In 1963, Buffett’s partnership had a strong year, achieving an overall gain of approximately 38.7% on beginning net assets, significantly outperforming the Dow Jones Industrial Average, which returned 20.7%. Buffett emphasized that the success of the year wasn’t just about the absolute gain but about beating his benchmark, the Dow, by a substantial margin (around 17.7 percentage points). He cautioned, however, that such a wide margin was not sustainable long-term and that partners should expect narrower outperformance over time, along with occasional underperformance.
A key highlight from 1963 was the sale of Dempster Mill Manufacturing’s operating assets, which Buffett discussed in his July 10 and November 6 letters. The partnership had acquired a controlling stake in Dempster at a bargain price, and with the help of Harry Bottle—whom Buffett praised highly—the company’s unproductive assets were turned into cash, boosting its value significantly. By mid-1963, the sale of these assets on a going-concern basis locked in profits, and Buffett noted Bottle’s critical role in this success, even hinting at a future ode to him in the annual letter. This case exemplified Buffett’s strategy of buying undervalued companies and improving their operations to realize gains.
Buffett also reiterated his investment philosophy: the partnership aimed to compound funds at above-average rates with less exposure to long-term capital loss compared to the broader market. He stressed that outperforming during down markets was more important than matching the market in up years—a principle that guided his focus on risk-adjusted returns.
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