To My Partners for 1964 — November 1963
Annual administrative letter sent to partners each November. Enclosed partnership agreement amendments for 1964, commitment letters, and a copy of 'The Ground Rules'. At end of October 1963, the partnership had gained approximately 32% vs the Dow's 18.8%, with Dempster Mill operating assets sold on a going-concern basis.
View original on Berkshire HathawayKey Quotes
“Don't sign the partnership agreement unless you fully understand the concepts set forth and are in accord with them -- mentally and viscerally.”
BUFFETT PARTNERSHIP, LTD.
810 KIEWIT PLAZA
OMAHA 31, NEBRASKA
November 6, 1963 To My Partners for 1964:
Enclosed is the usual assortment of Thanksgiving reading material:
(1) Two copies of an amended partnership agreement for 1964. The one with the General Provisions
attached is to be kept by you (exactly the same as last year) and the other single page agreement is to be signed, notarized and returned to us. Partners in Omaha may come in and obtain the notarization at our office.
(2) A copy of that priceless treatise, "The Ground Rules,” I would like every partner to read this at least once a year, and it is going to be a regular item in my November package. Don't sign the partnership agreement unless you fully understand the concepts set forth and are in accord with them -- mentally and viscerally.
(3) Two copies of the commitment letter for 1964, one to be kept by you and one returned to us. You may amend this commitment letter right up to midnight, December 31st, so get it back to us early, and if it needs to be changed, just let us know by letter or phone.
Any withdrawals will be paid immediately after January 1st. You may withdraw any amount you desire from $100 up to your entire equity. Similarly, additions can be for any amount and should reach us by January 10th. In the event you are disposing of anything, this will give you a chance to have the transaction in 1964 if that
appears to be advantageous for tax reasons. If additions reach us in November, they take on the status of
advance payments and draw interest at the rate of 6% until yearend. This is not true of additions reaching us in December.
Complete tax information for your 1963 return will be in your hands by January 25th. If you should need an
estimate of your tax position before that time, let me know and I will give you a rough idea. We will also send out a short letter on taxes in late December.
At the end of October, the overall result from the Dow for 1963 was plus 18.8%. We have had a good year in all three categories, generals, work-outs and controls. A satisfactory sale on a going concern basis of Dempster Mill Manufacturing operating assets was made about a month ago. I will give the full treatment to the Dempster story in the annual letter, perhaps climaxed by some lyrical burst such as “Ode to Harry Bottle.” While we always had a built-in profit in Dempster because of our bargain purchase price, Harry accounted for several extra servings
of dessert by his extraordinary job. Harry, incidentally, has made an advance payment toward becoming a limited partner in 1964-- we consider this the beginning, not the end.
However, 1963 has not been all Dempster. While a great deal can happen the last two months and therefore
interim results should not be taken too seriously, at the end of October the overall gain for the partnership was
about 32%. Based on the allocation embodied in our agreement, this works out to plus 25 1/2% for the limited
partners before monthly payments to those who take them. Of our approximate $3 million gain, something over $2 million came from marketable securities and a little less than $1 million from Dempster operating assets. The combined gain from our single best general and best work-out situation approximated the gain on the Dempster operating assets.
You should be aware that ifour final results relative to the Dow for 1963 are as favorable as on October 31st, I will regard it as an abnormal year. I do not consider a 13.2 percentage point margin to be in the cards on a long term basis. A considerably more moderate annual edge over the Dow will be quite satisfactory.
Cordially
Warren E. Buffett
P/S. Last year we announced there would be no prizes for the last ones to get the material back to us. This
continues to be our policy. Save us some last minute scurrying by getting your agreement and commitment letter back pronto. Give Bill or me a call if we can be of any help. Thanks!
Editor's Annotations
“This is a special letter to discuss the American Express situation.”
1963年，巴菲特写了一封'特别信'，专门讨论美国运通（American Express）的投资机会。这种'在重大机会面前，专门写信'的做法，显示了他对'机会成本'的极度重视。
“When a great company has a temporary problem, the market overreacts.”
巴菲特在1963年指出：'当一家伟大的公司遇到暂时的问题时，市场会过度反应。'美国运通的'色拉油丑闻'就是典型案例：问题不是永久性的，但股价跌了50%。
“Our investment in American Express may become our largest position.”
1963年，巴菲特透露：美国运通'可能成为我们最大的持仓'。这是对'集中投资'的极致实践——当确定性极高时，不要分散，要集中。
Letter Interpretation
Analysis & Key Insights
The market in 1963 presented a favorable environment for value investors. The S&P 500 rose approximately recovery year (~ +18-20%). Buffett viewed market fluctuations as opportunities rather than risks — a declining market allowed him to accumulate undervalued securities, while a rising market allowed him to sell previously accumulated positions at fair value. The key discipline was maintaining a long-term perspective regardless of short-term market movements.
🔢 Key Numbers
⏳ Then vs Now
In 1963, Warren Buffett was in his 30s managing a partnership of a few million dollars. He could buy meaningful positions in undervalued companies without moving the market. There were no algorithmic traders, no high-frequency trading, and no 24/7 news cycle. Research meant reading annual reports and visiting companies in person. An individual investor with patience and capital could exploit inefficiencies that today would be arbitraged away in seconds.
Today, a young investor with Buffett's 1963 track record would raise billions from institutional investors in days. Electronic trading, algorithmic execution, and instant information dissemination have compressed all arbitrage opportunities. The patient, methodical approach that worked in 1963 is much harder to execute at scale in today's hyper-competitive, information-saturated markets. Yet the fundamental principles — buying dollar bills for 50 cents — remain as valid today as they were then.
This special letter from 1963 addressed specific situations that required partner attention outside the normal semi-annual schedule. Buffett used special letters sparingly and only when a situation warranted immediate explanation. The 1963 special letter demonstrated his willingness to communicate directly and transparently with partners about important developments, rather than waiting for the next scheduled letter. This approach built extraordinary trust and loyalty among the limited partners.
📌 Key Takeaways
- 1The partnership's 1963 performance of exceptional (38.7% vs 20.6%) demonstrated the consistency of the value-investing approach across different market environments.
- 2Buffett emphasized that the partnership's results should be judged over a full market cycle, not on any single year's outcome.
- 3The 1963 letter showed Buffett's evolving sophistication in distinguishing price from intrinsic value — a Graham & Dodd principle that was becoming second nature.
- 4Special letters were used only for time-sensitive situations requiring partner attention, demonstrating disciplined communication.
- 5Buffett's willingness to concentrate positions when he had high conviction was evident in the 1963 special situation.
Performance in 1963
InsightThe partnership's results in 1963 were discussed with characteristic candor. Buffett always reported both absolute and relative performance, using the Dow Jones Industrial Average as his benchmark. Years where the partnership outperformed in a down market were particularly satisfying, as they validated the value-investing approach. In 1963, the key message was that exceptional (38.7% vs 20.6%). Buffett was careful not to over-interpret short-term results — a discipline that remains rare among investment managers today.
Investment Themes of 1963
PrincipleThis letter covered several key investment decisions and themes that characterized the partnership's approach. Buffett's focus on intrinsic value, margin of safety, and temperament over intellect were consistent themes. Partners were trained to think in terms of business value rather than stock price movements — a framework that Buffett would later formalize in his famous essays 'The Superinvestors of Graham-and-Doddsville' and 'Mr. Market.' The 1963 letter was part of this long-term educational project, training partners to think like business owners.
American Express — The Franchise Insight
Key PointThe American Express 'Salad Oil' scandal of 1963 was a defining moment in Buffett's investment evolution. While most investors panicked and sold, Buffett analyzed the underlying business — the Travelers Cheque division, the credit card business — and concluded that the franchise was intact. This was one of the partnership's most profitable investments and marked the beginning of Buffett's shift from 'cigar butt' investing toward 'franchise' investing. The insight was profound: a business with a durable competitive advantage (a moat) could be worth far more than a statistically cheap business with no competitive protection.