In the first half of 1964 DOW advance from 762.95 to 831.50, dividends of 14.40 including the overall return from Dow was +10%

Overall Performance

Year Overall Results from Dow (1) Partnership Results (2) Limited Partners Results (3)
1957 -8.40% 10.40% 9.30%
1958 38.50% 40.90% 32.20%
1959 20.00% 25.90% 20.90%
1960 -6.20% 22.80% 18.60%
1961 22.40% 45.90% 35.90%
1962 -7.60% 13.90% 11.90%
1963 20.70% 38.70% 30.50%
1st Half 1964 10.90% 12.00% 10.50%
Cumulative Results 116.10% 521.00% 354.40%
Annual Compounded Rate 10.80% 27.60% 22.20%
Source: Buffett Partnership Letter (8 July 1964)

The above table shows Dow performance including dividends received throughout the years. Buffett not only beat Dow in cumulative results but the annual compounded rate was very impressive. Compounded at 27.6% over 8.5 years, it has a 17% edge over Dow.
Buying of securities during the first half were satisfactory, it’s almost 90% of buying. In the general category, which is undervalued stocks, includes three companies, where BPL is the largest single stockholder; these stocks have been bought and continue to be bought at prices considerably below their value to a private owner. In which one security Buffett buying from last one year and two securities are buying from last 18 months.

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.

Buffett Conditions for Buying Securities continuously

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.

Let’s Learn

Think about the process and outcome which suits you or not. In outcome there are two things are working, first is the appreciation of market prices from external factors and second acquisition or controlling stake at bargain prices.

Investment Companies

Open-Ended Mutual Fund Close Ended Mutual Fund
Years Mass. Inv. Trust (1) Investors Stocks (1) Lehman (2) Tri-Cont (2) Dow Limited Partners
1957 -11.40% -12.40% -11.40% -2.40% -8.40% 9.30%
1958 42.70% 47.50% 40.80% 33.20% 38.50% 32.20%
1959 9.00% 10.03% 8.10% 8.40% 20.00% 20.90%
1960 -1.00% -0.60% 2.50% 2.80% -6.20% 18.60%
1961 25.60% 24.90% 23.60% 22.50% 22.40% 35.90%
1962 -9.80% -13.40% -14.40% -10.00% -7.60% 11.90%
1963 20.00% -16.50% 23.80% 18.30% 20.70% 30.50%
1st Half 1964 11.00% 9.50% 9.60% 8.60% 10.90% 10.50%
Cumulative Results 105.80% 95.50% 98.20% 105.10% 116.10% 354.40%
Annual Compounded Rate 10.10% 9.40% 9.60% 10.10% 10.80% 22.20%
Source: Buffett Partnership Letter (8 July 1964)


Warren regularly compares BPL results with two largest open-ended mutual funds and two close-ended mutual funds. They typically invest in common stocks. 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.

Let’s Learn

Warren gave duck as an example, Riding the wave, and getting credit for that, it’s not good for investment business, rather take credit for his own activity and for that, the water level is very important, and warren occasionally becomes active.

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.

There must be parameters, and objective in investment and the standard should be selected on reasons rather than convenient to the manager.

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 management 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.

Investment manager give great focus on investment evaluation, devote time, efforts, but they themselves will not devote time, effort and focus on establishing standards of performance, and objectively study their own results as carefully as they study their investment.

Let’s Learn

Warren, differentiate two things here, Investment evaluation and performance evaluation. There are parameters for Investment evaluation but what about the performance evaluation? There are no parameters, and no investment manager making any efforts towards these things.

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 the 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 the 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.

Warren, establish his own policy of measuring performance, which will not guarantee good results, He mentions in ground rules, that his performance must evaluate on a three-year basis, because, of speculation in the market, and the investment he had done, required this much time. Warren promises, that we will not change our yardstick. When investment management is the largest business in the world, it should be managed by yardsticks.

We do not play any games to either accelerate or defer taxes. We make investment decisions based on our evaluation of the most rofitable combination of probabilities. If this means paying taxes I’m glad the rates on long-term capital gains are as low as they are.

Let’s Learn

Make investment decisions based on our evaluation of the most profitable combination of probabilities.


Buffett explains great points.

  • Patiently buy securities, year after year
  • When a company making progress in earning and asset values, and stock price are not moving, it’s a perfect time of buying.
  • Think about the process and outcome
  • Riding the wave is not a healthy investment process
  • There should be objective tests, to evaluate the performance
  • Devote time, effort as manager evaluate their investment, they must evaluate their own performance on a few standard parameters
  • Warren differentiate two things first is Investment Evaluation and second is Performance evaluation.
  • Warren does not play any games to either accelerate or defer taxes
  • Warren investment decision depends upon the profitable combination of probabilities


To Your Success with Lot of Love!


Harish S Kawalkar


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