Buffett Partnership Letter November 1966

Warren E. Buffett | November 1, 1966

Commitment Letter Instructions

• Commitment Letters become final December 31 (no exceptions)
• Withdrawals paid January 5th
• Additions must reach partnership by January 10th
• November additions earn 6% interest until yearend
• December additions do not draw interest

1966 Performance Through Date of Letter

• Better than average year, but second half more difficult
• "Generals - Relatively Undervalued" category underperformed Dow after mid-year
• Workouts helped offset poor comparative performance
• Margin over Dow a shade better than 17 points reported at midyear
• At Dow around 810 (down 14%), BPL approximately +4% YTD

Valuation of Controlled Companies

"When our holdings go above 50%, or a smaller figure if representing effective control, we own a business not a stock, and our method of valuation must therefore change."

Key Points:

• For Berkshire Hathaway: used valuation halfway between net current asset value and book value
• For Hochschild, Kohn: using cost plus subsequent retained earnings
• Dominant factors: earning power (past and prospective) and asset values
• Asset factors carry more weight than typical business valuations due to tax basis exceeding valuations

Possible Yearend Revaluation

Buffett indicated he might decrease yearend valuations of Berkshire and H-K if conditions warrant, prior to yearend via December 23 letter.

Source

Warren E. Buffett, November 1, 1966.