Monday, December 17, 2007

Warren Buffett Partnership Letter 1964 Summary

In the eighth year of the partnership it beats the DOW again by 9%...The partnership returned 28%...The partnership has beaten the DOW every year...The four largest investment companies are Massachusetts Investment Trust, Investors Stock Fund, Lehman Corporation, and Tri-Continental...All four have underperformed the DOW since 1957 by about one percent...The reason is that large investment companies work in a bureaucratic environment and follow the herd in picking and choosing stocks...

Ninety percent of Warren's net worth is in the partnership...Warren states if you cannot handle a 30% drop in the markets and your portfolio, then you should not be in the stock market...

This year Warren breaks down generals into two categories instead of one...The are generals- private owner basis and generals-relative undervalued...This new category general-private issues has been growing and producing good results....He still has the two other categories of workouts and controls...Warren discusses a 1963 purchase and says this purchase in the workout category has substantially helped 1964 returns...We can only assume it is the purchase of American Express Company...It had a one time fixable problem and Warren backed the truck up and makes a huge purchase...

In 1964 the work-out category lagged in the partnership versus the other categories in the portfolio...

What can we learn:
Warren continues to outperform the DOW...The partnership has never underperformed it since the partnership started...
Warren breaks down the category of generals...Now into private issue and relative undervalued securities...
Work-outs were the worst performers in the partnership portfolio...

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