To the Partners of Buffett Partnership Ltd.

# 1966 Letter to Partners ## BUFFETT PARTNERSHIP, LTD. 610 KIEWIT PLAZA, OMAHA, NEBRASKA 68131 January 25, 1967 ## The First Decade The Partnership had its tenth anniversary during 1966. The celebration, however, was somewhat dampened by a year in which the Dow fell 15.6% while we achieved a gain of 20.4%—a spread of 36 percentage points in our favor. While such a differential would seem to make any year a good year, it is particularly satisfying when achieved in a market decline. Our method is not designed to produce spectacular short-term results in down markets; it is designed to produce superior long-term performance regardless of short-term market conditions. The 1966 results demonstrated the logic of our approach. ## Partnership Performance: First Decade The ten-year record tells the story: | Year | Dow | Limited Partners | Overall Partnership | |------|-----|-------------------|---------------------| | 1957 | -8.4% | +9.3% | +10.4% | | 1958 | +38.5% | +32.2% | +40.9% | | 1959 | +20.0% | +20.9% | +25.9% | | 1960 | -6.2% | +18.6% | +22.8% | | 1961 | +22.4% | +35.9% | +45.9% | | 1962 | -7.6% | +11.9% | +13.9% | | 1963 | +20.6% | +30.5% | +38.7% | | 1964 | +18.7% | +22.3% | +27.8% | | 1965 | +14.2% | +36.9% | +47.2% | | 1966 | -15.6% | +16.8% | +20.4% | **Cumulative Results:** - Dow: +141.1% (8.9% compounded annually) - Limited Partners: +641.5% (23.5% compounded annually) - Overall Partnership: +1,156.0% (29.6% compounded annually) ## The Generational Question [[Benjamin Graham]] taught me that the individual investor has enormous advantages over the professional money manager. The professional is constrained by: - Client expectations and quarterly reporting - The need to maintain competitive relative performance - Career risk from short-term underperformance The individual investor need not face these constraints. When we reach a decline in the Dow comparable to 1962 or 1966, we can invest freely without regard to what others are doing or saying. > "The true test of an investment philosophy is not how it performs in bull markets, but whether it protects capital and creates opportunity in bear markets." ## Controlled Companies By the end of 1966, we had established meaningful positions in several companies that we regarded as undervalued, and we were actively involved in their management. The total value of these investments had grown significantly, and their contribution to partnership performance would increase in coming years. [[Charlie Munger]] and I continued to focus on the fundamental businesses underlying our investments. We sought companies trading at significant discounts to conservative estimates of intrinsic value, with managements whose interests aligned with shareholders. ## Looking Ahead to Year Eleven The investment environment has become more challenging. The era of obvious, cheap securities has largely passed. [[Benjamin Graham]]'s methods still work, but they require more patience, more discipline, and more willingness to think independently. I remain optimistic about our ability to compound capital at above-average rates over the next decade. The principles are sound, the approach is rational, and the partnership structure gives us the flexibility that others lack. Warren E. Buffett January 25, 1967