Most of our managers have no financial need to work. The joy of hitting business “home runs” means as much to

　　elsewhere.

　　legacy shareholders of Berkshire, to whom we had no obligation. Despite these facts staring me in the face, I opted

　　the Finance and Financial Products section.

　　another it is almost certain to be repeated during the next century.

　　As much as Charlie and I talk about intrinsic business value, we cannot tell you precisely what that

　　figures above are non-GAAP and exclude some purchase-accounting items (primarily the amortization of certain

　　“The fault, dear Brutus, is not in our stars, but in ourselves.”

　　significant money, particularly if you had planned to rent a car in Omaha. The savings for a couple could run to

　　While I’m on the subject of our owners’ gaining knowledge, let me remind you that Charlie and I believe

　　‹ Two years ago my friend, Jorge Paulo Lemann, asked Berkshire to join his 3G Capital group in the

　　machine; in the long-run it acts as a weighing machine.” Occasionally, the voting decisions of investors –

　　Underwriting Profit Yearend Float

　　Fortunately, my blunders normally involved relatively small acquisitions. Our large buys have generally

　　per-capita U.S. output has sextupled. My parents could not have dreamed in 1930 of the world their son would see.

　　investors, viewed as a group, have long underperformed the unsophisticated index-fund investor who simply sits

　　reaffirmed our Shareholder Principles (see page 117), always leading off with: “Although our form is

　　Partnership Ltd. acquired control of Berkshire in 1965. For good reason, too: Charlie and I have always considered a

　　Through a lot of corporate razzle-dazzle, Ling had taken LTV from sales of only $36 million in 1965 to

　　ironically, end up doing some very risky things. Recall, if you will, the pundits who six years ago bemoaned falling

　　analysts, treating them instead as we do all other shareholders.

　　acquisition of Heinz. My affirmative response was a no-brainer: I knew immediately that this partnership

　　financial strength and their historical earning power proved no defense.

　　At Berkshire, our “breathing” went uninterrupted. Indeed, in a three-week period spanning late September

　　Further gains in float will be tough to achieve. On the plus side, GEICO and our new commercial

　　calculations before issuing shares in any acquisitions. You can’t get rich trading a hundred-dollar bill for eight tens

　　know of has half of such elements in place.

　　because new business is almost certain to deliver a substitute – is worlds different from owing $1 that will go out the

　　27

　　more insight into our various businesses if we include Marmon’s leasing operations under this heading. (The figures

　　A CEO with capital employed in a declining operation seldom elects to massively redeploy that capital into

　　Our investment results have been helped by a terrific tailwind. During the 1964-2014 period, the S&P 500

　　We do, of course, have an active audit function; no sense being a dammed fool. To an unusual degree,

　　Since 1970, our per-share investments have increased at a rate of 19% compounded annually, and our

　　Moreover, we are free of historical biases created by lifelong association with a given industry and are not subject to

　　those shown for A.

　　workers’ compensation accidents, payments can stretch over many decades. This collect-now, pay-later model

　　appealing. We will make many more of these bolt-on deals in future years.

　　must be prepared for whatever it does.

　　logic was irrefutable. Consequently, Berkshire has been built to Charlie’s blueprint. My role has been that of general

　　Several of my subsequent errors also involved the use of Berkshire shares to purchase businesses whose

　　Our income and expense data conforming to GAAP is on page 49. In contrast, the operating expense

　　During 2014, Tesco’s problems worsened by the month. The company’s market share fell, its margins

　　more. Our structural advantages, however, are formidable.

　　Character is crucial: A Berkshire CEO must be “all in” for the company, not for himself. (I’m using male

　　My successor will need one other particular strength: the ability to fight off the ABCs of business decay,

　　themselves “leveraged buyout firms.” When that term got a bad name in the early 1990s – remember RJR and

　　At Berkshire, we can – without incurring taxes or much in the way of other costs – move huge sums from

　　that time our directors will need to determine whether the best method to distribute the excess earnings is

　　Overall, Berkshire’s acquisitions have worked out well – and very well in the case of a few large ones. So,

　　want you to enjoy yourselves. This year, because we expect record attendance, we have worried about a shortage of

　　And I believe neither Jain nor Abel would (1) leave Berkshire, no matter what someone else offered or (2) desire

　　share.

　　Assets Liabilities and Equity

　　If the investor, instead, fears price volatility, erroneously viewing it as a measure of risk, he may,

　　Goods and Wilson Pharmaceuticals, each of which was to be partially spun off. These companies quickly became

　　Berkshire’s promises have no equal, a fact affirmed in recent years by certain of the world’s largest and

　　exchange for Berkshire stock that was as valuable as what was given up.

　　* All per-share figures used in this report apply to Berkshire’s A shares. Figures for the B shares are 1/1500th of

　　acquisitions, in which reality is honestly compared to the original projections, are rare in American boardrooms.

　　textile business, all to no avail. But stubbornness – stupidity? – has its limits. In 1985, I finally threw in the towel

　　tender. Don’t leave home without it.

　　Many life insurance products contain redemption features that make them susceptible to a “run” in times of

　　A partial offset to this overstated liability is a $15.5 billion “goodwill” asset that we incurred in buying

　　(4) Management in place (we can’t supply it),

　　It’s possible, of course, that someday a spin-off or sale at Berkshire would be required by regulators.

　　buy outright are never revalued upward on our balance sheet, even when we could sell them for many billions of

　　But, under this Buffett-soon-leaves assumption, his successors would not be “of only moderate ability.” For

　　The name may have changed but that was all: Equity is dramatically reduced and debt is piled on in

　　materialize, dividends to Berkshire will increase and, even more important, so will our unrealized capital

　　Gas Pipelines (Northern Natural and Kern River) . . . . . . . . . . . . . . . . . . . . . . . . . . . . 379 385 383

　　cheap prices.

　　And, in the early decades of the Buffett era, common stocks within Berkshire’s insurance subsidiaries greatly

　　(9) In buying a new subsidiary, Berkshire would seek to pay a fair price for a good business that the Chairman

　　24

　　exceed theirs. A CEO’s behavior has a huge impact on managers down the line: If it’s clear to them that

　　13,062,594 The Goldman Sachs Group, Inc. . . . . . . . . . . . . . 3.0 750 2,532

　　Buffett was also creating strong Wooden-type effects there. And such effects enhanced the skills of the CEOs and

　　self-interest to conduct our operations in a way that earns the approval of our regulators and the people they

　　will make the right decision.

　　the achievements of the subsidiaries.

　　Our flexibility in capital allocation – our willingness to invest large sums passively in non-controlled

　　yes, all eight were written by Berkshire. Certain of these contracts will require us to make substantial payments 50

　　I mentioned earlier that See’s Candy had produced huge earnings compared to its modest capital

　　BHE owns two large pipelines that deliver 8% of our country’s natural gas consumption; the recentlypurchased

　　I won’t explain all of the adjustments – some are tiny and arcane – but serious investors should understand

　　(3) He wanted decisions that maximized long-term results, seeking these from decision makers who usually

　　12

　　Our public reports of earnings will, of course, continue to conform to GAAP. To embrace reality, however,

　　28

　　Provided that most of the Berkshire system remains in place, the combined momentum and opportunity now present

　　different systems.

　　and do some serious shopping.

　　goodwill asset carried on the books should be deemed valueless, whatever its original cost.

　　therefore, that Berkshire will annually add to its underlying earning power.

　　are my favorites, and I will eat at both of them on Sunday evening. Remember: To make a reservation at Gorat’s,

　　Industries, Gulf & Western, and LTV were lionized, and their CEOs became celebrities. (These once-famous

　　Manufacturing, Service and Retailing Operations

　　being created by each dollar of retained earnings.

　　point: The discount is not additive if you qualify for another discount, such as that available to certain groups.)

　　right to ignore seniority in choosing generals.

　　“virtuous circle.”

　　I am a lucky fellow to have you as partners.

　　Interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 109 104 112

　　so large and the age of activism upon us, I think some desirable acquisition opportunities will come and that

　　And now some good news: The northern textile industry is finally extinct. You need no longer panic if you

　　10,000 employees, the merged company became the giant of New England textiles. What the two managements

　　oxygen is to an individual: never thought about when it is present, the only thing in mind when it is absent.

　　investment banks – whose viability can be threatened by declines in asset prices and which might be forced to sell

　　apprehensive, Howard’s chairmanship will allow the matter to be promptly and properly addressed.

　　Goodwill and other intangibles . . . . . . . . . . . . 28,107 Term debt and other liabilities . . . . . . . . . . . 4,269

　　are inappropriate in relation to our resources.

　　now. That was true because Berkshire’s assets were then largely securities whose values were continuously restated

　　the earnings we report to you, however, we include only the dividends we receive – about $1.6 billion last

　　premiums over market price for publicly-held businesses. The bankers tell the buyer that the premium is justified for

　　endearing quality – he works without pay. Unlike a human spokesperson, he never gets a swelled head from his

　　(13) Berkshire would never force the CEO of a subsidiary to retire on account of mere age.

　　26

　　‹ Our directors believe that our future CEOs should come from internal candidates whom the Berkshire

　　Operating earnings before corporate interest and taxes . . . . . . . . . . . . . . . . . . . . . . . 3,138 2,102 1,958

　　surprise – Waumbec was a disaster, with the mill having to be closed down not many years later.

　　rational, calm and decisive individual who has a broad understanding of business and good insights into

　　free puffs I obtained in the 1950s made that decade by far the best of my life for both relative and absolute

　　flexible? – and ran a photo of our remarkable home-office crew that was taken at our Christmas lunch. I didn’t warn

　　families. Insurance will continue to be essential for both businesses and individuals. Looking ahead, Charlie and I

　　(2) Explain how the management system and policies came into being,

　　General Re . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 277 283 19,280 20,013

　　The year 1972 was a turning point for Berkshire (though not without occasional backsliding on my part –

　　years from now. But that limitation is much smaller than that borne by an executive whose experience has been

　　What most of you do not know about Charlie is that architecture is among his passions. Though he began

　　results. During the last three months, BNSF’s performance metrics have materially improved from last

　　strengths seemed unassailable. But the destructive behavior I deplored above eventually led each of them to

　　financing of the deal as well). Whatever the structure, we feel good when working with Jorge Paulo.

　　relevant auto manufacturer. Berkshire’s job is to perform in a manner that will cause manufacturers to

　　you to realize that Bank of America is, in effect, our fourth largest equity investment – and one we value highly.

　　already closed or are under contract.

　　(14) Berkshire would have little debt outstanding as it tried to maintain (i) virtually perfect creditworthiness

　　(v) He would write a long, logical, and useful letter for inclusion in his annual report, designed as he

　　you should remember to add back most of the amortization charges we report.

　　Listening to Charlie has paid off.

　　urged by its bankers to pay a hefty “control” premium for the privilege. (Mental “flexibility” of this sort by the

　　Even with Charlie’s blueprint, I have made plenty of mistakes since Waumbec. The most gruesome was

　　country’s present condition to that existing in 1776, you have to rub your eyes in wonder. In my lifetime alone, real

　　shares.

　　In addition, though marginal businesses purchased at cheap prices may be attractive as short-term

　　(4) He wanted to minimize the bad effects that would almost inevitably come from a large bureaucracy at

　　corporate, our attitude is partnership.” This covenant with you is etched in stone.

　　shareholders when the normal result in such acquisitions is bad for shareholders of the acquirer?

　　Why did Berkshire under Buffett do so well?

　　Berkshire Today

　　original purchases. There it was – my free puff, just waiting for me, after which I could look elsewhere for other

　　Last year we fully met this objective at BHE, just as we have in every year of our ownership. Our rates

　　on Sunday. From 5:30 p.m. to 8 p.m. on Saturday, NFM is having a picnic to which you are all invited.

　　Chairman of the Board

　　Fortunately, that does not describe Berkshire. Charlie and I believe the true economic value of our

　　In particular, Buffett’s decision to limit his activities to a few kinds and to maximize his attention to them, and to

　　furthermore, is embedded throughout their ranks. Our system is also regenerative. To a large degree, both

　　* * * * * * * * * * * *

　　The first is common to all utilities: recession-resistant earnings, which result from these companies offering an

　　Because of Berkshire’s operating losses and share repurchases, its net worth at the end of fiscal 1964 had

　　experience has made me a better businessman. Each pursuit teaches lessons that are applicable to the other.

　　when price is unknown).

　　least $50 billion higher if it had seized several opportunities it was not quite smart enough to recognize as virtually

　　purchased in the market (rather than their materializing through options or grants). In addition, unlike

　　Berkshire is now a sprawling conglomerate, constantly trying to sprawl further.

　　Graham had taught me that technique, and it worked.

　　company’s people and culture will be retained (though, occasionally, management changes will be needed). Beyond

　　downs, to be sure).

　　2010 65,832

　　Back then, accounting shenanigans of all sorts – many of them ridiculously transparent – were excused or

　　the intrinsic value of the business you receive.

　　reinsurer. They needed the right one, though: If a reinsurer fails to pay a loss, the original insurer is still on the hook

　　assets we received and the projected synergies with Berkshire’s existing textile business. Nevertheless – surprise,

　　again be having “Berkshire Weekend” discount pricing. Last year in the week surrounding the meeting, the store did

　　* * * * * * * * * * * *

　　will spend $6 billion on plant and equipment in 2015. That sum is nearly 50% more than any other railroad

　　At Borsheims, we will again have two shareholder-only events. The first will be a cocktail reception from

　　starting at the CenturyLink. Full details for participating will be included in the Visitor’s Guide that will be sent to

　　limited way that I do with our larger subsidiaries. This arrangement will save me a minor amount of work

　　Both, that is, are recorded as expenses when earnings are calculated – even though from an investor’s viewpoint

　　prospective loss costs and operating expenses are covered; and (4) be willing to walk away if the appropriate

　　realistically open to most companies. We are limited, of course, to businesses whose economic prospects we can

　　securities during depressed markets. Additionally, any party that might have meaningful near-term needs for funds

　　year. (Again, three years ago the dividends were $862 million.) But make no mistake: The $3.1 billion of

　　The dynamism embedded in our market economy will continue to work its magic. Gains won’t come in a

　　as leveraged buyout operators. Money-shufflers don’t come cheap.

　　would wish it to be if he were only a passive shareholder, and he would be available for hours of

　　We have far too many companies in this group to comment on them individually. Moreover, their

　　them up for a polygraph test.

　　their e-mail addresses are: Carol Loomis, who retired last year after sixty years at Fortune, but remains the expert on

　　(1) Berkshire would be a diffuse conglomerate, averse only to activities about which it could not make useful

　　With the acquisition of Van Tuyl, Berkshire now owns 91⁄2 companies that would be listed on the Fortune

　　Owned

　　over ten years at the helm. (It’s hard to teach a new dog old tricks.) And they are not likely to retire at 65

　　96,890,665 U.S. Bancorp . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.4 3,033 4,355

　　repurchases. The stock was then selling for $7.50, a wide discount from per-share working capital of $10.25 and

　　Altering my behavior is not an easy task (ask my family). I had enjoyed reasonable success without

　　introduced us predicted that we would hit it off – and we did.

　　* * * * * * * * * * * *

　　On Sunday, in the mall outside of Borsheims, Norman Beck, a remarkable magician from Dallas, will

　　from the disastrous results in earlier years.

　　contracted and accounting problems surfaced. In the world of business, bad news often surfaces serially: You see a

　　That kind of commitment was nothing new for us. We’ve been making similar wagers ever since Buffett

　　many owners and managers who are contemplating sale of their businesses and (5) in a point related to the

　　Dexter Shoe. When we purchased the company in 1993, it had a terrific record and in no way looked to me like a

　　Some years ago, we became a party to certain derivative contracts that we believed were significantly

　　managers. This means no more work for us, yet more earnings, a combination we find particularly

　　The management system and policies of Berkshire under Buffett (herein together called “the Berkshire system”)

　　retirement system, or the like, because the subsidiaries would have their own systems, often different.

　　material, including documents from the 19th Century.

　　Families that own successful businesses have multiple options when they contemplate sale. Frequently, the

　　I think Berkshire will outperform the average American company, but our advantage, if any, won’t be

　　Well, over the years I diagnosed several important themes:

　　Berkshire, and better CEOs as well.

　　Unfortunately, the wish of all insurers to achieve this happy result creates intense competition, so

　　either (or have you noticed?).

　　For those investors who plan to sell within a year or two after their purchase, I can offer no assurances,

　　U.K. and an important grocer in other countries as well. Our cost for this investment was $2.3 billion, and the

　　risky than dollar-based securities.

　　22,169,930 Sanofi . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.7 1,721 2,032

　　them to do so opened up a few months ago when we agreed to purchase two companies that, though

　　associates, the very people who have helped the owner build his business. A caring owner, however – and there are

　　hear that I’ve been spotted wandering around New England.

　　Investment bankers, being paid as they are for action, constantly urge acquirers to pay 20% to 50%

　　investors could have assured themselves of a good income for life by simply buying a very low-cost index fund

　　If Berkshire’s yearend holdings are used as the marker, our portion of the “Big Four’s” 2014 earnings

　　for a long, long time as he kept improving and brought in more people like himself.

　　(3) Explain, to some extent, why Berkshire did so well,

　　Berkshire offers a third choice to the business owner who wishes to sell: a permanent home, in which the

　　our interest in derivatives, regardless of what profit potential they might offer. We have not, for some

　　single premium. I believe that the policy’s size has only been exceeded by our 2007 transaction with Lloyd’s, in

　　the performance table on the facing page. Market prices, let me stress, have their limitations in the short term.

　　Chairman, a CFO, and a few assistants who mostly helped the CFO with auditing, internal control, etc.

　　The annual meeting will be held on Saturday, May 2nd at the CenturyLink Center. Last year’s attendance

　　Both the board and I believe we now have the right person to succeed me as CEO – a successor ready to

　　In addition to our three major insurance operations, we own a group of smaller companies, most of them

　　would succeed because it deserved to succeed. No one likes to buy auto insurance. Almost everyone, though, likes

　　$71,088 $71,088

　　are worth far more than their cost-based carrying value. But that amount is never revalued upward no matter how

　　costs for its single board of directors; were our dozens of subsidiaries to be split off, the overall cost for directors

　　Net earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 4,468 $ 3,877 $ 3,357

　　universities (selected from 200 applicants) who sent students to Omaha for a Q&A day with me. They also handle

　　it has ever experienced – Berkshire as a whole would likely record a significant profit for the year because of its

　　clamor to be fed – among them investment bankers, accountants, consultants, lawyers and such capital-reallocators

　　providers in a manner that will ensure the continued flow of funds to essential projects. It is concomitantly in our

　　are blessed to have the United States as our home field.

　　me! Humiliate me! Knock me down a peg! I’ll buy a Dilly Bar for anyone who lands his or her throw closer to the

　　meeting we formally took control of the company. Through Seabury’s and my childish behavior – after all, what

　　never had a committee nor have we ever required our subsidiaries to submit budgets (though many use

　　producer of mediocre results, even when very well managed. And such results are of little use. Berkshire’s better

　　for nearly two decades by the unproductive funds imprisoned in the textile operation. Finally, our subsequent

　　(5) Simple businesses (if there’s lots of technology, we won’t understand it),

　　directors. He will simply be a safety valve to whom any director can go if he or she has concerns about the

　　written only a few specialized lines of commercial insurance.

　　motivate him to reach for pay matching his most lavishly-compensated peers, even if his achievements far

　　our many attempts to do so were largely futile. So, without incurring tax inefficiencies or frictional costs, we have

　　at tennis.

　　a secretary. Then, four years ago, I asked her to take charge of the meeting – a huge undertaking, requiring a

　　Well, Buffett, even when only 34 years old, controlled about 45% of Berkshire’s shares and was completely trusted

　　would work well from both a personal and financial standpoint. And it most definitely has.

　　18

　　Net earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 2,095 $ 1,636 $ 1,472

　　HomeServices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 139 139 82

　　area for operation. And bad effects, common elsewhere, were prevented by Buffett’s skills.

　　of any other insurer in the world.

　　figures.

　　that GEICO was a terrific business and promptly put 65% of my $9,800 net worth into its shares. Most of my gains

　　“thumb-sucking.” (Considering what my delay cost us, he is being kind.)

　　acquisition. We will also try to maximize results for you by rarely, if ever, issuing Berkshire shares.

　　this letter and split out their combined financial statistics in our GAAP balance sheet and income statement.

　　Today Berkshire possesses (1) an unmatched collection of businesses, most of them now enjoying

　　is a real cost. That’s true, moreover, at most other companies. When CEOs tout EBITDA as a valuation guide, wire

　　‹ While Charlie and I search for new businesses to buy, our many subsidiaries are regularly making bolt-on

　　the disparate nature of intangible assets. Some truly deplete over time, while others in no way lose value. For

　　Hathaway Specialty Insurance (“BHSI”). This initiative took us into commercial insurance, where we were instantly

　　Marmon – Railcars . . . . . . . . . . . . . . . . . . . . 442 353 299

　　on December 6, 1941 or September 10, 2001.) And if you can’t predict what tomorrow will bring, you

　　Berkshire’s gain in net worth during 2014 was $18.3 billion, which increased the per-share book value of

　　tell you when chaos will occur. Market forecasters will fill your ear but will never fill your wallet.

　　remember my 1975 purchase of Waumbec). We had the opportunity then to buy See’s Candy for Blue Chip Stamps,

　　our directors are paid only token fees. They receive their rewards instead through ownership of Berkshire

　　return on its Berkshire investment would have been about 40%.)

　　bureaucracy fixing was created by George Marshall when he helped win World War II by getting from Congress the

　　genius, but I’m smart in spots and I stay around those spots.”)

　　30

　　flexibility and, in some cases, important tax advantages. The CEOs who brilliantly run our subsidiaries now would

　　after he had left Omaha to make Los Angeles his home. I was then 28 and he was 35. The Omaha doctor who

　　few hotels required guests to pay for a minimum of three nights. That gets expensive. Those people on a tight

　　Monthly or yearly movements of stocks are often erratic and not indicative of changes in intrinsic value. Over time,

　　In their glory days, General Motors, IBM, Sears Roebuck and U.S. Steel sat atop huge industries. Their

　　that is being eagerly written by their competitors. That old line, “The other guy is doing it, so we must as well,”

　　Tad has observed all four of the insurance commandments, and it shows in his results. General Re’s huge

　　In 2013, I soured somewhat on the company’s then-management and sold 114 million shares, realizing a

　　Finance and Financial Products

　　Charles T. Munger

　　Since I entered the business world, conglomerates have enjoyed several periods of extreme popularity, the

　　shareholders is as low as can be found among single-company investments. That’s because our per-share

　　Not surprisingly, the A shares – owned by relatively few shareholders, each with a large economic interest

　　ACQUISITION CRITERIA

　　earnings also fund business opportunities that usually turn out to be advantageous. All that leads us to

　　blossom in our country – they are every promoter’s dream – though often they appear in a carefully-crafted disguise.

　　XTRA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 147 125 106

　　Only a vigilant and determined CEO can ward off such debilitating forces as Berkshire grows ever larger.

　　(5) He wanted to personally contribute, like Professor Ben Graham, to the spread of wisdom attained.

　　casualty insurers.

　　One more confession and then I’ll go on to more pleasant topics: Can you believe that in 1975 I bought

　　industry’s yardstick). Outlays of this magnitude are largely unheard of among railroads. For us, this percentage

　　spells trouble in any business, but in none more so than insurance.

　　answering questions at annual shareholders’ meetings.

　　of the parent company. (So much for that talented CEO we met earlier.)

　　Board minutes of July 29, 1954, laid out the grim facts: “The textile industry in New England started going out of

　　year’s figures.

　　forward, powered by the array of solid businesses we now possess and the new companies we will

　　– and, better yet, get paid for holding it.

　　The two railroads are of roughly equal size measured by revenues, though we carry considerably more

　　only a tiny chance of happening in a given year. He may, in fact, be “right” 99% of the time. Those odds,

　　insurance. We repeat last year’s prediction that BHSI will be a major asset for Berkshire, one that will generate

　　Simply put, insurance is the sale of promises. The “customer” pays money now; the insurer promises to

　　nature of this business, however, is that only 20% or so of our leases expire annually. Consequently, improved

　　risk. Though this pedagogic assumption makes for easy teaching, it is dead wrong: Volatility is far from

　　Since the per-share earnings gains of an expanding conglomerate came from exploiting p/e differences, its

　　Berkshire. The blueprint he gave me was simple: Forget what you know about buying fair businesses at wonderful

　　In effect, the world is Berkshire’s oyster – a world offering us a range of opportunities far beyond those

　　virtually all private-equity purchases. Indeed, the amount that a private-equity purchaser offers to the seller is in part

　　however, hold no appeal for us. We will never play financial Russian roulette with the funds you’ve

　　Equally important, however, are the 24 men and women who work with me at our corporate office. This

　　would say to my family today if they asked me about Berkshire’s future.

　　Insurance

　　enhances Berkshire’s share of future earnings without requiring us to lay out a dime. Their retained

　　peculiarities, the weird devotion, and their interactions.

　　Jack Ringwalt, the owner of NICO, was a long-time friend who wanted to sell to me – me, personally. In

　　too, have our investments in marketable securities. The latter are always valued on our balance sheet at their market

　　Every day, our two subsidiaries power the American economy in major ways:

　　were doing exactly that before we acquired their businesses. With only occasional exceptions, furthermore,

　　obtain from each a private recommendation for a successor in case one was suddenly needed.

　　Berkshire Hathaway Energy (formerly MidAmerican Energy), BNSF, IMC (I’ve called it Iscar in the past),

　　Depreciation charges, we want to emphasize, are different: Every dime of depreciation expense we report

　　achievement. He was not trying to create a one-type-fits-all system for other corporations. Indeed, Berkshire’s

　　job than I am doing.

　　(perhaps not forever), other and better advantage came. Ajit Jain created out of nothing an immense reinsurance

　　Earnings applicable to Berkshire . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,882 $ 1,470 $ 1,323

　　and permanent home.

　　book value of $20.20. Buying the stock at that price was like picking up a discarded cigar butt that had one puff

　　sense. But, when owners wish to cash out entirely, they usually consider one of two paths.

　　for more lines of business he can add to his current assortment. Last year I told you about his formation of Berkshire

　　last 50 years, creating a significant tailwind.

　　at Berkshire, have become significant because of the many acquisitions we have made. Non-real

　　* * * * * * * * * * * *

　　The shares that they and their families own – which, in many cases, are worth very substantial sums – were

　　practically all days are relatively uneventful, tomorrow is always uncertain. (I felt no special apprehension

　　service on the boards of nineteen public companies, however, I’ve seen how hard it is to replace a mediocre

　　purported “control value” without any compensating payment. The bankers explain that the spun-off company will

　　however, will usually be to link up as a permanent equity partner (who, in some cases, contributes to the

　　welcome further purchases by us. If we do this – and if we can buy dealerships at sensible prices – we will

　　Berkshire shareholders that will only get more valuable with time.

　　Philippines. And the beat goes on: We will continue to buy and build utility operations throughout the

　　ownership to 7.8% versus 6.3% at yearend 2013). Meanwhile, stock repurchases at Coca-Cola, American

　　things.

　　company, its earnings would have had to be distributed to investors to redeploy, sometimes after being heavily

　　truck, rail, water, air, or pipeline. Indeed, we move more ton-miles of goods than anyone else, a fact

　　Well, Berkshire, by design, had methodological advantages to supplement its better opportunities. It never had the

　　in those early years, though, came from investments in mediocre companies that traded at bargain prices. Ben

　　February 27, 2015

　　gained strength. Both companies have invested more money in new equipment than have many of their competitors,

　　(ii) He would choose all CEOs of important subsidiaries, and he would fix their compensation and

　　Berkshire, directors walk in your shoes.

　　(iv) He would make himself promptly available for almost any contact wanted by any subsidiary’s

　　of $24 billion of net tangible assets during 2014 and, despite their holding large quantities of excess cash and using

　　p.m. On Saturday, we will remain open until 6 p.m. In recent years, our three-day volume has far exceeded our sales

　　The earnings these investees retain are often used for repurchases of their own stock – a move that

　　to determine whether a great record is due to luck or talent. Most advisors, however, are far better at generating high

　　the business and circumstances the CEO was in.

　　483,470,853 Wells Fargo & Company . . . . . . . . . . . . . . . . . . . . 9.4 11,871 26,504

　　Company

　　combining of the two companies. This buyer invariably contemplates getting rid of large numbers of the seller’s

　　subnormal returns on tangible net worth as compared to other American businesses. The prolonged period of low

　　The larger the company, the greater will be our interest: We would like to make an acquisition in the $5-20 billion range. We

　　It is true, of course, that owning equities for a day or a week or a year is far riskier (in both nominal and

　　They will report to the CEO because their investment decisions, in a broad way, will need to be

　　book value has materially widened.

　　pricing only gradually works its way into our revenue stream. The trend, though, is strong. Our 105,000-car fleet

　　viewed as a merger agreement, however, soon morphed into a suicide pact. During the seven years following the

　　Our directors recommended a “no” vote but the company did not otherwise attempt to influence

　　that was three times net tangible assets made me gulp.) My misguided caution could have scuttled a terrific

　　activities – and the list goes on and on.

　　this sector. Furthermore, the intrinsic value of these businesses, in aggregate, exceeds their carrying value by a good

　　hotel rooms. To deal with that possible problem, Airbnb is making a special effort to obtain listings for the period

　　accurately reflect the true economic expenses and profits of the businesses aggregated in the table than do GAAP

　　to the unprepared. Berkshire played an important role as a “first responder” during the 2008-2009

　　friendly way, carrying a ton of freight about 500 miles on a single gallon of diesel fuel. Trucks taking on

　　(1) Buffett left tomorrow, (2) his successors were persons of only moderate ability, and (3) Berkshire never again

　　(4) Berkshire subsidiaries would always prominently include casualty insurers. Those insurers as a group

　　Interest (net) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 833 729 623

　　that might well have gone into shock. Meanwhile, other major insurers and reinsurers would be far in the red, if not

　　Then, later, as Berkshire’s nearly unique and quite dependable corporate personality and large size became well

　　* * * * * * * * * * * *

　　business and financial matters, and who may be e-mailed at loomisbrk@gmail.com; Becky Quick, of CNBC, at

　　economy will ebb and flow – though mostly flow – and, when it weakens, so will our current earnings. But

　　(2) Demonstrated consistent earning power (future projections are of no interest to us, nor are “turnaround” situations),

　　‹ Our subsidiaries spent a record $15 billion on plant and equipment during 2014, well over twice their

　　Berkshire thereafter stuck to the script: It soon closed another two plants, and in that May 1964 move, set

　　float has been considerably better than cost-free under his leadership, and we expect that, on average, to continue.

　　GEICO . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,159 1,127 13,569 12,566

　　assume the job the day after I die or step down. In certain important respects, this person will do a better

　　uncovered up to now are dwarfed by those still untapped. Through dumb luck, Charlie and I were born in

　　CEO had to search for businesses selling at low multiples of earnings. These, of course, were characteristically

　　flourish because its management will be more entrepreneurial, having been freed from the smothering bureaucracy

　　When one part of a family wishes to sell while others wish to continue, a public offering often makes

　　outperformed the index, exactly as Buffett expected. And, later, when both the large size of Berkshire’s

　　spades at last year’s annual meeting, where the shareholders were offered a proxy resolution:

　　company enjoyed compared to the expenses borne by the giants of the industry. It was clear to me that GEICO

　　24,617,939 DIRECTV . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.9 1,454 2,134

　　simply: If the conglomerate form is used judiciously, it is an ideal structure for maximizing long-term capital

　　are not interested, however, in receiving suggestions about purchases we might make in the general stock market.

　　simplicity itself.

　　continued profitability, even if a catastrophe causes insurance losses that far exceed any previously

　　admitted. Moreover, it’s unlikely that CEO would be the manager you would wish to handle the redeployment job

　　portfolio should seal our reputation as America’s all-purpose transportation company.

　　*This is our actual purchase price and also our tax basis; GAAP “cost” differs in a few cases because of write-ups or

　　almost all other sizable public companies, we carry no directors and officers liability insurance. At

　　cigar butt. Its competitive strengths, however, were soon to evaporate because of foreign competition. And I simply

　　Indemnity today has GAAP (generally accepted accounting principles) net worth of $111 billion, which exceeds that

　　is so great that Berkshire would almost surely remain a better-than-normal company for a very long time even if

　　home of choice for the owners and managers of many outstanding businesses.

　　Some sellers don’t care about these matters. But, when sellers do, Berkshire does not have a lot of

　　Earnings Statement (in millions)

　　With this tailwind working for us, Charlie and I hope to build Berkshire’s per-share intrinsic value by

　　a bank we owned in Rockford, Illinois.

　　Berkshire’s $60 billion in cash will constructively decrease.

　　by the stock market every day – in small pieces, to be sure – are often far more attractive than the businesses we are

　　a company in which Charlie, I and Berkshire had major stakes, and which was later merged into Berkshire.

　　‹ First and definitely foremost, I believe that the chance of permanent capital loss for patient Berkshire

　　requirements. We would have loved, of course, to intelligently use those funds to expand our candy operation. But

　　For a time I got lucky: Berkshire immediately enjoyed two years of good operating conditions. Better yet,

　　determined by the buyer assessing the maximum amount of debt that can be placed on the acquired company.

　　known on Wall Street as Meatball, Golf Ball and Goof Ball.

　　‹ Choosing the right CEO is all-important and is a subject that commands much time at Berkshire board

　　behavior is one of the surest indicators of a promotion-minded management, weak accounting, a stock that is

　　(iii) He would deploy most cash not needed in subsidiaries after they had increased their competitive

　　product, so both mustard and ketchup will be available this year. (Buy both!) Now that we are open for business on

　　party to a number of run-off contracts whose float drifts downward. If we do in time experience a decline in float, it

　　If the divesting company later wishes to reacquire the spun-off operation, it presumably would again be

　　depreciation charges.

　　The next to last task on my list was: Predict whether abnormally good results would continue at Berkshire if Buffett

　　amount of trust in future regulation.

　　If you’ve attended our annual meetings, you know Charlie has a wide-ranging brilliance, a prodigious

　　the sums hijacked can be staggering.

　　experienced.

　　‹ Our bad news from 2014 comes from our group of five as well and is unrelated to earnings. During the

　　First by float size is the Berkshire Hathaway Reinsurance Group, managed by Ajit Jain. Ajit insures risks

　　CEO and wishes to learn if other directors are expressing doubts as well. Should multiple directors be

　　(6) Berkshire’s Chairman would reserve only a few activities for himself.

　　And some truths can only be fully learned through experience. (In Fred Schwed’s wonderful book, Where

　　U.K. utilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 527 $ 362 $ 429

　　railroad’s operation. That will amount to about 26% of estimated revenues (a calculation that serves as the

　　work to do.

　　Stars who run their businesses as if they were the only asset owned by their families. I believe the mindset of our

　　keep it concise, avoid sending it in at the last moment, make it Berkshire-related and include no more than two

　　many other profitable investments.

　　about a ton, will proceed down 10th Street to the CenturyLink. Aboard them will be a couple of our Justin Boot

　　To get back to our many manufacturing, service and retailing operations, they sell products ranging from

　　manager whose forecasts were certain to be met, whatever the business results might be.

　　operations while it is underway. Recently, however, our outsized expenditures are beginning to show

　　These companies are industry leaders and have substantially increased their earnings as the American economy has

　　He must never forget Charlie’s plea: “Tell me where I’m going to die, so I’ll never go there.” If our noneconomic

　　will continue to underwrite profitably in most years. Doing so is the daily focus of all of our insurance managers,

　　remaining in it. Though the stub might be ugly and soggy, the puff would be free. Once that momentary pleasure

　　number 14 on the Fortune 500 list just two years later. Ling, it should be noted, had never displayed any managerial

　　around meeting time and is likely to have a wide array of accommodations to offer. Airbnb’s services may be

　　improved, largely by dint of reputational advantage, underwriting discipline, finding and staying within good niches,

　　CEO if that person is also Chairman. (The deed usually gets done, but almost always very late.)

　　Net financial income* . . . . . . . . . . . . . . . . . 296 324 410

　　stagecoach. Berkshire already markets planes, trains and automobiles. Adding steers and stagecoaches to our

　　Total Common Stocks Carried at Market . . . . $55,056 $ 117,470

　　around the country. Stop by for a quote. In most cases, GEICO will be able to give you a shareholder discount

　　* * * * * * * * * * * *

　　(15) Berkshire would always be user-friendly to a prospective seller of a large business. An offer of such a

　　My cigar-butt strategy worked very well while I was managing small sums. Indeed, the many dozens of

　　fixed assets. And many subsidiaries are now engaged in making wise “bolt-on” acquisitions.

　　much. But I didn’t want to pay more than $25 million and wasn’t all that enthusiastic even at that figure. (A price

　　unproductive asset that acts as a drag on such markers as return on equity. Cash, though, is to a business as

　　13

　　best decision is to do nothing. There are worse things in life than having a prosperous business that one understands

　　profit of $43 million. My leisurely pace in making sales would prove expensive. Charlie calls this sort of behavior

　　“helpers” will often conjure up fanciful “synergies.” (As a director of 19 companies over the years, I’ve never heard

　　underwriting while growing their float from $1.7 billion to $8.6 billion. Charlie and I treasure these companies and

　　goal of not simply increasing earnings, but making sure we also increase per-share results.

　　favorable economic prospects; (2) a cadre of outstanding managers who, with few exceptions, are unusually devoted

　　out while Charlie’s talking on Saturday and binge on our bargains. Check the terrific BNSF railroad layout also.

　　Almost every element was chosen because Buffett believed that, under him, it would help maximize Berkshire’s

　　which, in the spirit of our shareholder weekend, have made an exception for you. We appreciate their cooperation.

　　budget should check the Airbnb website.

　　these companies’ earnings we don’t report are every bit as valuable to us as the portion Berkshire records.

　　most important, brains in a manner unique in the insurance business. Yet he never exposes Berkshire to risks that

　　work out enormously well. The errors of omission were of much importance. Berkshire’s net worth would now be at

　　Marmon’s jurisdiction.

　　billion. As a financial disaster, this one deserves a spot in the Guinness Book of World Records.

　　which the premium was $7.1 billion.

　　* * * * * * * * * * * *

　　will reach a level that will not allow management to intelligently reinvest all of the company’s earnings. At

　　makes 12 years in a row – and increased its float. During that 12-year stretch, our float – money that

　　would operate with very extreme autonomy.

　　sermon are now earning a pittance on sums they had previously expected would finance a pleasant retirement. (The

　　we can never be subject to immediate demands for sums that are large compared to our cash resources. This strength

　　others knew our numbers. In some of our operations that are not of a size material to an evaluation of Berkshire,

　　commentators – and me as well, briefly – to believe I had made a huge mistake. That day is long gone. General Re

　　2014 83,921

　　I can promise you that long after I’m gone, Berkshire’s CEO and Board will carefully make intrinsic value

　　(6) An offering price (we don’t want to waste our time or that of the seller by talking, even preliminarily, about a transaction

　　BERKSHIRE HATHAWAY INC.

　　CORT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36 40 42

　　bureaucracy should much more often be treated like the cancers they so much resemble. A good example of

　　which we agree) this excess value will never be entered on our books. But I can assure you that it’s real. That’s one

　　Barbarians at the Gate? – these buyers hastily relabeled themselves “private-equity.”

　　in all of December, normally a jeweler’s best month.

　　preceding item, a culture, distinctive in many ways from that of most large companies, that we have worked 50

　　stated on a pre-tax basis unless otherwise designated.

　　* * * * * * * * * * * *

　　Of course, a business with terrific economics can be a bad investment if it is bought for too high a price. We

　　see a world made to order for Berkshire. We feel fortunate to be entrusted with its management.

　　BNSF is, by far, Berkshire’s most important non-insurance subsidiary and, to improve its performance, we

　　BH Reinsurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 606 $1,294 $42,454 $37,231

　　Berkshire became successful and well known, these outcomes attracted both more and better subsidiaries into

　　combine huge size with satisfactory profits. Charlie had grown up a few hundred feet from where I now live and as

　　base while retaining his smarts and regaining his youth.

　　It took Charlie Munger to break my cigar-butt habits and set the course for building a business that could

　　Many insurers pass the first three tests and flunk the fourth. They simply can’t turn their back on business

　　And the better subsidiaries and CEOs then required less attention from headquarters, creating what is often called a

　　all kinds of requests that I receive, arrange my travel, and even get me hamburgers and french fries (smothered in

　　years has increased at a rate very similar to that of our two measures of value. Charlie and I like to see gains in both

　　prices for the Berkshire weekend. If you are coming from far away, compare the cost of flying to Kansas City vs.

　　(usually 8%). This special offer is permitted by 44 of the 51 jurisdictions in which we operate. (One supplemental

　　Your venue for shopping will be the 194,300-square-foot hall that adjoins the meeting and in which

　　and reliable stream of earnings; (2) massive liquid assets and (3) no significant near-term cash

　　competitive advantage.

　　(1) He particularly wanted continuous maximization of the rationality, skills, and devotion of the most

　　In contrast, a conglomerate such as Berkshire is perfectly positioned to allocate capital rationally and at

　　$1 to buy what could be bought for 13¢ in 1965 (as measured by the Consumer Price Index).

　　through dividends, share repurchases or both. If Berkshire shares are selling below intrinsic business value,

　　pay money in the future should certain unwanted events occur.

　　On May 6, 1964, Berkshire Hathaway, then run by a man named Seabury Stanton, sent a letter to its

　　yourself, test your skills against her, beginning at 1 p.m. Bill Gates and I will lead off and try to soften her up.

　　It can be remembered that soon after we purchased General Re, it was beset by problems that caused

　　Intrinsic Business Value

　　(2) Its top company would do almost all business through separately incorporated subsidiaries whose CEOs

　　when the doors open at 7 a.m.

　　5

　　Warren E. Buffett

　　Ling’s strategy, which he labeled “project redeployment,” was to buy a large company and then partially

　　to managers and advisors, and the use of borrowed money can destroy the decent returns that a life-long owner of

　　“bargain” price. The difference between that figure and a “retail” price is only slowly reflected in our earnings

　　They handle all of these business tasks cheerfully and with unbelievable efficiency, making my life easy

　　would be expected to produce, in due course, dependable underwriting gains while also producing

　　however, we trust our managers to run their operations with a keen sense of stewardship. After all, they

　　exposures that might cause a policy to incur losses; (2) conservatively assess the likelihood of any exposure actually

　　retention of outstanding managers to captain our operating subsidiaries. Obviously, the job also requires the

　　10

　　another leveraged buyer. In effect, the business becomes a piece of merchandise.

　　especially helpful to shareholders who expect to spend only a single night in Omaha and are aware that last year a

　　more than was normal.

　　PacifiCorp (primarily Oregon and Utah) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,010 982 737

　　‹ I’ve mentioned in the past that my experience in business helps me as an investor and that my investment

　　Last year, our premier position in reinsurance was reaffirmed by our writing a policy carrying a $3 billion

　　amortization charges will almost certainly rise further as we acquire more companies.

　　disciplined operations that possess hard-to-replicate business models. Let me tell you about the major units.

　　In both Berkshire’s business acquisitions and large, tailored investment moves, it is important that our

　　fees.)

　　friendships I will exhume only cases from the distant past.

　　that are constrained by the limited potential of the single industry in which they operate.

　　Charlie and I frequently get approached about acquisitions that don’t come close to meeting our tests: We’ve found that if you

　　Both will be serving until 10 p.m., with Gorat’s opening at 1 p.m. and Piccolo’s opening at 4 p.m. These restaurants

　　Below we list our fifteen common stock investments that at yearend had the largest market value.

　　Energy will still be playing vital roles in our economy. Homes and autos will remain central to the lives of most

　　well as others, Marmon’s rail fleet is worth considerably more than the $5 billion figure at which it is carried on our

　　role, as was the case in the recent acquisition of Tim Hortons by Burger King. Our favored arrangement,

　　Lings will appear. They will look and sound authoritative. The press will hang on their every word. Bankers will

　　To date, See’s has earned $1.9 billion pre-tax, with its growth having required added investment of only

　　In the GAAP-compliant figures we show on page 49, amortization charges of $1.15 billion have been

　　inquiries, gets out the annual report, prepares for the country’s largest annual meeting, coordinates the Board’s

　　commemorating our fifty years. It’s currently a work in process, but I expect it to contain a wide variety of historical

　　The Next 50 Years at Berkshire

　　tight for decades. A major reason has been fees: Many institutions pay substantial sums to consultants who, in turn,

　　while he knew better than most corporate executives what worked and what didn’t in business, aided by his long

　　us.

　　We are particularly enthusiastic about General Re’s international life reinsurance business, which has grown

　　earnings figure has grown at a 20.6% clip. It is no coincidence that the price of Berkshire stock over the ensuing 44

　　loss that at the time of sale cost us 2% of our net worth. Twice, we experienced 1% losses. All three of these losses

　　Regulated, Capital-Intensive Businesses

　　made a big mistake with this investment by dawdling.

　　accounting, however, doesn’t come close to recording the magnitude of my error. The fact is that I gave Berkshire

　　years to develop and that is now rock-solid.

　　much in intrinsic business value as we give. We don’t participate in auctions.

　　Investing.

　　operate. Our appetite for either operating businesses or passive investments doubles our chances of finding

　　plying their trade in odd corners of the insurance world. In aggregate, these companies are a growing operation that

　　in control of Berkshire, Buffett saw one business (textiles) move close to death and two new businesses come in, for

　　acquisitions would have been owned in their entirety by my partners and me rather than being 39%-owned by the

　　years, written these contracts, except for a few needed for operational purposes at our utility businesses.

　　(12) Berkshire would almost never transfer a subsidiary’s CEO to another unrelated subsidiary.

　　Decades ago, Ben Graham pinpointed the blame for investment failure, using a quote from Shakespeare:

　　Are the Customers’ Yachts?, a Peter Arno cartoon depicts a puzzled Adam looking at an eager Eve, while a

　　2013. Here, as with our Powerhouse Five, we expect further gains in 2015. Within this group, we have two

　　The GAAP-compliant table on page 67 gives you the current status of our intangible assets. We now have

　　Consequently, Berkshire paid $433 million for Dexter and, rather promptly, its value went to zero. GAAP

　　In our early decades, the relationship between book value and intrinsic value was much closer than it is

　　when they are available at a meaningful discount from intrinsic value; and (5) making an occasional large

　　intrinsic value over the past 50 years is roughly equal to the 1,826,163% gain in market price of the company’s

　　assuredly, America’s best days lie ahead.

　　We have another reinsurance powerhouse in General Re, managed by Tad Montross.

　　fight for their business. What they are saying will recently have “worked.” Their early followers will be feeling very

　　apply to the products of several prestigious manufacturers that normally have ironclad rules against discounting but

　　period including the Great Depression and two world wars. Investors should heed this history. To one degree or

　　fall to depths that their CEOs and directors had not long before thought impossible. Their one-time

　　is currently so inexpensive, these buyers can frequently pay top dollar. Later, the business will be resold, often to

　　Last year you did your part as a shopper, and most of our businesses racked up record sales. In a nine-hour

　　consists largely of tank cars, but only 8% of those transport crude oil.

　　cars from our manufacturing division to our leasing division. Our fleet is consequently placed on our books at a

　　instance, Ajit Jain and Greg Abel are proven performers who would probably be under-described as “world-class.”

　　about $4 million pre-tax while utilizing only $8 million of net tangible assets. Moreover, the company had a huge

　　The answer is plainly yes. In its early Buffett years, Berkshire had a big task ahead: turning a tiny stash into a large

　　however, stock prices and intrinsic value almost invariably converge. Charlie Munger, Berkshire Vice Chairman

　　Though weather, which was particularly severe last year, will always cause railroads a variety of operating

　　strength and oceans of liquidity that we will maintain under all circumstances; (4) a first-choice ranking among

　　reinvest all of the earnings.” To have our fellow owners – large and small – be so in sync with our

　　well. But sitting tight is seldom recommended by Wall Street. (Don’t ask the barber whether you need a haircut.)

　　appropriate that I independently supplement whatever celebratory comment comes from him. I will try to do five

　　Berkshire Hathaway Energy (89.9% owned) Earnings (in millions)

　　financial oxygen disappeared.

　　since then the company has been flying. There is no better manager than Tony.

　　purchased a large business.

　　Investors, of course, can, by their own behavior, make stock ownership highly risky. And many do. Active

　　compares to our average of 18% in 2009-2013 and to U.P.’s projection for the near future of 16-17%. Our huge

　　shareholders offering to buy 225,000 shares of its stock for $11.375 per share. I had expected the letter; I was

　　* * * * * * * * * * * *

　　29

　　Inventory . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10,236 Total current liabilities . . . . . . . . . . . . . . . . . . 10,699

　　either businesses or stocks. Not everything works out as planned.

　　Indeed, who has ever benefited during the past 238 years by betting against America? If you compare our

　　The Year at Berkshire

　　their siren songs, investors – large and small – should instead read Jack Bogle’s The Little Book of Common Sense

　　1970 $ 39

　　(8) Berkshire would not pay dividends so long as more than one dollar of market value for shareholders was

　　downward, sometimes even to a negative figure.

　　fame nor does he have an agent to constantly remind us how valuable he is. I love the little guy.

　　Express and Wells Fargo raised our percentage ownership of each. Our equity in Coca-Cola grew from

　　(in millions)

　　partner clearly requires more demanding criteria than does dating. (Berkshire, it should be noted, would have been a

　　to, say, 20 times earnings and then issued shares as fast as possible to acquire another business selling at ten-or-so

　　400,000,000 The Coca-Cola Company . . . . . . . . . . . . . . . . . . . . 9.2 1,299 16,888

　　6

　　* * * * * * * * * * * *

　　Let’s look first at insurance, Berkshire’s core operation. That industry has been the engine that has

　　of Bank of America at any time prior to September 2021 for $5 billion. At yearend these shares were worth $12.5

　　$2,668 $3,089 $83,921 $77,240

　　That was true even though the industry’s problems had long been widely understood. Berkshire’s own

　　consolidation, Berkshire operated at an overall loss, and its net worth shrunk by 37%.

　　Moreover, we will not write insurance contracts that give policyholders the right to cash out at their option.

　　operation possessing it – to be far in excess of its historic carrying value. Under present accounting rules (with

　　and, more important, make the two of them even better investors than they already are (which is to say

　　Many of Clayton’s borrowers have low incomes and mediocre FICO scores. But thanks to the company’s

　　To the shareholders of Berkshire Hathaway Inc.:

　　For the great majority of investors, however, who can – and should – invest with a multi-decade horizon,

　　completed, and we are now “car guys.”

　　insurance operation are almost certain to grow at a good clip. National Indemnity’s reinsurance division, however, is

　　were fixed early and are described below:

　　through bolt-on acquisitions; (3) benefiting from the growth of our investees; (4) repurchasing Berkshire shares

　　and chance will determine when opportunities come our way. Through it all, Berkshire will keep moving

　　insuring with GEICO. So stop reading and go to geico.com or call 800-368-2734.

　　drawing.

　　Voluntary spin-offs, though, make no sense for us: We would lose control value, capital-allocation

　　In the late 1960s, I attended a meeting at which an acquisitive CEO bragged of his “bold, imaginative

　　and pleasant. Their efforts go beyond activities strictly related to Berkshire: Last year they dealt with the 40

　　A few years later, bankers – bearing straight faces – again appear and just as earnestly urge spinning off the

　　One of the heralded virtues of capitalism is that it efficiently allocates funds. The argument is that markets

　　mention, has hired new management, and we wish them well.) Our after-tax loss from this investment was $444

　　Nevertheless, there are often obstacles to the rational movement of capital. As those 1954 Berkshire

　　freight (measured either by carloads or ton-miles). But our service problems exceeded Union Pacific’s last year, and

　　incur moderately greater costs than existed when they were combined.

　　Wells Fargo grew from 9.2% to 9.4%. And, if you think tenths of a percent aren’t important, ponder this

　　Ling’s empire was melting, and he himself had been spun off from LTV . . . that is, fired.

　　reporting manager and we the absentee shareholders. (But don’t get any ideas!)

　　Our activities in this part of Berkshire cover the waterfront. Let’s look, though, at a summary balance sheet

　　investment performance.

　　operating managers with values similar to ours will continue to be attracted to Berkshire as a one-of-a-kind

　　Among Arno’s “certain things,” I would include two separate skills, the evaluation of investments and the

　　earnings were destined to simply limp along. Mistakes of that kind are deadly. Trading shares of a wonderful

　　we will continue to achieve organic gains, make bolt-on acquisitions and enter new fields. I believe,

　　year. (We ended 2014 at 10.8% compared to 2.5% in 1995, when Berkshire acquired control of GEICO.) The

　　truly priceless.)

　　smooth or uninterrupted manner; they never have. And we will regularly grumble about our government. But, most

　　Income taxes and non-controlling interests . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,324 2,283 2,229

　　Cost* Market

　　Berkshire was then a northern textile manufacturer mired in a terrible business. The industry in which it

　　plus: Shareholders in those instances could be sure that reported earnings would never disappoint, no matter how

　　(3) Businesses earning good returns on equity while employing little or no debt,

　　experts, available to play bridge with our shareholders on Sunday afternoon. Don’t play them for money.

　　From my perspective, though, Charlie’s most important architectural feat was the design of today’s

　　through smaller annual depreciation charges that we enjoy over the 30-year life of the car. Because of that fact as

　　of your Berkshire shares. As Ben Graham said many decades ago: “In the short-term the market is a voting

　　our premium volume should shrink, our float would decline – but only at a very slow pace.

　　There is an important message for investors in that disparate performance between stocks and dollars.

　　* * * * * * * * * * * *

　　minimal cost. Of course, form itself is no guarantee of success: We have made plenty of mistakes, and we will make

　　going crazy.

　　electric transmission operation in Canada; and major electric businesses in the U.K. and

　　Sincerely,

　　$1,000 or more. Spend that money with us.

　　We will not engage in unfriendly takeovers. We can promise complete confidentiality and a very fast answer – customarily

　　mistake.

　　the gang of the public exposure they were to receive, so they didn’t have on their Sunday best. This year was a

　　Sometimes pundits propose that Berkshire spin-off certain of its businesses. These suggestions make no

　　2008 and 2009, when funding for the industry dried up, Clayton was able to keep lending because of Berkshire’s

　　opportunities.

　　is not exempt from this truth.

　　derived from Berkshire’s ownership. Moreover, the parent and the spun-off operations, once separated, would likely

　　one time there was a large minority ownership at Marmon, and I felt it was more understandable to include all of the

　　At Nebraska Furniture Mart, located on a 77-acre site on 72nd Street between Dodge and Pacific, we will

　　delegation of authority now existing at Berkshire is the ideal antidote to bureaucracy. In an operating sense,

　　could pretty well understand. Berkshire would also want a good CEO in place, one expected to remain for a

　　insurance goodwill – what we would happily pay for float of similar quality were we to purchase an insurance

　　(3) There would be almost nothing at conglomerate headquarters except a tiny office suite containing a

　　be employed and there occurs a need for the Chairman to move forcefully. I can assure you that this

　　Berkshire’s portion of their annual earnings by $50 million.

　　billion of pre-tax earnings in 2014, up $1.6 billion from 2013.* The companies in this sainted group are

　　characteristics distinguishing them from our other businesses. Consequently, we assign them their own section in

　　titles. Last year, many shareholders purchased Max Olson’s compilation of Berkshire letters going back to 1965,

　　not seven, and his skill improved and improved as he got older and older during 50 years, instead of deteriorating

　　audit by a public accounting firm, and I didn’t ask for one. My reasoning: (1) Jack was honest and (2) He was also a

　　surprised by the price.

　　23

　　obligations, however large these are. In 2008-2009, many managements learned how perilous that mindset

　　almost all huge errors were in not making a purchase, including not purchasing Walmart stock when that was sure to

　　controlled investment decisions, there would have been no auto industry.

　　officially proposed. Nevertheless, the proxy votes had been tallied, and they were enlightening.

　　Waumbec Mills, another New England textile company? Of course, the purchase price was a “bargain” based on the

　　concurrently being offered in their entirety. Additionally, the gains we’ve realized from marketable securities have

　　At BHE, meanwhile, two factors ensure the company’s ability to service its debt under all circumstances.

　　Berkshire also has fine partnerships with Mars and Leucadia, and we may form new ones with them or with

　　businesses that have limited opportunities for incremental investment to other sectors with greater promise.

　　office saying he would like to sell. Fifteen minutes later, we had a deal. Neither of Jack’s companies had ever had an

　　can’t be done overnight: The extensive work required to increase system capacity sometimes disrupts

　　our trust produces better results than would be achieved by streams of directives, endless reviews and

　　9

　　Nor do I think that desirable purchases of new businesses would end with Buffett’s departure. With Berkshire now

　　On pages 128-129, we reproduce the 11⁄2-page purchase agreement we used to finalize the transaction.

　　Berkshire’s great managers, premier financial strength and a variety of business models protected by

　　have occasionally reached – it may well be many years before the investor can realize a profit. In other

　　Today, our emphasis has shifted in a major way to owning and operating large businesses. Many of these

　　The Annual Meeting

　　* * * * * * * * * * * *

　　were soon to depart.

　　mentioned if your question is asked.)

　　6 p.m. to 9 p.m. on Friday, May 1st. The second, the main gala, will be held on Sunday, May 3rd, from 9 a.m. to 4

　　grows, so does our float. And how we have grown, as the following table shows:

　　Viewed as a single entity, the companies in this group are an excellent business. They employed an average

　　States.”

　　credential you will need for admission to both the meeting and other events. Airlines have sometimes jacked up

　　Both the elements of the Berkshire system and their collected size are quite unusual. No other large corporation I

　　the United States, and we are forever grateful for the staggering advantages this accident of birth has given

　　requirements. Ignoring that last necessity is what usually leads companies to experience unexpected

　　Revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $23,239 $22,014 $20,835

　　overpriced and – all too often – outright dishonesty.

　　among the best).

　　extreme panic. Contracts of that sort, however, do not exist in the property-casualty world that we inhabit. If

　　safer to invest in a diversified collection of American businesses than to invest in securities – Treasuries, for

　　regularly after he had learned to assign virtually all playing time to his seven best players. That way, opponents

　　(1) Large purchases (at least $75 million of pre-tax earnings unless the business will fit into one of our existing units),

　　long time and to manage well without need for help from headquarters.

　　The second choice for sellers is the Wall Street buyer. For some years, these purchasers accurately called

　　Here’s how we will always stand on the three essentials. First, our earnings stream is huge and comes from

　　executives, who do double duty as cowboys. Following the steers will be four horses pulling a Wells Fargo

　　our annual meeting is always held on a Saturday. We do not talk one-on-one to large institutional investors or

　　within five minutes – as to whether we’re interested. We prefer to buy for cash, but will consider issuing stock when we receive as

　　shares and the satisfaction that comes from being good stewards of an important enterprise.

　　The answer is yes. Berkshire has in place in its subsidiaries much business momentum grounded in much durable

　　maturities of size nor enter into derivative contracts or other business arrangements that could require large

　　Operating expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16,237 15,357 14,835

　　Ariel when she was nine and even then I was unable to score a point against her. Now, she’s a sophomore at

　　rose from 84 to 2,059, which, with reinvested dividends, generated the overall return of 11,196% shown on page 2.

　　problem has a very low probability of arising at Berkshire – likely as low as at any public company. In my

　　competitors – both current and potential – read this report. In a few of our businesses we might be disadvantaged if

　　to reallocate capital among businesses and industries. Even tax-free institutional investors face major costs as they

　　obsolete textile mills for far too long.

　　* Throughout this letter, as well as in the “Golden Anniversary” letters included later in this report, all earnings are

　　So how does our float affect intrinsic value? When Berkshire’s book value is calculated, the full amount

　　stockholdings and income tax considerations caused the index-beating part of returns to fade to insignificance

　　companies that last year earned between $400 million and $600 million, six that earned between $250

　　lesson has not customarily been taught in business schools, where volatility is almost universally used as a proxy for

　　outcome was so astoundingly large that I believe that Buffett would now fail to recreate it if he returned to a small

　　Chairman. My only reason for this wish is to make change easier if the wrong CEO should ever

　　20

　　sectors, but our main focus is to build operating earnings. That’s why we were pleased to exchange our Phillips 66

　　bewilder onlookers. Additionally, we will have Bob Hamman and Sharon Osberg, two of the world’s top bridge

　　business forty years ago. During the war years this trend was stopped. The trend must continue until supply and

　　further juice the numbers. For many, gushers of easy money washed away ethical sensitivities.

　　All told, Berkshire is ideally positioned for life after Charlie and I leave the scene. We have the right

　　many streams of earnings. We would also remain awash in cash and be looking for large opportunities in a market

　　costly in my career.

　　Financial staying power requires a company to maintain three strengths under all circumstances: (1) a large

　　that sort and cementing relationships takes time. The payoff, though, can be huge.

　　trading, attempts to “time” market movements, inadequate diversification, the payment of high and unnecessary fees

　　Street loved this sort of talk.

　　* * * * * * * * * * * *

　　Then the honeymoon ended. During the 18 years following 1966, we struggled unremittingly with the

　　twelve consecutive years, our pre-tax gain for the period having totaled $24 billion. Looking ahead, I believe we

　　press.

　　A key characteristic of both companies is their huge investment in very long-lived, regulated assets, with

　　The reason for our conservatism, which may impress some people as extreme, is that it is entirely

　　problems of the industry.

　　that eventually diverted $100 billion or so from BPL partners to a collection of strangers.

　　Shares** Company

　　I purchased BPL’s first shares of Berkshire in December 1962, anticipating more closings and more

　　excesses, market-driven allocation of capital is usually far superior to any alternative.

　　If elected, Howard will receive no pay and will spend no time at the job other than that required of all

　　for the number that really counts: intrinsic business value.

　　represent.

　　11

　　24,669,778 Moody’s Corporation . . . . . . . . . . . . . . . . . . . . . . . . 12.1 248 2,364

　　candy, 7,276 pairs of Wells Lamont work gloves and 10,000 bottles of Heinz ketchup. Heinz has a new mustard

　　Instead, irritated by Stanton’s chiseling, I ignored his offer and began to aggressively buy more Berkshire

　　lives in today – some 55 years later. (Like me, Charlie can’t be budged if he is happy in his surroundings.) In recent

　　‹ Berkshire increased its ownership interest last year in each of its “Big Four” investments – American

　　potential. Your company is the Gibraltar of American business and will remain so.

　　no way was his offer intended for Berkshire. So why did I purchase NICO for Berkshire rather than for BPL? I’ve

　　out to repurchase shares with the shutdown proceeds. The price that Stanton offered was 50% above the cost of our

　　subsidiaries were not required to use the Berkshire system in their own operations. And some flourished while using

　　1951 conversation I had with Lorimer Davidson, a wonderful man who later became CEO of the company, I learned

　　books.

　　banking fraternity has prompted the saying that fees too often lead to transactions rather than transactions leading to

　　madness to risk losing what you need in pursuing what you simply desire.

　　How did Berkshire happen to get a corporate personality so different from the norm?

　　stock prices and advised investing in “safe” Treasury bills or bank certificates of deposit. People who heeded this

　　executive than Buffett.

　　with banks and Wall Street analysts are also forever ended.

　　business – which Berkshire most certainly is – for ownership of a so-so business irreparably destroys value.

　　20,060,390 Munich Re . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11.8 2,990 4,023

　　The sponsoring shareholder of that resolution never showed up at the meeting, so his motion was not

　　Warren are not multi billionaires, the board shall consider paying a meaningful annual dividend on

　　We could do that because we always maintain at least $20 billion – and usually far more – in cash

　　(1) The constructive peculiarities of Buffett,

　　reason – a huge reason – why we believe Berkshire’s intrinsic business value substantially exceeds its book value.

　　Here is an update of the two quantitative factors: In 2014 our per-share investments increased 8.4% to

　　deliver liquidity and actually do so, except when it is truly needed. When bills come due, only cash is legal

　　(1) Describe the management system and policies that caused a small and unfixably-doomed commodity

　　good and bad cultures self-select to perpetuate themselves. For very good reasons, business owners and

　　Why did Berkshire’s acquisition of companies outside the insurance business work out so well for Berkshire

　　containers and cranes. We have also restated the previous two years to reflect that change. Why have we made it? At

　　* * * * * * * * * * * *

　　replacement of a subsidiary’s CEO when that is called for. These duties require Berkshire’s CEO to be a

　　This cheery prediction comes, however, with an important caution: If an investor’s entry point into

　　company’s low costs create a moat – an enduring one – that competitors are unable to cross. Our gecko never tires

　　Of the five, only Berkshire Hathaway Energy, then earning $393 million, was owned by us a decade ago.

　　43,387,980 USG Corporation . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30.0 836 1,214

　　people in place – the right directors, managers and prospective successors to those managers. Our culture,

　　prices; instead, buy wonderful businesses at fair prices.

　　should keep appropriate sums in Treasuries or insured bank deposits.

　　Diamond than to own all of a rhinestone.

　　Berkshire – Past, Present and Future

　　Our other leasing and rental operations are conducted by CORT (furniture) and XTRA (semi-trailers).

　　Berkshire then had 1,583,680 shares outstanding. About 7% of these were owned by Buffett Partnership

　　worked out well and, in a few cases, more than well. I have not, nonetheless, made my last mistake in purchasing

　　however, we’ve never had an argument. When we differ, Charlie usually ends the conversation by saying: “Warren,

　　became evident that business models based on the serial issuances of overpriced shares – just like chain-letter

　　behavior and didn’t tender.

　　will be made, Berkshire has been the party – the only party – to call.

　　With that in mind, we have added a new set of data – the historical record of Berkshire’s stock price – to

　　At 8:30 a.m., a new Berkshire movie will be shown. An hour later, we will start the question-and-answer

　　Charlie Straightens Me Out

　　* * * * * * * * * * * *

　　purchase. But, luckily, the sellers decided to take our $25 million bid.

　　Express, Coca-Cola, IBM and Wells Fargo. We purchased additional shares of IBM (increasing our

　　I closely watched the 50-year history of Berkshire’s uncommon success under Warren Buffett. And it now seems

　　“bet” on ever-rising U.S. prosperity to be very close to a sure thing.

　　of float as strictly a liability is incorrect; it should instead be viewed as a revolving fund. Daily, we pay old claims

　　known, its insurance subsidiaries got and seized many attractive opportunities, not available to others, to buy

　　What was Buffett aiming at as he designed the Berkshire system?

　　If BPL had been the purchaser, my partners and I would have owned 100% of a fine business, destined to

　　“dis-synergies” mentioned, though I’ve witnessed plenty of these once deals have closed.) Post mortems of

　　Meanwhile, the company closed nine plants, sometimes using the liquidation proceeds to repurchase

　　gush cash for decades to come.

　　Lubrizol and Marmon.

　　human behavior. It’s important as well that he knows his limits. (As Tom Watson, Sr. of IBM said, “I’m no

　　to change course.

　　Come meet them on May 2nd and enjoy our Woodstock for Capitalists.

　　board has grown to know well. Our directors also believe that an incoming CEO should be relatively

　　businesses will increase in both number and earnings. Our ambitions have no finish line.

　　math: For the four companies in aggregate, each increase of one-tenth of a percent in our ownership raises

　　expect that the per-share earnings of these four investees, in aggregate, will grow substantially over time

　　view, that is an essential criterion for repurchases that is often ignored by other managements.)

　　addition, we are a leader in renewables: From a standing start ten years ago, BHE now accounts for 6% of

　　the weekend fun and informative for our owners.

　　company’s operations in one place. Today we own virtually 100% of Marmon, which makes me think you will gain

　　confined to a single industry. On top of that, we can profitably scale to a far larger size than the many businesses

　　(1) constantly improving the basic earning power of our many subsidiaries; (2) further increasing their earnings

　　Moreover, by concentrating so much power and authority in the often-long-serving CEOs of important subsidiaries,

　　17

　　unrelated activities. A move of that kind would usually require that long-time associates be fired and mistakes be

　　gains. (For the package of four, our unrealized gains already totaled $42 billion at yearend.)

　　for the many dozens of Marmon’s other businesses remain in the previous section.)

　　premiums-to-market-price that are currently being paid for acquisitions – an absolutely asinine way to evaluate the

　　We are wasting no time: As I also mentioned earlier, we will spend $6 billion in 2015 on improving our

　　business that produced both a huge “float” and a large underwriting gain. And all of GEICO came into Berkshire,

　　Purchases of Berkshire that investors make at a price modestly above the level at which the company

　　The family controlling See’s wanted $30 million for the business, and Charlie rightly said it was worth that

　　consistently and profitably since we acquired the company in 1998.

　　sprinkled their holy water on the conglomerates’ accounting and sometimes even made suggestions as to how to

　　67,707,544 Wal-Mart Stores, Inc. . . . . . . . . . . . . . . . . . . . . . . . 2.1 3,798 5,815

　　52,477,678 The Procter & Gamble Company . . . . . . . . . . . . 1.9 336 4,683 ***

　　much change in the Berkshire system.

　　by designing and building five apartment projects near Los Angeles. Concurrently, he designed the house that he

　　Ajit’s underwriting skills are unmatched. His mind, moreover, is an idea factory that is always looking

　　‹ In October, we contracted to buy Van Tuyl Automotive, a group of 78 automobile dealerships that is

　　If the U.S. economy continues to improve in 2015, we expect earnings of our Powerhouse Five to improve

　　We are eager to hear from principals or their representatives about businesses that meet all of the following criteria:

　　Vice Chairman’s Thoughts – Past and Future

　　will have cost $15 billion. In addition, we have conventional projects in the works that will also cost many billions.

　　years, Charlie has designed large dorm complexes at Stanford and the University of Michigan and today, at age 91,

　　and other incumbents for a long time, both before and after his departure.

　　* * * * * * * * * * * *

　　and he has produced an updated edition for the meeting. We also expect to be selling an inexpensive book

　　prices so any gains – including those unrealized – are immediately reflected in our net worth. But the businesses we

　　At both BPL and Berkshire, we have never invested in companies that are hell-bent on issuing shares. That

　　establishing BNSF as the most important artery in our economy’s circulatory system.

　　“World-leading” would be the description I would choose. In some important ways, each is a better business

　　peer in that respect.

　　like the skill of a basketball player does.

　　So what do Charlie and I find so attractive about Berkshire’s conglomerate structure? To put the case

　　NFM is open from 10 a.m. to 9 p.m. Monday through Friday, 10 a.m. to 9:30 p.m. on Saturday and 10 a.m. to 8 p.m.

　　Think back to our 2011 annual report, in which we defined investing as “the transfer to others of purchasing power

　　target again will be a Clayton Home porch, located precisely 35 feet from the throwing line. When I was a teenager

　　$100 million annually on about $125 million of net tangible assets.

　　ever know about the offer if it did not lead to a transaction. And they would never tell outsiders about it.

　　Total current assets . . . . . . . . . . . . . . . . . . . . . . . . 25,382

　　Compare this to a typical big-corporation system with much bureaucracy at headquarters and a long succession of

　　How well did it work out for Berkshire to always include casualty insurers as important subsidiaries?

　　(5) There would be no significant system-wide personnel system, stock option system, other incentive system,

　　purchasing-power terms) than leaving funds in cash-equivalents. That is relevant to certain investors – say,

　　highly satisfactory “date”: If we had taken Seabury Stanton’s $11.375 offer for our shares, BPL’s weighted annual

　　Finally, there is GEICO, the insurer on which I cut my teeth 64 years ago. GEICO is managed by Tony

　　and I will convene the annual meeting at 3:45 p.m. This business session typically lasts only a half hour or so.

　　world. During 2014, Peter expanded his talented group, moving into both international business and new lines of

　　essential service on an exclusive basis. The second is enjoyed by few other utilities: a great diversity of earnings

　　insurance industry should experience a $250 billion loss from some mega-catastrophe – a loss about triple anything

　　Berkadia (our 50% share) . . . . . . . . . . . . . $ 122 $ 80 $ 35

　　dollars more than their carrying value. The unrecorded gains in the value of Berkshire’s subsidiaries have become

　　outstanding.

　　in turn, have themselves produced large distributable profits. (Envision rabbits breeding.) Additionally, through

　　However they dress, their performance is mind-boggling.

　　to reflect their current market prices. In Wall Street parlance, most of the assets involved in the calculation of book

　　are a Berkshire holder.

　　RESOLVED: Whereas the corporation has more money than it needs and since the owners unlike

　　Wall Street’s love affair with this hocus-pocus intensified as the 1960s rolled by. The Street’s denizens are

　　‹ Investments will always be of great importance to Berkshire and will be handled by several specialists.

　　broadened that base through our $3 billion (Canadian) acquisition of AltaLink, an electric transmission system

　　coordinated with Berkshire’s operating and acquisition programs. Overall, though, our investment

　　* * * * * * * * * * * *

　　others, Buffett often displayed almost inhuman patience and seldom bought. For instance, during his first ten years

　　Conglomerates, it should be acknowledged, have a terrible reputation with investors. And they richly

　　At the end of 2012 we owned 415 million shares of Tesco, then and now the leading food retailer in the

　　meeting. After you purchase a pair, wear them the next day at our third annual “Berkshire 5K,” an 8 a.m. race

　　As noted in the first section of this report, Berkshire has now operated at an underwriting profit for

　　shares. And that pattern caught my attention.

　　problems, our responsibility is to do whatever it takes to restore our service to industry-leading levels. That

　　From the questions submitted, each journalist will choose the six he or she decides are the most

　　times since 1965 when our stock has fallen about 50% from its high point. Someday, something close to

　　American business provided a case study of that in 2008. In September of that year, many long-prosperous

　　CEOs who come in at about age 59, pause little thereafter for quiet thought, and are soon forced out by a fixed

　　promising Omaha-based insurer. (A tiny sister company was also included in the deal.) Insurance was in my sweet

　　is working on another major project.

　　compounded the error. Indeed, my second blunder was far more serious than the first, eventually becoming the most

　　in all respects and can be of particular help to the CEO in evaluating acquisitions.

　　(4) Predict whether abnormally good results would continue if Buffett were soon to depart, and

　　smaller than we would normally acquire, have excellent economic characteristics. Combined, the two earn

　　$140,123, and our earnings from businesses other than insurance and investments increased 19% to $10,847 per

　　have paid substantial premiums to net tangible assets for most of our businesses, a cost that is reflected in the large

　　enhancement, of the acquirer’s p/e multiple. And, finally, they promised to endlessly repeat this procedure and

　　limited to friendly transactions.

　　If our revolving float is both costless and long-enduring, which I believe it will be, the true value of this

　　pronouns to avoid awkward wording, but gender should never decide who becomes CEO.) He can’t help

　　move capital because they usually need intermediaries to do this job. A lot of mouths with expensive tastes then

　　important people in the system, starting with himself.

　　his career as a practicing lawyer (with his time billed at $15 per hour), Charlie made his first real money in his 30s

　　likely be far more important in determining your results than the concomitant change in the intrinsic value

　　At Marmon’s railroad-car operation, lease rates have improved substantially over the past few years. The

　　generates significant investment income because of the assets it allows us to hold.

　　always ready to suspend disbelief when dubious maneuvers are used to manufacture rising per-share earnings,

　　thereby create ever-increasing per-share earnings.

　　12/31/14

　　acquisitions. Last year was particularly fruitful: We contracted for 31 bolt-ons, scheduled to cost $7.8

　　Brooks, our running-shoe company, will again have a special commemorative shoe to offer at the

　　we will substantially increase the hours available for purchases, opening for business at the CenturyLink on Friday,

　　Income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,300 2,135 2,005

　　intrinsic business value is almost certain to advance over time.

　　under all conditions and (ii) easy availability of cash and credit for deployment in times presenting unusual

　　Net earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 3,869 $ 3,793 $ 3,372

　　retirement age.

　　151,610,700 American Express Company . . . . . . . . . . . . . . . . . 14.8 $ 1,287 $ 14,106

　　made in recent years, with those having far exceeded the outlays made by Union Pacific, our principal competitor.

　　intangible assets). We present the data in this manner because Charlie and I believe the adjusted numbers more

　　Berkshire’s attractive insurance economics exist only because we have some terrific managers running

　　even totaling one million – and they voted 660,759,855 “no” and 13,927,026 “yes,” a ratio of about 47 to 1.

　　and related expenses – a huge $22.7 billion to more than six million claimants in 2014 – and that reduces float. Just

　　(i) He would manage almost all security investments, with these normally residing in Berkshire’s

　　audience will be chosen by means of 11 drawings that will take place at 8:15 a.m. on the morning of the annual

　　and useful company. And it solved that problem by avoiding bureaucracy and relying much on one thoughtful leader

　　for the float-generating capabilities of our insurance operations. The cost of the goodwill, however, has no bearing

　　was enjoyed, however, no more could be expected.

　　May 1st, from noon to 5 p.m. as well as the usual 7 a.m. to 4 p.m. on meeting day. So bring a smile to Charlie’s face

　　gains – in the future.”

　　15

　　be Gary Ransom of Dowling & Partners. Questions that deal with our non-insurance operations will come from

　　that which might advance his determined learning, no matter how old he became; and

　　* * * * * * * * * * * *

　　Next up is cash. At a healthy business, cash is sometimes thought of as something to be minimized – as an

　　To further ensure continuation of our culture, I have suggested that my son, Howard, succeed me as a nonexecutive

　　other intangibles, such as the amortization of customer relationships, however, arises through purchase-accounting

　　15,430,586 Deere & Company . . . . . . . . . . . . . . . . . . . . . . . . . . 4.5 1,253 1,365

　　is a key pillar in Berkshire’s economic fortress.

　　and closed the operation.

　　be even cheaper.

　　and early October, we supplied $15.6 billion of fresh money to American businesses.

　　conglomerate form brings huge and enduring advantages to Berkshire.

　　huge, with these growing at a particularly fast pace in the last decade.

　　Did Berkshire suffer from being a diffuse conglomerate? No, its opportunities were usefully enlarged by a widened

　　Berkshire stock is unusually high – at a price, say, approaching double book value, which Berkshire shares

　　did Berkshire’s insurance subsidiaries. And the S&P 500 Index produced about 10% per annum, pre-tax, during the

　　pictures.” If you haven’t read Schwed’s book, buy a copy at our annual meeting. Its wisdom and humor are

　　When I was first introduced to GEICO in January 1951, I was blown away by the huge cost advantage the

　　whose dividends would trend upward over the years and whose principal would grow as well (with many ups and

　　1990 1,632

　　now the fifth-largest automotive group in the country, with per-dealership sales figures that are

　　(even if your advisor has handed you an expensive “fairness” opinion endorsing that swap).

　　I’ve asked Todd and Ted to each take on one as Chairman, in which role they will function in the very

　　a youth had worked, as did I, in my grandfather’s grocery store. Nevertheless, it was 1959 before I met Charlie, long

　　* * * * * * * * * * * *

　　follow.

　　power over their investing lifetime. For them, a diversified equity portfolio, bought over time, will prove far less

　　problems: Too often, CEOs of profitable companies feel they will always be able to refund maturing

　　depleted by large taxes and, almost always, by significant frictional and agency costs.

　　Percentage of

　　example – whose values have been tied to American currency. That was also true in the preceding half-century, a

　　Now let’s take a look at the road ahead. Bear in mind that if I had attempted 50 years ago to gauge what

　　true earnings are flat.

　　Operating earnings before interest and taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7,002 6,657 6,000

　　the shares.

　　Eventually – probably between ten and twenty years from now – Berkshire’s earnings and capital resources

　　would repurchase its shares, however, should produce gains within a reasonable period of time. Berkshire’s

　　attractiveness of an acquisition – or whether the deal will increase the acquirer’s earnings-per-share (which in itself

　　fallen to $22 million from $55 million at the time of the 1955 merger. The full $22 million was required by the

　　directors will only authorize repurchases at a price they believe to be well below intrinsic value. (In our

　　synonymous with risk. Popular formulas that equate the two terms lead students, investors and CEOs astray.

　　pharmaceuticals. Soon after, he split the parent into three businesses, Wilson & Co. (meatpacking), Wilson Sporting

　　skills. But Charlie told me long ago to never underestimate the man who overestimates himself. And Ling had no

　　* * * * * * * * * * * *

　　Berkshire has one major equity position that is not included in the table: We can buy 700 million shares

　　Attentive readers will notice that Tesco, which last year appeared in the list of our largest common stock

　　need massive investments in both transportation and energy. It is in the self-interest of governments to treat capital

　　asset that did not appear on its balance sheet: a broad and durable competitive advantage that gave it significant

　　amounts of taxable income at other Berkshire operations. That gives Berkshire Hathaway Energy a major advantage

　　19

　　Charlie and I encourage bolt-ons, if they are sensibly-priced. (Most deals offered us aren’t.) They deploy

　　number is for Berkshire shares (nor, in fact, for any other stock). In our 2010 annual report, however, we laid out the

　　(viii) He would also spend much time in enthusiastically admiring what others were accomplishing.

　　21

　　causing a loss and the probable cost if it does; (3) set a premium that, on average, will deliver a profit after both

　　Periodically, financial markets will become divorced from reality – you can count on that. More Jimmy

　　This year we include in this section Marmon’s very sizable leasing operations, whose wares are railcars,

　　I’m not embarrassed to admit that Heinz is run far better under Alex Behring, Chairman, and Bernardo

　　journalists will ask questions that add to our owners’ understanding and knowledge of their investment.

　　My final task was to consider whether Berkshire’s great results over the last 50 years have implications that may

　　always faced his best players, instead of his second best. And, with the extra playing time, the best players improved

　　and Graham Holdings stock for operating businesses last year and to contract with Procter and Gamble to acquire

　　promise of partnership. None took the job for the money: In an arrangement almost non-existent elsewhere,

　　shareholder-oriented. At Berkshire, we much prefer owning a non-controlling but substantial portion of a

　　its earnings in those years were free of income tax because it possessed a large loss carry-forward that had arisen

　　Revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $97,689 $93,472 $81,432

　　(3) Good luck, and

　　should be far from determinative). In striving to achieve the desired per-share number, a panting CEO and his

　　values were to be lost, much of Berkshire’s economic value would collapse as well. “Tone at the

　　income characteristics from the others. So we’ll present them as four separate businesses, which is how Charlie and

　　sure things.

　　but earn money far in excess of any possible need for it. But it’s important that neither ego nor avarice

　　of all local managers. Creating this mutuality of interests proved over and over to be a winner. Van Tuyl is

　　thinking.

　　massive repurchases will almost certainly be the best choice. You can be comfortable that your directors

　　I’ll present a special prize to the 12-or-under contestant who makes the best toss. Deb Bosanek will be the judge.

　　importantly, acquisitions must meet the test of the 2 plus 2 equals 5 (or 6) formula.” The press, the public and Wall

　　“control value” and for the wonderful things that are going to happen once the acquirer’s CEO takes charge. (What

　　25

　　year, BNSF disappointed many of its customers. These shippers depend on us, and service failures can

　　portfolios that are bought over time and that are owned in a manner invoking only token fees and commissions. That

　　shareholders. Nevertheless, 98% of the shares voting said, in effect, “Don’t send us a dividend but instead

　　would materialize with only minor amounts of incremental investment. In other words, See’s could be expected to

　　young, so that he or she can have a long run in the job. Berkshire will operate best if its CEOs average well

　　would soar. So, too, would regulatory and administration expenditures.

　　Year Float (in $ millions)

　　spot: I understood and liked the industry.

　　disappointed many of its customers. This problem occurred despite the record capital expenditures that BNSF has

　　pressures from colleagues having a vested interest in maintaining the status quo. That’s important: If horses had

　　**Excludes shares held by pension funds of Berkshire subsidiaries.

　　meeting. Each of the 11 microphones installed in the arena and main overflow room will host, so to speak, a

　　helped us make certain large acquisitions that would otherwise have been beyond our financial capabilities.

　　I believe all four factors were present and helpful. But the heavy freight was carried by the constructive

　　Berkshire truly has an owner base unlike that of any other giant corporation. That fact was demonstrated in

　　equities would otherwise enjoy. Indeed, borrowed money has no place in the investor’s tool kit: Anything can

　　stock to the sellers of Dexter rather than cash, and the shares I used for the purchase are now worth about $5.7

　　build a business that before long will be multiples the size of Van Tuyl’s $9 billion of sales.

　　the original insurer with getting huge liabilities right back in its lap.

　　stayed long enough in place to bear the consequences of decisions.

　　Gorat’s and Piccolo’s will again be open exclusively for Berkshire shareholders on Sunday, May 3rd.

　　invest abroad as well, the mother lode of opportunities runs through America. The treasures that have been

　　occurred in the 1974-1975 period, when we sold stocks that were very cheap in order to buy others we believed to

　　performance standards and are never satisfied, even when their results far exceed those of competitors.

　　software, as a big example, amortization charges are very real expenses. The concept of making charges against

　　Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 427 296 314

　　memory, and some firm opinions. I’m not exactly wishy-washy myself, and we sometimes don’t agree. In 56 years,

　　equivalent of a “department of acquisitions” under pressure to buy. And it never relied on advice from “helpers”

　　In fact, I know of only eight P/C policies in history that had a single premium exceeding $1 billion. And,

　　caption says, “There are certain things that cannot be adequately explained to a virgin either by words or

　　(in millions)

　　shareholders’ interests are paramount to him, they will, with few exceptions, also embrace that way of

　　that if he were ever to sell his company, its home should be Berkshire. Our purchase was recently

　　are about 17,000 dealerships in the country, and ownership transfers always require approval by the

　　call 402-551-3733 on April 1st (but not before); for Piccolo’s, call 402-346-2865. At Piccolo’s, order a giant root

　　Princeton, having already represented the United States in the 2012 Olympics. If you don’t mind embarrassing

　　contractor, with the CEOs of Berkshire’s subsidiaries doing the real work as sub-contractors.

　　will be very gradual – at the outside no more than 3% in any year. The nature of our insurance contracts is such that

　　is now a gem.

　　To obtain the Berkshire discount at NFM, you must make your purchases between Tuesday, April 28th

　　as well. The gain could reach $1 billion, in part because of bolt-on acquisitions by the group that have

　　Marvelously well. Berkshire’s ambitions were unreasonably extreme and, even so, it got what it wanted.

　　meltdown, and we have since more than doubled the strength of our balance sheet and our earnings

　　regulators see this 100% retention policy as an important advantage – one almost certain to distinguish

　　headquarters.

　　$40 million. See’s has thus been able to distribute huge sums that have helped Berkshire buy other businesses that,

　　only a low-cost operation can deliver these. Indeed, at least 40% of the people reading this letter can save money by

　　GEICO’s cost advantage is the factor that has enabled the company to gobble up market share year after

　　great.

　　that, any business we acquire dramatically increases its financial strength and ability to grow. Its days of dealing

　　‹ Our many dozens of smaller non-insurance businesses earned $5.1 billion last year, up from $4.7 billion in

　　At about 7:30 a.m. on Saturday, we will have our fourth International Newspaper Tossing Challenge. Our

　　We will have huge crowds at Borsheims throughout the weekend. For your convenience, therefore,

　　7

　　who know that while float is valuable, its benefits can be drowned by poor underwriting results. That message is

　　Berkshire’s managers, directors and associates. (Charlie and I, however, will sleep in.)

　　Ling that ran in the October 1982 issue of D Magazine. Look it up on the Internet.

　　was coming, certain of my predictions would have been far off the mark. With that warning, I will tell you what I

　　to drive. The insurance consequently needed is a major expenditure for most families. Savings matter to them – and

　　over most public-utility companies in developing wind and solar projects.

　　million and $400 million, and seven that earned between $100 million and $250 million. This collection of

　　$7.4 billion left to amortize, of which $4.1 billion will be charged over the next five years. Eventually, of course,

　　however, on pages 97-100.

　　‹ No company will be more shareholder-minded than Berkshire. For more than 30 years, we have annually

　　door tomorrow and not be replaced. The two types of liabilities are treated as equals, however, under GAAP.

　　equivalents. And by that we mean U.S. Treasury bills, not other substitutes for cash that are claimed to

　　Deferred taxes . . . . . . . . . . . . . . . . . . . . . . . . . . 3,801

　　advantage, with the ideal deployment being the use of that cash to acquire new subsidiaries.

　　I view them (though there are important and enduring advantages to having them all under one roof). Our goal is to

　　exceptionally well-run. Larry Van Tuyl, the company’s owner, and I met some years ago. He then decided

　　collection of underlying businesses becoming more and more junky. That mattered little to investors: It was deal

　　Neither Charlie nor I will get so much as a clue about the questions headed our way. Some will be tough,

　　About a year after that board meeting, Berkshire Fine Spinning Associates and Hathaway Manufacturing –

　　managerial genius. They next explained to investors that this sort of talent justified the maintenance, or even the

　　Hees, CEO, than would be the case if I were in charge. They hold themselves to extraordinarily high

　　value. That discussion is reproduced in full on pages 123-124.

　　Kevin Clayton has again delivered an industry-leading performance at Clayton Homes, the largest home

　　billion in aggregate. The size of these transactions ranged from $400,000 to $2.9 billion. However, the

　　that no one else has the desire or the capital to take on. His operation combines capacity, speed, decisiveness and,

　　to marry 100% of an excellent business (NICO) to a 61%-owned terrible business (Berkshire Hathaway), a decision

　　quotational declines are unimportant. Their focus should remain fixed on attaining significant gains in purchasing

　　deserve it. Let me first explain why they are in the doghouse, and then I will go on to describe why the

　　Other current assets . . . . . . . . . . . . . . . . . . . . . . . 1,117

　　Subsequently we purchased another three of the five on an all-cash basis. In acquiring the fifth, BNSF, we

　　year. The increase, I am proud to say, included no gain at headquarters (where 25 people work). No sense

　　spin off its various divisions. In LTV’s 1966 annual report, he explained the magic that would follow: “Most

　　remain low, our customer satisfaction is high and our record for employee safety is among the best in the industry.

　　for granted: human relations, public relations, investor relations, strategy, acquisitions, you name it.

　　analyst and journalist and for 18 from the audience. (Last year we had 62 in total.) The questioners from the

　　Berkshire has owned (with the errors sometimes occurring while I was serving as a director). Too often CEOs seem

　　managers will enjoy great autonomy. In this area, too, we are in fine shape for decades to come. Todd

　　My friend, Ariel Hsing, will be in the mall as well on Sunday, taking on challengers at table tennis. I met

　　8

　　earlier acquisition in order to “unlock shareholder value.” Spin-offs, of course, strip the owning company of its

　　To the Shareholders of Berkshire Hathaway Inc.:

　　shares only if you expect to hold them for at least five years. Those who seek short-term profits should look

　　That is, these insurers wished to “cede” these liabilities – most of them potential losses from asbestos claims – to a

　　streams, which shield us from being seriously harmed by any single regulatory body. Recently, we have further

　　20s.) Therefore, both the ability and willingness of the insurer to pay, even if economic chaos prevails when

　　entrusted to us, even if the metaphorical gun has 100 chambers and only one bullet. In our view, it is

　　• BHE’s utilities serve regulated retail customers in eleven states. No utility company stretches further. In

　　much the value of these companies has increased. Consequently, the gap between Berkshire’s intrinsic value and its

　　meetings. Managing Berkshire is primarily a job of capital allocation, coupled with the selection and

　　textile business to morph into the mighty Berkshire that now exists,

　　returns in the area of 12% to 20%. A few, however, have very poor returns, the result of some serious mistakes I

　　(vii) His first priority would be reservation of much time for quiet reading and thinking, particularly

　　evaluate. And that’s a serious limitation: Charlie and I have no idea what a great many companies will look like ten

　　group efficiently deals with a multitude of SEC and other regulatory requirements, files a 24,100-page Federal

　　Others . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10,180 15,704

　　2014 2013 2012

　　2014 2013* 2012*

　　The unconventional, but inescapable, conclusion to be drawn from the past fifty years is that it has been far

　　But a major weakness in this approach gradually became apparent: Cigar-butt investing was scalable only

　　growth.

　　counterparties be both familiar with and feel comfortable with Berkshire’s CEO. Developing confidence of

　　This loss, in effect, is what the industry pays to hold its float. Competitive dynamics almost guarantee that the

　　I’ve yet to see an investment banker quantify this all-important math when he is presenting a stock-forstock

　　* * * * * * * * * * * *

　　Marine, for $8.6 million. Though that purchase had monumental consequences for Berkshire, its execution was

　　It was a good year for Berkshire on all major fronts, except one. Here are the important developments:

　　questions in any e-mail you send them. (In your e-mail, let the journalist know if you would like your name

　　was an eighth of a point to either of us? – he lost his job, and I found myself with more than 25% of BPL’s capital

　　We will also have a panel of three analysts who follow Berkshire. This year the insurance specialist will

　　Since I know of no way to reliably predict market movements, I recommend that you purchase Berkshire

　　22

　　different story: On the facing page you will see what our group looks like when they think someone will be noticing.

　　layers of bureaucracy. Charlie and I try to interact with our managers in a manner consistent with what we

　　pricing power. That strength was virtually certain to give See’s major gains in earnings over time. Better yet, these

　　(2) The constructive peculiarities of the Berkshire system,

　　Other Primary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 626 385 8,618 7,430

　　dramatic and will not come close to those achieved in the past 50 years. The numbers have become too big.

　　I believe that versions of the Berkshire system should be tried more often elsewhere and that the worst attributes of

　　Even though I’m 84, it still excites me.

　　Be sure to visit the Bookworm. It will carry about 35 books and DVDs, among them a couple of new

　　For good reason, I regularly extol the accomplishments of our operating managers. They are truly All-

　　form the base for building the company Berkshire has become. Moreover, our growth would not have been impeded

　　cockroach in your kitchen; as the days go by, you meet his relatives.

　　best in the hundreds who work with her. She is aided by our entire home office crew who enjoy pitching in to make

　　collateral calls.

　　In 1967 Ling bought Wilson & Co., a huge meatpacker that also had interests in golf equipment and

　　products from dozens of Berkshire subsidiaries will be for sale. If you don’t get your shopping done on Friday, slip

　　market value was a similar amount.

　　bad the operating realities of the business might become.

　　period, which (with a break for lunch at CenturyLink’s stands) will last until 3:30 p.m. After a short recess, Charlie

　　largest acquisition, Duracell, will not close until the second half of this year. It will then be placed under

　　propelled our expansion since 1967, when we acquired National Indemnity and its sister company, National Fire &

　　the five companies over the ten-year span has been accompanied by only minor dilution. That satisfies our

　　blind to an elementary reality: The intrinsic value of the shares you give in an acquisition must not be greater than

　　The ending is always the same: Money flows from the gullible to the fraudster. And with stocks, unlike chain letters,

　　Americans. When we purchased Clayton in 2003 for $1.7 billion, its share was 14%.

　　Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,793 Berkshire equity . . . . . . . . . . . . . . . . . . . . . . . . 51,827

　　18,513,482 DaVita HealthCare Partners Inc. . . . . . . . . . . . . . 8.6 843 1,402

　　billion. Though neither that gain nor the size of our float is reflected in Berkshire’s earnings, float

　　how old-fashioned that math is --- zip up your wallet, take a vacation and come back in a few years to buy stocks at

　　builder in America. Last year, Clayton sold 30,871 homes, about 45% of the manufactured homes bought by

　　stocks. That’s not a course of action open to most managements. Over our history, this strategic alternative has

　　tender offer was mailed, Stanton had asked me at what price BPL would sell its holdings. I answered $11.50, and he

　　(in millions)

　　In truth, “equity” is a dirty word for many private-equity buyers; what they love is debt. And, because debt

　　premium can’t be obtained.

　　both with roots in the 19th Century – joined forces, taking the name we bear today. With its fourteen plants and

　　years or more from now. When major insurers have needed an unquestionable promise that payments of this type

　　depreciation charges. About 90% of that money was spent in the United States. Though we will always

　　conglomerates are now long gone. As Yogi Berra said, “Every Napoleon meets his Watergate.”)

　　‹ Berkshire’s yearend employees – including those at Heinz – totaled a record 340,499, up 9,754 from last

　　9.1% to 9.2%, our interest in American Express increased from 14.2% to 14.8% and our ownership of

　　Investments

　　them as an important internal tool). We don’t have a legal office nor departments that other companies take

　　power of Berkshire. That does not mean operating earnings will increase each year – far from it. The U.S.

　　didn’t see that coming.

　　businesses – gives us a significant advantage over companies that limit themselves to acquisitions they can

　　(vi) He would try to be an exemplar in a culture that would work well for customers, shareholders,

　　manufacture our own tank cars, about 6,000 of them in a good year. We do not book any profit when we transfer

　　demand have been balanced.”

　　multitude of skills – and she jumped at the chance. Carrie is unflappable, ingenious and expert at bringing out the

　　* * * * * * * * * * * *

　　BNSF, like all railroads, also moves its cargo in an extraordinarily fuel-efficient and environmentally

　　Casualty insurers often invest in common stocks with a value amounting roughly to their shareholders’ equity, as

　　sensible lending practices, its portfolio performed well during the recession, meaning a very high percentage of our

　　14

　　deducted as expenses. We would call about 20% of these “real,” the rest not. The “non-real” charges, once nonexistent

　　margin, and that premium is likely to widen. Even so, the difference between intrinsic value and carrying value in

　　has spent in a single year and is a truly extraordinary amount, whether compared to revenues, earnings or

　　Jack Ringwalt, a friend of mine who was the controlling shareholder of the two companies, came to my

　　most sophisticated P/C insurers, who wished to shed themselves of huge and exceptionally long-lived liabilities.

　　a vast array of businesses. Our shareholders now own many large companies that have durable competitive

　　What were the big mistakes made by Berkshire under Buffett? Well, while mistakes of commission were common,

　　Marmon – Containers and Cranes . . . . . 238 226 246

　　had attended three). But Charlie never tired of repeating his maxims about business and investing to me, and his

　　all shareholders should simultaneously have access to new information that Berkshire releases and should also have

　　Duracell by means of a similar exchange set to close in 2015.

　　Another major advantage we possess is the ability to buy pieces of wonderful businesses – a.k.a. common

　　of our float is deducted as a liability, just as if we had to pay it out tomorrow and could not replenish it. But to think

　　result in sudden demands for large sums. That means we will not expose Berkshire to short-term debt

　　rules and clearly does not reflect reality. GAAP accounting draws no distinction between the two types of charges.

　　doorstep than I do. The papers will run 36 to 42 pages, and you must fold them yourself (no rubber bands allowed).

　　sensible uses for Berkshire’s endless gusher of cash.

　　operated was heading south, both metaphorically and physically. And Berkshire, for a variety of reasons, was unable

　　(5) Consider whether Berkshire’s great results over the last 50 years have implications that may prove useful

　　companies suddenly wondered whether their checks would bounce in the days ahead. Overnight, their

　　2014 2013 2012

　　backing. In fact, we continued during that period to finance our competitors’ retail sales as well as our own.

　　76,971,817 International Business Machines Corp. . . . . . . 7.8 13,157 12,349

　　interest rates our country is now dealing with causes earnings on float to decrease, thereby exacerbating the profit

　　they could not be more different.

　　Another warning: Berkshire shares should not be purchased with borrowed money. There have been three

　　accounting.” Most of the analysts listening responded with approving nods, seeing themselves as having found a

　　Soon thereafter, it became clear that, like Icarus, Ling had flown too close to the sun. By the early 1970s,

　　liability is dramatically less than the accounting liability. Owing $1 that in effect will never leave the premises –

　　strongest of companies can falter. The examples available to prove the point are legion, but to maintain

　　and earnings statement for the entire group.

　　facing insolvency.

　　We have an extraordinarily knowledgeable and business-oriented board of directors ready to carry out that

　　earned in 2014. And all of this began with our 1967 purchase of National Indemnity for $8.6 million.

　　given at least lip service by all insurers; at Berkshire it is a religion.

　　(11) As an important matter of preferred conduct, Berkshire would almost never sell a subsidiary.

　　volume in the billions within a few years.

　　Balance Sheet 12/31/14 (in millions)

　　coverage is pre-tax earnings/interest, not EBITDA/interest, a commonly used measure we view as seriously flawed.)

　　have difficulty in being as effective if running a spun-off operation, given the operating and financial advantages

　　higher-income brethren.

　　That contract was homemade: Neither side used a lawyer. Per page, this has to be Berkshire’s best deal: National

　　million, about 1/5 of 1% of Berkshire’s net worth. In the past 50 years, we have only once realized an investment

　　In the Beginning

　　example, certain tax credits that are available to our utilities are currently realizable only because we generate huge

　　Even then, however, I made a few exceptions to cigar butts, the most important being GEICO. Thanks to a

　　Late in 2009, amidst the gloom of the Great Recession, we agreed to buy BNSF, the largest purchase in

　　emigrate (though I can think of a few for whom I would happily buy a one-way ticket).

　　investments will soon lead to a system with greater capacity and much better service. Improved profits should

　　per-share book value has grown from $19 to $146,186, a rate of 19.4% compounded annually.*

　　Berkshire’s talented Carrie Sova will again be in charge. Carrie joined us six years ago at the age of 24 as

　　Now, let’s examine the four major sectors of our operations. Each has vastly different balance sheet and

　　‹ Berkshire’s huge and growing insurance operation again operated at an underwriting profit in 2014 – that

　　S&P 500 was then below 700; now it is about 2,100.) If not for their fear of meaningless price volatility, these

　　every dollar of non-real costs becomes entirely charged off. When that happens, reported earnings increase even if

　　privately issued securities. Most of these securities had fixed maturities and produced outstanding results.

　　We’ve also suffered financially when this mistake has been committed by companies whose shares

　　overlooked. Indeed, having an accounting wizard at the helm of an expanding conglomerate was viewed as a huge

　　identify yourself as a shareholder by presenting your meeting credentials or a brokerage statement that shows you

　　(2) He wanted win/win results everywhere--in gaining loyalty by giving it, for instance.

　　earlier: LTV. I’ll summarize here, but those who enjoy a good financial story should read the piece about Jimmy

　　the country’s wind generation capacity and 7% of its solar generation capacity. Beyond these businesses,

　　paid about 70% of the cost in cash and, for the remainder, issued Berkshire shares that increased the

　　retained more dollars of earnings – by far – than any other American electric utility. We and our

　　proved to be very helpful; a broad range of options always sharpens decision-making. The businesses we are offered

　　the goldmine, I got the shaft.”

　　you with your credentials for the meeting. Entrants in the race will find themselves running alongside many of

　　Other (net) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 236 4 91

　　‹ I believe the chance of any event causing Berkshire to experience financial problems is essentially zero.

　　Berkshire’s history. At the time, I called the transaction an “all-in wager on the economic future of the United

　　2014 2013 2012

　　times earnings. They immediately applied “pooling” accounting to the acquisition, which – with not a dime’s worth

　　serving 85% of Alberta’s population. This multitude of profit streams, supplemented by the inherent advantage of

　　silliest of which occurred in the late 1960s. The drill for conglomerate CEOs then was simple: By personality,

　　– in my one brief flirtation with honest labor – I tossed about 500,000 papers. So I think I’m pretty good. Challenge

　　deal to the board of a potential acquirer. Instead, the banker’s focus will be on describing “customary”

　　little leverage, earned 18.7% after-tax on that capital.

　　CEO, and he would require almost no additional contact.

　　Heinz ketchup, of course) for lunch. No CEO has it better; I truly do feel like tap dancing to work every day.

　　2000 27,871

　　Why did Berkshire prefer to buy companies with cash, instead of its own stock? Well, it was hard to get anything in

　　‹ Our “Powerhouse Five” – a collection of Berkshire’s largest non-insurance businesses – had a record $12.4

　　The resulting firestorm of merger activity was fanned by an adoring press. Companies such as ITT, Litton

　　adequate time to analyze it. That’s why we try to issue financial data late on Fridays or early on Saturdays and why

　　They should instead be standard practice.

　　for sure, and that’s the way we like it. All told we expect at least 54 questions, which will allow for six from each

　　clever. Our suggestion: Whatever their line, never forget that 2+2 will always equal 4. And when someone tells you

　　velocity and pooling accounting they looked to for increased earnings.

　　whatever the entry price. Movements of the general stock market during such abbreviated periods will

　　We have two major operations, BNSF and Berkshire Hathaway Energy (“BHE”), that share important

　　In some years the gains will be substantial, and at other times they will be minor. Markets, competition,

　　* * * * * * * * * * * *

　　Stock prices will always be far more volatile than cash-equivalent holdings. Over the long term, however,

　　vigorous indeed that it frequently causes the P/C industry as a whole to operate at a significant underwriting loss.

　　of change in the underlying businesses – automatically increased per-share earnings, and used the rise as proof of

　　There are a few investment managers, of course, who are very good – though in the short run, it’s difficult

　　can be.

　　* Excludes capital gains or losses

　　leverage.

　　bit quirky and likely to walk away if the deal became at all complicated.

　　competition.

　　textile operation: The company had no excess cash and owed its bank $2.5 million. (Berkshire’s 1964 annual report

　　their managers.

　　Omaha. The drive between the two cities is about 21⁄2 hours, and it may be that Kansas City can save you

　　therefore, we only disclose what is required. You can find a good bit of detail about many of our operations,

　　One further fact about our rail operation is important for you to know: Unlike many other lessors, we

　　three elements – one of them qualitative – that we believe are the keys to a sensible estimate of Berkshire’s intrinsic

　　welcomed by both major insurance brokers and corporate risk managers throughout America. Previously, we had

　　insurers get to invest this float for their benefit. Though individual policies and claims come and go, the amount of

　　prove useful elsewhere.

　　Key to Clayton’s earnings is the company’s $13 billion mortgage portfolio. During the financial panic of

　　substantial “float” (from unpaid insurance liabilities) for investment.

　　its interest requirements. Last year, for example, BNSF’s interest coverage was more than 8:1. (Our definition of

　　on its true value. For example, if an insurance company sustains large and prolonged underwriting losses, any

　　See’s was a legendary West Coast manufacturer and retailer of boxed chocolates, then annually earning

　　which are arrogance, bureaucracy and complacency. When these corporate cancers metastasize, even the

　　to a point. With large sums, it would never work well.

　　advertise an interest in buying collies, a lot of people will call hoping to sell you their cocker spaniels. A line from a country song

　　Later, if things go well and equity begins to build, leveraged buy-out shops will often seek to re-leverage

　　Income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 616 170 172

　　used the excess funds generated by See’s to help purchase other businesses. If See’s had remained a stand-alone

　　minutes made clear, capital withdrawals within the textile industry that should have been obvious were delayed for

　　themselves, in full or part, if operations are separated. Here’s the most obvious example: Berkshire incurs nominal

　　top” will be key to maintaining Berkshire’s special culture.

　　wide moats amount to something unique in the insurance world. This assemblage of strengths is a huge asset for

　　Pre-tax earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,792 6,160 5,586

　　Last year, for the annual report, we dropped our 48-year-old “no pictures” policy – who says I’m not

　　Eventually, however, the clock struck twelve, and everything turned to pumpkins and mice. Once again, it

　　income tax return and oversees the filing of 3,400 state tax returns, responds to countless shareholder and media

　　for it. Choosing a reinsurer, therefore, that down the road proves to be financially strapped or a bad actor threatens

　　mispriced and that had only minor collateral requirements. These have proved to be quite profitable.

　　The story at BNSF, however – as I noted earlier – was not good in 2014, a year in which the railroad

　　not needed because each company has earning power that even under terrible economic conditions will far exceed

　　Before I depart the subject of spin-offs, let’s look at a lesson to be learned from a conglomerate mentioned

　　Here’s the earnings recap for this sector:

　　And Buffett much out-Woodened Wooden, because in his case the exercise of skill was concentrated in one person,

　　Insurance Operations 2014 2013 2014 2013

　　We will again have the same three financial journalists lead the question-and-answer period at the

　　move funds between businesses or into new ventures instantly and without tax. In addition, certain costs duplicate

　　Berkshire has one further advantage that has become increasingly important over the years: We are now the

　　BNSF Earnings (in millions)

　　Indeed, we are far more conservative in avoiding risk than most large insurers. For example, if the

　　investments, they are the wrong foundation on which to build a large and enduring enterprise. Selecting a marriage

　　we lost market share as a result. Moreover, U.P.’s earnings beat ours by a record amount. Clearly, we have a lot of

　　Bring the details of your existing insurance and check out our price. We can save many of you real money.

　　before discontinued operations amounted to $4.7 billion (compared to $3.3 billion only three years ago). In

　　insurers receive premiums upfront and pay claims later. In extreme cases, such as those arising from certain

　　enjoy terrific economics, producing profits that run from 25% after-tax to far more than 100%. Others generate good

　　sense. Our companies are worth more as part of Berkshire than as separate entities. One reason is our ability to

　　doesn’t belong to us but that we can invest for Berkshire’s benefit – has grown from $41 billion to $84

　　Get up early on Saturday morning. At 6:20 a.m., Norman and Jake, two Texas longhorns each weighing

　　Berkshire carried out such a spin-off in 1979, when new regulations for bank holding companies forced us to divest

　　A GEICO booth in the shopping area will be staffed by a number of the company’s top counselors from

　　And, yes, we also try to sell our visiting shareholders our products while they’re here. In fact, this year

　　borrowers kept their homes. Our blue-collar borrowers, in many cases, proved much better credit risks than their

　　period on Saturday, we sold 1,385 pairs of Justin boots (that’s a pair every 23 seconds), 13,440 pounds of See’s

　　decades because of the vain hopes and self-interest of managements. Indeed, I myself delayed abandoning our

　　When Buffett developed the Berkshire system, did he foresee all the benefits that followed? No. Buffett stumbled into

　　These strengths provide us a wonderful foundation on which to build.

　　We relish making such commitments as long as they promise reasonable returns – and, on that front, we put a large

　　managerial philosophy is both remarkable and rewarding.

　　In recent years, Jeff Rachor has worked alongside Larry, a successful arrangement that will continue. There

　　predictable that people will occasionally panic, but not at all predictable when this will happen. Though

　　(though 2015 will be a tough year for the group, in part because of the strong dollar). If the expected gains

　　said, “Fine, we have a deal.” Then came Berkshire’s letter, offering an eighth of a point less. I bristled at Stanton’s

　　words, a sound investment can morph into a rash speculation if it is bought at an elevated price. Berkshire

　　made in my job of capital allocation. I was not misled: I simply was wrong in my evaluation of the economic

　　Buffett was, in effect, using the winning method of the famous basketball coach, John Wooden, who won most

　　consistently delivers an underwriting profit. Indeed, over the past decade, they have earned $2.95 billion from

　　shares.

　　Those building blocks rest on a rock-solid foundation. A century hence, BNSF and Berkshire Hathaway

　　3

　　watching See’s in action, I gained a business education about the value of powerful brands that opened my eyes to

　　Warren E. Buffett

　　provide you with the information we would wish to have if our positions were reversed, with you being the

　　1980 237

　　When BHE completes certain renewables projects that are underway, the company’s renewables portfolio

　　* * * * * * * * * * * *

　　advantages, and we will acquire more of those in the future. Our diversification assures Berkshire’s

　　predictions.

　　beer float for dessert. Only sissies get the small one.

　　During our tenure, we have consistently compared the yearly performance of the S&P 500 to the change in

　　some benefits through practice evolution. But, when he saw useful consequences, he strengthened their causes.

　　value were “marked to market.”

　　models – most assuredly redistribute wealth, but in no way create it. Both phenomena, nevertheless, periodically

　　capital in activities that fit with our existing businesses and that will be managed by our corps of expert

　　think it over and you’ll agree with me because you’re smart and I’m right.”

　　(10) In choosing CEOs of subsidiaries, Berkshire would try to secure trustworthiness, skill, energy, and love for

　　lollipops to jet airplanes. Some of this sector’s businesses, measured by earnings on unleveraged net tangible assets,

　　with new borrowings. They then typically use part of the proceeds to pay a huge dividend that drives equity sharply

　　Clayton . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 558 416 255

　　purchase. In most years, moreover, our country’s economy will provide a strong tailwind for business. We

　　of 39,000 set a record, and we expect a further increase this year as we celebrate our Golden Anniversary. Be there

　　4

　　At the shareholder level, taxes and frictional costs weigh heavily on individual investors when they attempt

　　One reason we were attracted to the property-casualty business was its financial characteristics: P/C

　　Early in 1967, I had Berkshire pay $8.6 million to buy National Indemnity Company (“NICO”), a small but

　　even if he or she was inclined to undertake it.

　　Operating expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 90,788 87,208 75,734

　　Nicely, who joined the company at 18 and completed 53 years of service in 2014. Tony became CEO in 1993, and

　　would wish for, if the positions were reversed.

　　them as their paycheck.

　　Berkshire’s marvelous outcome in insurance was not a natural result. Ordinarily, a casualty insurance business is a

　　experience as a passive investor. And, finally, even when Berkshire was getting much better opportunities than most

　　Iowa utility . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 298 230 236

　　badly hurt their businesses.

　　Here are the key figures for Berkshire Hathaway Energy and BNSF:

　　Nevada utilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 549 — —

　　Ltd. (“BPL”), an investing entity that I managed and in which I had virtually all of my net worth. Shortly before the

　　sure to be prejudiced in favor of transactions. And Buffett held self-delusion at bay as he underclaimed expertise

　　managers also to be as shareholder-oriented as can be found in the universe of large publicly-owned companies.

　　BerkshireQuestions@cnbc.com; and Andrew Ross Sorkin, of The New York Times, at arsorkin@nytimes.com.

　　BHE from other utilities for many years to come.

　　$ 1,839 $ 1,564 $ 1,393

　　both the insurance and regulated-industry segments is far greater. It is there that the truly big winners reside.

　　being owned by a strong parent, has enabled BHE and its utility subsidiaries to significantly lower their cost of debt.

　　mediocre businesses with poor long-term prospects. This incentive to bottom-fish usually led to a conglomerate’s

　　‹ The bad news is that Berkshire’s long-term gains – measured by percentages, not by dollars – cannot be

　　These four investees possess excellent businesses and are run by managers who are both talented and

　　fees than they are at generating high returns. In truth, their core competence is salesmanship. Rather than listen to

　　Accounts and notes receivable . . . . . . . . . . . . . 8,264 Other current liabilities . . . . . . . . . . . . . . . . . 9,734

　　(4) The weirdly intense, contagious devotion of some shareholders and other admirers, including some in the

　　leaves P/C companies holding large sums – money we call “float” – that will eventually go to others. Meanwhile,

　　*Earnings for 2012 and 2013 have been restated to exclude Marmon’s leasing operations, which are now included in

（责任编辑：HN058）

　　Moreover, its railroad and utility subsidiaries now provide much desirable opportunity to invest large sums in new

　　this kind of drop will happen again, and no one knows when. Berkshire will almost certainly be a

　　write-downs that have been required under GAAP rules.

　　to both the subsidiary they operate and to Berkshire; (3) an extraordinary diversity of earnings, premier financial

　　Finally, there are sometimes important tax efficiencies for Subsidiary A because we own Subsidiary B. For

　　dynamics of the company or the industry in which it operates.

　　investments, is now absent. An attentive investor, I’m embarrassed to report, would have sold Tesco shares earlier. I

　　This economic fact benefits both us and our customers.

　　Finally – getting to our third point – we will never engage in operating or investment practices that can

　　payment time arrives, is all-important.

　　和讯网消息 巴菲特写给2014年伯克希尔哈撒韦股东的公开信全文公布。伯克希尔哈撒韦2014年净财富增加183亿美元，，使公司A类和B类股票每股价值增加8.3%。在过去的50年内，公司股票的每股价值由19美元增长至146186美元，按复利计算每年增长19.4%。原文如下

　　recommend high-fee managers. And that is a fool’s game.

　　currency-denominated instruments are riskier investments – far riskier investments – than widely-diversified stock

　　plenty of them – usually does not want to leave his long-time associates sadly singing the old country song: “She got

　　We expect to partner with 3G in more activities. Sometimes our participation will only involve a financing

　　invested in a terrible business about which I knew very little. I became the dog who caught the car.

　　that adds to the investment income our float produces. When such a profit is earned, we enjoy the use of free money

　　as surely, we each day write new business and thereby generate new claims that add to float.

　　and my partner, and I believe that has been true at Berkshire: In our view, the increase in Berkshire’s per-share

　　promotion or dubious accounting – and often by all three – these managers drove a fledgling conglomerate’s stock

　　Friday as well, we expect new records in every precinct.

　　followed by a quadrupling of GEICO’s market share. And the rest of Berkshire’s insurance operations hugely

　　these partially funded by large amounts of long-term debt that is not guaranteed by Berkshire. Our credit is in fact

　　That was a monumentally stupid decision.

　　The first is sale to a competitor who is salivating at the possibility of wringing “synergies” from the

　　Fixed assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13,806 Non-controlling interests . . . . . . . . . . . . . . . . 492

　　keep doing so for 50 years, was a lollapalooza. Buffett succeeded for the same reason Roger Federer became good

　　‹ I would be remiss if I didn’t salute another key constituency that makes Berkshire special: our shareholders.

　　float an insurer holds usually remains fairly stable in relation to premium volume. Consequently, as our business

　　and Monday, May 4th inclusive, and also present your meeting credential. The period’s special pricing will even

　　number outstanding by 6.1%. In other words, the $12 billion gain in annual earnings delivered Berkshire by

　　At bottom, a sound insurance operation needs to adhere to four disciplines. It must (1) understand all

　　other partners. Our participation in any joint activities, whether as a financing or equity partner, will be

　　Larry and his dad, Cecil, spent 62 years building the group, following a strategy that made owner-partners

　　and recruiting and holding outstanding people.

　　Jonathan Brandt of Ruane, Cunniff & Goldfarb and Gregg Warren of Morningstar. Our hope is that the analysts and

　　shareholder prices will be available from Monday, April 27th through Saturday, May 9th. During that period, please

　　our insurance companies and that increases book value. In very large part, this goodwill represents the price we paid

　　the same job guzzle about four times as much fuel.

　　billion. We are likely to purchase the shares just before expiration of our option. In the meantime, it is important for

　　elsewhere.

　　• BNSF carries about 15% (measured by ton-miles) of all inter-city freight, whether it is transported by

　　***Held under contract of sale for this amount.

　　A CEO who is 64 and plans to retire at 65 may have his own special calculus in evaluating risks that have

　　Undeterred by my first mistake of committing much of BPL’s resources to a dying business, I quickly

　　Fortunately, the structure our future CEOs will need to be successful is firmly in place. The extraordinary

　　By April 1965, BPL owned 392,633 shares (out of 1,017,547 then outstanding) and at an early-May board

　　An attachment to the proxy material that is enclosed with this report explains how you can obtain the

　　will direct investment to promising businesses and deny it to those destined to wither. That is true: With all its

　　‹ Despite our conservatism, I think we will be able every year to build the underlying per-share earning

　　a net gain of one.

　　– voted “no” on the dividend question by a margin of 89 to 1.

　　The commission of the investment sins listed above is not limited to “the little guy.” Huge institutional

　　(7) New subsidiaries would usually be bought with cash, not newly issued stock.

　　is reproduced on pages 130-142.)

　　Recently, however, newly-written derivative contracts have required full collateralization. And that ended

　　insurance industry, despite the float income all its companies enjoy, will continue its dismal record of earning

　　meeting, asking Charlie and me questions that shareholders have submitted to them by e-mail. The journalists and

　　Combs and Ted Weschler, each of whom has spent several years on Berkshire’s investment team, are firstrate

　　system.

　　happen anytime in markets. And no advisor, economist, or TV commentator – and definitely not Charlie nor I – can

　　Only four large factors occur to me:

　　We will always be prepared for the thousand-year flood; in fact, if it occurs we will be selling life jackets

　　expresses our feeling about new ventures, turnarounds, or auction-like sales: “When the phone don’t ring, you’ll know it’s me.”

　　discarded butts.

　　Sometimes, the promise will not be tested for decades. (Think of life insurance bought by people in their

　　world for decades to come.

　　investment managers, to each have oversight of at least one of our businesses. A sensible opportunity for

　　16

　　Berkshire’s per-share book value. We’ve done that because book value has been a crude, but useful, tracking device

　　both our Class A and Class B stock by 8.3%. Over the last 50 years (that is, since present management took over),

　　Then, as the Berkshire system bestowed much-desired autonomy on many subsidiaries and their CEOs, and

　　particularly if these acrobatics produce mergers that generate huge fees for investment bankers. Auditors willingly

　　We get terrific help at meeting time from literally thousands of Omaha residents and businesses who

　　Our confidence is justified both by our past experience and by the knowledge that society will forever

　　Though the preachers of pessimism prattle endlessly about America’s problems, I’ve never seen one who wishes to

　　BHSI is led by Peter Eastwood, an experienced underwriter who is widely respected in the insurance

　　acquisition-hungry manager will challenge that assertion?)

　　Meanwhile, our underwriting profit totaled $24 billion during the twelve-year period, including $2.7 billion

　　satisfactory holding for investors. But it could well be a disastrous choice for speculators employing

　　Concurrently, the purchasing power of the dollar declined a staggering 87%. That decrease means that it now takes

　　interesting and important. The journalists have told me your question has the best chance of being selected if you

　　figure we show for goodwill. Overall, however, we are getting a decent return on the capital we have deployed in

　　Charlie’s input, so why should I listen to a lawyer who had never spent a day in business school (when – ahem – I

　　amateurs and professionals alike – border on lunacy.

　　wonderful company to owning 100% of a so-so business. It’s better to have a partial interest in the Hope

　　business would get prompt attention. No one but the Chairman and one or two others at Berkshire would

　　of telling Americans how GEICO can save them important money. The gecko, I should add, has one particularly

　　500 were they independent (Heinz is the 1⁄2). That leaves 4901⁄2 fish in the sea. Our lines are out.

　　by all the other big shareholders. He could install whatever system he wanted. And he did so, creating the Berkshire

　　If our premiums exceed the total of our expenses and eventual losses, we register an underwriting profit

　　The remarkable vote was that of our B shareholders. They number in the hundreds of thousands – perhaps

　　We sold Tesco shares throughout the year and are now out of the position. (The company, we should

　　had 48 years to think about that question, and I’ve yet to come up with a good answer. I simply made a colossal

　　Cash and equivalents . . . . . . . . . . . . . . . . . . . . . . $ 5,765 Notes payable . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 965

　　a record $40,481,817 of business. (An average week for NFM’s Omaha store is about $9 million.)

　　Berkshire is not a giant company but rather a collection of large companies. At headquarters, we have

　　BHE can make these investments because it retains all of its earnings. In fact, last year the company

　　management of businesses. I therefore think it’s worthwhile for Todd Combs and Ted Weschler, our two

　　now with the reasoned expectation of receiving more purchasing power – after taxes have been paid on nominal

　　and that’s paying off.