“Security profits in a given year bear similarities to a college graduation ceremony in which the knowledge gained over four years is recognized on a day when nothing further is learned.” – Warren Buffett
The Partnership commenced on September 9, 2011 which means we have now completed our first year of operations. Through September 30, 2012, the Partnership returned approximately 15% net of all fees and expenses. Although twelve months is entirely too short a period to judge our efforts we believe these results were achieved with minimal risk since, on average, 40% of the Partnership’s assets were held in cash. Our cash position would have provided a cushion if our other investments had declined in value but instead were a drag on our positive results.
The fundamental measure of our success will be the wealth we create for our partners over the long term. This will be a direct result of our goal to double money in a reasonable timeframe while minimizing the risk of permanent loss. We define a reasonable timeframe as five to seven years which translates into annual returns of 10-15%. More importantly, the time period should include a variety of market conditions where stock markets both rise and fall. For context, the average annual return for the S&P 500 during the last fifty years, including reinvested dividends, is about 6%.
No one should expect our advance to occur in a straight line. It is likely the broad markets will advance by 20% or more in some years, decline by a similar amount in other years and that the majority of time the markets should return somewhere in between. Specifically, if the broad markets were to decline by 30% in a single year, which is not improbable, we would expect the Partnership’s market value to decline as well. However, our approach to keeping cash reserves and short positions means we would expect the Partnership decline to be less severe. Additionally, this is a time when we would expect to increase our ownership in businesses at discounted prices.
We are pleased but not satisfied with our first year of operations. We’ve had a good split time in the first mile of our investment marathon and have no intention of letting up. We continue moving towards our long-term goal of doubling money in a reasonable time period.