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Warren had already told his investors (October 1967) that he could not go on living the way he was, obsessing over achieving returns through share picking. The market had gone nuts, and besides, he wanted to switch emphasis to working on a day-to-day basis alongside people he liked, trusted and admired in companies that he controlled.
He enjoyed the building-up of important enterprises over decades, rather than expecting to sell a share in a few months or years.
The consequence of this is lower returns for partners in future years, but greater peace of mind for Warren, and more time to pursue interests outside of money-making.
On hearing this a number of them decided to withdraw money ($1.6m between October and December 1967) from the partnership to place it with fund managers who promised a more exciting future.
Warren was pleased that people minded that way left, because he was thus relieved “from pushing for results that I probably can’t attain under present conditions”.
He outperforms – again
Ironically, just as he was tiring of the stock market, this period was to produce some wonderful returns.
The Partnership gained 35.9% compared with 19.0% for the Dow in 1967.
After Warren’s management fee the return for partners was 28.4% or $19,384,250 on net assets of $68,108,088, which “will buy a lot of Pepsi” (Warren was a Pepsi drinker back then. He switched to Coca-Cola after buying a stake in the company).
But, Warren could see through the artificiality of the gains.
He referred to the rise as being caused by “speculative bonbons” fattening share traders. He knew it could all end in “indigestion” and “discomfort”, even though he was being good and puritan by sticking to eating “oatmeal”, i.e. following the Graham principles (January 24, 1968 letter).
He noted that a large portion of the gains was achieved on one share that, after excellent grow in 1964, 1965, 1966 and 1967, ended up being 40% of the portfolio.
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