To the Partners of Buffett Partnership Ltd.

# 1969 Letter to Partners ## BUFFETT PARTNERSHIP, LTD. 810 KIEWIT PLAZA, OMAHA, NEBRASKA 68131 May 29, 1969 ## To the Partners: Approximately eighteen months ago, I wrote to you suggesting that changes in the investment environment and my personal situation would cause me to revise our future performance expectations. At that time, I indicated that I did not expect results significantly better than those achieved by the Dow in future years. I was wrong. The investment environment has deteriorated even more than I anticipated, and it now appears that my ability to produce above-average results may be further constrained. ## The Investment Environment The environment I described eighteen months ago has become progressively more hostile. The era of [[Benjamin Graham]] and [[Benjamin Graham]]'s classic quantitative approach—the approach that worked so well for us in the 1950s and early 1960s—has largely passed. Hundreds of smart, aggressive, well-capitalized money managers are now combing the investment landscape for the same mispricings we once found easily. What were once obvious opportunities have been arbitraged away. The easy money has been made. > "In 1957, I could find ten or fifteen securities trading well below their intrinsic values. Today, I might find one or two—if I am lucky." This is not temporary. It represents a structural change in how markets process information. [[Benjamin Graham]]'s methods will always work in theory, but they require a willingness to act when others are not looking, and a capital base that can exploit the opportunities. Even with capital, the opportunities are smaller and harder to find. ## Why I Am Ending the Partnership I find myself in the peculiar position of having more capital than I can productively invest using my preferred methods. This is not a complaint—it is an observation about the nature of success in investment management. The larger the capital, the more important it becomes to find truly significant opportunities. Small-cap mispricings that once represented meaningful percentages of our portfolio now represent rounding errors. To have a meaningful impact on our results, we need to find large-cap opportunities—exactly the securities that receive the most professional attention. Additionally, I find myself wanting to change the way I allocate capital. Rather than investing in securities, I want to acquire whole businesses—businesses trading at significant discounts to intrinsic value that I can hold indefinitely. This is a different activity than managing a securities portfolio, and it is better suited to a permanent capital base rather than a partnership with limited partners who may have different time horizons. ## Compounding: A Retrospective When we started in 1957, I set an objective of achieving investment results superior to the Dow by a margin of at least 10 percentage points annually. For thirteen years, we have substantially achieved this goal: | Period | Limited Partners | Dow | |--------|-----------------|-----| | 1957-1968 | +1,072.0% | +167.7% | | Annual Rate | +28.3% | +7.8% | $10,000 invested with the partnership in 1957 would have grown to approximately $300,000 by the end of 1968, while the same $10,000 in the Dow would have grown to approximately $54,000. This record was achieved not through speculation or leverage, but through patient application of sound principles. [[Charlie Munger]] has helped me maintain focus on the long term, even when shorter-term opportunities seemed more attractive. ## Bill Ruane: A Recommendation When I wind down the partnership, many of you will want your capital to continue working in the market. I have known [[Bill Ruane]] for many years, and I believe he is one of the most talented investment managers I know. Bill manages the Sequoia Fund, and has achieved excellent results through a fundamentally different approach than mine. Where I focus on quantitative value, Bill focuses on business quality. His approach requires more patience from investors, but it has produced outstanding long-term results. I make this recommendation without any financial interest in your decision. It is based solely on my assessment of character, ability, and long-term performance. ## The Transition Ahead The process of winding down the partnership will take several months. We will distribute securities and cash to partners in an orderly fashion, with the goal of completing the process by the end of the year. I want to express my gratitude to each of you for the trust you have placed in me over these thirteen years. It has been an honor to manage your capital, and I am proud of what we achieved together. The lessons I have learned through this partnership—the lessons taught by [[Benjamin Graham]], reinforced by [[Charlie Munger]], and demonstrated in thousands of investment decisions—will continue to guide me in whatever I do next. The most important lesson is simple: **Think independently. Be patient. Buy businesses (or securities) that are worth significantly more than you pay for them. And let the miracle of compounding work for you over time.** Warren E. Buffett May 29, 1969