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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.

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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%

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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.

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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

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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

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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!

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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.”

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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-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'
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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'

398
inputs-1963.txt
Unescape View File

@ -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'
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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'
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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'
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file ./wavs/bpl-1963/output-346.wav'
file ./wavs/bpl-1963/output-347.wav'
file ./wavs/bpl-1963/output-348.wav'
file ./wavs/bpl-1963/output-349.wav'
file ./wavs/bpl-1963/output-350.wav'
file ./wavs/bpl-1963/output-351.wav'
file ./wavs/bpl-1963/output-352.wav'
file ./wavs/bpl-1963/output-353.wav'
file ./wavs/bpl-1963/output-354.wav'
file ./wavs/bpl-1963/output-355.wav'
file ./wavs/bpl-1963/output-356.wav'
file ./wavs/bpl-1963/output-357.wav'
file ./wavs/bpl-1963/output-358.wav'
file ./wavs/bpl-1963/output-359.wav'
file ./wavs/bpl-1963/output-360.wav'
file ./wavs/bpl-1963/output-361.wav'
file ./wavs/bpl-1963/output-362.wav'
file ./wavs/bpl-1963/output-363.wav'
file ./wavs/bpl-1963/output-364.wav'
file ./wavs/bpl-1963/output-365.wav'
file ./wavs/bpl-1963/output-366.wav'
file ./wavs/bpl-1963/output-367.wav'
file ./wavs/bpl-1963/output-368.wav'
file ./wavs/bpl-1963/output-369.wav'
file ./wavs/bpl-1963/output-370.wav'
file ./wavs/bpl-1963/output-371.wav'
file ./wavs/bpl-1963/output-372.wav'
file ./wavs/bpl-1963/output-373.wav'
file ./wavs/bpl-1963/output-374.wav'
file ./wavs/bpl-1963/output-375.wav'
file ./wavs/bpl-1963/output-376.wav'
file ./wavs/bpl-1963/output-377.wav'
file ./wavs/bpl-1963/output-378.wav'
file ./wavs/bpl-1963/output-379.wav'
file ./wavs/bpl-1963/output-380.wav'
file ./wavs/bpl-1963/output-381.wav'
file ./wavs/bpl-1963/output-382.wav'
file ./wavs/bpl-1963/output-383.wav'
file ./wavs/bpl-1963/output-384.wav'
file ./wavs/bpl-1963/output-385.wav'
file ./wavs/bpl-1963/output-386.wav'
file ./wavs/bpl-1963/output-387.wav'
file ./wavs/bpl-1963/output-388.wav'
file ./wavs/bpl-1963/output-389.wav'
file ./wavs/bpl-1963/output-390.wav'
file ./wavs/bpl-1963/output-391.wav'
file ./wavs/bpl-1963/output-392.wav'
file ./wavs/bpl-1963/output-393.wav'
file ./wavs/bpl-1963/output-394.wav'
file ./wavs/bpl-1963/output-395.wav'
file ./wavs/bpl-1963/output-396.wav'
file ./wavs/bpl-1963/output-397.wav'
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