Buffett Partnership Letter October 1967

Warren E. Buffett | October 9, 1967

Four Reasons for Changing the Target

1. Fewer Quantitative Bargains

"The market environment has changed progressively over the past decade, resulting in a sharp diminution in the number of obvious quantitatively based investment bargains available."

2. Hyper-Reactive Market

"Mushrooming interest in investment performance has created a hyper-reactive pattern of market behavior against which my analytical techniques have limited value."

3. Larger Capital Base

"The enlargement of our capital base to about $65 million when applied against a diminishing trickle of good investment ideas has continued to present the problems mentioned in the January, 1967 letter."

4. Personal Motivation

"My own personal interests dictate a less compulsive approach to superior investment results than when I was younger and leaner."

On Qualitative vs Quantitative Investing

"The really big money tends to be made by investors who are right on qualitative decisions but, at least in my opinion, the more sure money tends to be made on the obvious quantitative decisions."

Buffett notes that truly big opportunities are rare - "much of our good performance during the past three years has been due to a single idea of this sort."

The Lithuanian Girls Parable

Bertrand Russell told of two girls who continued stealing vegetables even after moving to plenty — illustrating how habits persist long after circumstances change.

Buffett used this to illustrate his reluctance to abandon an approach that still makes sense to him intellectually, even though the environment has changed.

New Target

The new goal: the lesser of 9% per annum or a five percentage point advantage over the Dow.

Source

Warren E. Buffett, October 9, 1967.