Buffett Partnership Letter 1960 Annual
1960 annual - 22.8% gain vs -6.3% Dow, Sanborn Map case study
Buffett Partnership Letter 1960 Annual
Warren E. Buffett | January 30, 1961
1960 Performance
| Year | Dow | Partnership | Limited Partners |
|---|---|---|---|
| 1957 | -8.4% | 10.4% | 9.3% |
| 1958 | 38.5% | 40.9% | 32.2% |
| 1959 | 19.9% | 25.9% | 20.9% |
| 1960 | -6.3% | 22.8% | 18.6% |
The General Stock Market
In 1960, the picture reversed from 1959. The Dow declined from 679 to 616 (9.3% loss, 6.3% with dividends). About 90% of investment companies outperformed the Industrial Average.
Case Study: Sanborn Map
Business: Publication and continuous revision of extremely detailed maps of all U.S. cities for fire insurance companies.
Problem: "Carding" (a competitive underwriting method) made inroads on Sanborn's business. After-tax profits fell from over $500,000 annually (late 1930s) to under $100,000 in 1958-1959.
Paradox: Despite the map business declining, the investment portfolio flourished.
Price Paradox:
- 1938: Dow at 100-120, Sanborn sold at $110/share
- 1958: Dow at 550, Sanborn sold at $45/share
- Meanwhile, investment portfolio grew from ~$20/share to $65/share
"In 1938... buyer of Sanborn stock placed a positive valuation of $90/share on the map business. In 1958... the same map business was evaluated at a minus $20."
Action: Buffett acquired controlling interest, reorganized the company, and cashed out 72% of stockholders at fair value, eliminating potential $1M+ capital gains tax.
Four-Year Cumulative Results
| Period | Partnership Gain | Dow Gain |
|---|---|---|
| 1957 | 10.4% | -8.4% |
| 1957-58 | 55.6% | 26.9% |
| 1957-59 | 95.9% | 52.2% |
| 1957-60 | 140.6% | 42.6% |
Source
Warren E. Buffett, January 30, 1961.