General Rules

1. In no sense is any rate of return guaranteed to my partners. Limited partners will be paid 3% interest per annum which will be covered by earnings and the principal will increase. If we don’t earn 3%, the interest is partially or wholly a return of your contribution.

 

2. Any year in which we fail to achieve at least a plus 3% performance will be followed by a year when limited partners will be receiving interest will find those payments lowered.

 

3. Whenever we talk of yearly gains or losses, we are talking about market values; that is, how we stand with assets valued at the market at yearend against how we stood on the same basis at the beginning of the year. This may bear very little relationship to the realized results for tax purposes in a given year.

 

4.. Whether we do a good job or a poor job is not to be measured by whether we are plus or minus for the year. It is instead to be measured against the general experience in stocks as measured by the Standard and Poor 500 Index or the Nifty 50 Index, leading companies, etc. If our record is better than that of these yardsticks, we consider it a good year whether we are plus or minus. If we do poorer, we deserve the tomatoes.

 

5. While I much prefer a five-year test. I feel three years is an absolute minimum for judging performance. It is a certainty that we will have years when the partnership performance is poorer, perhaps substantially so than the Index. If any three-year or longer period produces poor results, we all should start looking around for other places to have our money. An exception to the latter statement would be three years covering a speculative explosion in a bull market.

 

7. I am not in the business of predicting the general stock market or business fluctuation. If you think I can do this, or think it is essential to an investment program, you should not be in the partnership.

 

8. I cannot promise results to partners. What I can and do promise is that:
a. Our investments will be chosen on the basis of value, not popularity;
b. That we will attempt to bring risk of permanent capital loss (not short-term quotational loss) to an absolute minimum by obtaining a wide margin of safety in each commitment and diversity of commitments; and
c. I will have virtually my entire net worth invested in the partnership.