Buffett Partnership Letter 1963 Semi
1963 first half - 14% gain vs 10% Dow, Dempster transformation
warren-buffettbuffett-partnershipperformance1963dempster
Buffett Partnership Letter 1963 Semi
Warren E. Buffett | July 10, 1963
First Half 1963 Performance
- Dow advanced from 652.10 to 706.88 (+10.0% with dividends)
- Partnership gained 14% (excluding Dempster valuation changes)
- Limited partners would have gained approximately 12%
Three Investment Categories
1. Generals - Undervalued securities, ~$5.3M average investment, returned ~21% in first half
2. Work-outs - Timetable-driven investments (mergers, liquidations). Poor relative performance in rising markets but expected to outperform in declining markets.
3. Controls - Majority-owned situations where asset value becomes primary factor
Dempster Mill Manufacturing Transformation
Under Harry Bottle's leadership:
| Metric | Nov 1961 | Nov 1962 | June 1963 |
|---|---|---|---|
| Adjusted Value/Share | $35.25 | $51.26 | $64.81 |
| Inventory | $4.2M | $1.6M | $977K |
| Notes Payable | $1.23M | $0 | $125K |
"Harry has converted the assets at a much more favorable basis than was implied by my valuations."
Harry's accomplishments:
- Reduced inventory from $4M to under $1M
- Cut monthly operating expenses from $150K to $75K
- Reduced factory overhead from $6 to $4.50 per direct labor hour
- Restored earning capacity commensurate with capital employed
Source
Warren E. Buffett, July 10, 1963.