Our Performance in 1967
BPL gained 35.9% vs the Dow's 19.0% in 1967 — a record year. However, 95% of investment managers beat the Dow. Worst year ever in Workouts (0.89% return). Berkshire textile operations remain a drag; National Indemnity acquisition described as highly satisfactory. Moderated objectives from October letter discussed candidly.
View original on Berkshire HathawayKey Quotes
“My mentor, Ben Graham, used to say: "Speculation is neither illegal, immoral nor fattening (financially)."”
“The insurance business is fundamentally different from the textile business.”
“The really big money tends to be made by investors who are right on qualitative decisions.”
BUFFETT PARTNERSHIP. LTD.
610 KIEWIT PLAZA
OMAHA, NEBRASKA 68131
TELEPHONE 042-4110
January 24, 1968
Our Performance in 1967
By most standards, we had a good year in 1967. Our overall performance was plus 35.9% compared to plus
19.0% for the Dow, thus surpassing our previous objective of performance ten points superior to the Dow. Our overall gain was $19,384,250 which, even under accelerating inflation, will buy a lot of Pepsi. And, due to the sale of some longstanding large positions in marketable securities, we had realized taxable income of
$27,376,667 which has nothing to do with 1967 performance but should give all of you a feeling of vigorous participation in The Great Society on April 15th.
The minor thrills described above are tempered by any close observation of what really took place in the stock market during 1967. Probably a greater percentage of participants in the securities markets did substantially
better than the Dow last year than in virtually any year in history. In 1967, for many, it rained gold and it paid to be out playing the bass tuba. I don't have a final tabulation at this time but my guess is that at least 95% of
investment companies following a common stock program achieved better results than the Dow - in many cases by very substantial amounts. It was a year when profits achieved were in inverse proportion to age - and I am in the geriatric ward, philosophically.
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:
| Year | Overall Results | Partnership Results | ' |
| 1957 | From Dow (1) | (2) | Results (3) |
| -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% |
| 1967 | 19.0% | 35.9% | 28.4% |
(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.
withdrawals by limited partners.
On a cumulative or compounded basis, the results are:
| Year | Overall Results From | Partnership Results | ' |
| Dow | 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 | 95.1% | 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% |
| Annual CompoundedRate | 9.3% | 29.4% | 23.6% |
Investment Companies
On the following page is the usual tabulation showing the results of what were the two largest mutual funds
(they have stood at the top in size since BPL was formed - this year, however, Dreyfus Fund overtook them) that follow a policy of being, typically, 95-100% invested in common stocks, and the two largest diversified closed- end investment companies.
| 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% |
| 1967 | 20.0% | 22.8% | 28.0% | 25.4% | 19.0% | 28.4% |
| CumulativeResults | 162.3% | 147.6% | 206.2% | 181.5% | 165.3% | 932.6% |
| Annual | 9.2% | 8.6% | 10.7% | 9.9% | 9.3% | 23.6% |
| 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 1967.
Last year I said:
"A few mutual funds and some private investment operations have compiled records vastly superior to the Dow and, in some cases, substantially superior to Buffett Partnership, Ltd. Their investment techniques are usually very dissimilar to ours and not within my capabilities."
In 1967 this condition intensified. Many investment organizations performed substantially better than BPL, with gains ranging to over 100%. Because of these spectacular results, money, talent and energy are converging in a maximum effort for the achievement of large and quick stock market profits. It looks to me like greatly intensified speculation with concomitant risks -but many of the advocates insist otherwise.
My mentor, Ben Graham,used to say."Speculation is neither illegal, immoral nor fattening (financially)."During the past year, it was possible to become fiscally flabby through a steady diet of speculative bonbons.We continue to eat oatmeal but if indigestion should set in generally, it is unrealistic to expect that we won't have some discomfort.
Analysis of 1967 Results
The overall figures given earlier conceal vast differences in profitability by portfolio category during 1967.
We had our worst performance in history in the"Workout" section. In the 1965 letter,this category was defined as,
"...securities with a timetable. They arise from corporate activity -- sell-outs, mergers,reorganizations, spin-offs, etc. In this category, we are not talking about rumors or inside information pertaining to such developments,but to publicly announced activities of this sort. We wait until we can read it in the paper. The risk does not pertain primarily to general market behavior (although that is sometimes tied in. to a degree).but instead to something upsetting the applecart so that the expected corporate development does not materialize."
The streets were filled with upset applecarts - our applecarts - during 1967. Thus, on an average investment of$17,246,879, our overall gain was $153,273. For those of you whose slide rule does not go to such insulting depths, this represents a return of .89 of 1%. While I don't have complete figures. I doubt that we have been below 10% in any past year. As in other categories, we tend to concentrate our investments in the workout category in just a few situations per year. This technique gives more variation in yearly results than would be the case if we used an across-the-board approach. I believe our approach will result in as great (or greater)
profitability on a long-term basis,but you can't prove it by 1967.
Our investment in controlled companies was a similar drag on relative performance in 1967,but this is to be expected in strong markets. On an average investment of $20,192,776 we had an overall gain of $2,894,571 . Iam pleased with this sort of performance, even though this category will continue to underperform if the market continues strong during 1968. Through our two controlled companies (Diversified Retailing and Berkshire Hathaway), we acquired two new enterprises in 1967.Associated Cotton Shops and National Indemnity (along with National Fire & Marine, an affiliated company). These acquisitions couldn't be more gratifying. Everything was as advertised or better. The principal selling executives, Ben Rosner and Jack Ringwalt, have continued to do a superb job (the only kind they know), and in every respect have far more than lived up to their end of the bargain.
The satisfying nature of our activity in controlled companies is a minor reason for the moderated investment objectives discussed in the October 9th letter. When I am dealing with people I like, in businesses I find stimulating (what business isn't ?), and achieving worthwhile overall returns on capital employed (say, 10 -12%), it seems foolish to rush from situation to situation to earn a few more percentage points. It also does not seem sensible to me to trade known pleasant personal relationships with high grade people, at a decent rate of return, for possible irritation, aggravation or worse at potentially higher returns. Hence, we will continue to keep a portion of our capital (but not over 40% because of the possible liquidity requirements arising from the nature of our partnership agreement) invested in controlled operating businesses at an expected rate of return below that inherent in an aggressive stock market operation.
With a combined total of $37,439,655 in workouts and controls producing an overall gain of only $3,047,844, the more alert members of the class will have already concluded we had a whale of a year in the "GeneralsRelatively Undervalued" category. On a net average investment of $19,487,996,we had an overall gain of$14,096,593, or 72%. Last year I referred to one investment which substantially outperformed the general market in 1964, 1965 and 1966 and because of its size (the largest proportion we have ever had in anything -we hit our 40% limit) had a very material impact on our overall results and, even more so, this category. This excellent performance continued throughout 1967 and a large portion of total gain was again accounted for by this single security. Our holdings of this security have been very substantially reduced and we have nothing in this group remotely approaching the size or potential which formerly existed in this investment.
The "Generals - Private Owner" section produced good results last year ($1,297,215 on $5,141,710 average investment), and we have some mildly interesting possibilities in this area at present.
Miscellaneous
We begin the new year with net assets of $68,108,088 .We had partners with capital of about $1,600,000 withdraw at yearend,primarily because of the reduced objectives announced in the October 9th letter. This makes good sense for them, since most of them have the ability and motivation to surpass our objectives and Iam relieved from pushing for results that I probably can't attain under present conditions.
Some of those who withdrew (and many who didn't) asked me, "What do you really mean?" after receiving the October 9th letter. This sort of a question is a little bruising to any author,but I assured them I meant exactly what I had said. I was also asked whether this was an initial stage in the phasing out of the partnership. The answer to this is,"Definitely, no". As long as partners want to put up their capital alongside of mine and the business is operationally pleasant (and it couldn't be better), I intend to continue to do business with those who have backed me since tennis shoes.
Gladys Kaiser has joined us and is doing the same sort of top-notch job that we have long received from Donna, Bill and John. The office group, spouses and children have over $15 million invested in BPL on January 1,1968, so we have not had a need for NoDoz during business hours.
Within a few days, you will receive:
1. A tax letter giving you all BPL information needed for your 1967 federal income tax return. This letter is the only item that counts for tax purposes.
2. An audit from Peat, Marwick, Mitchell & Co. (they have again done an excellent job) for 1967, setting forth the operations and financial position of BPL, as well as your own capital account.
3. A letter signed by me setting forth the status of your BPL interest on January 1, 1968. This is identical with the figures developed in the audit.
Let me know if anything in this letter or that occurs during the year needs clarifying. My next letter will be about July15th, summarizing the first half of this year.
Cordially,
Warren E. Buffett
Editor's Annotations
“We began 1967 on a traumatic note with January turning out to be one of the worst months we have experienced.”
1967年1月是合伙基金历史上最差的月份之一，但巴菲特指出：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。
“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。
“The tide continues to be far more important than the swimmers.”
1967年，巴菲特重申：'潮汐仍然比游泳者重要得多。'意思是：市场大环境（潮汐）比个股选择（游泳者）更重要。在牛市中，傻瓜也能赚钱；在熊市中，高手也可能亏钱。
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 1967 annual partnership letter captured a strong market year in which commitment letter (terms), performance fees making Buffett wealthy. Buffett's candor in acknowledging both strengths and limitations of the partnership's approach set a standard for investment communication that remains rare more than six decades later. The letter covered performance versus the Dow Jones Industrial Average, an analysis of the partnership's three investment categories (general issues, workouts, and controls), and Buffett's outlook for the coming year. Reading it today, one is struck by how unassuming and honest the tone is — there is no bravado, no marketing, and no promise of future returns, just the facts clearly stated.
📌 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.
- 4By 1967, the partnership had a five-year track record that gave Buffett the credibility to eventually close the partnership and manage Berkshire Hathaway.
- 5The letter demonstrated that Buffett was not merely a 'cigar butt' investor — he was beginning to appreciate franchise value and the importance of business quality.
Performance in 1967
InsightThe 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.