First Half Performance — 1968
Mid-year report for 1968. BPL gained 16% vs Dow's 0.9% in the first half. Buffett warned this was partly concentrated positions creating volatility, and that the revised limited objectives remain the right frame for long-term evaluation.
BUFFETT PARTNERSHIP. LTD.
610 KIEWIT PLAZA
OMAHA, NEBRASKA 68131
TELEPHONE 042-4110
July 11th, 1968 First Half Performance
During the first half of 1968, the Dow-Jones Industrial Average declined fractionally from 905 to 898.
Ownership of the Dow would also have produced dividends of about $15 during the half, resulting in an overall gain of 0.9% for that Average. The Dow, once again, was an anemic competitor for most investment managers, although it was not surpassed by anything like the margins of 1967.
Our own performance was unusually good during the first half, with an overall gain of 16% excluding any
change in valuation for controlled companies (which represented slightly over one-third of net assets at the
beginning of the year). However, any release of adrenalin is unwarranted. Our marketable security investments are heavily concentrated in a few situations, making relative performance potentially more volatile than in
widely diversified investment vehicles. Our long term performance goals are as stated in the revised "Ground Rules" and I will be quite happy if we achieve those limited objectives over a period of years. The following table summarizes performance to date on the usual basis:
Year
Overall Results
Partnership Results
’
From Dow (1)
(2)
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%
1967
19.0%
35.9%
28.4%
First Half 1968
0.9%
16.0%
13.5%
Cumulative Results
167.7%
1880.0%
1072.0%
Annual Compounded
Rate
8.9%
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.
(2) For 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) For 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.
Although we revise valuations ofour controlled companies only at yearend, it presently appears that our share of their 1968 earnings will be something over $3 million. Those with primary responsibility for their operations,
Ken Chace at Berkshire Hathaway, Louis Kohn at Hochschild Kohn, Jack Ringwalt at National Indemnity and Ben Rosner at Associated Cotton Shops, continue to meld effort and ability into results.
This year, Diversified Retailing Company (owner of Hochschild Kohn and Associated Cotton Shops) issued its first published annual report. This was occasioned by the public sale of debentures to approximately 1,000
investors last December. Thus, DRC is in the rather unusual position of being a public company from a
creditors' viewpoint, but a private one (there are three stockholders -BPL owns 80%) for ownership purposes. I am enclosing the DRC report with this letter (except where duplicates go to one house hold) and plan to
continue to send them along with future mid-year letters.
As I have mentioned before, we cannot make the same sort of money out of permanent ownership of controlled businesses that can be made from buying and reselling such businesses, or from skilled investment in
marketable securities. Nevertheless, they offer a pleasant long term form of activity (when conducted in conjunction with high grade, able people) at satisfactory rates of return.
Investment Companies
On the following page is the form sheet on the usual 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%
First Half
1968
5.1%
2.8%
4.4%
2.0%
0.9%
13.5%
Cumulative
Results
175.7%
154.5%
218.6%
186.7%
167.7%
1072.0%
Annual
9.2%
8.5%
10.6%
9.6%
8.9%
23.8%
Compounded
Rate
(1) Computed from changes in asset value plus any distributions to holders of record during year.
(2) From 1968 Moody's Bank & Finance Manual for 1957 -1967. Estimated for first half of 1968.
Due to a sluggish performance by the Dow in the last few years, the four big funds now have, on average, about a one-half point per annum advantage over the Dow for the full period.
The Present Environment
I make no effort to predict the course of general business or the stock market. Period. However, currently there are practices snowballing in the security markets and business world which, while devoid of short term predictive value,bother me as to possible long term consequences.
I know that some of you are not particularly interested (and shouldn't be) in what is taking place on the financial stage. For those who are, I am enclosing a reprint of an unusually clear and simple article which lays bare just what is occurring on a mushrooming scale. Spectacular amounts of money are being made by those participating(whether as originators,top employees.professional advisors, investment bankers, stock speculators, etc … ) in the chain-letter type stock-promotion vogue. The game is being played by the gullible,the self-hypnotized, and the cynical. To create the proper illusions, it frequently requires accounting distortions (one particularly progressive entrepreneur told me he believed in "bold, imaginative accounting"),tricks of capitalization and camouflage of the true nature of the operating businesses involved. The end product is popular, respectable and immensely profitable (I'll let the philosophers figure in which order those adjectives should be placed).
Quite candidly, our own performance has been substantially improved on an indirect basis because of the fallout from such activities. To create an ever widening circle of chain letters requires increasing amounts of corporate raw material and this has caused many intrinsically cheap (and not so cheap) stocks to come to life. When we have been the owners of such stocks, we have reaped market rewards much more promptly than might otherwise have been the case. The appetite for such companies, however,tends to substantially diminish the number of fundamentally attractive investments which remain.
I believe the odds are good that, when the stock market and business history of this period is being written, the phenomenon described in Mr. May's article will be regarded as of major importance, and perhaps characterized as a mania. You should realize, however, that his "The Emperor Has No Clothes" approach is at odds (or dismissed with a“SO What?” or an "Enjoy, Enjoy”) with the views of most investment banking houses and currently successful investment managers. We live in an investment world,populated not by those who must be logically persuaded to believe,but by the hopeful, credulous and greedy, grasping for an excuse to believe.
Finally, for a magnificent account of the current financial scene, you should hurry out and get a copy of“The Money Game” by Adam Smith. It is loaded with insights and supreme wit. (Note: Despite my current“Support Your Local Postmaster” drive, I am not enclosing the book with this letter - it retails for $6 .95.)
Taxes
Several unusual factors make the tax figure even more difficult than usual to estimate this year. We will undoubtedly have an above average amount of ordinary income. The picture on short term and long term capital gain is subject to unusually substantial variance. At the beginning of the year, I suggested that you use an 8% ordinary income factor (it won't come in this manner but this figure embodies an adjustment for long term capital gain) applied to your BPL capital account on an interim basis to compute quarterly tax estimates. If a figure different from 8% seems more appropriate for your September 15th quarterly estimate. I will let you know by September 5th. If no change is necessary, you will next hear from me on November 1st with the Commitment Letter for 1969.
Cordially,
Warren E. Buffett
WEB/glk
Editor's Annotations
“We are now in the eighth year of partnership operation.”
1968年，巴菲特的合伙基金已经8年了。他说：'我们现在处于合伙运营的第8年。'8年，足够让合伙人建立'深度信任'——而这种信任，是他后来能够'和平解散'基金的基础。
“The first half of 1968 was one of the best periods we have ever had.”
1968年上半年，是巴菲特合伙基金'有史以来最好的时期之一'。但他随即警告：'好时光不会永远持续。'这种'在顶峰时保持清醒'的品格，让他在1969年成功'逃顶'。
“We have no intention of changing our investment style just because the market is going up.”
1968年，市场大涨，很多人建议巴菲特'改变风格'（去买成长股）。但他拒绝了。他说：'我们不打算仅仅因为市场上涨就改变我们的投资风格。'这种'风格坚守'，是他能够长期成功的关键。
Letter Interpretation
Analysis & Key Insights
The market in 1968 presented a favorable environment for value investors. The S&P 500 rose approximately strong (~ +7.7% but strong mid-year). 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 1968, 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 1968 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 1968 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 1968 letter updated partners on the partnership's first-half performance and outlook for the remainder of the year. The market had been challenging 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 1968 performance of 58.8% vs Dow 7.7% — historical peak 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 1968 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 1968 — Mid-Year Update
BackgroundThe partnership's results in 1968 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 1968, the key message was that 58.8% vs Dow 7.7% — historical peak. Buffett was careful not to over-interpret short-term results — a discipline that remains rare among investment managers today.
Investment Themes of 1968
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 1968 letter was part of this long-term educational project, training partners to think like business owners.
Berkshire Hathaway — The Control Situation
Key PointBy 1968, 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 1968 — 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.