Buffett Partnership Letter Series

This series of articles will examine the letters written by Warren Buffett to his limited partners from 1958-1970.


History of Buffett Partnership Ltd.


In 1956, Warren Buffett concluded his work for the Graham-Newman Corporation (where Benjamin Graham was the chairman of the board of directors) and returned to Omaha, Neb., where he started an investment partnership.


“Buffett Associates Ltd. [predecessor to Buffett Partnership Ltd.] . . . was formed May 5, 1956 with seven limited partners (four family, three close friends), contributing $105,000, and the General Partner [Warren Buffett] putting his money where his mouth was by investing $100. Two additional single-family limited partnerships were formed during 1956, so that on January 1, 1957 combined net assets were $303,726” (January 22, 1969 partnership letter). Additional partnerships were created in the succeeding years.


The Buffett partnerships made money year after year. According to the Jan. 22, 1969, partnership letter, “present net assets” came to $104,429,431.


In 1969, Warren Buffett decided to liquidate these partnerships and make distributions to limited partners beginning in 1970. His reasons were as follows (note: quotes were taken from the May 29, 1969, partnership letter):

1) Opportunities for investment that are open to the analyst who stresses quantitative factors have virtually disappeared, after rather steadily drying up over the past twenty years;


2) Our $100 million of assets further eliminates a large portion of this seemingly barren investment world, since commitments of less than about $3 million cannot have a real impact on our overall performance, and this virtually rules out companies with less than about $100 million of common stock at market value; and


3) A swelling interest in investment performance has created an increasingly short-term oriented and (in my opinion) more speculative market.


Additionally, personal considerations led Buffett to liquidate the partnerships. Buffett had “a desire to be relieved of the (self-imposed) necessity of focusing 100% on BPL [Buffett Partnership Ltd.].” He didn’t “want to be totally occupied with out-pacing an investment rabbit” all his life, and he felt the “only way to slow down” was “to stop.” (Quoted text was taken from the May 29, 1969 partnership letter).

As part of this liquidation process, Buffett wanted “all partners to have the option of maintaining their proportional interests in our two controlled companies (Diversified Retailing Company Inc. and Berkshire Hathaway Inc.) and one other small "restricted holding” (May 29, 1969 partnership letter).


Warren Buffett, however, could not stay away from the investment game, or business in general. He went on to become the chairman and CEO of Berkshire Hathaway Inc. (BRK.A, Financial)(BRK.B, Financial) and one of the richest men in the world.


Why should we study the Buffett partnership letters?


The Buffett partnership letters are interesting from a value investor’s standpoint because we get to see how a younger, hungrier Warren Buffett allocated a smaller amount of capital.


In terms of partnership results, Buffett knocked it out of the park. From 1957-1968, the Buffett partnership achieved an annual compounded rate of 31.6% (and the limited partners achieved an annual compounded rate of 25.3%), versus the Dow’s annual compounded rate of 9.1%. (See the tables below for the yearly and cumulative numbers.)


That kind of success merits attention. And that’s why I plan to examine each partnership letter and highlight the key investment principles, guidelines and wisdom that Buffett shared with his limited partners.


I hope you’ll join me on this journey through the Buffett partnership letters.




Next article: Buffett Partnership Letter Series - 1957 (Part 1)



(Note: Tables/numbers taken from the Jan. 22, 1969 partnership letter)


The following summarizes the year-by-year performance of the Dow, the Partnership before allocation (one quarter of the excess over 6%) to the General Partner and the results for limited partners:




(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) 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) 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: