Buffet Partnership Letters (1957 to1970) - Key Takeaways and Learnings - Part I

Reading Warren Buffet is always fascinating and instructive. So, yesterday I started re-reading the Buffet Partnership Letters that he wrote between 1957 to1970 with the express desire to brush up on some of his wisdom when he was in his "formative" years as an investor. Also, another factor I want to understand is how his thought process changed over the years, so I am planning to read all his letters till date sequentially. So, expect a few more posts on this topic in the future.
 
I start off from 1957 onwards.

On his investment philosophy:

Obviously during any acquisition period, our primary interest is to have the stock do nothing or decline rather than advance. Therefore, at any given time, a fair proportion of our portfolio may be in the sterile stage. This policy, while requiring patience, should maximize long term profits.

I would consider a year in which we declined 15% and the (Dow Jones) Average 30% to be much superior to a year when both we and the Average advanced 20%. Over a period of time there are going to be good and bad years; there is nothing to be gained by getting enthused or depressed about the sequence in which they occur. The important thing is to be beating par; a four on a par three hole is not as good as a five on a par five hole and it is unrealistic to assume we are not going to have our share of both par three's and par five's.

On the exuberant market 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.

Most of you know I have been very apprehensive about general stock market levels for several years. To date, this caution has been unnecessary. By previous standards, the present level of "blue chip" security prices contains a substantial speculative component with a corresponding risk of loss. Perhaps other standards of valuation are evolving which will permanently replace the old standard. I don't think so. I may very well be wrong; however, I would rather sustain the penalties resulting from over-conservatism than face the consequences of error, perhaps with permanent capital loss, resulting from the adoption of a "New Era" philosophy where trees really do grow to the sky.