eye Bourrett Pantnerenir, Ltn. oto xtewrr rears OM AMA OL, NEBRASKA 20 B Noerarr. January 18, 1964 Qur Performance in 1963 1963 waa a good year. It was not a good year because we had an overall gain of $3,637,167 or 38.7% on our beginning net assets, pleasant as that experience may be to the pragmattats in our group, Rather it was a good year because our performance was substantially better than that of our fundamental yardstick -- the Dow-Jones Industrial Average (hereinafter called the "Dow"). If we had been down 20% and the Dow had been down 30%, this letter would etill have begun "1963 was a good year." Regard- less of whether we are plus or minus ina particular year, if we can main- tain a satisfactory edge on the Dow over an extended period of time, our long term results will be eatisfactory -- financially ae well as philosoph- ically, To bring the record upto date, the following summarizes the year-by-year performance of the Dow, the performance of the Partnership before alloca- tion to the general partner, and the Hmited partners' reeults for all full years of BPL's and predecessor partnerships’ activities: Overall Results Partnership Limited Partners! Year From Dow (1) Results (2) Results (3) 1957 - 8.4% +10. 4% + 8.3% 1958 438.5 +40.9 432.2 1959 #20.0 425.9 +20.9 1960 - 6.2 422.8 418.6 1961 422.4 445.8 +35.9 1962 - 1.6 413.9 +119 1963 420.7 438.7 430.5 (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. (2) For 1957-61 constete of combined results of all predecessor Hmited partnerships operating throughout the entire year after all expenses but before distributions to partners or allocations to the general partner. (3) For 1857-61 computed on the basis of the preceding column of partner ship resulte allowing for allocation to the general partner based upon the present partnership agreement.One wag among the limited partnere has suggested I add a fourth column showing the results of the general partner -~ let's juat sey he, too, hes an edge on the Dow. ‘The following table shows the cumulative or compounded results based on the preceding table: Overall Results Partnership Limited Partnera’ Year From Dow Results Results 1957 = 8.4% + 10.4% + 9.3% 1957-8 + 26.9 + 55.6 + 44.5, 1957-3 + 52.3 +.95.9 + 14.7 1957-60 + 42.8 4140.6 4107.2 1957-61 + 14.8 #251.0 +181,6 1957-62 + 61.6 +299.68 4215.1 1957-63 + 95.1 454.5 4311.2 Annual Com- pounded Rate 10.0 27.7 22.3 It appears that we have completed seven fat years. With apologies to Joseph we shall attempt to ignore the biblical script. (I've never gone overboard for Noah's ideas on diversification either.) In a more serious vein, 1 would like to emphasize that, in my judgment, our 17.7 margin over the Dow shown above is unattainable over any long period of time. A ten percentage point advantage would be a very satis- factory accomplishment and even a much more modest edge would produce impressive gains as will be touched upon later. This view (and it has to be guesework -- informed or otherwise) carries with it the corollary that we must expect prolonged periods of much narrower margins over the Dov as well a6 at least occasional years when our record will be inferior (perhaps substantially so) to the Dow. Much of the above sermon is reflected in "The Ground Rules" sent to ever one in November, but it can stand repetition. Investment Companies We regularly compare our results with the two largest open-end invest- ment companies (mutual funds) that follow a policy of being, typically, 85 - 100% invested in common stocks, and the two largest diversified closed-end investment companies. ‘These four companies, Massachuset! Investors Truet, Investors Stock Fund, Tri-Continental Corp. and Lehm Corp. manage about $4 billion and are probably typical of most of the $2! billion investment company industry. My opinion {e that their resulte-3- roughly parallel those of the vast majority of other investment advisory organizations which handle, in aggregale, vaelly greater sums. The purpose of this tabulation, which te shown below, Is to {lustrate that the Dow ts no pushover as an index of investment achievement. The ad- visory talent managing just the four companies shown commands annual fees of over $7 million, and this represents @ very small fraction of the industry. The public batting average of this highly -pald talent indicater they achieved results slightly less favorable than the Dow. Both our portfolio and method of operation differ substantially from the investment companies in the table. However, most partners, as an aller- native to their interest in the Partnership would probably have their funds invested in media producing results comparable with investment companies, and I, therefore, feel they offer a meaningful standard of performance. YEARLY RESULTS Mass. Inv. Investors Limited Year Trust (1) _Stock (1) Lehman (2) Tri-Cont. (2) ~ Dow Partnere 1957 “11.4% 712.4% 11.4% + 2.4% = 8.4% + 9.3% 1958 442.7 447.5 +40.8 433.2 $38.5 432.2 1959 + 9.0 410.3 +81 +84 420.0 420.9 1960 - 1.0 - 0.6 +25, + 2.8 - 6.2 418.6 1961 425.6 424.9 423.6 422.5 422.4 +35.9 1962 - 9.8 713.4 -14.4 =10.0 - 1.6 +119 1963 +20.0 +16.5 423.8 +19.5 420.7 +30.5 (1) Computed from changes in asset value plus any distributions to holders of record during year. (2) From 1963 Moody's Bank & Finance Manual for 1957-62. Estimated for 1963. COMPOUNDED Mass. Inv. _ Investors Limitec Year i__Trust Stock Lehman Tri-Cont, Dow Partner 1957 -11.4% 712.4% “11.4% ~ 2.4% = 8.4% + 8 1957-68 426.4 $29.2 424.7 +30.0 +26.9 + 44 1957-9 +37.8 442.5 434.8 440.9 452.3 + 14, 1857-60 436.4 441.6 438.2 444.8 442.9 #107. 1957-61 +113 +76.9 +70.8 +7704 474.8 +181, 1957-62 454.5 453.2 446.2 459.7 461.6 #215, 1987-63 485.4 +78.5 481.0 480.8 495.1 ail Annual Com- PoundedRate 9.2 8.6 8.8 9.7 10.0 aa