It is no secret that Buffett has left an extraordinary written record of his investment experiences and wisdom. Although I have read many of the Berkshire letters, I have not yet read the letters from the original Buffett Partnership. As I read them I will be taking notes for my own records and for readers.

http://www.ticonline.com/buffett.partner.letters/1960.02.20.pdf

- General market – in 1959 DJIA advanced 19.9% inclusive of dividends, but this is misleading because for the NYSE in general there were 710 decliners and 628 gainers, and the DJ Rail Roads and DJ Utilities were down on the year

- Notes underperformance of the nations largest closed end investment co and the largest mutual fund

- Believes price levels “blue chips” contain a substantial speculative component with a corresponding risk of loss

- “Perhaps other standards of valuation are evolving which will permanently replace the old standards. I don’t think so. I may well be wrong; however, I would rather sustain the penalties resulting from over-conservatism than face the consequences of error, perhaps with permanent capital loss, resulting from the adoption of a “New Era” philosophy where trees really do grow to the sky.”

- Description of operating procedures – net gain for the partnerships is determined on the basis of market values at the beginning and end of the year before interest to partners, profit to the GP, but after operating expenses.

- 35% of Partnerships in one security – a investment trust owning securities presently trading below NAV.

It is no secret that Buffett has left an extraordinary written record of his investment experiences and wisdom. Although I have read many of the Berkshire letters, I have not yet read the letters from the original Buffett Partnership. As I read them I will be taking notes for my own records and for readers.  So far, the 1958 letter (written in 1959) is the earliest i have found.

http://www.ticonline.com/buffett.partner.letters/1959.02.11.pdf

- Points out that the market appears “exuberant”

- “I make no attempt to forecast the general market – my efforts are devoted to finding undervalued securities. However, I do believe that widespread public belief in the inevitability of profits from investments in stocks will lead to eventual trouble. Should this occur, prices, but not intrinsic values in my opinion, of even undervalued securities can be expected to be substantially affected.”

- Cites his 1958 letter in which he states that he thinks he is likely to outperform the indexes in a bear market and will be satisfied to match the averages in a bull market.

- Notes that last year he referred to his largest position (10 – 20% of the various partnerships) and says that it was in the best interest that the stock would decline or remain steady so they could build an even larger position – and for that reason the portfolio may lag the bull market

- This stock was the Commonwealth Trust Co of Union City, NJ. He believed it had intrinsic value of $125/share, while it was trading at $50/share.

- Note that he would hold the stock if it took one year or 10 years for the value to be unlocked as the intrinsic value would likely grow in that 10 year period.

- Sold out of this position at $80 due to a better opportunity

- Commentary that although he sold out, he would have been happy to have sat on this position waiting for the value gap to close even though single year performance of the partnership would have likely suffered.

- Says that he would like to be more invested in workouts given the broader market conditions, but they are hard to find. Goes on to say that he is trying to create his own workouts by acquiring large positions (activism?)