THE GENERAL STOCK MARKET IN 1958

A friend who runs a medium-sized investment trust recently wrote: “The mercurial temperament characteristic of the American people, produced a major transformation in 1958 and ‘exuberant’ would be the proper word for the stock market, at least”.

1958年股票市场的整体情况

一位运营一家中型投资信托基金的朋友最近这样写到：“美国人反复无常的性格造就了1958年的市场，这一年的市场可以用“亢奋”来形容。”

I think this summarizes the change in psychology dominating the stock market in 1958 at both the amateur and professional levels. During the past year; almost any reason has been seized upon to justify “Investing” in the market. There are undoubtedly more mercurially-tempered people in the stock market now than for a good many years and the duration of their stay will be limited to how long they think profits can be made quickly and effortlessly. While it is impossible to determine how long they will continue to add numbers to their ranks and thereby stimulate rising prices, I believe it is valid to say that the longer their visit, the greater the reaction from it.

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 investment 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.

我想无论从业务角度还是从专业角度，这句话概括了支配1958年股票市场心理状态的变化。在过去的一年中，几乎所有的人都在证明市场的可投资性。毫无疑问，在目前的市场上存在着很多反复无常的人，这种情况已经很多年没有出现过了。这些人判断自己停留于这个市场的时间仅仅取决于他们能够多么快速且毫不费力的获取利润这一点上。虽然我们不可能判断这样类型的人还能够增加多少以及由此产生的对股价上升的影响，但是我确信这些人越多，股市将跌的越惨。我没有花费任何力气在预测市场上面，因为我所有的精力都集中于寻找被低估的股票上。但是我真的认为目前在普通大众中蔓延的认为自己一定能够从股票投资上赚到钱的想法将导致最终的灾难。如果这样的情况发生的话，那么我想，虽然企业的内在价值没有变化，但是股票的价格想会大幅度的下跌，即使是被低估的股票也不能逃过这样的灾难。

RESULTS IN 1958

In my letter of last year, I wrote:

“ Our performance, relatively, is likely to be better in a bear market than in a bull market so that deductions made from the above results should be tempered by the fact that it was

the type of year when we should have done relatively well. In a year when the general market had a substantial advance, I would be well satisfied to match the advance of the averages”.

The latter sentence describes the type of year we had in 1958 and my forecast worked out. The Dow-Jones industrial average advanced from 435 to 583 which, after adding back dividends of about 20 points, gave an overall gain of 38.5% from the Dow-Jones unit. The five partnerships that operated throughout the entire year obtained results averaging slightly better than this 38.5%. Based on market values at the end of both years, their gains ranged from 36.7% to 46.2%. Considering the fact that a substantial portion of assets has been and still is invested in securities, which benefit very little from a fast-rising market, I believe these results are reasonably good. I will continue to forecast that our results will be above average in a declining or level market, but it will be all we can do to keep pace with a rising market.

1958年的结果

在去年的心中，我这样写到：

“相对来说，我们在熊市中的表现会优于我们在牛市中的表现。因此，正是因为熊市才让我们有优于其它基金的表现。而在牛市中，我将对取得市场的平均表现感到满意”。最后一句话很好的描述了1958年的情况，我的预测成为了现实。道琼斯平均工业指数从435上升到583。如果算上分红的话，投资于道琼斯指数将获得38.5%的回报。我们运营的5家合伙企业在这一年获得了比38.5%稍微好一点的收益。基于在1957年以及1958年年末不同的市场价值，他们各自的回报在36.7%到46.2%之间。如果在考虑到我们还有很大一部分资产投资于证券，他们从高速上涨的市场中获益甚少的情况下，我认为我们能够取得这样的回报是相当不错的。我仍将预测我们的业绩在熊市中会获得高于市场的表现，同时我们也将努力在牛市中跟上市场的节奏。

A TYPICAL SITUATION

So that you may better understand our method of operation, I think it would be well to review a specific activity of 1958. Last year I referred to our largest holding which comprised 10% to 20% of the assets of the various partnerships. I pointed out that it was to our interest to have this stock decline or remain relatively steady, so that we could acquire an even larger position and that for this reason such a security would probably hold back our comparative performance in a bull market.

This, stock was the Commonwealth Trust Co. of Union City, New Jersey. At the time we started to purchase the stock, it had an intrinsic value of $125 per share computed on a conservative basis. However, for good reasons, it paid no cash dividend at all despite earnings of about $10 per share, which was largely responsible for a depressed price of about $50 per share. So here we had a very well managed bank with substantial earning power selling at a large discount from intrinsic value. Management was friendly to us as new stockholders and risk of any ultimate lose seemed minimal.

一个具有代表性的情况

我想在这里回顾一下我们在1958年所进行的一些特别的操作，一让你们对我们的操作方法有更好的了解。去年我曾经提到我们最大的持股占到一些合伙企业10%-20%的资产。我也曾经指出让这只股票下跌或者保持相对稳定符合我们的利益，因为在这种情况下我们可以建立更大的头寸。正是这个原因，这只股票在牛市中拖累了我们的业绩。

这只股票是位于新泽西州的Commonwealth Trust Co. of Union City。在我们购买这只股票的时候，我们保守的估计这只股票的内在价值为125美元每股。但是由于它的股票被压低到每股50美元，因此即使每股盈利为10美元它也没有派发现金红利。因此，目前在我们手中的是这样一家企业：它有非常优秀的管理层，具备强大的盈利能力，并且它在被以低于内在价值的价格出售。虽然我们是新的股东，但是管理层对我们非常的友好，这项投资发生重大损失的概率目前来说比较小。

Commonwealth was 25 ½% owned b a larger bank (Commonwealth had assets of about $50 Million - - about half the size of the First National or U.S. National in Omaha), which had desired a merger for many years. Such a merger was prevented for personal reasons, but there was evidence that this situation would not continue indefinitely. Thus we had a combination of (1) Very strong defensive characteristics; (2) Good solid value building up at a satisfactory pace and, (3) Evidence to the effect that eventually this value would be unlocked although it might be one year or ten years. If the latter were true, the value would presumably have been built up to a considerably larger figure, say, $250 per share.

Over a period of a year or so, we were successful in obtaining about 12% of the bank at a price averaging about $51 per share. Obviously it was definitely to our advantage to have the stock remain dormant in price. Our block of stock increased in value as its size grew, particularly after we became the second largest stockholder with sufficient voting power to warrant consultation on any merger proposal.

Commonwealth企业（大约有5000万美元的资产，大约是第一国民银行或者美国国民银行在Omaha资产的一半左右）有25.5%的股份被一家大一些的银行拥有，这家银行在近些年来一直想并购它。这样的并购目前虽然被个人的原因所阻止，但是有证据表明这样的情况不会持续太久。因此我们有这样一个组合：（1）非常强的防御特征的股票；（2）建立在令人满意的成长步伐上的优良的稳定价值的股票；（3）虽然可能需要花费1年或者10年，有证据表明最后的价值会被释放出来的股票。如果后者属实的话，commonwealth企业股票的价值可能已经到达一个非常大的数字，比如每股250美元。

在一年左右的时间内，我们成功的在每股51美元的价位上获得了这家银行12%的股份。很明显，这只股票的价格保持在每股51美元对我们来说是有利的。我们所持的股份随着企业规模的扩大而增加，尤其是我们成为第二大股东之后，我们有足够的投票权以保证我们能够参与讨论任何与并购相关的建议。

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Unfortunately we did run into some competition on buying which raised the price to about $65 where we were neither buyers nor sellers. Very small buying orders can create price changes of this magnitude in an inactive stock, which explains the importance of not having a “Leakage” regarding our portfolio holdings.

Late in the year we were successful in finding a special situation where we could become

the largest holders at an attractive price, so we sold our block of Commonwealth, obtaining $80 per share although the quoted market was about 20% lower at the time.

It is obvious that we could still be sitting with a $50 stock patiently buying in dribs and drabs, and I would be quite happy with such a program although our performance relative to the market last year would have looked poor. The year when a situation such as Commonwealth results in a realized profit is, to a great extent, fortuitous. Thus, our performance for any single year has serious limitations as a basis for estimating long term results. However, I believe that a program of investing in such undervalued well protected securities offers the surest means of long term profits in securities.

遗憾的是，在购买股票的过程中，我们确实遇到了一些竞争者，他们把价格提高到了每股65美元，这是一个我们不想买，也不想卖的价位。一些非常小的买单就会造成不活跃股票价格的大幅波动。这表明在我们所持有的组合中不能有“遗漏”是多么的重要。

在这一年的晚些时候，我们成功的发现了一个让我们能够在非常有吸引力的价格上成为第一大股东的机会，因此我们以每股80元的价格卖出我们所持有的commonwealth股票，虽然此时市场价格打了20%的折扣。

很明显我们可以在50美元的价格，积少成多的慢慢买进。虽然我们的表现相对市场来说不是很好，但是我们高兴能够有这个机会。从某种程度上来说，通过commonewealth在某一年实现利润具有偶然性，我们仅仅知道其被低估，而我们有套利的机会而已。因此如果我们要评估长期表现的结果，那么我们就不要局限于某一年的表现。即便如此，我还是相信投资于被低估的，受到很好保护的股票是为我们在长期内带来利润的很保稳的一种投资方式。

I might mention that the buyer of the stock at $80 can expect to do quite well over the years. However, the relative undervaluation at $80 with an intrinsic value of $135 is quite different from a price of $50 with an intrinsic value of $125, and it seemed to me that our capital could better be employed in the situation which replaced it. This new situation is somewhat larger than Commonwealth and represents about 25% of the assets of the various partnerships. While the degree of undervaluation is no greater than in many other securities we own (or even less than some) we are the largest stockholder and this has substantial advantages many times in determining the length of time required to correct the undervaluation. In this particular holding we are virtually assured of a performance better than that of the Dow-Jones for the period we hold it.

我可能提到，那些在80元买入股票的买家在未来的几年也可以获得不错的回报。但是相对于135元的内在价值，80元的价格和50元的价格还是有很大的不同的。但对我来说，我们应该更好的利用眼下的形势，所以我们决定以80元卖出，50元买进。这样commonwealth占到了我们合伙企业资金的25%。这只股票的低估程度并不比我们目前拥有的其它的股票低，但是因为我们是最大的股东，这给予我们相当大的优势，以让我们可以在很多时候有机会去决定多长时间内让这只股票改变低估的状态。正是由于我们这种特殊的持股方式保证我们能够在持股期内获的比道琼斯指数来的要好的收益。

THE CURRENT SITUATION

The higher the level of the market, the fewer the undervalued securities and I am finding some difficulty in securing an adequate number of attractive investments. I would prefer to increase the percentage of our assets in work-outs, but these are very difficult to find on the right terms.

To the extent possible, therefore, I am attempting to create my own work-outs by acquiring large positions in several undervalued securities. Such a policy should lead to the fulfillment of my earlier forecast an above average performance in a bear market or neutral market, and a normal performance in a bull market. It is on this basis that I hope to be judged. If you have any questions, feel free to ask them.

WARREN E. BUFFETT 2-11-59

目前的形势

市场的价格水平越高，被低估的股票就越少，这让我很难能够找到足够数量的富有吸引力的投资机会。我偏向于增加我们在work-outs的份额，但是现在很难找到合适的项目。因此，我尝试通过购买大量的被低估的股票来创建自己的work-outs。这样的做法应该可以让我早些时候的预测成为现实，也就是在熊市或者平衡市中取得高于平均水平的业绩，在牛市中取得一般的表现。我希望你们能够在这个基础上来评判我的表现。如果你们有任何问题，欢迎提问。

沃伦 巴菲特 2-11-59