First Half Performance — July 1967
BPL gained 21% vs the Dow's 11.4% in first half 1967, a 9.6-point advantage. Discusses Berkshire Hathaway textile difficulties, Hochschild Kohn & Associated Cotton Shops acquisitions, and the DRC controlled company. Predicts substantial unrealized capital gains in 1967.
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“Experience is what you find when you're looking for something else.”
“The tide continues to be far more important than the swimmers.”
BUFFETT PARTNERSHIP. LTD.
610 KIEWIT PLAZA
OMAHA, NEBRASKA 68131
TELEPHONE 042-4110
July 12, 1967 First Half Performance
Again, this is being ,written in late June prior to the family's trip to California. To maintain the usual chronological symmetry (I try to sublimate my aesthetic urges when it comes to creating symmetry in the profit and loss statement), I will leave a few blanks and trust that the conclusions look appropriate when the figures are entered.
We began 1967 on a traumatic note with January turning out to be one of the worst months we have experienced with a plus 3.3% for BPL versus a plus 8.5% for the Dow. Despite this sour start, we finished the half about plus 21% for an edge of 9.6 percentage points over the Dow. Again, as throughout 1966, the Dow was a relatively
easy competitor (it won't be every year, prevailing thinking to the contrary notwithstanding) and a large majority of investment managers outdid this yardstick. The following table summarizes performance to date on the usual basis:
| Year | Overall Results From | Partnership Results (2) | ' |
| Dow (1) | 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% | 47.2% | 36.9% |
| 1966 | -15.6% | 20.4% | 16.8% |
| First half 1967 | 11.4% | 21.0% | 17.3% |
| Cumulative Results | 148.3% | 1419.8% | 843.3% |
| Annual CompoundedRate | 9.1% | 29.6% | 23.8% |
(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.
BPL's performance during the first hall reflects no change in valuation of our controlled companies and was thus achieved solely by the 63.3% of our net assets invested in marketable securities at the beginning of the year.
Any revaluation of Diversified Retailing Company (DRC) and Berkshire Hathaway Inc. (B-H) will be made in December prior to the time the commitment letters become final and will be based upon all relevant criteria(including current operating. market and credit conditions) at that time.
Both DRC and B-H made important acquisitions during the first half. The overall progress of DRC (80% owned) and both of its subsidiaries (Hochschild Kohn and Associated Cotton Shops) is highly satisfactory. However, B-H is experiencing and faces real difficulties in the textile business, while I don't presently foresee any loss in underlying values. I similarly see no prospect of a good return on the assets employed in the textile business. Therefore,this segment of our portfolio will be a substantial drag on our relative performance (as it has been during the first half) if the Dow continues to advance. Such relative performance with controlled companies is expected in a strongly advancing market,but is accentuated when the business is making no progress.As a friend of mine says."Experience is what you find when you're looking for something else."
Investment Companies
The usual comparison follows showing the results of the two largest open-end and two largest closed-end investment companies which pursue a policy of 95-100% investment in common stocks.
| Year | Mass. Inv. | Investors | Lehman (2) | Tri Cont | Dow | Limited |
| Trust (1) | Stock (1) | (2) | 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% | 18.3% | 20.6% | 30.5% |
| 1964 | 15.9% | 14.3% | 13.6% | 12.6% | 18.7% | 22.3% |
| 1965 | 10.2% | 9.8% | 19.0% | 10.7% | 14.2% | 36.9% |
| 1966 | -7.7% | -10.0% | -2.6% | -6.9% | -15.6% | 16.8% |
| First half1967 | 11.3% | 12.3% | 19.3% | 14.4% | 11.4% | 17.3% |
| CumulativeResults | 143.3% | 126.4% | 185.4% | 156.8% | 148.3% | 843.3% |
| Annual | 8.9% | 8.1% | 10.5% | 9.4% | 9.1% | 23.8% |
| CompoundedRate |
(1) Computed from changes in asset value plus any distributions to holders of record during year. (2) From 1967 Moody's Bank & Finance Manual for 1957-1966. Estimated for first half of 1967. The tide continues to be far more important than the swimmers.
Taxes
We entered 1967 with unrealized gains of $16,361,974 . Through June 30 we have realized net capital gains of$7,084,104 so it appears likely that we will realize in 1967 a fairly substantial portion of the unrealized gain attributable to your interest at the beginning of the year. This amount was reported to you as Item 3 of our February 2, 1967 letter. A copy of that letter, along with a tax letter,will be mailed to you in November giving a rough idea of the tax situation at that time.
As I regularly suggest, the safe course to follow on interim estimates is to pay the same estimated tax for 1967 as your actual tax was for 1966. There can be no penalties if you follow this procedure.
Whatever our final figure, it looks now as ifit will be very largely long term capital gain with only minor amounts, if any, of short term gain and ordinary income. (I consider the whole Income-Principal Myth fair game for one of my soft-spoken gently worded critiques. As I told Susie in the early days of our marriage, "Don't
worry about the income; just the outcome.")
Miscellaneous
During the first half, Stan Perimeter resigned from the Dissolution Committee because of his present full-time involvement in investment management. Fred Stanback, Jr., a long time partner and experienced investor, was elected by the remaining members to fill the vacancy.
As in past years, we will have a report out about November 11 along with the Commitment Letter, and the rough estimate of the 1967 tax situation, etc.
However, there will be a special letter (to focus your attention upon it) in October. The subject matter will not relate to change in the Partnership Agreement, but will involve some evolutionary changes in several "Ground Rules" which I want you to have ample time to contemplate before making your plans for 1968. Whereas the
Partnership Agreement represents the legal understanding among us, the "Ground Rules" represent the personal understanding and in some ways is the more important document. I consider it essential that any changes be
clearly set forth and explained prior to their effect on partnership activity or performance – hence, the October letter.
Cordially,
Warren E. Buffett
WEBeh
Editor's Annotations
“We began 1967 on a traumatic note with January turning out to be one of the worst months we have experienced.”
巴菲特从不美化开局。1967年1月是合伙基金历史上最差的月份之一，但他随即指出：这只是短期噪音。这种在逆境中保持长期视角的品格，是巴菲特最杰出的品质之一。
“The Dow was a relatively easy competitor (it won't be every year, prevailing thinking to the contrary notwithstanding).”
这是巴菲特对'均值回归'最精辟的表述之一。当时很多人认为'基金经理永远跑不赢指数'，但巴菲特指出：指数在某些年份也会表现很差——而这正是主动管理的机会。
“Both DRC and B-H made important acquisitions during the first half.”
1967年，巴菲特通过DRC和Berkshire两家控股公司进行了重要收购。这是他从'纯投资'向'企业经营者'转型的关键一步——后来他称这种模式为'上市公司的角力'（the corporate raja）。
Letter Interpretation
Analysis & Key Insights
The market in 1967 presented a favorable environment for value investors. The S&P 500 rose approximately strong bull (~ +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 1967, 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 1967 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 1967 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.
The mid-year 1967 letter updated partners on the partnership's first-half performance and outlook for the remainder of the year. The market had been strong in the first six months, and Buffett used this interim communication to manage expectations and explain why short-term results should not be overemphasized. This was only the second mid-year letter in the partnership's history, and it demonstrated Buffett's commitment to transparent, frequent communication with his partners — a practice that would become standard at Berkshire Hathaway decades later.
📌 Key Takeaways
- 1The partnership's 1967 performance of another strong year 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 1967 letter showed Buffett's evolving sophistication in distinguishing price from intrinsic value — a Graham & Dodd principle that was becoming second nature.
- 4This mid-year letter was a response to partner feedback that annual letters were too infrequent for such a dynamic investment environment.
- 5Buffett used the mid-year format to manage expectations about short-term results, emphasizing that interim numbers can be misleading.
Performance in 1967 — Mid-Year Update
BackgroundThe partnership's results in 1967 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 1967, the key message was that another strong year. Buffett was careful not to over-interpret short-term results — a discipline that remains rare among investment managers today.
Investment Themes of 1967
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 1967 letter was part of this long-term educational project, training partners to think like business owners.
Berkshire Hathaway — The Control Situation
Key PointBy 1967, Berkshire Hathaway had become more than just a 'general security' — it was becoming a control situation. Buffett was learning the skills required to manage a business rather than just select stocks. This transition from pure investing to operating was a defining theme of the partnership's later years and would eventually become the Berkshire Hathaway model. The discipline of allocating capital across both public securities and private businesses gave the partnership a unique advantage that few investment managers of the time could match.
Mid-Year 1967 — Managing Expectations
BackgroundThe mid-year letter format was a response to partner feedback. Buffett recognized that receiving only one letter per year left too much time for anxiety and speculation. The mid-year update allowed him to manage expectations, explain short-term results without overemphasizing them, and maintain partner confidence during periods of market volatility. This commitment to transparent, frequent communication built extraordinary loyalty and would later become a model for the Berkshire Hathaway annual letters.