated as a partnership under the tax laws. While all of this is a lot of
+work, it will make things enormously easier in the future. You might save this letter as a reference to read in
+conjunction with the agreement which you will receive later in the year.
+
+The minimum investment for new partners is currently $25,000, but, of course, this does not apply to
+present partners. Our method of operation will enable the partners to add or withdraw amounts of any size (in
+round $100) at yearend. Estimated total assets of the partnership will be in the neighborhood of $4 million,
+which enables us to consider investments such as the one mentioned earlier in this letter, which we would have
+had to pass several years ago.
+This has turned out to be more of a production than my annual letter. If you have any questions,
+particularly regarding anything that isn’t clear in my discussion of the new partnership agreement, be sure to let
+me know. If there are a large number of questions, I will write a supplemental letter to all partners giving the
+questions that arise and the answers to them.
+Warren E. Buffett
+Vlb
+July 22, 1961
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+1958RTNERSHIP, LTD.
+810 KIEWIT PLAZA
+OMAHA 31, NEBRASKA
+January 24, 1962
+Our Performance in 1961
+I have consistently told partners that it is my expectation and hope (it's always hard to tell which is which) that
+we will do relatively well compared to the general market in down or static markets, but that we may not look so
+good in advancing markets. In strongly advancing markets I expect to have real difficulty keeping up with the
+general market.
+Although 1961 was certainly a good year for the general market, and in addition, a very good year for us on both
+an absolute and relative basis, the expectations in the previous paragraph remain unchanged.
+During 1961, the general market as measured by the Dow-Jones Industrial Average (hereinafter called the
+“Dow”) showed an over-all gain of 22.2% including dividends received through ownership of the Dow. The
+gain for all partnerships operating throughout the entire year, after all expenses of operation, but before
+payments to limited partners or accrual to the general partner, averaged 45.9%. The details of this gain by
+partnership are shown in the appendix along with results for the partnerships started during the year.
+We have now completed five full years of partnership operation, and the results of these five years are shown
+below on a year-by-year basis and also on a cumulative or compounded basis. These results are stated on the
+basis described in the preceding paragraph; after expenses, but before division of gains among partners or
+payments to partners.
+Year Partnerships Operating Entire
+Year
+Partnership Gain Dow-Jones Industrials
+Gain*
+1957 3 10.4% -8.4%
+1958 5 40.9% 38.5%
+1959 6 25.9% 19.9%
+1960 7 22.8% -6.3%
+1961 7 45.9% 22.2%
+
+* Including dividends received through ownership of the Dow.
+On a compounded basis, the cumulative results have been:
+Year Partnership Gain Dow-Jones Industrials Gain
+1957 10.4% -8.4%
+1957-58 55.6% 26.9%
+1057-59 95.9% 52.2%
+1957-60 140.6% 42.6%
+1957-61 251.0% 74.3%
+These results do not measure the gain to the limited partner, which of course, is the figure in which you are most
+interested. Because of the varying partnership arrangements that have existed in the past, I have used the over-
+all net gain (based on market values at the beginning and end of the year) to the partnership as being the fairest
+measure of over-all performance.
+On a pro-forma basis adjusted to the division of gains entailed in our present Buffett Partnership, Ltd.
+agreement, the results would have been:
+Year Limited Partners’ Gain Dow Gain
+1957 9.3% -8.4%
+1958 32.2% 38.5%
+1959 20.9% 19.9%
+1960 18.6% -6.3%
+1961 35.9% 22.2%
+COMPOUNDED
+1957 9.3% -8.4%
+1957-58 44.5% 26.9%
+1957-59 74.7% 52.2%
+1957-60 107.2% 42.6%
+1957-61 181.6% 74.3%
+A Word About Par
+The outstanding item of importance in my selection of partners, as well as in my subsequent relations with them,
+has been the determination that we use the same yardstick. If my performance is poor, I expect partners to
+withdraw, and indeed, I should look for a new source of investment for my own funds. If performance is good, I
+am assured of doing splendidly, a state of affairs to which I am sure I can adjust.
+The rub, then, is in being sure that we all have the same ideas of what is good and what is poor. I believe in
+establishing yardsticks prior to the act; retrospectively, almost anything can be made to look good in relation to
+something or other.
+I have continuously used the Dow-Jones Industrial Average as our measure of par. It is my feeling that three
+years is a very minimal test of performance, and the best test consists of a period at least that long where the
+terminal level of the Dow is reasonably close to the initial level.
+While the Dow is not perfect (nor is anything else) as a measure of performance, it has the advantage of being
+widely known, has a long period of continuity, and reflects with reasonable accuracy the experience of investors
+generally with the market. I have no objection to any other method of measurement of general market
+performance being used, such as other stock market averages, leading diversified mutual stock funds, bank
+common trust funds, etc.
+You may feel I have established an unduly short yardstick in that it perhaps appears quite simple to do better
+than an unmanaged index of 30 leading common stocks. Actually, this index has generally proven to be a
+reasonably tough competitor. Arthur Wiesenberger’s classic book on investment companies lists performance
+for the 15 years 1946-60, for all leading mutual funds. There is presently over $20 billion invested in mutual
+funds, so the experience of these funds represents, collectively, the experience of many million investors. My
+own belief, though the figures are not obtainable, is that portfolios of most leading investment counsel
+organizations and bank trust departments have achieved results similar to these mutual funds.
+Wiesenberger lists 70 funds in his “Charts & Statistics” with continuous records since 1946. I have excluded 32
+of these funds for various reasons since they were balanced funds (therefore not participating fully in the general
+market rise), specialized industry funds, etc. Of the 32 excluded because I felt a comparison would not be fair,
+31 did poorer than the Dow, so they were certainly not excluded to slant the conclusions below.
+Of the remaining 38 mutual funds whose method of operation I felt was such as to make a comparison with the
+Dow reasonable, 32 did poorer than the Dow, and 6 did better. The 6 doing better at the end of 1960 had assets
+of about $1 billion, and the 32 doing poorer had assets of about $6-1/2 billion. None of the six that were superior
+beat the Dow by more than a few percentage points a year.
+Below I present the year-by-year results for our period of operation (excluding 1961 for which I don't have exact
+data, although rough figures indicate no variance from the 1957-60 figures) for the two largest common stock
+open-end investment companies (mutual funds) and the two largest closed-end investment companies:
+Year Mass. Inv.
+Trust
+Investors
+Stock
+Lehman Tri-Cont. Dow Limited
+Partners
+1957 -12.0% -12.4% -11.4% -2.4% -8.4% 9.3%
+1958 44.1% 47.6% 40.8% 33.2% 38.5% 32.2%
+1959 8.2% 10.3% 8.1% 8.4% 19.9% 20.9%
+1960 -0.9% -0.1% 2.6% 2.8% -6.3% 18.6%
+(From Moody’s Banks & Finance Manual, 1961)
+COMPOUNDED
+Year Mass. Inv.
+Trust
+Investors
+Stock
+Lehman Tri-Cont. Dow Limited
+Partners
+1957 -12.0% -12.4% -11.4% -2.4% -8.4% 9.3%
+1957-58 26.8% 29.3% 24.7% 30.0% 26.9% 44.5%
+1957-59 37.2% 42.6% 34.8% 40.9% 52.2% 74.7%
+1957-60 36.0% 42.5% 38.3% 44.8% 42.6% 107.2%
+Massachusetts Investors Trust has net assets of about $1.8 billion; Investors Stock Fund about $1 billion; Tri -
+Continental Corporation about $ .5 billion; and Lehman Corporation about $350 million; or a total of over $3.5
+billion.
+I do not present the above tabulations and information with the idea of indicting investment companies. My own
+record of investing such huge sums of money, with restrictions on the degree of activity I might take in
+companies where we had investments, would be no better, if as good. I present this data to indicate the Dow as
+an investment competitor is no pushover, and the great bulk of investment funds in the country are going to have
+difficulty in bettering, or perhaps even matching, its performance.
+Our portfolio is very different from that of the Dow. Our method of operation is substantially different from that
+of mutual funds.
+However, most partners, as all alternative to their investment in the partnership, would probably have their funds
+invested in a media producing results comparable to the Dow, therefore, I feel it is a fair test of performance.
+Our Method of Operation
+Our avenues of investment break down into three categories. These categories have different behavior
+characteristics, and the way our money is divided among them will have an important effect on our results,
+relative to the Dow in any given year. The actual percentage division among categories is to some degree
+planned, but to a great extent, accidental, based upon availability factors.
+The first section consists of generally undervalued securities (hereinafter called "generals") where we have
+nothing to say about corporate policies and no timetable as to when the undervaluation may correct itself. Over
+the years, this has been our largest category of investment, and more money has been made here than in either of
+the other categories. We usually have fairly large positions (5% to 10% of our total assets) in each of five or six
+generals, with smaller positions in another ten or fifteen.
+Sometimes these work out very fast; many times they take years. It is difficult at the time of purchase to know
+any specific reason why they should appreciate in price. However, because of this lack of glamour or anything
+pending which might create immediate favorable market action, they are available at very cheap prices. A lot of
+value can be obtained for the price paid. This substantial excess of value creates a comfortable margin of safety
+in each transaction. This individual margin of safety, coupled with a diversity of commitments creates a most
+attractive package of safety and appreciation potential. Over the years our timing of purchases has been
+considerably better than our timing of sales. We do not go into these generals with the idea of getting the last
+nickel, but are usually quite content selling out at some intermediate level between our purchase price and what
+we regard as fair value to a private owner.
+The generals tend to behave market-wise very much in sympathy with the Dow. Just because something is cheap
+does not mean it is not going to go down. During abrupt downward movements in the market, this segment may
+very well go down percentage-wise just as much as the Dow. Over a period of years, I believe the generals will
+outperform the Dow, and during sharply advancing years like 1961, this is the section of our portfolio that turns
+in the best results. It is, of course, also the most vulnerable in a declining market.
+Our second category consists of “work-outs.” These are securities whose financial results depend on corporate
+action rather than supply and demand factors created by buyers and sellers of securities. In other words, they are
+securities with a timetable where we can predict, within reasonable error limits, when we will get how much and
+what might upset the applecart. Corporate events such as mergers, liquidations, reorganizations, spin-offs, etc.,
+lead to work-outs. An important source in recent years has been sell-outs by oil producers to major integrated oil
+companies.
+This category will produce reasonably stable earnings from year to year, to a large extent irrespective of the
+course of the Dow. Obviously, if we operate throughout a year with a large portion of our portfolio in work-outs,
+we will look extremely good if it turns out to be a declining year for the Dow or quite bad if it is a strongly
+advancing year. Over the years, work-outs have provided our second largest category. At any given time, we
+may be in ten to fifteen of these; some just beginning and others in the late stage of their development. I believe
+in using borrowed money to offset a portion of our work-out portfolio since there is a high degree of safety in
+this category in terms of both eventual results and intermediate market behavior. Results, excluding the benefits
+derived from the use of borrowed money, usually fall in the 10% to 20% range. My self-imposed limit regarding
+borrowing is 25% of partnership net worth. Oftentimes we owe no money and when we do borrow, it is only as
+an offset against work-outs.
+The final category is "control" situations where we either control the company or take a very large position and
+attempt to influence policies of the company. Such operations should definitely be measured on the basis of
+several years. In a given year, they may produce nothing as it is usually to our advantage to have the stock be
+stagnant market-wise for a long period while we are acquiring it. These situations, too, have relatively little in
+common with the behavior of the Dow. Sometimes, of course, we buy into a general with the thought in mind
+that it might develop into a control situation. If the price remains low enough for a long period, this might very
+well happen. If it moves up before we have a substantial percentage of the company's stock, we sell at higher
+levels and complete a successful general operation. We are presently acquiring stock in what may turn out to be
+control situations several years hence.
+Dempster Mill Manufacturing Company
+We are presently involved in the control of Dempster Mill Manufacturing Company of Beatrice, Nebraska. Our
+first stock was purchased as a generally undervalued security five years ago. A block later became available, and
+I went on the Board about four years ago. In August 1961, we obtained majority control, which is indicative of
+the fact that many of our operations are not exactly of the "overnight" variety.
+Presently we own 70% of the stock of Dempster with another 10% held by a few associates. With only 150 or so
+other stockholders, a market on the stock is virtually non-existent, and in any case, would have no meaning for a
+controlling block. Our own actions in such a market could drastically affect the quoted price.
+Therefore, it is necessary for me to estimate the value at yearend of our controlling interest. This is of particular
+importance since, in effect, new partners are buying in based upon this price, and old partners are selling a
+portion of their interest based upon the same price. The estimated value should not be what we hope it would be
+worth, or what it might be worth to an eager buyer, etc., but what I would estimate our interest would bring if
+sold under current conditions in a reasonably short period of time. Our efforts will be devoted toward increasing
+this value, and we feel there are decent prospects of doing this.
+Dempster is a manufacturer of farm implements and water systems with sales in 1961 of about $9 million.
+Operations have produced only nominal profits in relation to invested capital during recent years. This reflected
+a poor management situation, along with a fairly tough industry situation. Presently, consolidated net worth
+(book value) is about $4.5 million, or $75 per share, consolidated working capital about $50 per share, and at
+yearend we valued our interest at $35 per share. While I claim no oracular vision in a matter such as this, I feel
+this is a fair valuation to both new and old partners. Certainly, if even moderate earning power can be restored, a
+higher valuation will be justified, and even if it cannot, Dempster should work out at a higher figure. Our
+controlling interest was acquired at an average price of about $28, and this holding currently represents 21% of
+partnership net assets based on the $35 value.
+Of course, this section of our portfolio is not going to be worth more money merely because General Motors,
+U.S. Steel, etc., sell higher. In a raging bull market, operations in control situations will seem like a very
+difficult way to make money, compared to just buying the general market. However, I am more conscious of the
+dangers presented at current market levels than the opportunities. Control situations, along with work-outs,
+provide a means of insulating a portion of our portfolio from these dangers.
+The Question of Conservatism
+The above description of our various areas of operation may provide some clues as to how conservatively our
+portfolio is invested. Many people some years back thought they were behaving in the most conservative
+manner by purchasing medium or long-term municipal or government bonds. This policy has produced
+substantial market depreciation in many cases, and most certainly has failed to maintain or increase real buying
+power.
+Conscious, perhaps overly conscious, of inflation, many people now feel that they are behaving in a
+conservative manner by buying blue chip securities almost regardless of price-earnings ratios, dividend yields,
+etc. Without the benefit of hindsight as ill the bond example, I feel this course of action is fraught with danger.
+There is nothing at all conservative, in my opinion, about speculating as to just how high a multiplier a greedy
+and capricious public will put on earnings.
+You will not be right simply because a large number of people momentarily agree with you. You will not be
+right simply because important people agree with you. In many quarters the simultaneous occurrence of the two
+above factors is enough to make a course of action meet the test of conservatism.
+You will be right, over the course of many transactions, if your hypotheses are correct, your facts are correct,
+and your reasoning is correct. True conservatism is only possible through knowledge and reason.
+I might add that in no way does the fact that our portfolio is not conventional prove that we are more
+conservative or less conservative than standard methods of investing. This can only be determined by examining
+the methods or examining the results.
+I feel the most objective test as to just how conservative our manner of investing is arises through evaluation of
+performance in down markets. Preferably these should involve a substantial decline in the Dow. Our
+performance in the rather mild declines of 1957 and 1960 would confirm my hypothesis that we invest in an
+extremely conservative manner. I would welcome any partner’s suggesting objective tests as to conservatism to
+see how we stack up. We have never suffered a realized loss of more than 0.5% of 1% of total net assets, and
+our ratio of total dollars of realized gains to total realized losses is something like 100 to 1. Of course; this
+reflects the fact that on balance we have been operating in an up market. However, there have been many
+opportunities for loss transactions even in markets such as these (you may have found out about a few of these
+yourselves) so I think the above facts have some significance.
+The Question of Size
+Aside from the question as to what happens upon my death (which with a metaphysical twist, is a subject of
+keen interest to me), I am probably asked most often: "What affect is the rapid growth of partnership funds
+going to have upon performance?”
+Larger funds tug in two directions. From the standpoint of "passive" investments, where we do not attempt by
+the size of our investment to influence corporate policies, larger sums hurt results. For the mutual fund or trust
+department investing in securities with very broad markets, the effect of large sums should be to penalize results
+only very slightly. Buying 10,000 shares of General Motors is only slightly more costly (on the basis of
+mathematical expectancy) than buying 1,000 or 100 shares.
+In some of the securities in which we deal (but not all by any means) buying 10,000 shares is much more
+difficult than buying 100 and is sometimes impossible. Therefore, for a portion of our portfolio, larger sums are
+definitely disadvantageous. For a larger portion of the portfolio, I would say increased sums are only slightly
+disadvantageous. This category includes most of our work-outs and some generals.
+However, in the case of control situations increased funds are a definite advantage. A "Sanborn Map" cannot be
+accomplished without the wherewithal. My definite belief is that the opportunities increase in this field as the
+funds increase. This is due to the sharp fall-off in competition as the ante mounts plus the important positive
+correlation that exists between increased size of company and lack of concentrated ownership of that company's
+stock.
+Which is more important -- the decreasing prospects of profitability in passive investments or the increasing
+prospects in control investments? I can't give a definite answer to this since to a great extent it depends on the
+type of market in which we are operating. My present opinion is that there is no reason to think these should not
+be offsetting factors; if my opinion should change, you will be told. I can say, most assuredly, that our results in
+1960 and 1961 would not have been better if we had been operating with the much smaller sums of 1956 and
+1957.
+And a Prediction
+Regular readers (I may be flattering myself) will feel I have left the tracks when I start talking about predictions.
+This is one thing from which I have always shied away and I still do in the normal sense.
+I am certainly not going to predict what general business or the stock market are going to do in the next year or
+two since I don't have the faintest idea.
+I think you can be quite sure that over the next ten years there are going to be a few years when the general
+market is plus 20% or 25%, a few when it is minus on the same order, and a majority when it is in between. I
+haven't any notion as to the sequence in which these will occur, nor do I think it is of any great importance for
+the long-term investor.
+Over any long period of years, I think it likely that the Dow will probably produce something like 5% to 7% per
+year compounded from a combination of dividends and market value gain. Despite the experience of recent
+years, anyone expecting substantially better than that from the general market probably faces disappointment.
+Our job is to pile up yearly advantages over the performance of the Dow without worrying too much about
+whether the absolute results in a given year are a plus or a minus. I would consider a year in which we were
+down 15% and the Dow declined 25% to be much superior to a year when both the partnership and the Dow
+advanced 20%. I have stressed this point in talking with partners and have watched them nod their heads with
+varying degrees of enthusiasm. It is most important to me that you fully understand my reasoning in this regard
+and agree with me not only in your cerebral regions, but also down in the pit of your stomach.
+For the reasons outlined in my method of operation, our best years relative to the Dow are likely to be in
+declining or static markets. Therefore, the advantage we seek will probably come in sharply varying amounts.
+There are bound to be years when we are surpassed by the Dow, but if over a long period we can average ten
+percentage points per year better than it, I will feel the results have been satisfactory.
+Specifically, if the market should be down 35% or 40% in a year (and I feel this has a high probability of
+occurring one year in the next ten--no one knows which one), we should be down only 15% or 20%. If it is more
+or less unchanged during the year, we would hope to be up about ten percentage points. If it is up 20% or more,
+we would struggle to be up as much. The consequence of performance such as this over a period of years would
+mean that if the Dow produces a 5% to 7% per year overall gain compounded, I would hope our results might be
+15% to 17% per year.
+The above expectations may sound somewhat rash, and there is no question but that they may appear very much
+so when viewed from the vantage point of 1965 or 1970. It may turn out that I am completely wrong. However,
+I feel the partners are certainly entitled to know what I am thinking in this regard even though the nature of the
+business is such as to introduce a high probability of error in such expectations. In anyone year, the variations
+may be quite substantial. This happened in 1961, but fortunately the variation was on the pleasant side. They
+won't all be!
+Miscellaneous
+We are now installed in an office at 810 Kiewit Plaza with a first-class secretary, Beth Henley, and an associate
+with considerable experience in my type of securities, Bill Scott. My father is sharing office space with us (he
+also shares the expenses) and doing a brokerage business in securities. None of our brokerage is done through
+him so we have no "vicuna coat" situation.
+Overall, I expect our overhead, excluding interest on borrowings and Nebraska Intangibles Tax, to run less than
+0.5 of 1% of net assets. We should get our money's worth from this expenditure, and you are most cordially
+invited to drop in and see how the money is being spent.
+With over 90 partners and probably 40 or so securities, you can understand that it is quite a welcome relief to me
+to shake loose from some of the details.
+We presently have partners residing in locations from California to Vermont, and net assets at the beginning of
+1962 amounted to $ 7,178,500.00. Susie and I have an interest in the partnership amounting to $1,025,000.00,
+and other relatives of mine have a combined interest totaling $782,600.00. The minimum for new partners last
+year was $25,000, but I am giving some thought to increasing it this year.
+Peat, Marwick, Mitchell & Company did an excellent job of expediting the audit, providing tax figures much
+earlier than in the past. They assure me this performance can be continued.
+Let me hear from you regarding questions you may have on any aspects of this letter, your audit, status of your
+partnership interest, etc. that may puzzle you.
+Cordially Warren E. Buffett.
+
+APPENDIX
+Partnerships Operating Throughout 1961
+Partnership 1/1/61 Capital at
+Market
+Overall Gain in 1961* Percentage Gain
+Buffett Associates 486,874.27 225,387.80 46.3%
+Buffett Fund 351,839.29 159,696.93 45.4%
+Dacee 235,480.31 116,504.47 49.5%
+Emdee 140,005.24 67,387.28 48.1%
+Glenoff 78,482.70 39,693.80 50.5%
+Mo-Buff 325,844.71 149,163.71 45.8%
+Underwood 582,256.82 251,951.26 43.3%
+2,200,783.34 1,009,785.25 45.9%
+Partnerships Started in 1961
+Partnership Paid-in Overall Gain in 1961 Percentage Gain
+Ann Investments 100,100 (1-30-61) 35,367.93 35.3%
+Buffett-TD 250,100 ($200,100 on 3-8-
+61, $50,000 on 5-31-61)
+70,294.08 28.1%
+Buffett-Holland 125,100 (5-17-61) 16,703.76 13.3%
+* Gain in net assets at market values plus payments to limited partners during year.
diff --git a/annual-letters/bpl-1962.txt b/annual-letters/bpl-1962.txt
new file mode 100644
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--- /dev/null
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@@ -0,0 +1,141 @@
+BUFFETT PARTNERSHIP, LTD.
+810 KIEWIT PLAZA
+OMAHA 31, NEBRASKA
+July 6, 1962
+A Reminder:
+In my letter of January 24, 1962 reporting on 1961, I inserted a section entitled. "And a Prediction." While I
+have no desire to inflict cruel and unusual punishment upon my readers, nevertheless, a reprinting of that
+section, in its entirety, may be worthwhile:
+
+The First Half of 1962:
+Between yearend 1961 and June 30, 1962 the Dow declined from 731.14 to 561.28. If one had owned the Dow
+during this period, dividends of approximately $11.00 would have been received so that overall a loss of 21.7%
+would have been the result of investing in the Dow. For the statistical minded, Appendix A gives the results of
+the Dow by years since formation of the predecessor partnerships.
+As stated above, a declining Dow gives us our chance to shine and pile up the percentage advantages which,
+coupled with only an average performance during advancing markets, will give us quite satisfactory long-term
+results. Our target is an approximately 1/2% decline for each 1% decline in the Dow and if achieved, means we
+have a considerably more conservative vehicle for investment in stocks than practically any alternative.
+As outlined in Appendix B, showing combined predecessor partnership results, during the first half of 1962 we
+had one of the best periods in our history, achieving a minus 7.5% result before payments to partners, compared
+to the minus 21.7% overall result on the Dow. This 14.2 percentage points advantage can be expected to widen
+during the second half if the decline in the general market continues, but will probably narrow should the market
+turn upward. Please keep in mind my continuing admonition that six-months' or even one-year's results are not
+to be taken too seriously. Short periods of measurement exaggerate chance fluctuations in performance. While
+circumstances contributed to an unusually good first half, there are bound to be periods when we do relatively
+poorly. The figures for our performance involve no change in the valuation of our controlling interest in
+Dempster Mill Manufacturing Company, although developments in recent months point toward a probable
+higher realization.
+Investment Companies during the First Half:
+Past letters have stressed our belief that the Dow is no pushover as a yardstick for investment performance. To
+the extent that funds are invested in common stocks, whether the manner of investment be through investment
+companies, investment counselors, bank trust departments, or do-it-yourself, our belief is that the overwhelming
+majority will achieve results roughly comparable to the Dow. Our opinion is that the deviations from the Dow
+are much more likely to be toward a poorer performance than a superior one.
+To illustrate this point, we have continually measured the Dow and limited partners' results against the two
+largest open-end investment companies (mutual funds) following a program of common stock investment and
+the two largest closed-end investment companies. The tabulation in Appendix C shows the five -years' results,
+and you will note the figures are extraordinarily close to those of the Dow. These companies have total assets of
+about $3.5 billion.
+In the interest of getting this letter out promptly, we are mailing it before results are available for the closed-end
+companies. However, the two mutual funds both did poorer than the Dow, with Massachusetts Investors Trust
+having a minus 23% overall performance, and Investors Stock Fund realizing a minus 25.4%. This is not
+unusual as witness the lead article in the WALL STREET JOURNAL of June 13, 1962 headed "Funds vs.
+Market.” Of the 17 large common stock funds studied, everyone had a record poorer than the Dow from the
+peak on the Dow of 734, to the date of the article, although in some cases the margin of inferiority was minor.
+Buffett Partnership Letters 1957 to 1970
+www.csinvesting.wordpress.com studying/teaching/investing Page 28
+Particularly hard hit in the first half were the so-called “growth” funds which, almost without exception, were
+down considerably more than the Dow. The three large "growth" (the quotation marks are more applicable now)
+funds with the best record in the preceding few years, Fidelity Capital Fund, Putnam Growth Fund, and
+Wellington Equity Fund averaged an overall minus 32.3% for the first half. It is only fair to point out that
+because of their excellent records in 1959-61, their overall performance to date is still better than average, as it
+may well be in the future. Ironically, however, this earlier superior performance had caused such a rush of new
+investors to come to them that the poor performance this year was experienced by very many more holders than
+enjoyed the excellent performance of earlier years. This experience tends to confirm my hypothesis that
+investment performance must be judged over a period of time with such a period including both advancing and
+declining markets. There will continue to be both; a point perhaps better understood now than six months ago.
+In outlining the results of investment companies, I do so not because we operate in a manner comparable to
+them or because our investments are similar to theirs. It is done because such funds represent a public batting
+average of professional, highly-paid investment management handling a very significant $20 billion of
+securities. Such management, I believe, is typical of management handling even larger sums. As an alternative
+to an interest in the partnership, I believe it reasonable to assume that many partners would have investments
+managed similarly.
+Asset Values:
+The above calculations of results are before allocation to the General Partner and monthly payments to partners.
+Of course, whenever the overall results for the year are not plus 6% on a market value basis (with deficiencies
+carried forward) there is no allocation to the General Partner. Therefore, non-withdrawing partners have had a
+decrease in their market value equity during the first six months of 7.5% and partners who have withdrawn at
+the rate of 6% per annum have had a decrease in their market value equity during the first half of 10.5%. Should
+our results for the year be less than plus 6% (and unless there should be a material advance in the Dow, this is
+very probable) partners receiving monthly payments will have a decrease in their market value equity at
+December 31, 1962. This means that monthly payments at 6% on this new market equity next year will be on a
+proportionately reduced basis. For example, if our results were an overall minus 7% for the year, a partner
+receiving monthly payments who had a market value interest of $100,000 on January 1, 1962 would have an
+equity at December 31, 1962 of $87,000. This reduction would arise from the minus 7% result, or $7, 000 plus
+monthly payments of $500 for an additional $6,000. Thus, with $87,000 of market equity on January 1, 1963,
+monthly payments next year would be $435.00.
+None of the above, of course, has any applicability to advance payments received during 1962 which do not
+participate in profits or losses, but earn a straight 6%.
+APPENDIX A
+DOW-JONES INDUSTRIAL AVERAGE
+Year Closing Dow Change for
+Year
+Dow Dividend Overall
+Result from
+Dow
+Percentage
+Result
+1956 499.47 -- -- -- --
+1957 435.69 -63.78 21.61 -42.17 -8.4%
+1958 583.65 147.96 20.00 167.96 38.5%
+1959 679.36 95.71 20.74 116.45 20.0%
+1960 615.89 63.47 21.36 42.11 -6.2%
+1961 731.14 115.25 22.61 137.86 22.4%
+6/30/62 561.28 169.86 11.00 Est. -158.86 -21.7%
+
+APPENDIX B
+PARTNERSHIP PERFORMANCE
+Year Partnership Result (1) Limited Partners’ Results (2)
+1957 10.4% 9.3%
+1958 40.9% 32.2%
+1959 25.9% 20.9%
+1960 22.8% 18.6%
+1961 45.9% 35.9%
+6/30/62 -7.5% -7.5%
+(1) For 1957-61 consists of combined results of all predecessor limited partnerships operating throughout entire
+year after all expenses but before distributions to partners or allocations to the general partners.
+(2) For 1957-61 computed on basis of preceding column of partnership results allowing for allocation to general
+partner based upon present partnership agreement.
+APPENDIX C
+YEARLY RESULTS
+Year Mass. Inv. Trust
+(1)
+Investors Stock
+(1)
+Lehman (2) Tri-Cont. (2)
+1957 -11.4% -12.4% -11.4% -2.4%
+1958 42.7% 47.5% 40.8% 33.2%
+1959 9.0% 10.3% 8.1% 8.4%
+1960 -1.0% -0.6% 2.5% 2.8%
+1961 25.6% 24.9% 23.6% 22.5%
+6/30/92 23.0% -25.4% N.A. N.A.
+(1) Computed from changes in asset value plus any distributions to holders of record during year.
+
+(2) From Moody's Bank & Finance Manual - 1962.
+CUMULATIVE RESULTS
+Years Mass.
+Inv.
+Trust
+Investors
+Stock
+Lehman Tri-Cont. Dow Limited
+Partners
+1957 -11.4% -12.4% -11.4% -2.4% -8.4% 9.3%
+1957-58 26.4% 29.2% 24.7% 30.0% 26.9% 44.5%
+1957-59 37.8% 42.5% 34.8% 40.9% 52.3% 74.7%
+1957-60 36.4% 41.6% 38.2% 44.8% 42.9% 107.2
+1957-61 71.4% 76.9% 70.8% 77.4% 74.9% 181.6
+1957-6/30/62 31.9% 32.0% N.A. N.A. 37.0% 160.5%
+
+
diff --git a/annual-letters/bpl-1962b.txt b/annual-letters/bpl-1962b.txt
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+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
+WEB:bf
+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.
diff --git a/annual-letters/bpl-1963.txt b/annual-letters/bpl-1963.txt
new file mode 100644
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+++ b/annual-letters/bpl-1963.txt
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+BUFFETT PARTNERSHIP, LTD.
+810 KIEWIT PLAZA
+OMAHA 31, NEBRASKA
+January 18, 1963
+The Ground Rules
+Some partners have confessed (that's the proper word) that they sometimes find it difficult to wade through my
+entire annual letter. Since I seem to be getting more long-winded each year, I have decided to emphasize certain
+axioms on the first pages. Everyone should be entirely clear on these points. To most of you this material will
+seem unduly repetitious, but I would rather have nine partners out of ten mildly bored than have one out of ten
+with any basic misconceptions.
+1. In no sense is any rate of return guaranteed to partners. Partners who withdraw one-half of 1% monthly
+are doing just that--withdrawing. If we earn more than 6% per annum over a period of years, the
+withdrawals will be covered by earnings and the principal will increase. If we don't earn 6%, the
+monthly payments are partially or wholly a return of capital.
+2. Any year in which we fail to achieve at least a plus 6% performance will be followed by a year when
+partners receiving monthly payments will find those payments lowered.
+3. Whenever we talk of yearly gains or losses, we are talking about market values; that is, how we stand
+with assets valued at market at yearend against how we stood on the same basis at the beginning of the
+year. This may bear very little relationship to the realized results for tax purposes in a given year.
+4. Whether we do a good job or a poor job is not to be measured by whether we are plus or minus for the
+year. It is instead to be measured against the general experience in securities as measured by the Dow-
+Jones Industrial Average, leading investment companies, etc. If our record is better than that of these
+yardsticks, we consider it a good year whether we are plus or minus. If we do poorer, we deserve the
+tomatoes.
+5. While I much prefer a five-year test, I feel three years is an absolute minimum for judging performance.
+It is a certainty that we will have years when the partnership performance is poorer, perhaps
+substantially so, than the Dow. If any three-year or longer period produces poor results, we all should
+start looking around for other places to have our money. An exception to the latter statement would be
+three years covering a speculative explosion in a bull market.
+6. 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.
+7. I cannot promise results to partners. What I can and do promise is that:
+a. Our investments will be chosen on the basis of value, not popularity;
+b. That we will attempt to bring risk of permanent capital loss (not short-term quotational loss) to an
+absolute minimum by obtaining a wide margin of safety in each commitment and a diversity of
+commitments; and
+c. My wife, children and I will have virtually our entire net worth invested in the partnership.
+Our Performance in 1962
+I have consistently told partners that we expect to shine on a relative basis during minus years for the Dow,
+whereas plus years of any magnitude may find us blushing. This held true in 1962.
+Because of a strong rally in the last few months, the general market as measured by the Dow really did not have
+such a frightening decline as many might think. From 731 at the beginning of the year, it dipped to 535 in June,
+but closed at 652. At the end of 1960, the Dow stood at 616, so you can see that while there has been a good
+deal of action the past few years, the investing public as a whole is not too far from where it was in 1959 or
+1960. If one had owned the Dow last year (and I imagine there are a few people playing the high flyers of 1961
+who wish they had), they would have had a shrinkage in market value of 79.04 or 10.8%. However, dividends of
+approximately 23.30 would have been received to bring the overall results from the Dow for the year to minus
+7.6%. Our own overall record was plus 13.9%. Below we show the year-by-year performance of the Dow, the
+partnership before allocation to the general partner, and the limited partners' results for all full years of Buffett
+Partnership, Ltd.'s and predecessor partnerships' activities:
+Year Overall Results from
+Dow
+Partnership Results
+(1)
+Limited Partners
+Results (2)
+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%
+(1) For 1957-61 consists of combined results of all predecessor limited partnerships operating throughout entire
+year after all expenses but before distributions to partners or allocations to the general partner.
+(2) For 1957-61 computed on basis of preceding column of partnership results allowing for allocation to general
+partner based upon present partnership agreement.
+The following table shows the cumulative or compounded results in the same three categories, as well as the
+average annual compounded rate:
+Year Overall Results
+from Dow
+Partnership Results Limited Partners
+Results
+1957 -8.4% 10.4% 9.3%
+1957-58 26.9% 55.6% 44.5%
+1957-59 52.3% 95.9% 74.7%
+1957-60 42.9% 140.6% 107.2%
+1957-61 74.9% 251.0% 181.6%
+1957-62 61.6% 299.8% 215.1%
+Annual Compounded Rate 8.3% 26.0% 21.1%
+My (unscientific) opinion is that a margin of ten percentage points per annum over the Dow is the very
+maximum that can be achieved with invested funds over any long period of years, so it may be well to mentally
+modify some of the above figures.
+Partners have sometimes expressed concern as to the effect of size upon performance. This subject was reflected
+upon in last year’s annual letter. The conclusion reached was that there were some situations where larger sums
+helped and some where they hindered, but on balance, I did not feel they would penalize performance. I
+promised to inform partners if my conclusions on this should change. At the beginning of 1957, combined
+limited partnership assets totaled $303,726 and grew to $7,178,500 at the beginning or 1962. To date, anyway,
+our margin over the Dow has indicated no tendency to narrow as funds increase.
+Investment Companies
+Along with the results of the Dow, we have regularly included the tabulations on the two largest open-end
+investment companies (mutual funds) following a common stock policy, and the two largest diversified closed-
+end investment companies. These four companies, Massachusetts Investors Trust, Investors Stock Fund, Tri-
+Continental Corp. and Lehman Corp. manage over $3 billion and are probably typical of most of the $20 billion
+investment company industry. My opinion is that their results parallel those of most bank trust departments and
+investment counseling organizations which handle, in aggregate, vastly greater sums.
+The purpose of this tabulation, which is shown below, is to illustrate that the Dow is no pushover as an index of
+investment achievement. The advisory talent managing just the four companies shown commands annual fees of
+approximately $7 million and this represents a very small fraction of the industry. Nevertheless, the public
+batting average of this highly-paid talent indicates results slightly less favorable than the Dow. In no sense is
+this statement intended as criticism. Within their institutional framework and handling the many billions of
+dollars involved, I consider such average results virtually the only possible ones. Their merits lie in other than
+superior results.
+Both our portfolio and method of operation differ substantially from the companies mentioned above. However,
+most partners, as an alternative to their interest in the partnership would probably have their funds invested in
+media producing results comparable with investment companies, and I, therefore feel they offer a meaningful
+test of performance.
+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% -13.0% -10.0% -7.6% 11.9%
+(1) Computed from changes in asset value plus any distributions to holders of record during year.
+(2) From 1962 Moody's Bank & Finance Manual for 1957-61. Estimated for 1962.
+COMPOUNDED
+Year Mass. Inv.
+Trust
+Investor
+Stock
+Lehman Tri-Cont. Dow Limited
+Partners
+1957 -11.4% -12.4% -11.4% -2.4% -8.4% 9.3%
+1957-58 26.4% 29.2% 24.7% 30.0% 26.9% 44.5%
+1957-59 37.8% 42.5% 34.8% 40.9% 52.3% 74.7%
+1957-60 36.4% 41.6% 38.2% 44.8% 42.9% 107.2%
+1957-61 71.3% 76.9% 70.8% 77.4% 74.9% 181.6%
+1957-62 54.5% 53.2% 48.6% 59.7% 61.6% 215.1%
+Annual
+Compounded
+Rate
+7.5% 7.4% 6.8% 8.1% 8.3% 21.1%
+The Joys of Compounding
+I have it from unreliable sources that the cost of the voyage Isabella originally underwrote for Columbus was
+approximately $30,000. This has been considered at least a moderately successful utilization of venture capital.
+Without attempting to evaluate the psychic income derived from finding a new hemisphere, it must be pointed
+out that even had squatter's rights prevailed, the whole deal was not exactly another IBM. Figured very roughly,
+the $30,000 invested at 4% compounded annually would have amounted to something like $2,000,000,000,000
+(that's $2 trillion for those of you who are not government statisticians) by 1962. Historical apologists for the
+Indians of Manhattan may find refuge in similar calculations. Such fanciful geometric progressions illustrate the
+value of either living a long time, or compounding your money at a decent rate. I have nothing particularly
+helpful to say on the former point.
+The following table indicates the compounded value of $100,000 at 5%, 10% and 15% for 10, 20 and 30 years.
+It is always startling to see how relatively small differences in rates add up to very significant sums over a
+period of years. That is why, even though we are shooting for more, we feel that a few percentage points
+advantage over the Dow is a very worthwhile achievement. It can mean a lot of dollars over a decade or two.
+5% 10% 15%
+10 Years $162,889 $259,374 $404,553
+20 Years $265,328 $672,748 $1,636,640
+30 Years $432,191 $1,744,930 $6,621,140
+Our Method of Operation
+Our avenues of investment break down into three categories. These categories have different behavior
+characteristics, and the way our money is divided among them will have an important effect on our results,
+relative to the Dow, in any given year. The actual percentage division among categories is to some degree
+planned, but to a great extent, accidental, based upon availability factors.
+The first section consists of generally undervalued securities (hereinafter called “generals”) where we have
+nothing to say about corporate policies and no timetable as to when the undervaluation may correct itself .Over
+the years, this has been our largest category of investment, and more money has been made here than in either of
+the other categories. We usually have fairly large positions (5% to 10% of our total assets) in each of five or six
+generals, with smaller positions in another ten or fifteen.
+Sometimes these work out very fast; many times they take years. It is difficult at the time of purchase to know
+any compelling reason why they should appreciate in price. However, because of this lack of glamour or
+anything pending which might create immediate favorable market action, they are available at very cheap prices.
+A lot of value can be obtained for the price paid. This substantial excess of value creates a comfortable margin
+of safety in each transaction. Combining this individual margin of safety with a diversity of commitments
+creates a most attractive package of safety and appreciation potential. We do not go into these generals with the
+idea of getting the last nickel, but are usually quite content selling out at some intermediate level between our
+purchase price and what we regard as fair value to a private owner.
+Many times generals represent a form of "coattail riding" where we feel the dominating stockholder group has
+plans for the conversion of unprofitable or under-utilized assets to a better use. We have done that ourselves in
+Sanborn and Dempster, but everything else equal we would rather let others do the work. Obviously, not only do
+the values have to be ample in a case like this, but we also have to be careful whose coat we are holding.
+The generals tend to behave market-wise very much in sympathy with the Dow. Just because something is cheap
+does not mean it is not going to go down. During abrupt downward movements in the market, this segment may
+very well go down percentage-wise just as much as the Dow. Over a period of years, I believe the generals will
+outperform the Dow, and during sharply advancing years like 1961. This is the section of our portfolio that turns
+in the best results. It is, of course, also the most vulnerable in a declining market, and in 1962, not only did we
+not make any money out of our general category, but I am even doubtful if it did better than the Dow.
+Our second category consists of "work-outs. These are securities whose financial results depend on corporate
+action rather than supply and demand factors created by buyers and sellers of securities. In other words, they are
+securities with a timetable where we can predict, within reasonable error limits, when we will get how much and
+what might upset the applecart. Corporate events such as mergers, liquidations, reorganizations, spin-offs, etc., I
+lead to work-outs. An important source in recent years has been sell-outs by oil producers to major integrated oil
+companies.
+This category will produce reasonably stable earnings from year to year, to a large extent irrespective of the
+course of the Dow. Obviously, if we operate throughout a year with a large portion of our portfolio in work-outs,
+we will look extremely good if it turns out to be a declining year for the Dow, or quite bad if it is a strongly
+advancing year.
+We were fortunate in that we had a good portion of our portfolio in work outs in 1962. As I have said before,
+this was not due to any notion on my part as to what the market would do, but rather because I could get more of
+what I wanted in this category than in the generals. This same concentration in work-outs hurt our performance
+during the market advance in the second half of the year.
+Over the years, work-outs have provided our second largest category. At any given time, we may be in five to
+ten of these; some just beginning and others in the late stage of their development. I believe in using borrowed
+money to offset a portion of our work-out portfolio, since there is a high degree of safety in this category in
+terms of both eventual results and intermediate market behavior. For instance, you will note when you receive
+our audit report, that we paid $75,000 of interest to banks and brokers during the year. Since our borrowing was
+at approximately 5%, this means we had an average of $1,500,000 borrowed from such sources. Since 1962 was
+a down year in the market, you might think that such borrowing would hurt results. However, all of our loans
+were to offset work-outs, and this category turned in a good profit for the year. Results, excluding the benefits
+derived from the use of borrowed money, usually fall in the 10% to 20% per annum range. My self-imposed
+standard limit regarding borrowing is 25% of partnership net worth, although something extraordinary could
+result in modifying this for a limited period of time.
+You will note on our yearend balance sheet (part of the audit you will receive) securities sold short totaling
+some $340,000. Most of this occurred in conjunction with a work-out entered into late in the year. In this case,
+we had very little competition for a period of time and were able to create a 10% or better profit (gross, not
+annualized) for a few months tie-up of money. The short sales eliminated the general market risk.
+The final category is I “control” situations, where we either control the company or take a very large position
+and attempt to influence policies of the company. Such operations should definitely be measured on the basis of
+several years. In a given year, they may produce nothing as it is usually to our advantage to have the stock be
+stagnant market-wise for a long period while we are acquiring it. These situations, too, have relatively little in
+common with the behavior of the Dow. Sometimes, of course, we buy into a general with the thought in mind
+that it might develop into a control situation. If the price remains low enough for a long period, this might very
+well happen. Usually, it moves up before we have a substantial percentage of the company's stock, and we sell
+at higher levels and complete a successful general operation.
+Dempster Mill Manufacturing Company
+The high point of 1962 from a performance standpoint was our present control situation --73% owned Dempster
+Mill. Dempster has been primarily in farm implements (mostly items retailing for $1,000 or under), water
+systems, water well supplies and jobbed plumbing lines.
+The operations for the past decade have been characterized by static sales, low inventory turnover and virtually
+no profits in relation to invested capital.
+We obtained control in August, 1961 at an average price of about $28 per share, having bought some stock as
+low as $16 in earlier years, but the vast majority in an offer of $30.25 in August. When control of a company is
+obtained, obviously what then becomes all-important is the value of assets, not the market quotation for a piece
+of paper (stock certificate).
+Last year, our Dempster holding was valued by applying what I felt were appropriate discounts to the various
+assets. These valuations were based on their status as non-earning assets and were not assessed on the basis of
+potential, but on the basis of what I thought a prompt sale would produce at that date. Our job was to compound
+these values at a decent rate. The consolidated balance sheet last year and the calculation of fair value are shown
+below.
+(000’s omitted)
+Assets Book
+Figure
+Valued @ Adjusted
+Valuation
+Liabilities
+Cash $166 100% $166 Notes Payable $1,230
+Accts. Rec. (net) $1,040 85% $884 Other Liabilities $1,088
+Inventory $4,203 60% $2,522
+Ppd. Exp. Etc. $82 25% $21
+Current Assets $5,491 $3,593 Total Liabilities $2,318
+Cash Value Life ins.,
+etc.
+$45 100
+Est. net auction
+value
+$45 Net Work per Books: $4,601
+Net Plant Equipment $1383 $800 Net Work as
+Adjusted to Quickly
+Realizable Values
+$2,120
+Total Assets $6,919 $4,438 Shares outstanding
+60,146 Adj. Value
+per Share
+$35.25
+Dempster's fiscal year ends November 30th, and because the audit was unavailable in complete form, I
+approximated some of the figures and rounded to $35 per share last year.
+Initially, we worked with the old management toward more effective utilization of capital, better operating
+margins, reduction of overhead, etc. These efforts were completely fruitless. After spinning our wheels for about
+six months, it became obvious that while lip service was being given to our objective, either through inability or
+unwillingness, nothing was being accomplished. A change was necessary.
+A good friend, whose inclination is not toward enthusiastic descriptions, highly recommended Harry Bottle for
+our type of problem. On April 17, 1962 I met Harry in Los Angeles, presented a deal which provided for
+rewards to him based upon our objectives being met, and on April 23rd he was sitting in the president's chair in
+Beatrice.
+Harry is unquestionably the man of the year. Every goal we have set for Harry has been met, and all the
+surprises have been on the pleasant side. He has accomplished one thing after another that has been labeled as
+impossible, and has always taken the tough things first. Our breakeven point has been cut virtually in half, slow-
+moving or dead merchandise has been sold or written off, marketing procedures have been revamped, and
+unprofitable facilities have been sold.
+The results of this program are partially shown in the balance sheet below, which, since it still represents non-
+earning assets, is valued on the same basis as last year.
+(000’s omitted)
+Assets Book
+Figure
+Valued @ Adjusted
+Valuation
+Liabilities
+Cash $60 100% $60 Notes payable $0
+Marketable
+securities
+$758 Mrkt. 12/31/62 $834 Other liabilities $346
+Accts. Rec. (net) $796 85% $676 Total liabilities $346
+Inventory $1,634 60% $981
+Cash value life ins. $41 100% $41 Net Worth:
+Recoverable Income
+Tax
+$170 100% $170 Per Books $4,077
+Ppd. Exp. Etc. $14 25% $4 As Adjusted to quickly
+realizable values
+$3,125
+Add: proceeds from
+potential exercise of
+option to Harry Bottle
+$60
+Current Assets $3,473 $2,766
+Shares outstanding
+60,146
+Misc. Invest. $5 100% $5 Add: shs. Potentially
+outstanding under
+option 2000
+Total shs. 62,146
+Net Plant Equipment $945 Est. net auction
+value
+$700
+Adjusted value per
+share
+$51.26
+Total Assets $4,423 $3,471
+Three facts stand out: (1) Although net worth has been reduced somewhat by the housecleaning and writedowns
+($550,000 was written out of inventory; fixed assets overall brought more than book value), we have converted
+assets to cash at a rate far superior to that implied in our year-earlier valuation. (2) To some extent, we have
+converted the assets from the manufacturing business (which has been a poor business) to a business which we
+think is a good business --securities. (3) By buying assets at a bargain price, we don't need to pull any rabbits out
+of a hat to get extremely good percentage gains. This is the cornerstone of our investment philosophy: “Never
+count on making a good sale. Have the purchase price be so attractive that even a mediocre sale gives good
+results. The better sales will be the frosting on the cake.”
+On January 2, 1963, Dempster received an unsecured term loan of $1,250,000. These funds, together with the
+funds all ready "freed-up" will enable us to have a security portfolio of about $35 per share at Dempster, or
+considerably more than we paid for the whole company. Thus our present valuation will involve a net of about
+$16 per share in the manufacturing operation and $35 in a security operation comparable to that of Buffett
+Partnership, Ltd.
+We, of course, are devoted to compounding the $16 in manufacturing at an attractive rate and believe we have
+some good ideas as to how to accomplish this. While this will be easy if the business as presently conducted
+earns money, we have some promising ideas even if it shouldn't.
+It should be pointed out that Dempster last year was 100% an asset conversion problem and therefore,
+completely unaffected by the stock market and tremendously affected by our success with the assets. In 1963,
+the manufacturing assets will still be important, but from a valuation standpoint it will behave considerably
+more like a general since we will have a large portion of its money invested in generals pretty much identical
+with those in Buffett Partnership, Ltd. For tax reasons, we will probably not put workouts in Dempster.
+Therefore, if the Dow should drop substantially, it would have a significant effect on the Dempster valuation.
+Likewise, Dempster would benefit this year from an advancing Dow which would not have been the case most
+of last year.
+There is one final point of real significance for Buffett Partnership, Ltd. We now have a relationship with an
+operating man which could be of great benefit in future control situations. Harry had never thought of running
+an implement company six days before he took over. He is mobile, hardworking and carries out policies once
+they are set. He likes to get paid well for doing well, and I like dealing with someone who is not trying to figure
+how to get the fixtures in the executive washroom gold-plated.
+Harry and I like each other, and his relationship with Buffett Partnership, Ltd. should be profitable for all of us.
+The Question of Conservatism
+Because I believe it may be even more meaningful after the events of 1962 I would like to repeat this section
+from last year’s letter:
+"The above description of our various areas of operation may provide some clues as to how conservatively our
+portfolio is invested. Many people some years back thought they were behaving in the most conservative
+manner by purchasing medium or long-term municipal or government bonds. This policy has produced
+substantial market depreciation in many cases, and most certainly has failed to maintain or increase real buying
+power.
+"Conscious, perhaps overly conscious, of inflation, many people now feel that they are behaving in a
+conservative manner by buying blue chip securities almost regardless of price-earnings ratios, dividend yields,
+etc. Without the benefit of hindsight as in the bond example, I feel this course of action is fraught with danger.
+There is nothing at all conservative, in my opinion, about speculating as to just how high a multiplier a greedy
+and capricious public will put on earnings.
+You will not be right simply because a large number of people momentarily agree with you. You will not be
+right simply because important people agree with you. In many quarters the simultaneous occurrence of the two
+above factors is enough to make a course of action meet the test of conservatism.
+“You will be right, over the course of many transactions, if your hypotheses are correct, your facts are correct,
+and your reasoning is correct. True conservatism is only possible through knowledge and reason.
+I might add that in no way does the fact that our portfolio is not conventional prove that we are more
+conservative or less conservative than standard methods of investing. This can only be determined by examining
+the methods or examining the results.
+I feel the most objective test as to just how conservative our manner of investing is arises through evaluation of
+performance in down markets. Preferably these should involve a substantial decline in the Dow. Our
+performance in the rather mild declines of 1957 and 1960 would confirm my hypothesis that we invest in an
+extremely conservative manner. I would welcome any partner's suggesting objective tests as to conservatism to
+see how we stack up. We have never suffered a realized loss of more than ½ of 1% of total net assets and our
+ratio of total dollars of realized gains to total realized losses is something like 100 to 1. Of course, this reflects
+the fact that on balance we have been operating in an up market. However there have been many opportunities
+for loss transactions even in markets such as these (you may have found out about a few of these yourselves) so
+I think the above facts have some significance.
+In 1962, we did realize a loss on one commitment or 1.0% and our ratio or realized gains to losses was only
+slightly over 3 to 1. However, compared to more conventional (often termed conservative which is not
+synonymous) methods of common stock investing, it would appear that our method involved considerably less
+risk. Our advantage over the Dow was all achieved when the market was going down; we lost a bit of this edge
+on the way up.
+The Usual Prediction
+I am certainly not going to predict what general business or the stock market are going to do in the next year or
+two, since I don't have the faintest idea.
+I think you can be quite sure that over the next ten years, there are going to be a few years when the general
+market is plus 20% or 25% a few when it is minus on the same order, and a majority when it is in between. I
+haven’t any notion as to the sequence in which these will occur, nor do I think it is of any great importance for
+the long-term investor. If you will take the first table on page 3 and shuffle the years around, the compounded
+result will stay the same. If the next four years are going to involve, say, a +40%, -30%, +10% and –6%, the
+order in which they fall is completely unimportant for our purposes as long as we all are around at the end of the
+four years. Over a long period of years, I think it likely that the Dow will probably produce something like 5%
+per year compounded from a combination of dividends and market value gain. Despite the experience of the last
+decade, anyone expecting substantially better than that from the general market probably faces disappointment.
+Our job is to pile up yearly advantages over the performance of the Dow without worrying too much about
+whether the absolute results in a given year are a plus or a minus. I would consider a year in which we were
+down 15% and the Dow declined 25% to be much superior to a year when both the partnership and the Dow
+advanced 20%.
+For the reasons outlined in our method of operation, our best years relative to the Dow are likely to be in
+declining or static markets. Therefore, the advantage we seek will probably come in sharply varying amounts.
+There are bound to be years when we are surpassed by the Dow, but if over a long period we can average ten
+percentage points per year better than it, I will feel the results have been satisfactory.
+Specifically, if the market should be down 35% or 40% in a year (and I feel this has a high probability of
+occurring one year in the next ten --no one knows which one), we should be down only 15% or 20%. If it is
+more or less unchanged during the year, we would hope to be up about ten percentage points. If it is up 20% or
+more, we would struggle to be up as much. It is certainly doubtful we could match a 20% or 25% advance from
+the December 31, 1962 level. The consequence of performance such as this over a period of years would mean
+that if the Dow produces a 5% per year overall gain compounded, I would hope our results might be 15% per
+year.
+The above expectations may sound somewhat rash, and there is no question but that they may appear very much
+so when viewed from the vantage point of 1965 or 1970. Variations in any given year from the behavior
+described above would be wide, even if the long-term expectation was correct. Certainly, you have to recognize
+the possibility of substantial personal bias in such hopes.
+Miscellaneous
+This year marked the transition from the office off the bedroom to one a bit (quite a bit) more conventional.
+Surprising as it may seem, the return to a time clock life has not been unpleasant. As a matter of fact, I enjoy not
+keeping track of everything on the backs of envelopes.
+We are starting off this year with net assets of $9,405,400.00. At the start of 1962, Susie and I had three “non-
+marketable security” investments of other than nominal size, and two of these have been sold. The third will be
+continued indefinitely. From the proceeds of the two sales, we have added to our partnership interest so that we
+now have an interest of $1,377,400.00. Also, my three children, mother, father, two sisters, two brothers-in-law,
+father-in-law, three aunts, four cousins, five nieces and nephews have interests directly or indirectly totaling
+$893,600.00.
+Bill Scott who has fit into our operation splendidly has an interest (with his wife) of $167,400.00; A very large
+portion of his net worth. So we are all eating our own cooking.
+You will note from the auditor's certificate that they made a surprise check during the year and this will be a
+continuing part of their procedure. Peat, Marwick, Mitchell & Co. again did an excellent job on the audit,
+meeting our rather demanding time schedules.
+Susie was in charge of equipping the office which means we did not follow my “orange crate" approach to
+interior decorating. We have an ample supply of Pepsi on hand and look forward to partners dropping in.
+Beth Feehan continues to demonstrate why she is the high priestess of the CPS (certified professional secretary,
+that is) group.
+Partners did a wonderful job of cooperating in the return of agreements and commitment letters, and I am most
+appreciative of this. It makes life a lot easier. Enclosed you will find Schedule “A” to your partnership
+agreement. You will be receiving your audit and tax figures very soon, and if you have questions on any of this
+be sure to let me hear from you.
+Cordially,
+Warren E. Buffett
diff --git a/annual-letters/bpl-1963b.txt b/annual-letters/bpl-1963b.txt
new file mode 100644
index 0000000..6b1210f
--- /dev/null
+++ b/annual-letters/bpl-1963b.txt
@@ -0,0 +1,284 @@
+BUFFETT PARTNERSHIP, LTD.
+810 KIEWIT PLAZA
+OMAHA 31, NEBRASKA
+July 10, 1963
+First Half Performance
+During the first half of 1963, the Dow Jones Industrial Average (hereinafter called the "Dow") advanced from
+652.10 to 706.88. If one had owned the Dow during this period, dividends of $10.66 would have been received,
+bringing the overall return from the Dow during the first half to plus 10.0%.
+Our incantation has been: (1) that short-term results (less than three years) have little meaning, particularly in
+reference to an investment operation such as ours that devotes a portion of resources to control situations, and;
+(2) That our results relative to the Dow and other common-stock-form media, will be better in declining markets
+and may well have a difficult time just matching such media in bubbling markets.
+Nevertheless, our first-half performance, excluding any change in Dempster valuation (and its valuation did
+change --I'm saving this for dessert later in the letter) was plus 14%. This 14% is computed on total net assets
+(not non-Dempster assets) and is after expenses, but before monthly payments (to those who take them) to
+partners and allocation to the General Partner. Such allocations are academic on an interim basis, but if we were
+also plus 14% at yearend, the first 6% would be allocated to partners according to their capital, plus three-
+quarters of the balance of 8% (14% -6%), or an additional 6%, giving the limited partners a plus 12%
+performance.
+Despite the relatively pleasant results of the first half the admonitions stated two paragraphs earlier hold in full
+force. At plus 14% versus plus 10% for the Dow, this six months has been a less satisfactory period than the first
+half of 1962 when we were minus 7.5% versus minus 21.7% for the Dow. You should completely understand
+our thinking in this regard which has been emphasized in previous letters.
+During the first half we had an average net investment in "generals" (long positions in generals minus short
+positions in generals) of approximately $5,275,000. Our overall gain from this net investment in generals (for a
+description of our investment categories see the last annual letter) was about $1,100,000 for a percentage gain
+from this category of roughly 21%. This again illustrates the extent to which the allocation of our resources
+among various categories affects short-term results. In 1962 the generals were down for the year and only an
+outstanding performance by both of the other two categories, "work-outs" and "controls," gave us our unusually
+favorable results for that year.
+Now this year, our work-outs have done poorer than the Dow and have been a drag on performance, as they are
+expected to be in rising markets. While it would be very nice to be 100% in generals in advancing markets and
+100% in work-outs in declining markets, I make no attempt to guess the course of the stock market in such a
+manner. We consider all three of our categories to be good businesses on a long-term basis, although their short-
+term price behavior characteristics differ substantially in various types of markets. We consider attempting to
+gauge stock market fluctuations to be a very poor business on a long-term basis and are not going to be in it,
+either directly or indirectly through the process of trying to guess which of our categories is likely to do best in
+the near future.
+Investment Companies
+Shown below are the usual statistics on a cumulative basis for the Dow and Buffett Partnership. Ltd. (including
+predecessor partnerships) as well as for the two largest open-end (mutual funds) and two largest closed-end
+investment companies following a diversified common-stock investment policy:
+Year Dow Mass.Inv. Trust
+(1)
+Investors Stock
+(1)
+Tri-Cont. (2)
+1957 -8.4% -11.4% -12.4% -2.4%
+1957 – 58 26.9% 26.4% 29.2% 30.0%
+1957 – 59 52.3% 37.8% 42.5% 40.9%
+1957 – 60 42.9% 36.4% 41.6% 44.8%
+1957 – 61 74.9% 71.3% 76.9% 77.4%
+1957 – 62 61.6% 54.5% 53.2% 59.7%
+1957 – 6/30/63 77.8% 72.4% 69.3% 75.7%
+Annual
+Compounded Rate
+9.3% 8.7% 8.4% 9.1%
+Year Lehman (2) Partnership (3) Limited Partners
+(4)
+1957 -11.4% 10.4% 9.3%
+1957 – 58 24.7% 55.6% 44.5%
+1957 – 59 34.8% 95.9% 74.7%
+1957 – 60 38.2% 140.6% 107.2%
+1957 – 61 70.8% 251.0% 181.6%
+1957 – 62 46.2% 299.8% 215.1%
+1957 – 6/30/63 60.8% 355.8% 252.9%
+Annual
+Compounded Rate
+7.6% 26.3% 21.4%
+Footnotes :
+(1) Computed from changes in asset value plus any distributions to holders of record during year.
+(2) From 1963 Moody's Bank & Finance Manual for 1957-62. Estimated for first half 1963.
+(3) For 1957-61 consists of combined results of all predecessor limited partnerships operating throughout
+entire year after all expenses but before distributions to partners or allocations to the general partner.
+(4) For 1957-61 computed on basis of preceding column of partnership results allowing for allocation to
+general partner based upon present partnership agreement.
+The results continue to show that the most highly paid and respected investment advice has difficulty matching
+the performance of an unmanaged index of blue-chip stocks. This in no sense condemns these institutions or the
+investment advisers and trust departments whose methods, reasoning, and results largely parallel such
+investment companies. These media perform a substantial service to millions of investors in achieving adequate
+diversification, providing convenience and peace of mind, avoiding issues of inferior quality, etc. However,
+their services do not include (and in the great majority of cases, are not represented to include) the compounding
+of money at a rate greater than that achieved by the general market.
+Our partnership's fundamental reason for existence is to compound funds at a better-than-average rate with less
+exposure to long-term loss of capital than the above investment media. We certainly cannot represent that we
+will achieve this goal. We can and do say that if we don't achieve this goal over any reasonable period excluding
+an extensive speculative boom, we will cease operation.
+Dempster Mill Manufacturing Company
+In our most recent annual letter, I described Harry Bottle as the “man of the year”. If this was an understatement.
+Last year Harry did an extraordinary job of converting unproductive assets into cash which we then, of course,
+began to invest in undervalued securities. Harry has continued this year to turn under-utilized assets into cash,
+but in addition, he has made the remaining needed assets productive. Thus we have had the following
+transformation in balance sheets during the last nineteen months:
+November 30, 1961 (000’s omitted)
+Assets Book Figure Valued @ Adjusted
+Valuation
+Liabilities
+Cash $166 100% $166 Notes Payable $1,230
+Accts. Rec.
+(net)
+$1,040 85% $884 Other
+Liabilities
+$1,088
+Inventory $4,203 60% $2,522
+Ppd. Exp. Etc. $82 25% $21 Total
+Liabilities
+$2,318
+Current Assets $5,491 $3,593 Net Worth:
+Per Books $4,601
+Cash Value
+Life ins., etc.
+$45 100% $45 As adjusted to
+quickly
+realizable
+values
+$2,120
+Net Plant &
+equipment
+$1,383 Est. Net
+Auction Value
+$800
+Total Assets $6,919 $4,438 Share
+outstanding
+60,146. Adj.
+Value per
+Share
+$35.25
+Buffett Partnership Letters 1957 to 1970
+www.csinvesting.wordpress.com studying/teaching/investing Page 45
+November 30, 1962 (000’s omitted)
+Assets Book Figure Valued @ Adjusted
+Valuation
+Liabilities
+Cash $60 100% $60 Notes payable $0
+Marketable
+Securities
+$758 Mkt. 12/31/62 $834 Other
+liabilities
+$346
+Accts. Rec.
+(net)
+$796 85% $676 Total liabilities $346
+Inventory $1,634 60% $981
+Cash value life
+ins.
+$41 100% $41 Net Worth:
+Recoverable
+income tax
+$170 100% $170 Per books $4,077
+Ppd. Exp. Etc $14 25% $4 As adjusted to
+quickly
+realizable
+values
+$3,125
+Add: proceeds
+from potential
+exercise of
+option to
+Harry Bottle
+$60
+Current Assets $3,473 $2,766 $3,185
+Shares
+Outstanding
+60,146
+Misc. Invest. $5 100% $5 Add: shs.
+Potentially
+outstanding
+under option:
+2,000
+Total shs.
+62,146
+Net plant &
+equipment
+$945 Est. net
+auction value
+$700 Adj. Value per
+Share
+$51.26
+Total Assets $4,423 $3,471
+
+November 30, 1963 (000’s omitted)
+Assets Book Figure Valued @ Adjusted
+Valuation
+Liabilities
+Cash $144 100% $144 Notes payable
+(paid 7/3/63)
+$125
+Marketable
+Securities
+$1,772 Mkt. 6/30/63 $2,029 Other
+liabilities
+$394
+Accts. Rec.
+(net)
+$1,262 85% $1,073 Total
+Liabilities
+$519
+Inventory $977 60% $586
+Ppd. Exp. Etc $12 25% $3 Net Worth:
+Per books $4,582
+Current Assets $4,167 $3,835 As adjusted to
+quickly
+realizable
+values
+$4,028
+Misc. Invest $62 100% $62 Shares
+outstanding
+62,146
+Net plant &
+equip.
+$872 Est. net
+auction value
+$650 Adj. Value per
+share
+$64.81
+Total assets $5,101 $4,547
+I have included above the conversion factors we have previously used in valuing Dempster for B.P.L. purposes
+to reflect estimated immediate sale values of non-earning assets.
+As can be seen, Harry has converted the assets at a much more favorable basis than was implied by my
+valuations. This largely reflects Harry's expertise and, perhaps, to a minor degree my own conservatism in
+valuation.
+As can also be seen, Dempster earned a very satisfactory operating profit in the first half (as well as a substantial
+unrealized gain in securities) and there is little question that the operating business, as now conducted, has at
+least moderate earning power on the vastly reduced assets needed to conduct it. Because of a very important-
+seasonal factor and also the presence of a tax carry forward, however, the earning power is not nearly what
+might be inferred simply by a comparison of the 11/30/62 and 6/30/63 balance sheets. Partly because of this
+seasonality, but more importantly, because of possible developments in Dempster before 1963 yearend, we have
+left our Dempster holdings at the same $51.26 valuation used at yearend 1962 in our figures for B.P.L’s first
+half. However, I would be very surprised if it does not work out higher than this figure at yearend.
+One sidelight for the fundamentalists in our group: B.P.L. owns 71.7% of Dempster acquired at a cost of
+$1,262,577.27. On June 30, 1963 Dempster had a small safe deposit box at the Omaha National Bank containing
+securities worth $2,028,415.25. Our 71.7% share of $2,028,415.25 amounts to $1,454,373.70. Thus, everything
+above ground (and part of it underground) is profit. My security analyst friends may find this a rather primitive
+method of accounting, but I must confess that I find a bit more substance in this fingers and toes method than in
+any prayerful reliance that someone will pay me 35 times next year's earnings.
+
+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 the payment to a partnership interest at the end of the
+year, this should be the intent at the time of payment.
+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 unanticipated need for
+funds.
+The willingness to both borrow and lend at 6% may seem "un-Buffett-like.” We look at the withdrawal right as
+a means of giving some liquidity for unexpected needs and, as a practical matter, are reasonably sure it will be
+far more than covered by advance payments.
+Why then the willingness to pay 6% for advance payment money when we can borrow from commercial banks
+at substantially lower rates? For example, in the first half we obtained a substantial six-month bank loan at 4%.
+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 in 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. On June 30, 1963 we had advance withdrawals of $21,832.00 and advance
+payments of $562,437.11.
+Taxes
+There is some possibility that we may have fairly substantial realized gains this year. Of course, this may not
+materialize at all and actually does not have anything to do with our investment performance this year. I am an
+outspoken advocate of paying large amounts of income taxes -- at low rates. A tremendous number of fuzzy,
+confused investment decisions are rationalized through so-called "tax considerations.”
+My net worth is the market value of holdings less the tax payable upon sale. The liability is just as real as the
+asset unless the value of the asset declines (ouch), the asset is given away (no comment), or I die with it. The
+latter course of action would appear to at least border on a Pyrrhic victory.
+Investment decisions should be made on the basis of the most probable compounding of after-tax net worth with
+minimum risk. Any isolation of low-basis securities merely freezes a portion of net worth at a compounding
+factor identical with the assets isolated. While this may work out either well or badly in individual cases, it is a
+nullification of investment management. The group experience holding various low basis securities will
+undoubtedly approximate group experience on securities as a whole, namely compounding at the compounding
+rate of the Dow. We do not consider this the optimum in after-tax compounding rates.
+I have said before that if earnings from the partnership can potentially amount to a sizable portion of your total
+taxable income, the safe thing to do is to estimate this year the same tax you incurred last year. If you do this,
+you cannot run into penalties. In any event, tax liabilities for those who entered the partnership on 1/1/63 will be
+minimal because of the terms of our partnership agreement first allocating capital gains to those having an
+interest in unrealized appreciation.
+
+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 amendment to the partnership agreement, commitment
+letter for 1964, estimate of the 1963 tax situation, etc.
+My closing plea for questions regarding anything not clear always draws a blank. Maybe no one reads this far.
+Anyway, the offer is still open.
+Cordially,
+Warren E. Buffett
diff --git a/annual-letters/bpl-1963c.txt b/annual-letters/bpl-1963c.txt
new file mode 100644
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+++ b/annual-letters/bpl-1963c.txt
@@ -0,0 +1,48 @@
+BUFFETT PARTNERSHIP, LTD.
+810 KIEWIT PLAZA
+OMAHA 31, NEBRASKA
+November 6, 1963
+To My Partners for 1964:
+Enclosed is the usual assortment of Thanksgiving reading material:
+(1) Two copies of an amended partnership agreement for 1964. The one with the General Provisions
+attached is to be kept by you (exactly the same as last year) and the other single page agreement is to be
+signed, notarized and returned to us. Partners in Omaha may come in and obtain the notarization at our
+office.
+(2) A copy of that priceless treatise, "The Ground Rules,” I would like every partner to read this at least
+once a year, and it is going to be a regular item in my November package. Don't sign the partnership
+agreement unless you fully understand the concepts set forth and are in accord with them -- mentally
+and viscerally.
+(3) Two copies of the commitment letter for 1964, one to be kept by you and one returned to us. You may
+amend this commitment letter right up to midnight, December 31st, so get it back to us early, and if it
+needs to be changed, just let us know by letter or phone.
+Any withdrawals will be paid immediately after January 1st. You may withdraw any amount you desire from
+$100 up to your entire equity. Similarly, additions can be for any amount and should reach us by January 10th.
+In the event you are disposing of anything, this will give you a chance to have the transaction in 1964 if that
+appears to be advantageous for tax reasons. If additions reach us in November, they take on the status of
+advance payments and draw interest at the rate of 6% until yearend. This is not true of additions reaching us in
+December.
+Complete tax information for your 1963 return will be in your hands by January 25th. 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.
+At the end of October, the overall result from the Dow for 1963 was plus 18.8%. We have had a good year in all
+three categories, generals, work-outs and controls. A satisfactory sale on a going concern basis of Dempster Mill
+Manufacturing operating assets was made about a month ago. I will give the full treatment to the Dempster story
+in the annual letter, perhaps climaxed by some lyrical burst such as “Ode to Harry Bottle.” While we always had
+a built-in profit in Dempster because of our bargain purchase price, Harry accounted for several extra servings
+of dessert by his extraordinary job. Harry, incidentally, has made an advance payment toward becoming a
+limited partner in 1964-- we consider this the beginning, not the end.
+However, 1963 has not been all Dempster. While a great deal can happen the last two months and therefore
+interim results should not be taken too seriously, at the end of October the overall gain for the partnership was
+about 32%. Based on the allocation embodied in our agreement, this works out to plus 25 1/2% for the limited
+partners before monthly payments to those who take them. Of our approximate $3 million gain, something over
+$2 million came from marketable securities and a little less than $1 million from Dempster operating assets. The
+combined gain from our single best general and best work-out situation approximated the gain on the Dempster
+operating assets.
+You should be aware that if our final results relative to the Dow for 1963 are as favorable as on October 31st, I
+will regard it as an abnormal year. I do not consider a 13.2 percentage point margin to be in the cards on a long
+term basis. A considerably more moderate annual edge over the Dow will be quite satisfactory.
+Cordially
+Warren E. Buffett
+P/S. Last year we announced there would be no prizes for the last ones to get the material back to us. This
+continues to be our policy. Save us some last minute scurrying by getting your agreement and commitment letter
+back pronto. Give Bill or me a call if we can be of any help. Thanks!
diff --git a/annual-letters/bpl-1964.txt b/annual-letters/bpl-1964.txt
new file mode 100644
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+++ b/annual-letters/bpl-1964.txt
@@ -0,0 +1,433 @@
+BUFFETT PARTNERSHIP, LTD.
+810 KIEWIT PLAZA
+OMAHA 31, NEBRASKA
+January 18, 1964
+Our Performance in 1963
+1963 was a good year. It was not a good year because we had an overall gain of $3,637,167 or 38.7% on our
+beginning net assets, pleasant as that experience may be to the pragmatists in our group. Rather it was a good
+year because our performance was substantially better than that of our fundamental yardstick --the Dow-Jones
+Industrial Average (hereinafter called the “Dow”). If we had been down 20% and the Dow had been down 30%,
+this letter would still have begun “1963 was a good year.” Regardless of whether we are plus or minus in a
+particular year, if we can maintain a satisfactory edge on the Dow over an extended period of time, our long
+term results will be satisfactory -- financially as well as philosophically.
+To bring the record up to date, the following summarizes the year-by-year performance of the Dow, the
+performance of the Partnership before allocation to the general partner, and the limited partners' results for all
+full years of BPL's and predecessor partnerships' activities:
+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 20.7% 38.7% 30.5%
+(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.
+(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.
+One wag among the limited partners has suggested I add a fourth column showing the results of the general
+partner --let's just say he, too, has an edge on the Dow.
+The following table shows the cumulative or compounded results based on the preceding table:
+Year Overall Results From
+Dow
+Partnership Results Limited Partners’
+Results
+1957 -8.4% 10.4% 9.3%
+1957 – 58 26.9% 55.6% 44.5%
+1957 – 59 52.3% 95.9% 74.7%
+1957 – 60 42.9% 140.6% 107.2%
+1957 – 61 74.9% 251.0% 181.6%
+1957 – 62 61.6% 299.8% 215.1%
+1957 – 63 95.1% 454.5% 311.2%
+Annual Compounded
+Rate
+10.0% 27.7% 22.3%
+It appears that we have completed seven fat years. With apologies to Joseph we shall attempt to ignore the
+biblical script. (I've never gone overboard for Noah's ideas on diversification either.)
+In a more serious vein, I would like to emphasize that, in my judgment; our 17.7 margin over the Dow shown
+above is unattainable over any long period of time. A ten percentage point advantage would be a very
+satisfactory accomplishment and even a much more modest edge would produce impressive gains as will be
+touched upon later. This view (and it has to be guesswork -- informed or otherwise) carries with it the corollary
+that we must expect prolonged periods of much narrower margins over the Dow as well as at least occasional
+years when our record will be inferior (perhaps substantially so) to the Dow.
+Much of the above sermon is reflected in "The Ground Rules" sent to everyone in November, but it can stand
+repetition.
+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 closed-
+end investment companies. These four companies, Massachusetts Investors Trust, Investors Stock Fund, Tri-
+Continental Corp. and Lehman Corp. manage about $4 billion and are probably typical of most of the $25
+billion investment company industry. My opinion is that their results roughly parallel those of the vast majority
+or other investment advisory organizations which handle, in aggregate, vastly greater sums.
+The purpose or this tabulation, which is shown below, is to illustrate that the Dow is no pushover as an index or
+investment achievement. The advisory talent managing just the four companies shown commands' annual fees
+of over $7 million, and this represents a very small fraction of the industry. The public batting average of this
+highly-paid talent indicates they achieved results slightly less favorable than the Dow.
+Both our portfolio and method of operation differ substantially from the investment companies in the table.
+However, most partners, as an alternative to their interest in the Partnership would probably have their funds
+invested in media producing results comparable with investment companies, and I, therefore, feel they offer a
+meaningful standard of performance.
+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% 23.8% 19.5% 20.7% 30.5%
+(1) Computed from changes in asset value plus any distributions to holders of record during year.
+(2) From 1963 Moody's Bank & Finance Manual for 1957-62; Estimated for 1963.
+COMPOUNDED
+Year Mass. Inv.
+Trust
+Investors
+Stock
+Lehman Tri-Cont. Dow Limited
+Partners
+1957 -11.4% -12.4% -11.4% -2.4% -8.4% 9.3%
+1957 – 58 26.4% 29.2% 24.7% 30.0% 26.9% 44.5%
+1957 – 59 37.8% 42.5% 34.8% 40.9% 52.3% 74.7%
+1957 – 60 36.4% 41.6% 38.2% 44.8% 42.9% 107.2%
+1957 – 61 71.3% 76.9% 70.8% 77.4% 74.9% 181.6%
+1957 – 62 54.5% 53.2% 46.2% 59.7% 61.6% 215.1%
+1957 – 63 85.4% 78.5% 81.0% 90.8% 95.1% 311.2%
+Annual
+Compounded
+Rate
+9.2% 8.6% 8.8% 9.7% 10.0% 22.3%
+The Dow, of course, is an unmanaged index, and it may seem strange to the reader to contemplate the high
+priests of Wall Street striving vainly to surpass or even equal it. However, this is demonstrably the case.
+Moreover, such a failure cannot be rationalized by the assumption that the investment companies et al are
+handling themselves in a more conservative manner than the Dow. As the table above indicates, and as more
+extensive studies bear out, the behavior of common stock portfolio managed by this group, on average, have
+declined in concert with the Dow. By such a test of behavior in declining markets, our own methods of
+operation have proven to be considerably more conservative than the common stock component of the
+investment company or investment advisor group. While this has been true in the past, there obviously can be no
+guarantees about the future.
+The above may seem like rather strong medicine, but it is offered as a factual presentation and in no way as
+criticism. Within their institutional framework and handling the many billions of dollars involved, the results
+achieved are the only ones attainable. To behave unconventionally within this framework is extremely difficult.
+Therefore, the collective record of such investment media is necessarily tied to the record of corporate America.
+Their merits, except in the unusual case, do not lie in superior results or greater resistance to decline in value.
+Rather, I feel they earn their keep by the ease of handling, the freedom from decision making and the automatic
+diversification they provide, plus, perhaps most important, the insulation afforded from temptation to practice
+patently inferior techniques which seem to entice so many world-be investors.
+The Joys of Compounding
+Now to the pulse-quickening portion of our essay. Last year, in order to drive home the point on compounding, I
+took a pot shot at Queen Isabella and her financial advisors. You will remember they were euchred into such an
+obviously low-compound situation as the discovery of a new hemisphere.
+Since the whole subject of compounding has such a crass ring to it, I will attempt to introduce a little class into
+this discussion by turning to the art world. Francis I of France paid 4,000 ecus in 1540 for Leonardo da Vinci’s
+Mona Lisa. On the off chance that a few of you have not kept track of the fluctuations of the ecu 4,000
+converted out to about $20,000.
+If Francis had kept his feet on the ground and he (and his trustees) had been able to find a 6% after-tax
+investment, the estate now would be worth something over $1,000,000,000,000,000.00. That's $1 quadrillion or
+over 3,000 times the present national debt, all from 6%. I trust this will end all discussion in our household
+about any purchase or paintings qualifying as an investment.
+However, as I pointed out last year, there are other morals to be drawn here. One is the wisdom of living a long
+time. The other impressive factor is the swing produced by relatively small changes in the rate of compound.
+Below are shown the gains from $100,000 compounded at various rates:
+4% 8% 12% 16%
+10 Years $48,024 $115,892 $210,584 $341,143
+20 Years $119,111 $366,094 $864,627 $1,846,060
+30 Years $224,337 $906,260 $2,895,970 $8,484,940
+It is obvious that a variation of merely a few percentage points has an enormous effect on the success of a
+compounding (investment) program. It is also obvious that this effect mushrooms as the period lengthens. If,
+over a meaningful period of time, Buffett Partnership can achieve an edge of even a modest number of
+percentage points over the major investment media, its function will be fulfilled.
+Some of you may be downcast because I have not included in the above table the rate of 22.3% mentioned on
+page 3. This rate, of course, is before income taxes which are paid directly by you --not the Partnership. Even
+excluding this factor, such a calculation would only prove the absurdity of the idea of compounding at very high
+rates -- even with initially modest sums. My opinion is that the Dow is quite unlikely to compound for any
+important length of time at the rate it has during the past seven years and, as mentioned earlier, I believe our
+margin over the Dow cannot be maintained at its level to date. The product of these assumptions would be a
+materially lower average rate of compound for BPL in the future than the rate achieved to date. Injecting a
+minus 30% year (which is going to happen from time to time) into our tabulation of actual results to date, with,
+say, a corresponding minus 40% for the Dow brings both the figures on the Dow and BPL more in line with
+longer range possibilities. As the compounding table above suggests, such a lowered rate can still provide highly
+satisfactory long term investment results.
+Our Method of Operation
+At this point I always develop literary schizophrenia. On the one hand, I know that we have in the audience a
+number of partners to whom details of our business are interesting. We also have a number to whom this whole
+thing is Greek and who undoubtedly wish I would quit writing and get back to work.
+To placate both camps, I am just going to sketch briefly our three categories at this point and those who are
+interested in getting their doctorate can refer to the appendix for extended treatment of examples.
+Our three investment categories are not differentiated by their expected profitability over an extended period of
+time. We are hopeful that they will each, over a ten or fifteen year period, produce something like the ten
+percentage point margin over the Dow that is our goal. However, in a given year they will have violently
+different behavior characteristics, depending primarily on the type of year it turns out to be for the stock market
+generally. Briefly this is how they shape up:
+“Generals” - A category of generally undervalued stocks, determined primarily by quantitative
+standards, but with considerable attention also paid to the qualitative factor. There is often little or
+nothing to indicate immediate market improvement. The issues lack glamour or market sponsorship.
+Their main qualification is a bargain price; that is, an overall valuation on the enterprise substantially
+below what careful analysis indicates its value to a private owner to be. Again let me emphasize that
+while the quantitative comes first and is essential, the qualitative is important. We like good
+management - we like a decent industry - we like a certain amount of “ferment” in a previously dormant
+management or stockholder group. But we demand value. The general group behaves very much in
+sympathy with the Dow and will turn in a big minus result during a year of substantial decline by the
+Dow. Contrarywise, it should be the star performer in a strongly advancing market. Over the years we
+expect it, of course, to achieve a satisfactory margin over the Dow.
+“Workouts” - These are the securities with a timetable. They arise from corporate activity - sell-outs,
+mergers, reorganizations, spin-offs, etc. In this category we are not talking about rumors or "inside
+information" pertaining to such developments, but to publicly announced activities of this sort. We wait
+until we can read it in the paper. The risk pertains not primarily to general market behavior (although
+that is sometimes tied in to a degree), but instead to something upsetting the applecart so that the
+expected development does not materialize. Such killjoys could include anti-trust or other negative
+government action, stockholder disapproval, withholding of tax rulings, etc. The gross profits in many
+workouts appear quite small. A friend refers to this as getting the last nickel after the other fellow has
+made the first ninety-five cents. However, the predictability coupled with a short holding period
+produces quite decent annual rates of return. This category produces more steady absolute profits from
+year to year than generals do. In years of market decline, it piles up a big edge for us; during bull
+markets, it is a drag on performance. On a long term basis, I expect it to achieve the same sort of margin
+over the Dow attained by generals.
+“Controls” - These are rarities, but when they occur they are likely to be of significant size. Unless we
+start off with the purchase of a sizable block or stock, controls develop from the general category. They
+result from situations where a cheap security does nothing price-wise for such an extended period of
+time that we are able to buy a significant percentage of the company's stock. At that point we are
+probably in a position to assume some degree of, or perhaps complete, control of the company's
+activities; whether we become active or remain relatively passive at this point depends upon our
+assessment of the company’s future and the management's capabilities. The general we have been
+buying the most aggressively in recent months possesses excellent management following policies that
+appear to make very good sense to us. If our continued buying puts us in a controlling position at some
+point in the future, we will probably remain very passive regarding the operation or this business.
+We do not want to get active merely for the sake of being active. Everything else being equal I would
+much rather let others do the work. However, when an active role is necessary to optimize the
+employment of capital you can be sure we will not be standing in the wings.
+Active or passive, in a control situation there should be a built-in profit. The sine qua non of this
+operation is an attractive purchase price. Once control is achieved, the value of our investment is
+determined by the value of the enterprise, not the oftentimes irrationalities of the marketplace.
+Our willingness and financial ability to assume a controlling position gives us two-way stretch on many
+purchases in our group of generals. If the market changes its opinion for the better, the security will
+advance in price. If it doesn't, we will continue to acquire stock until we can look to the business itself
+rather than the market for vindication of our judgment.
+Investment results in the control category have to be measured on the basis of at least several years.
+Proper buying takes time. If needed, strengthening management, re-directing the utilization of capital,
+perhaps effecting a satisfactory sale or merger, etc., are also all factors that make this a business to be
+measured in years rather than months. For this reason, in controls, we are looking for wide margins of
+profit-if it looks at all close, we pass.
+Controls in the buying stage move largely in sympathy with the Dow. In the later stages their behavior
+is geared more to that of workouts.
+As I have mentioned in the past, the division of our portfolio among the three categories is largely determined
+by the accident or availability. Therefore, in a minus year for the Dow, whether we are primarily in generals or
+workouts is largely a matter of luck, but it will have a great deal to do with our performance relative to the Dow.
+This is one or many reasons why a single year's performance is of minor importance and, good or bad, should
+never be taken too seriously.
+If there is any trend as our assets grow, I would expect it to be toward controls which heretofore have been our
+smallest category. I may be wrong in this expectation - a great deal depends, of course, on the future behavior of
+the market on which your guess is as good as mine (I have none). At this writing, we have a majority of our
+capital in generals, workouts rank second, and controls are third.
+Miscellaneous
+We are starting off the year with net assets of $17,454,900. Our rapid increase in assets always raises the
+question of whether this will result in a dilution of future performance. To date, there is more of a positive than
+inverse correlation between size of the Partnership and its margin over the Dow. This should not be taken
+seriously however. Larger sums may be an advantage at some times and a disadvantage at others. My opinion is
+that our present portfolio could not be improved if our assets were $1 million or $5 million. Our idea inventory
+has always seemed to be 10% ahead of our bank account. If that should change, you can count on hearing from
+me.
+Susie and I have an investment of $2,392,900 in the Partnership. For the first time I had to withdraw funds in
+addition to my monthly payments, but it was a choice of this or disappointing the Internal Revenue Service.
+Susie and I have a few non-marketable (less than 300 holders) securities of nominal size left over from earlier
+years which in aggregate are worth perhaps 1% of our partnership interest. In addition we have one non-
+marketable holding of more material size of a local company purchased in 1960 which we expect to hold
+indefinitely. Aside from this all our eggs are in the BPL basket and they will continue to be. I can't promise
+results but I can promise a common destiny. In addition, that endless stream of relatives of mine consisting of
+my three children, mother, father, two sisters, two brothers-in-law, father-in-law, four aunts four cousins and
+five nieces and nephews, have interests in BPL directly or indirectly totaling $1,247,190.
+Bill Scott is also in with both feet, having an interest along with his wife or $237,400, the large majority or their
+net worth. Bill has done an excellent job and on several or our more interesting situations going into 1964, he
+has done the majority or the contact work. I have also shoved off on him as much as possible of the
+administrative work so if you need anything done or have any questions, don't hesitate to ask for Bill if I'm not
+around.
+Beth and Donna have kept an increasing work load flowing in an excellent manner. During December and
+January, I am sure they wish they had found employment elsewhere, but they always manage to keep a
+mountain of work ship-shape.
+Peat, Marwick, Mitchell has done their usual excellent job of meeting a tough timetable. We have instructed
+them to conduct two surprise checks a year (rather than one as in past years) on our securities, cash, etc., in the
+future. These are relatively inexpensive, and I think make a good deal of sense in any financial organization.
+Within the next week you will receive:
+(1) A tax letter giving you all BPL information needed for your 1963 federal income tax return. This letter
+is the only item that counts for tax purposes.
+(2) An audit from Peat, Marwick, Mitchell & Co. for 1963, setting forth the operations and financial
+position of BPL as well as your own capital account.
+(3) A letter signed by me setting forth the status of your BPL interest on 1/1/64. This is identical with the
+figure developed in the audit.
+(4) Schedule “A” to the partnership agreement listing all partners.
+Let me know if anything needs clarifying. As we grow, there is more chance of missing letters, a name skipped
+over, a figure transposition, etc., so speak up if it appears we might have erred. Our next letter will be about July
+15th summarizing the first half.
+Cordially,
+Warren E. Buffett
+
+APPENDIX
+TEXAS NATIONAL PETROLEUM
+This situation was a run-of-the-mill workout arising from the number one source of workouts in recent years --
+the sellouts of oil and gas producing companies.
+TNP was a relatively small producer with which I had been vaguely familiar for years.
+Early in 1962 I heard rumors regarding a sellout to Union Oil of California. I never act on such information, but
+in this case it was correct and substantially more money would have been made if we had gone in at the rumor
+stage rather than the announced stage. However, that's somebody else's business, not mine.
+In early April, 1962, the general terms of the deal were announced. TNP had three classes of securities
+outstanding:
+(1) 6 1/2% debentures callable at 104 1/4 which would bear interest until the sale transpired and at that time
+would be called. There were $6.5 million outstanding of which we purchased $264,000 principal
+amount before the sale closed.
+(2) About 3.7 million shares of common stock of which the officers and directors owned about 40%. The
+proxy statement estimated the proceeds from the liquidation would produce $7.42 per share. We
+purchased 64,035 shares during the six months or so between announcement and closing.
+(3) 650,000 warrants to purchase common stock at $3.50 per share. Using the proxy statement estimate of
+$7.42 for the workout on the common resulted in $3.92 as a workout on the warrants. We were able to
+buy 83,200 warrants or about 13% of the entire issue in six months.
+The risk of stockholder disapproval was nil. The deal was negotiated by the controlling stockholders, and the
+price was a good one. Any transaction such as this is subject to title searches, legal opinions, etc., but this risk
+could also be appraised at virtually nil. There were no anti-trust problems. This absence of legal or anti-trust
+problems is not always the case, by any means.
+The only fly in the ointment was the obtaining of the necessary tax ruling. Union Oil was using a standard ABC
+production payment method of financing. The University of Southern California was the production payment
+holder and there was some delay because of their eleemosynary status.
+This posed a new problem for the Internal Revenue Service, but we understood USC was willing to waive this
+status which still left them with a satisfactory profit after they borrowed all the money from a bank. While
+getting this ironed out created delay, it did not threaten the deal.
+When we talked with the company on April 23rd and 24th, their estimate was that the closing would take place
+in August or September. The proxy material was mailed May 9th and stated the sale "will be consummated
+during the summer of 1962 and that within a few months thereafter the greater part of the proceeds will be
+distributed to stockholders in liquidation.” As mentioned earlier, the estimate was $7.42 per share.
+Bill Scott attended the stockholders meeting in Houston on May 29th where it was stated they still expected to
+close on September 1st.
+The following are excerpts from some of the telephone conversations we had with company officials in ensuing
+months:
+
+On June 18th the secretary stated "Union has been told a favorable IRS ruling has been formulated but
+must be passed on by additional IRS people. Still hoping for ruling in July.”
+On July 24th the president said that he expected the IRS ruling “early next week.”
+On August 13th the treasurer informed us that the TNP, Union Oil, and USC people were all in
+Washington attempting to thrash out a ruling.
+On September 18th the treasurer informed us "No news, although the IRS says the ruling could be ready
+by next week.”
+The estimate on payout was still $7.42.
+The ruling was received in late September, and the sale closed October 31st. Our bonds were called November
+13th. We converted our warrants to common stock shortly thereafter and received payments on the common of
+$3.50 December 14, 1962, $3.90 February 4, 1963, and 15 cent on April 24, 1963. We will probably get another
+4 cent in a year or two. On 147,235 shares (after exercise of warrants) even 4 cent per share is meaningful.
+This illustrates the usual pattern: (1) the deals take longer than originally projected; and (2) the payouts tend to
+average a little better than estimates. With TNP it took a couple of extra months, and we received a couple of
+extra percent.
+The financial results of TNP were as follows:
+(1) On the bonds we invested $260,773 and had an average holding period of slightly under five months.
+We received 6 ½% interest on our money and realized a capital gain of $14,446. This works out to an
+overall rate of return of approximately 20% per annum.
+(2) On the stock and warrants we have realized capital gain of $89,304, and we have stubs presently valued
+at $2,946. From an investment or $146,000 in April, our holdings ran to $731,000 in October. Based on
+the time the money was employed, the rate or return was about 22% per annum.
+In both cases, the return is computed on an all equity investment. I definitely feel some borrowed money is
+warranted against a portfolio of workouts, but feel it is a very dangerous practice against generals.
+We are not presenting TNP as any earth-shaking triumph. We have had workouts which were much better and
+some which were poorer. It is typical of our bread-and-butter type of operation. We attempt to obtain all facts
+possible, continue to keep abreast of developments and evaluate all of this in terms of our experience. We
+certainly don't go into all the deals that come along -- there is considerable variation in their attractiveness.
+When a workout falls through, the resulting market value shrink is substantial. Therefore, you cannot afford
+many errors, although we fully realize we are going to have them occasionally.
+DEMPSTER MILL MFG.
+This situation started as a general in 1956. At that time the stock was selling at $18 with about $72 in book value
+of which $50 per share was in current assets (Cash, receivables and inventory) less all liabilities. Dempster had
+earned good money in the past but was only breaking even currently.
+The qualitative situation was on the negative side (a fairly tough industry and unimpressive management), but
+the figures were extremely attractive. Experience shows you can buy 100 situations like this and have perhaps
+70 or 80 work out to reasonable profits in one to three years. Just why any particular one should do so is hard to
+say at the time of purchase, but the group expectancy is favorable, whether the impetus is from an improved
+industry situation, a takeover offer, a change in investor psychology, etc.
+We continued to buy the stock in small quantities for five years. During most or this period I was a director and
+was becoming consistently less impressed with the earnings prospects under existing management. However, I
+also became more familiar with the assets and operations and my evaluation of the quantitative factors remained
+very favorable.
+By mid-1961 we owned about 30% or Dempster (we had made several tender offers with poor results), but in
+August and September 1961 made, several large purchases at $30.25 per share, which coupled with a
+subsequent tender offer at the same price, brought our holding to over 70%. Our purchases over the previous
+five years had been in the $16-$25 range.
+On assuming control, we elevated the executive vice president to president to see what he would do unfettered
+by the previous policies. The results were unsatisfactory and on April 23, 1962 we hired Harry Bottle as
+president.
+Harry was the perfect man for the job. I have recited his triumphs before and the accompanying comparative
+balance sheets speak louder than any words in demonstrating the re-employment of capital.
+11/30/61 7/31/63 (unaudited)
+Cash $166,000 $89,000
+US Gov’t Securities – at cost $289,000
+Other marketable securities – at
+market (which exceeds cost)
+$2,049,000
+Total Cash and Securities $166,000 $2,436,000
+Accounts receivable (net) $1,040,000 $864,000
+Inventory $4,203,000 $890,000
+Prepaid expenses, etc. $82,000 $12,000
+Current Assets $5,491,000 $4,202,000
+Other Assets $45,000 $62,000
+Net Plant and Equipment $1,383,000 $862,000
+Total Assets $6,919,000 $5,126,000
+Notes Payable $1,230,000
+Other Liability $1,088,000 $274,000
+Total Liabilities $2,318,000 $274,000
+Net worth
+60,146 shs. 11/30/61
+62,146 shs. 7/31/63 $4,601,000 $4,852,000
+Total liabilities and net worth $6,919,000 $5,126,000
+Harry:
+(1) took the inventory from over $4 million (much of it slow moving) to under $1 million reducing carrying
+costs and obsolescence risks tremendously;
+(2) correspondingly freed up capital for marketable security purchases from which we gained over
+$400,000
+(3) cut administration and selling expense from $150,000 to $75,000 per month;
+(4) cut factory overhead burden from $6 to $4.50 per direct labor hour;
+(5) closed the five branches operating unprofitably (leaving us with three good ones) and replaced them
+with more productive distributors;
+(6) cleaned up a headache at an auxiliary factory operation at Columbus, Nebraska;
+(7) eliminated jobbed lines tying up considerable money (which could be used profitably in securities)
+while producing no profits;
+(8) adjusted prices of repair parts, thereby producing an estimated $200,000 additional profit with virtually
+no loss of volume; and most important;
+(9) through these and many other steps, restored the earning capacity to a level commensurate with the
+capital employed.
+In 1963, the heavy corporate taxes we were facing (Harry surprised me by the speed with which he had earned
+up our tax loss carry-forward) coupled with excess liquid funds within the corporation compelled us to either in
+some way de-incorporate or to sell the business.
+We set out to do either one or the other before the end of 1963. De-incorporating had many problems but would
+have, in effect, doubled earnings for our partners and also eliminated the problem of corporate capital gain tax
+on Dempster securities.
+At virtually the last minute, after several earlier deals had fallen through at reasonably advanced stages, a sale of
+assets was made. Although there were a good many wrinkles to the sale, the net effect was to bring
+approximately book value. This, coupled with the gain we have in our portfolio of marketable securities, gives
+us a realization of about $80 per share. Dempster (now named First Beatrice Corp. - we sold the name to the
+new Co.) is down to almost entirely cash and marketable securities now. On BPL's yearend audit, our First
+Beatrice holdings were valued at asset value (with securities at market) less a $200,000 reserve for various
+contingencies.
+I might mention that we think the buyers will do very well with Dempster. They impress us as people of ability
+and they have sound plans to expand the business and its profitability. We would have been quite happy to
+operate Dempster on an unincorporated basis, but we are also quite happy to sell it for a reasonable price. Our
+business is making excellent purchases -- not making extraordinary sales.
+Harry works the same way I do -- he likes big carrots. He is presently a limited partner of BPL, and the next
+belt-tightening operation we have, he's our man.
+The Dempster saga points up several morals:
+(1) Our business is one requiring patience. It has little in common with a portfolio of high-flying glamour
+stocks and during periods of popularity for the latter, we may appear quite stodgy.
+It is to our advantage to have securities do nothing price wise for months, or perhaps years, why we are
+buying them. This points up the need to measure our results over an adequate period of time. We
+suggest three years as a minimum.
+(2) We cannot talk about our current investment operations. Such an open-mouth policy could never
+improve our results and in some situations could seriously hurt us. For this reason, should anyone,
+including partners, ask us whether we are interested in any security, we must plead the “5th
+Amendment.”
diff --git a/annual-letters/bpl-1964b.txt b/annual-letters/bpl-1964b.txt
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+BUFFETT PARTNERSHIP, LTD.
+810 KIEWIT PLAZA
+OMAHA 31, NEBRASKA
+July 8, 1964
+First Half Performance
+The whole family is leaving for California on June 23rd so I am fudging a bit on this report and writing it June
+18th. However, for those of you who set your watches by the receipt of our letters. I will maintain our usual
+chronological symmetry in reporting, leaving a few blanks which Bill will fill in after the final June 30th figures
+are available.
+During the first half of 1964 the Dow-Jones Industrial Average (hereinafter called the “DOW”) advanced from
+762.95 to 831.50. If one had owned the Dow during this period, dividends of approximately 14.40 would have
+been received, bringing the overall return from the Dow during the first half to plus 10.0%. As I write this on
+June 18th, it appears that our results will differ only insignificantly from those of the Dow. I would feel much
+better reporting to you that the Dow had broken even, and we had been plus 5%, or better still, that the Dow had
+been minus 10%, and we had broken even. I have always pointed out, however, that gaining an edge on the Dow
+is more difficult for us in advancing markets than in static or declining ones.
+To bring the record up to date, the following summarizes the 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%
+1st half 1964 10.9% 12.0% 10.5%
+Cumulative results 116.1% 521.0% 354.4%
+Annual compounded
+rate
+10.8% 27.6% 22.2%
+(See next page for footnotes to table.)
+Footnotes to preceding table:
+(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 up on the present partnership agreement, but before monthly
+withdrawals by limited partners.
+Buying activities during the first half were quite satisfactory. This is of particular satisfaction to me since I
+consider the buying end to be about 90% of this business. Our General category now includes three companies
+where B.P.L. is the largest single stockholder. These stocks have been bought and are continuing to be bought at
+prices considerably below their value to a private owner. We have been buying one of these situations for
+approximately eighteen months and both of the others for about a year. It would not surprise me if we continue
+to do nothing but patiently buy these securities week after week for at least another year, and perhaps even two
+years or more.
+What we really like to see in situations like the three mentioned above is a condition where the company is
+making substantial progress in terms of improving earnings, increasing asset values, etc., but where the market
+price of the stock is doing very little while we continue to acquire it. This doesn't do much for our short-term
+performance, particularly relative to a rising market, but it is a comfortable and logical producer of longer-term
+profits. Such activity should usually result in either appreciation of market prices from external factors or the
+acquisition by us of a controlling position in a business at a bargain price. Either alternative suits me.
+It is important to realize, however, that most of our holdings in the General category continue to be securities
+which we believe to be considerably undervalued, but where there is not the slightest possibility that we could
+have a controlling position. We expect the market to justify our analyses of such situations in a reasonable
+period of time, but we do not have the two strings to our bow mentioned in the above paragraph working for us
+in these securities.
+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 closed-
+end 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 $28
+billion investment company industry. Their results are shown below. 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% 18.3% 20.6% 30.5%
+1st half 1964 11.0% 9.5% 9.6% 8.6% 10.9% 10.5%
+Cumulative
+Results
+105.8% 95.5% 98.2% 105.1% 116.1% 354.4%
+Annual
+Compounded
+Rate
+10.1% 9.4% 9.6% 10.1% 10.8% 22.2%
+(1) Computed from changes in asset value plus any distributions to holders of record during year.
+(2) From 1964 Moody's Bank & Finance Manual for 1957-63. Estimated for first half 1964.
+These figures continue to show that the most highly paid and respected investment management has difficulty
+matching the performance of an unmanaged index of blue chip stocks. The results of these companies in some
+ways resemble the activity of a duck sitting on a pond. When the water (the market) rises, the duck rises; when it
+falls, back goes the duck. SPCA or no SPCA, I think the duck can only take the credit (or blame) for his own
+activities. The rise and fall of the lake is hardly something for him to quack about. The water level has been of
+great importance to B.P.L’s performance as the table on page one indicates. However, we have also occasionally
+flapped our wings.
+I would like to emphasize that I am not saying that the Dow is the only way of measuring investment
+performance in common stocks. However, I do say that all investment managements (including self-
+management) should be subjected to objective tests, and that the standards should be selected a priori rather than
+conveniently chosen retrospectively.
+The management of money is big business. Investment managers place great stress on evaluating company
+managements in the auto industry, steel industry, chemical industry, etc. These evaluations take enormous
+amounts of work, are usually delivered with great solemnity, and are devoted to finding out which companies
+are well managed and which companies have management weaknesses. After devoting strenuous efforts to
+objectively measuring the managements of portfolio companies, it seems strange indeed that similar
+examination is not applied to the portfolio managers themselves. We feel it is essential that investors and
+investment managements establish standards of performance and, regularly and objectively, study their own
+results just as carefully as they study their investments.
+We will regularly follow this policy wherever it may lead. It is perhaps too obvious to say that our policy of
+measuring performance in no way guarantees good results--it merely guarantees objective evaluation. I want to
+stress the points mentioned in the "Ground Rules" regarding application of the standard--namely that it should
+be applied on at least a three-year basis because of the nature of our operation and also that during a speculative
+boom we may lag the field. However, one thing I can promise you. We started out with a 36-inch yardstick and
+we'll keep it that way. If we don't measure up, we won't change yardsticks. In my opinion, the entire field of
+investment management, involving hundreds of billions of dollars, would be more satisfactorily conducted if
+everyone had a good yardstick for measurement of ability and sensibly applied it. This is regularly done by most
+people in the conduct of their own business when evaluating markets, people, machines, methods, etc., and
+money management is the largest business in the world.
+Taxes
+We entered 1964 with net unrealized gains of $2,991,090 which is all attributable to partners belonging during
+1963. Through June 30th we have realized capital gains of $2,826,248.76 (of which 96% are long term) so it
+appears very likely that at least all the unrealized appreciation attributable to your interest and reported to you in
+our letter of January 25, 1964, (item 3) will be realized this year. I again want to emphasize that this has nothing
+to do with how we are doing. It is possible that I could have made the above statement, and the market value of
+your B.P.L. interest could have shrunk substantially since January 1st, so the fact that we have large realized
+gains is no cause for exultation. Similarly when our realized gains are very small there is not necessarily any
+reason to be discouraged. We do not play any games to either accelerate or defer taxes. We make investment
+decisions based on our evaluation of the most profitable combination of probabilities. If this means paying taxes
+I'm glad the rates on long-term capital gains are as low as they are.
+As previously stated in our most recent tax letter of April 1, 1964 the safe course to follow on interim estimates
+is to pay the same estimated tax for 1964 as your actual tax was for 1963. There can be no penalties if you
+follow this procedure.
+The tax liability for partners who entered January 1st will, of course, be quite moderate, as it always is in the first
+year for any partner. This occurs because realized capital gains are first attributed to old partners having an
+interest in unrealized appreciation. This, again, of course, has nothing to do with economic performance. All
+limited partners, new and old, (except for Bill Scott, Ruth Scott and Susan Buffett per paragraph five of the
+Partnership Agreement) end up with exactly the same results. As usual, net ordinary income for all partners is
+nominal to date.
+As in past years, we will have a letter out about November 1st (to partners and those who have indicated an
+interest, to us by that time in becoming partners) with the amendment to the Partnership Agreement,
+Commitment Letter for 1965, estimate or the 1964 tax situation, etc. In the meantime, keep Bill busy this
+summer clearing up anything in this letter that comes out fuzzy.
+Cordially,
+Warren E. Buffett
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+file ./wavs/bpl-1962/output-062.wav'
+file ./wavs/bpl-1962/output-063.wav'
+file ./wavs/bpl-1962/output-064.wav'
+file ./wavs/bpl-1962/output-065.wav'
+file ./wavs/bpl-1962/output-066.wav'
+file ./wavs/bpl-1962/output-067.wav'
+file ./wavs/bpl-1962/output-068.wav'
+file ./wavs/bpl-1962/output-069.wav'
+file ./wavs/bpl-1962/output-070.wav'
+file ./wavs/bpl-1962/output-071.wav'
+file ./wavs/bpl-1962/output-072.wav'
+file ./wavs/bpl-1962/output-073.wav'
+file ./wavs/bpl-1962/output-074.wav'
+file ./wavs/bpl-1962/output-075.wav'
+file ./wavs/bpl-1962/output-076.wav'
+file ./wavs/bpl-1962/output-077.wav'
+file ./wavs/bpl-1962/output-078.wav'
+file ./wavs/bpl-1962/output-079.wav'
+file ./wavs/bpl-1962/output-080.wav'
+file ./wavs/bpl-1962/output-081.wav'
+file ./wavs/bpl-1962/output-082.wav'
+file ./wavs/bpl-1962/output-083.wav'
+file ./wavs/bpl-1962/output-084.wav'
+file ./wavs/bpl-1962/output-085.wav'
+file ./wavs/bpl-1962/output-086.wav'
+file ./wavs/bpl-1962/output-087.wav'
+file ./wavs/bpl-1962/output-088.wav'
+file ./wavs/bpl-1962/output-089.wav'
+file ./wavs/bpl-1962/output-090.wav'
+file ./wavs/bpl-1962/output-091.wav'
+file ./wavs/bpl-1962/output-092.wav'
+file ./wavs/bpl-1962/output-093.wav'
+file ./wavs/bpl-1962/output-094.wav'
+file ./wavs/bpl-1962/output-095.wav'
+file ./wavs/bpl-1962/output-096.wav'
+file ./wavs/bpl-1962/output-097.wav'
+file ./wavs/bpl-1962/output-098.wav'
+file ./wavs/bpl-1962/output-099.wav'
+file ./wavs/bpl-1962/output-100.wav'
+file ./wavs/bpl-1962/output-101.wav'
+file ./wavs/bpl-1962/output-102.wav'
+file ./wavs/bpl-1962/output-103.wav'
+file ./wavs/bpl-1962/output-104.wav'
+file ./wavs/bpl-1962/output-105.wav'
+file ./wavs/bpl-1962/output-106.wav'
+file ./wavs/bpl-1962/output-107.wav'
+file ./wavs/bpl-1962/output-108.wav'
+file ./wavs/bpl-1962/output-109.wav'
+file ./wavs/bpl-1962/output-110.wav'
+file ./wavs/bpl-1962/output-111.wav'
+file ./wavs/bpl-1962/output-112.wav'
+file ./wavs/bpl-1962/output-113.wav'
+file ./wavs/bpl-1962/output-114.wav'
+file ./wavs/bpl-1962/output-115.wav'
+file ./wavs/bpl-1962/output-116.wav'
+file ./wavs/bpl-1962/output-117.wav'
+file ./wavs/bpl-1962/output-118.wav'
+file ./wavs/bpl-1962/output-119.wav'
+file ./wavs/bpl-1962/output-120.wav'
+file ./wavs/bpl-1962/output-121.wav'
+file ./wavs/bpl-1962/output-122.wav'
+file ./wavs/bpl-1962/output-123.wav'
+file ./wavs/bpl-1962/output-124.wav'
+file ./wavs/bpl-1962/output-125.wav'
+file ./wavs/bpl-1962/output-126.wav'
+file ./wavs/bpl-1962/output-127.wav'
+file ./wavs/bpl-1962/output-128.wav'
+file ./wavs/bpl-1962/output-129.wav'
+file ./wavs/bpl-1962/output-130.wav'
+file ./wavs/bpl-1962/output-131.wav'
+file ./wavs/bpl-1962/output-132.wav'
+file ./wavs/bpl-1962/output-133.wav'
+file ./wavs/bpl-1962/output-134.wav'
+file ./wavs/bpl-1962/output-135.wav'
+file ./wavs/bpl-1962/output-136.wav'
+file ./wavs/bpl-1962/output-137.wav'
+file ./wavs/bpl-1962/output-138.wav'
+file ./wavs/bpl-1962/output-139.wav'
+file ./wavs/bpl-1962/output-140.wav'
+file ./wavs/bpl-1962/output-141.wav'
+file ./wavs/bpl-1962/output-142.wav'
+file ./wavs/bpl-1962/output-143.wav'
+file ./wavs/bpl-1962/output-144.wav'
+file ./wavs/bpl-1962/output-145.wav'
+file ./wavs/bpl-1962/output-146.wav'
+file ./wavs/bpl-1962/output-147.wav'
+file ./wavs/bpl-1962/output-148.wav'
+file ./wavs/bpl-1962/output-149.wav'
+file ./wavs/bpl-1962/output-150.wav'
+file ./wavs/bpl-1962/output-151.wav'
+file ./wavs/bpl-1962/output-152.wav'
+file ./wavs/bpl-1962/output-153.wav'
+file ./wavs/bpl-1962/output-154.wav'
+file ./wavs/bpl-1962/output-155.wav'
+file ./wavs/bpl-1962/output-156.wav'
+file ./wavs/bpl-1962/output-157.wav'
+file ./wavs/bpl-1962/output-158.wav'
+file ./wavs/bpl-1962/output-159.wav'
+file ./wavs/bpl-1962/output-160.wav'
+file ./wavs/bpl-1962/output-161.wav'
+file ./wavs/bpl-1962/output-162.wav'
+file ./wavs/bpl-1962/output-163.wav'
+file ./wavs/bpl-1962/output-164.wav'
+file ./wavs/bpl-1962/output-165.wav'
+file ./wavs/bpl-1962/output-166.wav'
+file ./wavs/bpl-1962/output-167.wav'
+file ./wavs/bpl-1962/output-168.wav'
+file ./wavs/bpl-1962/output-169.wav'
+file ./wavs/bpl-1962/output-170.wav'
+file ./wavs/bpl-1962/output-171.wav'
+file ./wavs/bpl-1962/output-172.wav'
+file ./wavs/bpl-1962/output-173.wav'
+file ./wavs/bpl-1962/output-174.wav'
+file ./wavs/bpl-1962/output-175.wav'
+file ./wavs/bpl-1962/output-176.wav'
+file ./wavs/bpl-1962/output-177.wav'
+file ./wavs/bpl-1962/output-178.wav'
diff --git a/inputs-1962b.txt b/inputs-1962b.txt
new file mode 100644
index 0000000..2fdbb23
--- /dev/null
+++ b/inputs-1962b.txt
@@ -0,0 +1,59 @@
+file ./wavs/bpl-1962b/output-000.wav'
+file ./wavs/bpl-1962b/output-001.wav'
+file ./wavs/bpl-1962b/output-002.wav'
+file ./wavs/bpl-1962b/output-003.wav'
+file ./wavs/bpl-1962b/output-004.wav'
+file ./wavs/bpl-1962b/output-005.wav'
+file ./wavs/bpl-1962b/output-006.wav'
+file ./wavs/bpl-1962b/output-007.wav'
+file ./wavs/bpl-1962b/output-008.wav'
+file ./wavs/bpl-1962b/output-009.wav'
+file ./wavs/bpl-1962b/output-010.wav'
+file ./wavs/bpl-1962b/output-011.wav'
+file ./wavs/bpl-1962b/output-012.wav'
+file ./wavs/bpl-1962b/output-013.wav'
+file ./wavs/bpl-1962b/output-014.wav'
+file ./wavs/bpl-1962b/output-015.wav'
+file ./wavs/bpl-1962b/output-016.wav'
+file ./wavs/bpl-1962b/output-017.wav'
+file ./wavs/bpl-1962b/output-018.wav'
+file ./wavs/bpl-1962b/output-019.wav'
+file ./wavs/bpl-1962b/output-020.wav'
+file ./wavs/bpl-1962b/output-021.wav'
+file ./wavs/bpl-1962b/output-022.wav'
+file ./wavs/bpl-1962b/output-023.wav'
+file ./wavs/bpl-1962b/output-024.wav'
+file ./wavs/bpl-1962b/output-025.wav'
+file ./wavs/bpl-1962b/output-026.wav'
+file ./wavs/bpl-1962b/output-027.wav'
+file ./wavs/bpl-1962b/output-028.wav'
+file ./wavs/bpl-1962b/output-029.wav'
+file ./wavs/bpl-1962b/output-030.wav'
+file ./wavs/bpl-1962b/output-031.wav'
+file ./wavs/bpl-1962b/output-032.wav'
+file ./wavs/bpl-1962b/output-033.wav'
+file ./wavs/bpl-1962b/output-034.wav'
+file ./wavs/bpl-1962b/output-035.wav'
+file ./wavs/bpl-1962b/output-036.wav'
+file ./wavs/bpl-1962b/output-037.wav'
+file ./wavs/bpl-1962b/output-038.wav'
+file ./wavs/bpl-1962b/output-039.wav'
+file ./wavs/bpl-1962b/output-040.wav'
+file ./wavs/bpl-1962b/output-041.wav'
+file ./wavs/bpl-1962b/output-042.wav'
+file ./wavs/bpl-1962b/output-043.wav'
+file ./wavs/bpl-1962b/output-044.wav'
+file ./wavs/bpl-1962b/output-045.wav'
+file ./wavs/bpl-1962b/output-046.wav'
+file ./wavs/bpl-1962b/output-047.wav'
+file ./wavs/bpl-1962b/output-048.wav'
+file ./wavs/bpl-1962b/output-049.wav'
+file ./wavs/bpl-1962b/output-050.wav'
+file ./wavs/bpl-1962b/output-051.wav'
+file ./wavs/bpl-1962b/output-052.wav'
+file ./wavs/bpl-1962b/output-053.wav'
+file ./wavs/bpl-1962b/output-054.wav'
+file ./wavs/bpl-1962b/output-055.wav'
+file ./wavs/bpl-1962b/output-056.wav'
+file ./wavs/bpl-1962b/output-057.wav'
+file ./wavs/bpl-1962b/output-058.wav'
diff --git a/inputs-1963.txt b/inputs-1963.txt
new file mode 100644
index 0000000..e840ea2
--- /dev/null
+++ b/inputs-1963.txt
@@ -0,0 +1,398 @@
+file ./wavs/bpl-1963/output-000.wav'
+file ./wavs/bpl-1963/output-001.wav'
+file ./wavs/bpl-1963/output-002.wav'
+file ./wavs/bpl-1963/output-003.wav'
+file ./wavs/bpl-1963/output-004.wav'
+file ./wavs/bpl-1963/output-005.wav'
+file ./wavs/bpl-1963/output-006.wav'
+file ./wavs/bpl-1963/output-007.wav'
+file ./wavs/bpl-1963/output-008.wav'
+file ./wavs/bpl-1963/output-009.wav'
+file ./wavs/bpl-1963/output-010.wav'
+file ./wavs/bpl-1963/output-011.wav'
+file ./wavs/bpl-1963/output-012.wav'
+file ./wavs/bpl-1963/output-013.wav'
+file ./wavs/bpl-1963/output-014.wav'
+file ./wavs/bpl-1963/output-015.wav'
+file ./wavs/bpl-1963/output-016.wav'
+file ./wavs/bpl-1963/output-017.wav'
+file ./wavs/bpl-1963/output-018.wav'
+file ./wavs/bpl-1963/output-019.wav'
+file ./wavs/bpl-1963/output-020.wav'
+file ./wavs/bpl-1963/output-021.wav'
+file ./wavs/bpl-1963/output-022.wav'
+file ./wavs/bpl-1963/output-023.wav'
+file ./wavs/bpl-1963/output-024.wav'
+file ./wavs/bpl-1963/output-025.wav'
+file ./wavs/bpl-1963/output-026.wav'
+file ./wavs/bpl-1963/output-027.wav'
+file ./wavs/bpl-1963/output-028.wav'
+file ./wavs/bpl-1963/output-029.wav'
+file ./wavs/bpl-1963/output-030.wav'
+file ./wavs/bpl-1963/output-031.wav'
+file ./wavs/bpl-1963/output-032.wav'
+file ./wavs/bpl-1963/output-033.wav'
+file ./wavs/bpl-1963/output-034.wav'
+file ./wavs/bpl-1963/output-035.wav'
+file ./wavs/bpl-1963/output-036.wav'
+file ./wavs/bpl-1963/output-037.wav'
+file ./wavs/bpl-1963/output-038.wav'
+file ./wavs/bpl-1963/output-039.wav'
+file ./wavs/bpl-1963/output-040.wav'
+file ./wavs/bpl-1963/output-041.wav'
+file ./wavs/bpl-1963/output-042.wav'
+file ./wavs/bpl-1963/output-043.wav'
+file ./wavs/bpl-1963/output-044.wav'
+file ./wavs/bpl-1963/output-045.wav'
+file ./wavs/bpl-1963/output-046.wav'
+file ./wavs/bpl-1963/output-047.wav'
+file ./wavs/bpl-1963/output-048.wav'
+file ./wavs/bpl-1963/output-049.wav'
+file ./wavs/bpl-1963/output-050.wav'
+file ./wavs/bpl-1963/output-051.wav'
+file ./wavs/bpl-1963/output-052.wav'
+file ./wavs/bpl-1963/output-053.wav'
+file ./wavs/bpl-1963/output-054.wav'
+file ./wavs/bpl-1963/output-055.wav'
+file ./wavs/bpl-1963/output-056.wav'
+file ./wavs/bpl-1963/output-057.wav'
+file ./wavs/bpl-1963/output-058.wav'
+file ./wavs/bpl-1963/output-059.wav'
+file ./wavs/bpl-1963/output-060.wav'
+file ./wavs/bpl-1963/output-061.wav'
+file ./wavs/bpl-1963/output-062.wav'
+file ./wavs/bpl-1963/output-063.wav'
+file ./wavs/bpl-1963/output-064.wav'
+file ./wavs/bpl-1963/output-065.wav'
+file ./wavs/bpl-1963/output-066.wav'
+file ./wavs/bpl-1963/output-067.wav'
+file ./wavs/bpl-1963/output-068.wav'
+file ./wavs/bpl-1963/output-069.wav'
+file ./wavs/bpl-1963/output-070.wav'
+file ./wavs/bpl-1963/output-071.wav'
+file ./wavs/bpl-1963/output-072.wav'
+file ./wavs/bpl-1963/output-073.wav'
+file ./wavs/bpl-1963/output-074.wav'
+file ./wavs/bpl-1963/output-075.wav'
+file ./wavs/bpl-1963/output-076.wav'
+file ./wavs/bpl-1963/output-077.wav'
+file ./wavs/bpl-1963/output-078.wav'
+file ./wavs/bpl-1963/output-079.wav'
+file ./wavs/bpl-1963/output-080.wav'
+file ./wavs/bpl-1963/output-081.wav'
+file ./wavs/bpl-1963/output-082.wav'
+file ./wavs/bpl-1963/output-083.wav'
+file ./wavs/bpl-1963/output-084.wav'
+file ./wavs/bpl-1963/output-085.wav'
+file ./wavs/bpl-1963/output-086.wav'
+file ./wavs/bpl-1963/output-087.wav'
+file ./wavs/bpl-1963/output-088.wav'
+file ./wavs/bpl-1963/output-089.wav'
+file ./wavs/bpl-1963/output-090.wav'
+file ./wavs/bpl-1963/output-091.wav'
+file ./wavs/bpl-1963/output-092.wav'
+file ./wavs/bpl-1963/output-093.wav'
+file ./wavs/bpl-1963/output-094.wav'
+file ./wavs/bpl-1963/output-095.wav'
+file ./wavs/bpl-1963/output-096.wav'
+file ./wavs/bpl-1963/output-097.wav'
+file ./wavs/bpl-1963/output-098.wav'
+file ./wavs/bpl-1963/output-099.wav'
+file ./wavs/bpl-1963/output-100.wav'
+file ./wavs/bpl-1963/output-101.wav'
+file ./wavs/bpl-1963/output-102.wav'
+file ./wavs/bpl-1963/output-103.wav'
+file ./wavs/bpl-1963/output-104.wav'
+file ./wavs/bpl-1963/output-105.wav'
+file ./wavs/bpl-1963/output-106.wav'
+file ./wavs/bpl-1963/output-107.wav'
+file ./wavs/bpl-1963/output-108.wav'
+file ./wavs/bpl-1963/output-109.wav'
+file ./wavs/bpl-1963/output-110.wav'
+file ./wavs/bpl-1963/output-111.wav'
+file ./wavs/bpl-1963/output-112.wav'
+file ./wavs/bpl-1963/output-113.wav'
+file ./wavs/bpl-1963/output-114.wav'
+file ./wavs/bpl-1963/output-115.wav'
+file ./wavs/bpl-1963/output-116.wav'
+file ./wavs/bpl-1963/output-117.wav'
+file ./wavs/bpl-1963/output-118.wav'
+file ./wavs/bpl-1963/output-119.wav'
+file ./wavs/bpl-1963/output-120.wav'
+file ./wavs/bpl-1963/output-121.wav'
+file ./wavs/bpl-1963/output-122.wav'
+file ./wavs/bpl-1963/output-123.wav'
+file ./wavs/bpl-1963/output-124.wav'
+file ./wavs/bpl-1963/output-125.wav'
+file ./wavs/bpl-1963/output-126.wav'
+file ./wavs/bpl-1963/output-127.wav'
+file ./wavs/bpl-1963/output-128.wav'
+file ./wavs/bpl-1963/output-129.wav'
+file ./wavs/bpl-1963/output-130.wav'
+file ./wavs/bpl-1963/output-131.wav'
+file ./wavs/bpl-1963/output-132.wav'
+file ./wavs/bpl-1963/output-133.wav'
+file ./wavs/bpl-1963/output-134.wav'
+file ./wavs/bpl-1963/output-135.wav'
+file ./wavs/bpl-1963/output-136.wav'
+file ./wavs/bpl-1963/output-137.wav'
+file ./wavs/bpl-1963/output-138.wav'
+file ./wavs/bpl-1963/output-139.wav'
+file ./wavs/bpl-1963/output-140.wav'
+file ./wavs/bpl-1963/output-141.wav'
+file ./wavs/bpl-1963/output-142.wav'
+file ./wavs/bpl-1963/output-143.wav'
+file ./wavs/bpl-1963/output-144.wav'
+file ./wavs/bpl-1963/output-145.wav'
+file ./wavs/bpl-1963/output-146.wav'
+file ./wavs/bpl-1963/output-147.wav'
+file ./wavs/bpl-1963/output-148.wav'
+file ./wavs/bpl-1963/output-149.wav'
+file ./wavs/bpl-1963/output-150.wav'
+file ./wavs/bpl-1963/output-151.wav'
+file ./wavs/bpl-1963/output-152.wav'
+file ./wavs/bpl-1963/output-153.wav'
+file ./wavs/bpl-1963/output-154.wav'
+file ./wavs/bpl-1963/output-155.wav'
+file ./wavs/bpl-1963/output-156.wav'
+file ./wavs/bpl-1963/output-157.wav'
+file ./wavs/bpl-1963/output-158.wav'
+file ./wavs/bpl-1963/output-159.wav'
+file ./wavs/bpl-1963/output-160.wav'
+file ./wavs/bpl-1963/output-161.wav'
+file ./wavs/bpl-1963/output-162.wav'
+file ./wavs/bpl-1963/output-163.wav'
+file ./wavs/bpl-1963/output-164.wav'
+file ./wavs/bpl-1963/output-165.wav'
+file ./wavs/bpl-1963/output-166.wav'
+file ./wavs/bpl-1963/output-167.wav'
+file ./wavs/bpl-1963/output-168.wav'
+file ./wavs/bpl-1963/output-169.wav'
+file ./wavs/bpl-1963/output-170.wav'
+file ./wavs/bpl-1963/output-171.wav'
+file ./wavs/bpl-1963/output-172.wav'
+file ./wavs/bpl-1963/output-173.wav'
+file ./wavs/bpl-1963/output-174.wav'
+file ./wavs/bpl-1963/output-175.wav'
+file ./wavs/bpl-1963/output-176.wav'
+file ./wavs/bpl-1963/output-177.wav'
+file ./wavs/bpl-1963/output-178.wav'
+file ./wavs/bpl-1963/output-179.wav'
+file ./wavs/bpl-1963/output-180.wav'
+file ./wavs/bpl-1963/output-181.wav'
+file ./wavs/bpl-1963/output-182.wav'
+file ./wavs/bpl-1963/output-183.wav'
+file ./wavs/bpl-1963/output-184.wav'
+file ./wavs/bpl-1963/output-185.wav'
+file ./wavs/bpl-1963/output-186.wav'
+file ./wavs/bpl-1963/output-187.wav'
+file ./wavs/bpl-1963/output-188.wav'
+file ./wavs/bpl-1963/output-189.wav'
+file ./wavs/bpl-1963/output-190.wav'
+file ./wavs/bpl-1963/output-191.wav'
+file ./wavs/bpl-1963/output-192.wav'
+file ./wavs/bpl-1963/output-193.wav'
+file ./wavs/bpl-1963/output-194.wav'
+file ./wavs/bpl-1963/output-195.wav'
+file ./wavs/bpl-1963/output-196.wav'
+file ./wavs/bpl-1963/output-197.wav'
+file ./wavs/bpl-1963/output-198.wav'
+file ./wavs/bpl-1963/output-199.wav'
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