1969 年度致合伙人信

BUFFETT PARTNERSHIP, LTD. 810 KIEWIT PLAZA OMAHA, NEBRASKA 68131 Telephone 048-4110

Warren E. Buffett, General Partner William Scott February 18th, 1970 John M. Harding

To My Partners :

Our Partnership life ended on a symmetrical note. I consider 1957 and 1969, our beginning and terminal years, to have been the two most difficult twelve-month calendar periods that we faced during our operating history. It was fortunate our Partnership symmetry went no further than this - an ending capital equal to our beginning capital, despite a classical aesthetic balance, might not have produced total fulfillment.

The usual table appears below in final form (accompanied by a giant sigh of relief from the General Partner):

Overall Results Partnership Limited Partners Year From Dow (1) Results (2) 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% 1964 +18.7% +27.8% +22.3% 1965 +14.2% +47.8% +36.9% 1966 -15.6% +20.4% +16.8% 1967 +19.0% +35.9% +28.4% 1968 +7.7% +58.8% +45.6% 1969 -11.6% +6.8% +6.6%

(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 upon the present Partnership Agreement, but before monthly withdrawals by limited partners.

On a cumulative or compounded basis, the results are:

Overall Results Partnership Limited Partners’ Year From Dow Results 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 +94.9% +454.5% +311.2% 1957-64 +131.3% +608.7% +402.9% 1957-65 +164.1% +943.2% +588.5% 1957-66 +122.9% +1156.0% +704.2% 1957-67 +165.3% +1606.9% +932.6% 1957-68 +185.7% +2610.6% +1403.5% 1957-69 +152.6% +2794.9% +1502.7%

Annual Compounded Rate +7.4% +29.5% +23.8%

And the final tabulation on the usual four investment companies:

Mass. Inv. Investors Limited Year Trust (1) Stock (1) Lehman (2) Tri-Cont. (2) Dow 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% +18.7% +20.6% +30.5% 1964 +15.9% +14.3% +14.0% +13.6% +18.7% +22.3% 1965 +10.2% +9.8% +19.0% +11.1% +14.2% +36.9% 1966 -7.7% -10.0% -2.5% -6.2% -15.6% +16.8% 1967 +20.0% +22.8% +27.6% +25.2% +19.0% +28.4% 1968 +10.2% +8.0% +6.6% +9.6% +7.7% +45.6% 1969 -4.8% -7.9% -1.9% +0.1% -11.6% +6.6%

Cumulative Results +175.2% +146.3% +219.1% +208.4% +152.6% +1502.7% Annual Compounded Rate 8.1% 7.2% 9.3% 9.0% 7.4% 23.8%

(1) Computed from changes in asset value plus any distributions to holders of record during year.

(2) From 1969 Moody’s Bank & Finance Manual for 1957-1968. Estimated for 1969.

The Stock Market in 1969

Most investors and investment managers who, until quite recently, were deriding the Dow and investment companies such as the four mentioned above fell on lean times in 1969. The year probably witnessed the worst relative performance for so-called "aggressive" money management that has occurred since such activity became fashionable. Predictably, the poor performance has been applied to huge aggregates of capital whereas the earlier brilliant results only benefited much smaller sums. Those of you with an analytical bent should give some thought as to how accurately the standard mutual fund literature portrays the investment record of a fund which has a 100% gain in one year on $1 million of assets, and a 25% loss in a subsequent year on $1 billion (attracted by the earlier performance) of assets. The "chain letter" phenomenon, whether created intentionally by a financial Machiavelli or accidentally by a public responding to its baser emotions, tends to produce an identical effect - a few people, the ones who intentionally or accidentally mail the first letters, make a great deal of money; and a vastly greater number on the outer ring of concentric circles lose money while behaving in a manner they think is certain to succeed because of the obviously bountiful results to early participants.

Eighteen months ago I sent you a reprint of an article by Marvin M. May describing the chain letter effect of “funny money” acquisitions. In the stock market of 1969, the roof fell in on this sort of activity and the implications of Mr. May's article were validated. Many of the better investment management records in the 1964-1968 period were at least partial beneficiaries of corporate chain letter activity and, to the extent they over- stayed their hand in 1969, a substantial bath was taken.

BPL in 1970 and 1971

In winding up the Partnership, I have wanted to give you cash or cash equivalent, since that is the way you entered BPL. As you know, we have distributed about $99 million of the December 31, 1969 assets of Buffett Partnership, Ltd. in the form of cash and your proportional share of controlled companies. Those partners who wanted to sell their share of the controlled companies for cash at yearend valuation prices have been able to do so. Those who wish to stay with them, as I am doing, have been able to maintain their proportional interest without incurring a capital gains tax on the unrealized appreciation over BPL's cost.

We are down to about $6 million of net assets, largely represented by our holdings of Blue Chip Stamps. However, we have miscellaneous other items, including such little gems as about 90% of a fractional interest in the royalty under a gas well in Bee County, Texas (producing less than $4,000 per year) and 80% of a small store building in South Chicago. It is much easier to get into business than to get out of it. My expectation is that we will get everything finally wound up during 1971, but this is very tentative - in any event, I think it unlikely we make a further distribution in 1970. The office will be maintained at Kiewit Plaza (although perhaps on a different floor) through 1971 when our lease expires.

Taxes

BPL held large amounts of commercial paper due in the early days of January, 1970, on which substantial interest was received at maturity. The entire amount will be reported by cash basis taxpayers (which you and I are) in the year received rather than when accrued. Thus, you will have taxable interest income in 1970 equal to about 1-1/4% of your January 1, 1969 capital, although you received the economic benefit almost entirely in 1969. In early 1971, you will receive full tax information applicable to your 1970 BPL investment, just as in past years.

We will only be able to give you completely accurate figures pertaining to the tax basis of your Berkshire Hathaway, Inc. and Diversified Retailing Company, Inc. stock in early 1971. This is due to some complexities

of the tax law whereby 1970 BPL figures could have a minor effect on the basis of these items. Since no one sold his holdings until 1970, and since supporting detail for the Internal Revenue Service is not required until April 15, 1971, our final figures will be available to you in ample time. Anyone needing close approximations as to the tax basis of these securities should get in touch with John Harding prior to March 31,1970.

And My Thanks

This is not the last time you will hear from me, since there are bound to be a few winding-up communications. I also will be sending out a letter on about February 25th to those who have requested it, dispensing an elementary general education on bonds with the emphasis on the tax-free area.

Normally, the liquidation of an enterprise implies institutional or personnel weaknesses. Our own case represents the opposite extreme. I consider the BPL staff to be superior to that of any organization I have seen. Gladys, Donna, John and Bill have done everything asked of them - and sometimes it was plenty - in the most accurate, prompt and pleasant manner possible. They are exceptionally high-grade, talented people. Don't get any ideas about hiring them - John is going with Bill Ruane - I expect Gladys and Bill to become employed by Berkshire Hathaway. Inc., primarily in connection with the bond activities of the bank and insurance company - and Donna will be keeping tab on the run-out of BPL over the next couple of years.

Ben Rosner and Jack Ringwalt have done extraordinary jobs for BPL since acquisition of their companies by DRC and BH. Their efforts over the past three years have contributed to a significant degree to the increased valuations applied to the controlled companies at each yearend. Our figures would have been considerably poorer had they turned in only the normal managerial job.

Without the right group of partners, there would have been no BPL. Efforts can only be productive in the proper environment, and that is what you have provided. I have probably been able to utilize my time and energy more effectively than virtually any money manager working with comparable sums. My activity has not been burdened by second-guessing, discussing non sequiturs, or hand holding. You have let me play the game without telling me what club to use, how to grip it, or how much better the other players are doing. I've appreciated this, and the results you have achieved have significantly reflected your attitudes and behavior. If you don't feel this is the case, you underestimate the importance of personal encouragement and empathy in maximizing human effort and achievement.

Cordially,

Warren E. Buffett

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