"I am not in the business of predicting general stock market or business fluctuations. If you think I can do this (even Buffett cant do it!), or think it is essential (nobody can predict what the market will do especially in the short term and it is not important!) to an investment program, you should not be in the partnership."
We dont buy and sell stocks based upon what other people think the stock market is going to do (I never have an opinion) but rather upon what we think the company is going to do. The course of the stock market will determine, to a great degree, WHEN we will be right, but the ACCURACY of our analysis of the company will largely determine whether we will be right. In other words, we tend to concentrate on WHAT should happen, not on WHEN it should happen.
In our department store business I can say with considerable assurance that December will be better than July. (Notice how sophisticated I have already become about retailing.) What really counts is whether December is better than LAST December by a margin greater than our competitors' and what we are doing to set the stage for future Decembers (always try to widen your competitive advantage).
However, in our partnership business I not only cant say whether December will be better than July, but I cant even say that December wont produce a very large loss (investment in stocks and we cant control the stock prices). It sometimes does. Our investment are simply not aware that it takes 365-1/4 days for the earth to make it around the sun. Even worse, they are not aware that your celestial orientation (and that of IRS) requires that I report to you upon the conclusion of each orbit (the earth's - not ours). Therefore, we have to use a standard other than the calendar to measure our progress.
This yardstick is obviously the general experience in securities as measured by the Dow. We have a strong feeling that this competitor will do quite decently over a period of years (Christmas will come even if it's in July) and if we keep beating our competitor we, we will have to do something BETTER than "quite decently". It's something like a retailer measuring his sales gains and profit margins against Sears - beat them every year and somehow you'll see daylight.
Source: Buffett Partnership Limited - Letter to Partners - July 12, 1966
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