ENGLISH
BERKSHIRE HATHAWAY INC.
To the Shareholders of Berkshire Hathaway Inc.:
Our gain in net worth during 1991 was $2.1 billion, or
39.6%. Over the last 27 years (that is, since present management
took over) our per-share book value has grown from $19 to $6,437,
or at a rate of 23.7% compounded annually.
The size of our equity capital - which now totals $7.4
billion - makes it certain that we cannot maintain our past rate
of gain or, for that matter, come close to doing so. As Berkshire
grows, the universe of opportunities that can significantly
influence the company's performance constantly shrinks. When we
were working with capital of $20 million, an idea or business
producing $1 million of profit added five percentage points to
our return for the year. Now we need a $370 million idea (i.e.,
one contributing over $550 million of pre-tax profit) to achieve
the same result. And there are many more ways to make $1 million
than to make $370 million.
Charlie Munger, Berkshire's Vice Chairman, and I have set a
goal of attaining a 15% average annual increase in Berkshire's
intrinsic value. If our growth in book value is to keep up with a
15% pace, we must earn $22 billion during the next decade. Wish
us luck - we'll need it.
Our outsized gain in book value in 1991 resulted from a
phenomenon not apt to be repeated: a dramatic rise in the price-
earnings ratios of Coca-Cola and Gillette. These two stocks
accounted for nearly $1.6 billion of our $2.1 billion growth in
net worth last year. When we loaded up on Coke three years ago,
Berkshire's net worth was $3.4 billion; now our Coke stock alone
is worth more than that.
Coca-Cola and Gillette are two of the best companies in the
world and we expect their earnings to grow at hefty rates in the
years ahead. Over time, also, the value of our holdings in these
stocks should grow in rough proportion. Last year, however, the
valuations of these two companies rose far faster than their
earnings. In effect, we got a double-dip benefit, delivered
partly by the excellent earnings growth and even more so by the
market's reappraisal of these stocks. We believe this reappraisal
was warranted. But it can't recur annually: We'll have to settle
for a single dip in the future.
A Second Job
In 1989 when I - a happy consumer of five cans of Cherry
Coke daily - announced our purchase of $1 billion worth of Coca-
Cola stock, I described the move as a rather extreme example of
putting our money where my mouth was. On August 18 of last year,
when I was elected Interim Chairman of Salomon Inc, it was a
different story: I put my mouth where our money was.
You've all read of the events that led to my appointment. My
decision to take the job carried with it an implicit but
important message: Berkshire's operating managers are so
outstanding that I knew I could materially reduce the time I was
spending at the company and yet remain confident that its
economic progress would not skip a beat. The Blumkins, the
Friedman family, Mike Goldberg, the Heldmans, Chuck Huggins, Stan
Lipsey, Ralph Schey and Frank Rooney (CEO of H.H. Brown, our
latest acquisition, which I will describe later) are all masters
of their operations and need no help from me. My job is merely to
treat them right and to allocate the capital they generate.
Neither function is impeded by my work at Salomon.
The role that Charlie and I play in the success of our
operating units can be illustrated by a story about George Mira,
the one-time quarterback of the University of Miami, and his
coach, Andy Gustafson. Playing Florida and near its goal line,
Mira dropped back to pass. He spotted an open receiver but found
his right shoulder in the unshakable grasp of a Florida
linebacker. The right-handed Mira thereupon switched the ball to
his other hand and threw the only left-handed pass of his life -
for a touchdown. As the crowd erupted, Gustafson calmly turned to
a reporter and declared: "Now that's what I call coaching."
Given the managerial stars we have at our operating units,
Berkshire's performance is not affected if Charlie or I slip away
from time to time. You should note, however, the "interim" in my
Salomon title. Berkshire is my first love and one that will never
fade: At the Harvard Business School last year, a student asked
me when I planned to retire and I replied, "About five to ten
years after I die."
Sources of Reported Earnings
The table below shows the major sources of Berkshire's
reported earnings. In this presentation, amortization of Goodwill
and other major purchase-price accounting adjustments are not
charged against the specific businesses to which they apply, but
are instead aggregated and shown separately. This procedure lets
you view the earnings of our businesses as they would have been
reported had we not purchased them. I've explained in past
reports why this form of presentation seems to us to be more
useful to investors and managers than one utilizing generally
accepted accounting principles (GAAP), which require purchase-
price adjustments to be made on a business-by-business basis. The
total net earnings we show in the table are, of course, identical
to the GAAP total in our audited financial statements.
A large amount of additional information about these
businesses is given on pages 33-47, where you also will find
our segment earnings reported on a GAAP basis. However, we will
not in this letter discuss each of our non-insurance operations,
as we have in the past. Our businesses have grown in number - and
will continue to grow - so it now makes sense to rotate coverage,
discussing one or two in detail each year.
(000s omitted)
----------------------------------------------
Berkshire's Share
of Net Earnings
(after taxes and
Pre-Tax Earnings minority interests)
---------------------- ----------------------
1991 1990 1991 1990
---------- ---------- ---------- ----------
Operating Earnings:
Insurance Group:
Underwriting ............ $(119,593) $ (26,647) $ (77,229) $ (14,936)
Net Investment Income ... 331,846 327,047 285,173 282,613
H. H. Brown (acquired 7/1/91) 13,616 --- 8,611 ---
Buffalo News .............. 37,113 43,954 21,841 25,981
Fechheimer ................ 12,947 12,450 6,843 6,605
Kirby ..................... 35,726 27,445 22,555 17,613
Nebraska Furniture Mart ... 14,384 17,248 6,993 8,485
Scott Fetzer
Manufacturing Group .... 26,123 30,378 15,901 18,458
See's Candies ............. 42,390 39,580 25,575 23,892
Wesco - other than Insurance 12,230 12,441 8,777 9,676
World Book ................ 22,483 31,896 15,487 20,420
Amortization of Goodwill .. (4,113) (3,476) (4,098) (3,461)
Other Purchase-Price
Accounting Charges ..... (6,021) (5,951) (7,019) (6,856)
Interest Expense* ......... (89,250) (76,374) (57,165) (49,726)
Shareholder-Designated
Contributions .......... (6,772) (5,824) (4,388) (3,801)
Other ..................... 77,399 58,310 47,896 35,782
---------- ---------- ---------- ----------
Operating Earnings 400,508 482,477 315,753 370,745
Sales of Securities 192,478 33,989 124,155 23,348
Total Earnings - All Entities $ 592,986 $ 516,466 $ 439,908 $ 394,093
*Excludes interest expense of Scott Fetzer Financial Group and
Mutual Savings & Loan.
"Look-Through" Earnings
We've previously discussed look-through earnings, which
consist of: (1) the operating earnings reported in the previous
section, plus; (2) the retained operating earnings of major
investees that, under GAAP accounting, are not reflected in our
profits, less; (3) an allowance for the tax that would be paid by
Berkshire if these retained earnings of investees had instead been
distributed to us.
I've told you that over time look-through earnings must
increase at about 15% annually if our intrinsic business value is
to grow at that rate. Indeed, since present management took over in
1965, our look-through earnings have grown at almost the identical
23% rate of gain recorded for book value.
Last year, however, our look-through earnings did not grow at
all but rather declined by 14%. To an extent, the decline was
precipitated by two forces that I discussed in last year's report
and that I warned you would have a negative effect on look-through
earnings.
First, I told you that our media earnings - both direct and
look-through - were "sure to decline" and they in fact did. The
second force came into play on April 1, when the call of our
Gillette preferred stock required us to convert it into common. The
after-tax earnings in 1990 from our preferred had been about $45
million, an amount somewhat higher than the combination in 1991 of
three months of dividends on our preferred plus nine months of
look-through earnings on the common.
Two other outcomes that I did not foresee also hurt look-
through earnings in 1991. First, we had a break-even result from
our interest in Wells Fargo (dividends we received from the company
were offset by negative retained earnings). Last year I said that
such a result at Wells was "a low-level possibility - not a
likelihood." Second, we recorded significantly lower - though still
excellent - insurance profits.
The following table shows you how we calculate look-through
earnings, although I warn you that the figures are necessarily very
rough. (The dividends paid to us by these investees have been
included in the operating earnings itemized on page 6, mostly
under "Insurance Group: Net Investment Income.")
Berkshire's Share
of Undistributed
Berkshire's Approximate Operating Earnings
Berkshire's Major Investees Ownership at Yearend (in millions)
--------------------------- ----------------------- ------------------
1991 1990 1991 1990
------ ------ -------- --------
Capital Cities/ABC Inc. ........ 18.1% 17.9% $ 61 $ 85
The Coca-Cola Company .......... 7.0% 7.0% 69 58
Federal Home Loan Mortgage Corp. 3.4%(1) 3.2%(1) 15 10
The Gillette Company ........... 11.0% --- 23(2) ---
GEICO Corp. .................... 48.2% 46.1% 69 76
The Washington Post Company .... 14.6% 14.6% 10 18
Wells Fargo & Company .......... 9.6% 9.7% (17) 19(3)
-------- --------
Berkshire's share of
undistributed earnings of major investees $230 $266
Hypothetical tax on these undistributed investee earnings (30) (35)
Reported operating earnings of Berkshire 316 371
-------- --------
Total look-through earnings of Berkshire $516 $602
======== ========
(1) Net of minority interest at Wesco
(2) For the nine months after Berkshire converted its
preferred on April 1
(3) Calculated on average ownership for the year
* * * * * * * * * * * *
We also believe that investors can benefit by focusing on
their own look-through earnings. To calculate these, they should
determine the underlying earnings attributable to the shares they
hold in their portfolio and total these. The goal of each investor
should be to create a portfolio (in effect, a "company") that will
deliver him or her the highest possible look-through earnings a
decade or so from now.
An approach of this kind will force the investor to think
about long-term business prospects rather than short-term stock
market prospects, a perspective likely to improve results. It's
true, of course, that, in the long run, the scoreboard for
investment decisions is market price. But prices will be determined
by future earnings. In investing, just as in baseball, to put runs
on the scoreboard one must watch the playing field, not the
scoreboard.
A Change in Media Economics and Some Valuation Math
In last year's report, I stated my opinion that the decline in
the profitability of media companies reflected secular as well as
cyclical factors. The events of 1991 have fortified that case: The
economic strength of once-mighty media enterprises continues to
erode as retailing patterns change and advertising and
entertainment choices proliferate. In the business world,
unfortunately, the rear-view mirror is always clearer than the
windshield: A few years back no one linked to the media business -
neither lenders, owners nor financial analysts - saw the economic
deterioration that was in store for the industry. (But give me a
few years and I'll probably convince myself that I did.)
The fact is that newspaper, television, and magazine
properties have begun to resemble businesses more than franchises
in their economic behavior. Let's take a quick look at the
characteristics separating these two classes of enterprise, keeping
in mind, however, that many operations fall in some middle ground
and can best be described as weak franchises or strong businesses.
An economic franchise arises from a product or service that:
(1) is needed or desired; (2) is thought by its customers to have
no close substitute and; (3) is not subject to price regulation.
The existence of all three conditions will be demonstrated by a
company's ability to regularly price its product or service
aggressively and thereby to earn high rates of return on capital.
Moreover, franchises can tolerate mis-management. Inept managers
may diminish a franchise's profitability, but they cannot inflict
mortal damage.
In contrast, "a business" earns exceptional profits only if it
is the low-cost operator or if supply of its product or service is
tight. Tightness in supply usually does not last long. With
superior management, a company may maintain its status as a low-
cost operator for a much longer time, but even then unceasingly
faces the possibility of competitive attack. And a business, unlike
a franchise, can be killed by poor management.
Until recently, media properties possessed the three
characteristics of a franchise and consequently could both price
aggressively and be managed loosely. Now, however, consumers
looking for information and entertainment (their primary interest
being the latter) enjoy greatly broadened choices as to where to
find them. Unfortunately, demand can't expand in response to this
new supply: 500 million American eyeballs and a 24-hour day are all
that's available. The result is that competition has intensified,
markets have fragmented, and the media industry has lost some -
though far from all - of its franchise strength.
* * * * * * * * * * * *
The industry's weakened franchise has an impact on its value
that goes far beyond the immediate effect on earnings. For an
understanding of this phenomenon, let's look at some much over-
simplified, but relevant, math.
A few years ago the conventional wisdom held that a newspaper,
television or magazine property would forever increase its earnings
at 6% or so annually and would do so without the employment of
additional capital, for the reason that depreciation charges would
roughly match capital expenditures and working capital requirements
would be minor. Therefore, reported earnings (before amortization
of intangibles) were also freely-distributable earnings, which
meant that ownership of a media property could be construed as akin
to owning a perpetual annuity set to grow at 6% a year. Say, next,
that a discount rate of 10% was used to determine the present value
of that earnings stream. One could then calculate that it was
appropriate to pay a whopping $25 million for a property with
current after-tax earnings of $1 million. (This after-tax multiplier
of 25 translates to a multiplier on pre-tax earnings of about 16.)
Now change the assumption and posit that the $1 million
represents "normal earning power" and that earnings will bob around
this figure cyclically. A "bob-around" pattern is indeed the lot of
most businesses, whose income stream grows only if their owners are
willing to commit more capital (usually in the form of retained
earnings). Under our revised assumption, $1 million of earnings,
discounted by the same 10%, translates to a $10 million valuation.
Thus a seemingly modest shift in assumptions reduces the property's
valuation to 10 times after-tax earnings (or about 6 1/2 times
pre-tax earnings).
Dollars are dollars whether they are derived from the
operation of media properties or of steel mills. What in the past
caused buyers to value a dollar of earnings from media far higher
than a dollar from steel was that the earnings of a media property
were expected to constantly grow (without the business requiring
much additional capital), whereas steel earnings clearly fell in
the bob-around category. Now, however, expectations for media have
moved toward the bob-around model. And, as our simplified example
illustrates, valuations must change dramatically when expectations
are revised.
We have a significant investment in media - both through our
direct ownership of Buffalo News and our shareholdings in The
Washington Post Company and Capital Cities/ABC - and the intrinsic
value of this investment has declined materially because of the
secular transformation that the industry is experiencing. (Cyclical
factors have also hurt our current look-through earnings, but these
factors do not reduce intrinsic value.) However, as our Business
Principles on page 2-3 note, one of the rules by which we run
Berkshire is that we do not sell businesses - or investee holdings
that we have classified as permanent - simply because we see ways
to use the money more advantageously elsewhere. (We did sell
certain other media holdings sometime back, but these were
relatively small.)
The intrinsic value losses that we have suffered have been
moderated because the Buffalo News, under Stan Lipsey's leadership,
has done far better than most newspapers and because both Cap
Cities and Washington Post are exceptionally well-managed. In
particular, these companies stayed on the sidelines during the late
1980's period in which purchasers of media properties regularly
paid irrational prices. Also, the debt of both Cap Cities and
Washington Post is small and roughly offset by cash that they hold.
As a result, the shrinkage in the value of their assets has not
been accentuated by the effects of leverage. Among publicly-owned
media companies, our two investees are about the only ones
essentially free of debt. Most of the other companies, through a
combination of the aggressive acquisition policies they pursued and
shrinking earnings, find themselves with debt equal to five or more
times their current net income.
The strong balance sheets and strong managements of Cap Cities
and Washington Post leave us more comfortable with these
investments than we would be with holdings in any other media
companies. Moreover, most media properties continue to have far
better economic characteristics than those possessed by the average
American business. But gone are the days of bullet-proof franchises
and cornucopian economics.
Twenty Years in a Candy Store
We've just passed a milestone: Twenty years ago, on January 3,
1972, Blue Chip Stamps (then an affiliate of Berkshire and later
merged into it) bought control of See's Candy Shops, a West Coast
manufacturer and retailer of boxed-chocolates. The nominal price
that the sellers were asking - calculated on the 100% ownership we
ultimately attained - was $40 million. But the company had $10
million of excess cash, and therefore the true offering price was
$30 million. Charlie and I, not yet fully appreciative of the value
of an economic franchise, looked at the company's mere $7 million
of tangible net worth and said $25 million was as high as we would
go (and we meant it). Fortunately, the sellers accepted our offer.
The sales of trading stamps by Blue Chip thereafter declined
from $102.5 million in 1972 to $1.2 million in 1991. But See's
candy sales in the same period increased from $29 million to $196
million. Moreover, profits at See's grew even faster than sales,
from $4.2 million pre-tax in 1972 to $42.4 million last year.
For an increase in profits to be evaluated properly, it must
be compared with the incremental capital investment required to
produce it. On this score, See's has been astounding: The company
now operates comfortably with only $25 million of net worth, which
means that our beginning base of $7 million has had to be
supplemented by only $18 million of reinvested earnings. Meanwhile,
See's remaining pre-tax profits of $410 million were distributed to
Blue Chip/Berkshire during the 20 years for these companies to
deploy (after payment of taxes) in whatever way made most sense.
In our See's purchase, Charlie and I had one important
insight: We saw that the business had untapped pricing power.
Otherwise, we were lucky twice over. First, the transaction was not
derailed by our dumb insistence on a $25 million price. Second, we
found Chuck Huggins, then See's executive vice-president, whom we
instantly put in charge. Both our business and personal experiences
with Chuck have been outstanding. One example: When the purchase
was made, we shook hands with Chuck on a compensation arrangement -
conceived in about five minutes and never reduced to a written
contract - that remains unchanged to this day.
In 1991, See's sales volume, measured in dollars, matched that
of 1990. In pounds, however, volume was down 4%. All of that
slippage took place in the last two months of the year, a period
that normally produces more than 80% of annual profits. Despite the
weakness in sales, profits last year grew 7%, and our pre-tax
profit margin was a record 21.6%.
Almost 80% of See's sales come from California and our
business clearly was hurt by the recession, which hit the state
with particular force late in the year. Another negative, however,
was the mid-year initiation in California of a sales tax of 7%-8«%
(depending on the county involved) on "snack food" that was deemed
applicable to our candy.
Shareholders who are students of epistemological shadings will
enjoy California's classifications of "snack" and "non-snack"
foods:
Taxable "Snack" Foods Non-Taxable "Non-Snack" Foods
--------------------- -----------------------------
Ritz Crackers Soda Crackers
Popped Popcorn Unpopped Popcorn
Granola Bars Granola Cereal
Slice of Pie (Wrapped) Whole Pie
Milky Way Candy Bar Milky Way Ice Cream Bar
What - you are sure to ask - is the tax status of a melted
Milky Way ice cream bar? In that androgynous form, does it more
resemble an ice cream bar or a candy bar that has been left in the
sun? It's no wonder that Brad Sherman, Chairman of California's
State Board of Equalization, who opposed the snack food bill but
must now administer it, has said: "I came to this job as a
specialist in tax law. Now I find my constituents should have
elected Julia Child."
Charlie and I have many reasons to be thankful for our
association with Chuck and See's. The obvious ones are that we've
earned exceptional returns and had a good time in the process.
Equally important, ownership of See's has taught us much about the
evaluation of franchises. We've made significant money in certain
common stocks because of the lessons we learned at See's.
H. H. Brown
We made a sizable acquisition in 1991 - the H. H. Brown
Company - and behind this business is an interesting history. In
1927 a 29-year-old businessman named Ray Heffernan purchased the
company, then located in North Brookfield, Massachusetts, for
$10,000 and began a 62-year career of running it. (He also found
time for other pursuits: At age 90 he was still joining new golf
clubs.) By Mr. Heffernan's retirement in early 1990 H. H. Brown had
three plants in the United States and one in Canada; employed close
to 2,000 people; and earned about $25 million annually before
taxes.
Along the way, Frances Heffernan, one of Ray's daughters,
married Frank Rooney, who was sternly advised by Mr. Heffernan
before the wedding that he had better forget any ideas he might
have about working for his father-in-law. That was one of Mr.
Heffernan's few mistakes: Frank went on to become CEO of Melville
Shoe (now Melville Corp.). During his 23 years as boss, from 1964
through 1986, Melville's earnings averaged more than 20% on equity
and its stock (adjusted for splits) rose from $16 to $960. And a
few years after Frank retired, Mr. Heffernan, who had fallen ill,
asked him to run Brown.
After Mr. Heffernan died late in 1990, his family decided to
sell the company - and here we got lucky. I had known Frank for a
few years but not well enough for him to think of Berkshire as a
possible buyer. He instead gave the assignment of selling Brown to
a major investment banker, which failed also to think of us. But
last spring Frank was playing golf in Florida with John Loomis, a
long-time friend of mine as well as a Berkshire shareholder, who is
always on the alert for something that might fit us. Hearing about
the impending sale of Brown, John told Frank that the company
should be right up Berkshire's alley, and Frank promptly gave me a
call. I thought right away that we would make a deal and before
long it was done.
Much of my enthusiasm for this purchase came from Frank's
willingness to continue as CEO. Like most of our managers, he has
no financial need to work but does so because he loves the game and
likes to excel. Managers of this stripe cannot be "hired" in the
normal sense of the word. What we must do is provide a concert hall
in which business artists of this class will wish to perform.
Brown (which, by the way, has no connection to Brown Shoe of
St. Louis) is the leading North American manufacturer of work shoes
and boots, and it has a history of earning unusually fine margins
on sales and assets. Shoes are a tough business - of the billion
pairs purchased in the United States each year, about 85% are
imported - and most manufacturers in the industry do poorly. The
wide range of styles and sizes that producers offer causes
inventories to be heavy; substantial capital is also tied up in
receivables. In this kind of environment, only outstanding managers
like Frank and the group developed by Mr. Heffernan can prosper.
A distinguishing characteristic of H. H. Brown is one of the
most unusual compensation systems I've encountered - but one that
warms my heart: A number of key managers are paid an annual salary
of $7,800, to which is added a designated percentage of the profits
of the company after these are reduced by a charge for capital
employed. These managers therefore truly stand in the shoes of
owners. In contrast, most managers talk the talk but don't walk the
walk, choosing instead to employ compensation systems that are long
on carrots but short on sticks (and that almost invariably treat
equity capital as if it were cost-free). The arrangement at Brown,
in any case, has served both the company and its managers
exceptionally well, which should be no surprise: Managers eager to
bet heavily on their abilities usually have plenty of ability to
bet on.
* * * * * * * * * * * *
It's discouraging to note that though we have on four
occasions made major purchases of companies whose sellers were
represented by prominent investment banks, we were in only one of
these instances contacted by the investment bank. In the other
three cases, I myself or a friend initiated the transaction at some
point after the investment bank had solicited its own list of
prospects. We would love to see an intermediary earn its fee by
thinking of us - and therefore repeat here what we're looking for:
(1) Large purchases (at least $10 million of after-tax
earnings),
(2) Demonstrated consistent earning power (future projections
are of little interest to us, nor are "turnaround"
situations),
(3) Businesses earning good returns on equity while employing
little or no debt,
(4) Management in place (we can't supply it),
(5) Simple businesses (if there's lots of technology, we
won't understand it),
(6) An offering price (we don't want to waste our time or
that of the seller by talking, even preliminarily,
about a transaction when price is unknown).
We will not engage in unfriendly takeovers. We can promise
complete confidentiality and a very fast answer - customarily
within five minutes - as to whether we're interested. (With Brown,
we didn't even need to take five.) We prefer to buy for cash, but
will consider issuing stock when we receive as much in intrinsic
business value as we give.
Our favorite form of purchase is one fitting the pattern
through which we acquired Nebraska Furniture Mart, Fechheimer's and
Borsheim's. In cases like these, the company's owner-managers wish
to generate significant amounts of cash, sometimes for themselves,
but often for their families or inactive shareholders. At the same
time, these managers wish to remain significant owners who continue
to run their companies just as they have in the past. We think we
offer a particularly good fit for owners with such objectives and
we invite potential sellers to check us out by contacting people
with whom we have done business in the past.
Charlie and I frequently get approached about acquisitions
that don't come close to meeting our tests: We've found that if
you 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 expresses our feeling about new ventures, turnarounds,
or auction-like sales: "When the phone don't ring, you'll know it's
me."
Besides being interested in the purchase of businesses as
described above, we are also interested in the negotiated purchase
of large, but not controlling, blocks of stock comparable to those
we hold in Capital Cities, Salomon, Gillette, USAir, Champion, and
American Express. We are not interested, however, in receiving
suggestions about purchases we might make in the general stock
market.
Insurance Operations
Shown below is an updated version of our usual table
presenting key figures for the property-casualty insurance
industry:
Yearly Change Combined Ratio Yearly Change Inflation Rate
in Premiums After Policyholder in Incurred Measured by
Written (%) Dividends Losses (%) GDP Deflator (%)
------------- ------------------ ------------- ----------------
1981 ..... 3.8 106.0 6.5 10.0
1982 ..... 3.7 109.6 8.4 6.2
1983 ..... 5.0 112.0 6.8 4.0
1984 ..... 8.5 118.0 16.9 4.5
1985 ..... 22.1 116.3 16.1 3.7
1986 ..... 22.2 108.0 13.5 2.7
1987 ..... 9.4 104.6 7.8 3.1
1988 ..... 4.4 105.4 5.5 3.9
1989 ..... 3.2 109.2 7.7 4.4
1990 (Revised) 4.4 109.6 4.8 4.1
1991 (Est.) 3.1 109.1 2.9 3.7
The combined ratio represents total insurance costs (losses
incurred plus expenses) compared to revenue from premiums: A
ratio below 100 indicates an underwriting profit, and one above
100 indicates a loss. The higher the ratio, the worse the year.
When the investment income that an insurer earns from holding
policyholders' funds ("the float") is taken into account, a
combined ratio in the 107 - 111 range typically produces an
overall break-even result, exclusive of earnings on the funds
provided by shareholders.
For the reasons laid out in previous reports, we expect the
industry's incurred losses to grow at close to 10% annually, even
in periods when general inflation runs considerably lower. (Over
the last 25 years, incurred losses have in reality grown at a
still faster rate, 11%.) If premium growth meanwhile materially
lags that 10% rate, underwriting losses will mount.
However, the industry's tendency to under-reserve when
business turns bad may obscure the picture for a time - and that
could well describe the situation last year. Though premiums did
not come close to growing 10%, the combined ratio failed to
deteriorate as I had expected but instead slightly improved.
Loss-reserve data for the industry indicate that there is reason
to be skeptical of that outcome, and it may turn out that 1991's
ratio should have been worse than was reported. In the long run,
of course, trouble awaits managements that paper over operating
problems with accounting maneuvers. Eventually, managements of
this kind achieve the same result as the seriously-ill patient
who tells his doctor: "I can't afford the operation, but would
you accept a small payment to touch up the x-rays?"
Berkshire's insurance business has changed in ways that make
combined ratios, our own or the industry's, largely irrelevant
to our performance. What counts with us is the "cost of funds
developed from insurance," or in the vernacular, "the cost of
float."
Float - which we generate in exceptional amounts - is the
total of loss reserves, loss adjustment expense reserves and
unearned premium reserves minus agents balances, prepaid
acquisition costs and deferred charges applicable to assumed
reinsurance. And the cost of float is measured by our
underwriting loss.
The table below shows our cost of float since we entered the
business in 1967.
(1) (2) Yearend Yield
Underwriting Approximate on Long-Term
Loss Average Float Cost of Funds Govt. Bonds
------------ ------------- --------------- -------------
(In $ Millions) (Ratio of 1 to 2)
1967 ........ profit $17.3 less than zero 5.50%
1968 ........ profit 19.9 less than zero 5.90%
1969 ........ profit 23.4 less than zero 6.79%
1970 ........ $0.37 32.4 1.14% 6.25%
1971 ........ profit 52.5 less than zero 5.81%
1972 ........ profit 69.5 less than zero 5.82%
1973 ........ profit 73.3 less than zero 7.27%
1974 ........ 7.36 79.1 9.30% 8.13%
1975 ........ 11.35 87.6 12.96% 8.03%
1976 ........ profit 102.6 less than zero 7.30%
1977 ........ profit 139.0 less than zero 7.97%
1978 ........ profit 190.4 less than zero 8.93%
1979 ........ profit 227.3 less than zero 10.08%
1980 ........ profit 237.0 less than zero 11.94%
1981 ........ profit 228.4 less than zero 13.61%
1982 ........ 21.56 220.6 9.77% 10.64%
1983 ........ 33.87 231.3 14.64% 11.84%
1984 ........ 48.06 253.2 18.98% 11.58%
1985 ........ 44.23 390.2 11.34% 9.34%
1986 ........ 55.84 797.5 7.00% 7.60%
1987 ........ 55.43 1,266.7 4.38% 8.95%
1988 ........ 11.08 1,497.7 0.74% 9.00%
1989 ........ 24.40 1,541.3 1.58% 7.97%
1990 ........ 26.65 1,637.3 1.63% 8.24%
1991 ........ 119.6 1,895.0 6.31% 7.40%
As you can see, our cost of funds in 1991 was well below the
U. S. Government's cost on newly-issued long-term bonds. We have in
fact beat the government's rate in 20 of the 25 years we have been
in the insurance business, often by a wide margin. We have over
that time also substantially increased the amount of funds we hold,
which counts as a favorable development but only because the cost
of funds has been satisfactory. Our float should continue to grow;
the challenge will be to garner these funds at a reasonable cost.
Berkshire continues to be a very large writer - perhaps the
largest in the world - of "super-cat" insurance, which is coverage
that other insurance companies buy to protect themselves against
major catastrophic losses. Profits in this business are enormously
volatile. As I mentioned last year, $100 million in super-cat
premiums, which is roughly our annual expectation, could deliver us
anything from a $100 million profit (in a year with no big
catastrophe) to a $200 million loss (in a year in which a couple of
major hurricanes and/or earthquakes come along).
We price this business expecting to pay out, over the long
term, about 90% of the premiums we receive. In any given year,
however, we are likely to appear either enormously profitable or
enormously unprofitable. That is true in part because GAAP
accounting does not allow us to set up reserves in the catastrophe-
free years for losses that are certain to be experienced in other
years. In effect, a one-year accounting cycle is ill-suited to the
nature of this business - and that is a reality you should be aware
of when you assess our annual results.
Last year there appears to have been, by our definition, one
super-cat, but it will trigger payments from only about 25% of our
policies. Therefore, we currently estimate the 1991 underwriting
profit from our catastrophe business to have been about $11
million. (You may be surprised to learn the identity of the biggest
catastrophe in 1991: It was neither the Oakland fire nor Hurricane
Bob, but rather a September typhoon in Japan that caused the
industry an insured loss now estimated at about $4-$5 billion. At
the higher figure, the loss from the typhoon would surpass that
from Hurricane Hugo, the previous record-holder.)
Insurers will always need huge amounts of reinsurance
protection for marine and aviation disasters as well as for natural
catastrophes. In the 1980's much of this reinsurance was supplied
by "innocents" - that is, by insurers that did not understand the
risks of the business - but they have now been financially burned
beyond recognition. (Berkshire itself was an innocent all too often
when I was personally running the insurance operation.) Insurers,
though, like investors, eventually repeat their mistakes. At some
point - probably after a few catastrophe-scarce years - innocents
will reappear and prices for super-cat policies will plunge to
silly levels.
As long as apparently-adequate rates prevail, however, we will
be a major participant in super-cat coverages. In marketing this
product, we enjoy a significant competitive advantage because of
our premier financial strength. Thinking insurers know that when
"the big one" comes, many reinsurers who found it easy to write
policies will find it difficult to write checks. (Some reinsurers
can say what Jackie Mason does: "I'm fixed for life - as long as I
don't buy anything.") Berkshire's ability to fulfill all its
commitments under conditions of even extreme adversity is
unquestioned.
Overall, insurance offers Berkshire its greatest
opportunities. Mike Goldberg has accomplished wonders with this
operation since he took charge and it has become a very valuable
asset, albeit one that can't be appraised with any precision.
Marketable Common Stocks
On the next page we list our common stock holdings having a
value of over $100 million. A small portion of these investments
belongs to subsidiaries of which Berkshire owns less than 100%.
12/31/91
Shares Company Cost Market
------ ------- ---------- ----------
(000s omitted)
3,000,000 Capital Cities/ABC, Inc. ............ $ 517,500 $1,300,500
46,700,000 The Coca-Cola Company. .............. 1,023,920 3,747,675
2,495,200 Federal Home Loan Mortgage Corp. .... 77,245 343,090
6,850,000 GEICO Corp. ......................... 45,713 1,363,150
24,000,000 The Gillette Company ................ 600,000 1,347,000
31,247,000 Guinness PLC ........................ 264,782 296,755
1,727,765 The Washington Post Company ......... 9,731 336,050
5,000,000 Wells Fargo & Company 289,431 290,000
As usual the list reflects our Rip Van Winkle approach to
investing. Guinness is a new position. But we held the other seven
stocks a year ago (making allowance for the conversion of our
Gillette position from preferred to common) and in six of those we
hold an unchanged number of shares. The exception is Federal Home
Loan Mortgage ("Freddie Mac"), in which our shareholdings increased
slightly. Our stay-put behavior reflects our view that the stock
market serves as a relocation center at which money is moved from
the active to the patient. (With tongue only partly in check, I
suggest that recent events indicate that the much-maligned "idle
rich" have received a bad rap: They have maintained or increased
their wealth while many of the "energetic rich" - aggressive real
estate operators, corporate acquirers, oil drillers, etc. - have
seen their fortunes disappear.)
Our Guinness holding represents Berkshire's first significant
investment in a company domiciled outside the United States.
Guinness, however, earns its money in much the same fashion as
Coca-Cola and Gillette, U.S.-based companies that garner most of
their profits from international operations. Indeed, in the sense
of where they earn their profits - continent-by-continent - Coca-
Cola and Guinness display strong similarities. (But you'll never
get their drinks confused - and your Chairman remains unmovably in
the Cherry Coke camp.)
We continually search for large businesses with
understandable, enduring and mouth-watering economics that are run
by able and shareholder-oriented managements. This focus doesn't
guarantee results: We both have to buy at a sensible price and get
business performance from our companies that validates our
assessment. But this investment approach - searching for the
superstars - offers us our only chance for real success. Charlie
and I are simply not smart enough, considering the large sums we
work with, to get great results by adroitly buying and selling
portions of far-from-great businesses. Nor do we think many others
can achieve long-term investment success by flitting from flower to
flower. Indeed, we believe that according the name "investors" to
institutions that trade actively is like calling someone who
repeatedly engages in one-night stands a romantic.
If my universe of business possibilities was limited, say, to
private companies in Omaha, I would, first, try to assess the long-
term economic characteristics of each business; second, assess the
quality of the people in charge of running it; and, third, try to
buy into a few of the best operations at a sensible price. I
certainly would not wish to own an equal part of every business in
town. Why, then, should Berkshire take a different tack when
dealing with the larger universe of public companies? And since
finding great businesses and outstanding managers is so difficult,
why should we discard proven products? (I was tempted to say "the
real thing.") Our motto is: "If at first you do succeed, quit
trying."
John Maynard Keynes, whose brilliance as a practicing investor
matched his brilliance in thought, wrote a letter to a business
associate, F. C. Scott, on August 15, 1934 that says it all: "As
time goes on, I get more and more convinced that the right method
in investment is to put fairly large sums into enterprises which
one thinks one knows something about and in the management of which
one thoroughly believes. It is a mistake to think that one limits
one's risk by spreading too much between enterprises about which
one knows little and has no reason for special confidence. . . .
One's knowledge and experience are definitely limited and there are
seldom more than two or three enterprises at any given time in
which I personally feel myself entitled to put full confidence."
Mistake Du Jour
In the 1989 annual report I wrote about "Mistakes of the First
25 Years" and promised you an update in 2015. My experiences in the
first few years of this second "semester" indicate that my backlog
of matters to be discussed will become unmanageable if I stick to
my original plan. Therefore, I will occasionally unburden myself in
these pages in the hope that public confession may deter further
bumblings. (Post-mortems prove useful for hospitals and football
teams; why not for businesses and investors?)
Typically, our most egregious mistakes fall in the omission,
rather than the commission, category. That may spare Charlie and me
some embarrassment, since you don't see these errors; but their
invisibility does not reduce their cost. In this mea culpa, I am
not talking about missing out on some company that depends upon an
esoteric invention (such as Xerox), high-technology (Apple), or
even brilliant merchandising (Wal-Mart). We will never develop the
competence to spot such businesses early. Instead I refer to
business situations that Charlie and I can understand and that seem
clearly attractive - but in which we nevertheless end up sucking
our thumbs rather than buying.
Every writer knows it helps to use striking examples, but I
wish the one I now present wasn't quite so dramatic: In early 1988,
we decided to buy 30 million shares (adjusted for a subsequent
split) of Federal National Mortgage Association (Fannie Mae), which
would have been a $350-$400 million investment. We had owned the
stock some years earlier and understood the company's business.
Furthermore, it was clear to us that David Maxwell, Fannie Mae's
CEO, had dealt superbly with some problems that he had inherited
and had established the company as a financial powerhouse - with
the best yet to come. I visited David in Washington and confirmed
that he would not be uncomfortable if we were to take a large
position.
After we bought about 7 million shares, the price began to
climb. In frustration, I stopped buying (a mistake that,
thankfully, I did not repeat when Coca-Cola stock rose similarly
during our purchase program). In an even sillier move, I
surrendered to my distaste for holding small positions and sold the
7 million shares we owned.
I wish I could give you a halfway rational explanation for my
amateurish behavior vis-a-vis Fannie Mae. But there isn't one.
What I can give you is an estimate as of yearend 1991 of the
approximate gain that Berkshire didn't make because of your
Chairman's mistake: about $1.4 billion.
Fixed-Income Securities
We made several significant changes in our fixed-income
portfolio during 1991. As I noted earlier, our Gillette preferred
was called for redemption, which forced us to convert to common
stock; we eliminated our holdings of an RJR Nabisco issue that was
subject to an exchange offer and subsequent call; and we purchased
fixed-income securities of American Express and First Empire State
Corp., a Buffalo-based bank holding company. We also added to a
small position in ACF Industries that we had established in late
1990. Our largest holdings at yearend were:
(000s omitted)
---------------------------------------
Cost of Preferreds and
Issuer Amortized Value of Bonds Market
------ ------------------------ ------------
ACF Industries ................ $ 93,918(2) $118,683
American Express .............. 300,000 263,265(1)(2)
Champion International ........ 300,000(2) 300,000(1)
First Empire State 40,000 50,000(1)(2)
RJR Nabisco 222,148(2) 285,683
Salomon 700,000(2) 714,000(1)
USAir 358,000(2) 232,700(1)
Washington Public Power Systems 158,553(2) 203,071
(1) Fair value as determined by Charlie and me
(2) Carrying value in our financial statements
Our $40 million of First Empire State preferred carries a 9%
coupon, is non-callable until 1996 and is convertible at $78.91 per
share. Normally I would think a purchase of this size too small for
Berkshire, but I have enormous respect for Bob Wilmers, CEO of
First Empire, and like being his partner on any scale.
Our American Express preferred is not a normal fixed-income
security. Rather it is a "Perc," which carries a fixed dividend of
8.85% on our $300 million cost. Absent one exception mentioned
later, our preferred must be converted three years after issuance,
into a maximum of 12,244,898 shares. If necessary, a downward
adjustment in the conversion ratio will be made in order to limit
to $414 million the total value of the common we receive. Though
there is thus a ceiling on the value of the common stock that we
will receive upon conversion, there is no floor. The terms of the
preferred, however, include a provision allowing us to extend the
conversion date by one year if the common stock is below $24.50 on
the third anniversary of our purchase.
Overall, our fixed-income investments have treated us well,
both over the long term and recently. We have realized large
capital gains from these holdings, including about $152 million in
1991. Additionally, our after-tax yields have considerably exceeded
those earned by most fixed-income portfolios.
Nevertheless, we have had some surprises, none greater than
the need for me to involve myself personally and intensely in the
Salomon situation. As I write this letter, I am also writing a
letter for inclusion in Salomon's annual report and I refer you to
that report for an update on the company. (Write to: Corporate
Secretary, Salomon Inc, Seven World Trade Center, New York, NY
10048) Despite the company's travails, Charlie and I believe our
Salomon preferred stock increased slightly in value during 1991.
Lower interest rates and a higher price for Salomon's common
produced this result.
Last year I told you that our USAir investment "should work
out all right unless the industry is decimated during the next few
years." Unfortunately 1991 was a decimating period for the
industry, as Midway, Pan Am and America West all entered
bankruptcy. (Stretch the period to 14 months and you can add
Continental and TWA.)
The low valuation that we have given USAir in our table
reflects the risk that the industry will remain unprofitable for
virtually all participants in it, a risk that is far from
negligible. The risk is heightened by the fact that the courts have
been encouraging bankrupt carriers to continue operating. These
carriers can temporarily charge fares that are below the industry's
costs because the bankrupts don't incur the capital costs faced by
their solvent brethren and because they can fund their losses - and
thereby stave off shutdown - by selling off assets. This burn-the-
furniture-to-provide-firewood approach to fare-setting by bankrupt
carriers contributes to the toppling of previously-marginal
carriers, creating a domino effect that is perfectly designed to
bring the industry to its knees.
Seth Schofield, who became CEO of USAir in 1991, is making
major adjustments in the airline's operations in order to improve
its chances of being one of the few industry survivors. There is no
tougher job in corporate America than running an airline: Despite
the huge amounts of equity capital that have been injected into it,
the industry, in aggregate, has posted a net loss since its birth
after Kitty Hawk. Airline managers need brains, guts, and
experience - and Seth possesses all three of these attributes.
Miscellaneous
About 97.7% of all eligible shares participated in Berkshire's
1991 shareholder-designated contributions program. Contributions
made through the program were $6.8 million, and 2,630 charities
were recipients.
We suggest that new shareholders read the description of our
shareholder-designated contributions program that appears on pages
48-49. To participate in future programs, you must make sure your
shares are registered in the name of the actual owner, not in the
nominee name of a broker, bank or depository. Shares not so
registered on August 31, 1992 will be ineligible for the 1992
program.
In addition to the shareholder-designated contributions that
Berkshire distributes, managers of our operating businesses make
contributions, including merchandise, averaging about $1.5 million
annually. These contributions support local charities, such as The
United Way, and produce roughly commensurate benefits for our
businesses.
However, neither our operating managers nor officers of the
parent company use Berkshire funds to make contributions to broad
national programs or charitable activities of special personal
interest to them, except to the extent they do so as shareholders.
If your employees, including your CEO, wish to give to their alma
maters or other institutions to which they feel a personal
attachment, we believe they should use their own money, not yours.
* * * * * * * * * * * *
The faithful will notice that, for the first time in some
years, Charlie's annual letter to Wesco shareholders is not
reprinted in this report. Since his letter is relatively barebones
this year, Charlie said he saw no point in including it in these
pages; my own recommendation, however, is that you get a copy of
the Wesco report. Simply write: Corporate Secretary, Wesco
Financial Corporation, 315 East Colorado Boulevard, Pasadena, CA
91101.
* * * * * * * * * * * *
Malcolm G. Chace, Jr., now 88, has decided not to stand for
election as a director this year. But the association of the Chace
family with Berkshire will not end: Malcolm III (Kim), Malcolm's
son, will be nominated to replace him.
In 1931, Malcolm went to work for Berkshire Fine Spinning
Associates, which merged with Hathaway Manufacturing Co. in 1955 to
form our present company. Two years later, Malcolm became Berkshire
Hathaway's Chairman, a position he held as well in early 1965 when
he made it possible for Buffett Partnership, Ltd. to buy a key
block of Berkshire stock owned by some of his relatives. This
purchase gave our partnership effective control of the company.
Malcolm's immediate family meanwhile kept its Berkshire stock and
for the last 27 years has had the second-largest holding in the
company, trailing only the Buffett family. Malcolm has been a joy
to work with and we are delighted that the long-running
relationship between the Chace family and Berkshire is continuing
to a new generation.
* * * * * * * * * * * *
The annual meeting this year will be held at the Orpheum
Theater in downtown Omaha at 9:30 a.m. on Monday, April 27, 1992.
Attendance last year grew to a record 1,550, but that still leaves
plenty of room at the Orpheum.
We recommend that you get your hotel reservations early at one
of these hotels: (1) The Radisson-Redick Tower, a small (88 rooms)
but nice hotel across the street from the Orpheum; (2) the much
larger Red Lion Hotel, located about a five-minute walk from the
Orpheum; or (3) the Marriott, located in West Omaha about 100 yards
from Borsheim's and a twenty minute drive from downtown. We will
have buses at the Marriott that will leave at 8:30 and 8:45 for the
meeting and return after it ends.
Charlie and I always enjoy the meeting, and we hope you can
make it. The quality of our shareholders is reflected in the
quality of the questions we get: We have never attended an annual
meeting anywhere that features such a consistently high level of
intelligent, owner-related questions.
An attachment to our proxy material explains how you can
obtain the card you will need for admission to the meeting. With
the admission card, we will enclose information about parking
facilities located near the Orpheum. If you are driving, come a
little early. Nearby lots fill up quickly and you may have to
walk a few blocks.
As usual, we will have buses to take you to Nebraska Furniture
Mart and Borsheim's after the meeting and to take you from there to
downtown hotels or the airport later. I hope that you will allow
plenty of time to fully explore the attractions of both stores.
Those of you arriving early can visit the Furniture Mart any day of
the week; it is open from 10 a.m. to 5:30 p.m. on Saturdays and
from noon to 5:30 p.m. on Sundays. While there, stop at the See's
Candy Cart and find out for yourself why Americans ate 26 million
pounds of See's products last year.
Borsheim's normally is closed on Sunday, but we will be open
for shareholders and their guests from noon to 6 p.m. on Sunday,
April 26. Borsheim's will also have a special party the previous
evening at which shareholders are welcome. (You must, however,
write Mrs. Gladys Kaiser at our office for an invitation.) On
display that evening will be a 150-year retrospective of the most
exceptional timepieces made by Patek Philippe, including watches
once owned by Queen Victoria, Pope Pius IX, Rudyard Kipling, Madame
Curie and Albert Einstein. The centerpiece of the exhibition will
be a $5 million watch whose design and manufacture required nine
years of labor by Patek Philippe craftsmen. Along with the rest of
the collection, this watch will be on display at the store on
Sunday - unless Charlie has by then impulsively bought it.
Nicholas Kenner nailed me - again - at last year's meeting,
pointing out that I had said in the 1990 annual report that he was
11 in May 1990, when actually he was 9. So, asked Nicholas rather
caustically: "If you can't get that straight, how do I know the
numbers in the back [the financials] are correct?" I'm still
searching for a snappy response. Nicholas will be at this year's
meeting - he spurned my offer of a trip to Disney World on that
day - so join us to watch a continuation of this lop-sided battle
of wits.
Warren E. Buffett
February 28, 1992 Chairman of the Board
中文译文
BERKSHIRE HATHAWAY INC.
致伯克希尔·哈撒韦股份有限公司的所有股东：
1991年，我们的净资产增加了21亿美元，增幅39.6%。过去27年（即自现任管理层接管以来），我们的每股账面价值从19美元增至6,437美元，年复合增长率为23.7%。
目前我们的股本规模已达74亿美元，这意味着我们不可能维持过去的增长率，甚至无法接近这一水平。随着伯克希尔规模扩大，能够显著影响公司业绩的机会不断减少。当年我们只有2,000万美元资本时，一个能产生100万美元利润的创意或业务，就能为当年回报率贡献5个百分点。如今，要取得同样的效果，我们需要一个能产生3.7亿美元利润的创意（即贡献超过5.5亿美元的税前利润）。而赚100万美元的方法比赚3.7亿美元要多得多。
伯克希尔副董事长查理·芒格（Charlie Munger）和我设定了一个目标：使伯克希尔的内在价值年均增长15%。如果我们的账面价值增长要跟上15%的步伐，未来十年我们必须赚取220亿美元。祝我们好运——我们确实需要运气。
1991年账面价值的超常增长源于一种不太可能重演的现象：可口可乐（Coca-Cola）和吉列（Gillette）的市盈率大幅上升。这两只股票为我们21亿美元的净资产增长贡献了将近16亿美元。三年前我们大举买入可口可乐时，伯克希尔的净资产为34亿美元；如今，仅我们持有的可口可乐股票价值就已超过这个数字。
可口可乐和吉列是全球最优秀的两家公司，我们预计未来它们的盈利将以可观的幅度增长。长期来看，我们持有这些股票的价值也应大致成比例增长。然而去年，这两家公司的估值上升速度远快于其盈利增速。实际上，我们获得了双重收益：一部分来自出色的盈利增长，更大一部分来自市场对这些股票的重估。我们认为这种重估是合理的，但它不可能每年重演——未来我们只能满足于单重收益。
**第二份工作**
1989年，当我——一个每天快乐地消费五罐樱桃可乐的人——宣布我们买入10亿美元可口可乐股票时，我把这描述为"把钞票放在嘴上"的一个相当极端的例子。去年8月18日，当我被选为所罗门公司（Salomon Inc）临时董事长时，情况反了过来：我把嘴放在了钞票上。
你们都已读到导致我任职的那些事件。我决定接受这份工作隐含着一个重要信息：伯克希尔的运营经理们如此杰出，以至于我知道自己可以大幅减少在公司的时间，同时仍确信公司的经济进展不会出现丝毫停顿。Blumkins一家、Friedman家族、Mike Goldberg、Heldmans一家、Chuck Huggins、Stan Lipsey、Ralph Schey以及Frank Rooney（我们最新收购的H.H. Brown的首席执行官，稍后我会介绍），他们都是各自领域的经营大师，不需要我帮忙。我的工作只是善待他们，并分配他们创造的资本。这两项工作都不会因为我在所罗门的工作而受到妨碍。
查理和我在各经营单位成功中所扮演的角色，可以用一个关于乔治·米拉（George Mira）的故事来说明。他曾是迈阿密大学的四分卫，教练是安迪·古斯塔夫森（Andy Gustafson）。在一场对阵佛罗里达大学的比赛中，球队逼近对方端区，米拉后退准备传球。他看到一名无人防守的接球手，却发现自己的右肩被佛罗里达的一名线卫死死抓住。惯用右手的米拉随即把球换到另一只手上，投出了他人生中唯一一次左手传球——达阵得分。当观众沸腾时，古斯塔夫森冷静地转向一名记者，说道：“这才叫教练。”
鉴于我们各经营单位拥有众多管理明星，即便查理或我偶尔开个小差，伯克希尔的业绩也不会受影响。不过，你们应该注意我在所罗门头衔中的“临时”二字。伯克希尔是我的初恋，而且这份感情永不褪色：去年在哈佛商学院，一名学生问我打算什么时候退休，我回答说：“大约在我死后五到十年吧。”
报告收益的来源
下表列出了伯克希尔报告收益的主要来源。在本表中，商誉摊销及其他主要的购买价格会计调整并不计入所适用的具体业务，而是汇总后单独列示。这种做法可以让你们看到，如果我们没有收购这些企业，它们的收益原本会如何报告。我在过去的报告中解释过，为什么我们认为这种列报形式对投资者和管理者而言，比采用美国通用会计准则（GAAP）——后者要求逐笔业务进行购买价格调整——更有用。当然，表中显示的净收益总额与经审计财务报表中的GAAP总额完全一致。
关于这些业务的更多详细信息，请参见第33至47页，你还会在那里找到我们按美国通用会计准则报告的各分部收益。不过，与过去不同，今年这封信中我们不会逐一讨论每一个非保险业务。我们的业务数量已经增长——并且还将继续增长——因此，现在采取轮换制、每年详细讨论一至两家是合理的。
（单位：千美元）
----------------------------------------------
伯克希尔应占
净利润
（税后及少数
税前收益 股东权益后）
---------------------- ----------------------
1991 1990 1991 1990
---------- ---------- ---------- ----------
经营收益：
保险集团：
承销 .................... $(119,593) $ (26,647) $ (77,229) $ (14,936)
净投资收益 .............. 331,846 327,047 285,173 282,613
H. H. 布朗（1991年7月1日收购） 13,616 --- 8,611 ---
水牛城新闻报 .............. 37,113 43,954 21,841 25,981
费奇海默 .................. 12,947 12,450 6,843 6,605
柯比 ...................... 35,726 27,445 22,555 17,613
内布拉斯加家具卖场 ........ 14,384 17,248 6,993 8,485
斯科特·费策制造集团 ....... 26,123 30,378 15,901 18,458
喜诗糖果 .................. 42,390 39,580 25,575 23,892
威斯科——保险除外 ......... 12,230 12,441 8,777 9,676
世界百科全书 .............. 22,483 31,896 15,487 20,420
商誉摊销 .................. (4,113) (3,476) (4,098) (3,461)
其他收购价格会计调整 ...... (6,021) (5,951) (7,019) (6,856)
利息费用* ................. (89,250) (76,374) (57,165) (49,726)
股东指定捐款 .............. (6,772) (5,824) (4,388) (3,801)
其他 ...................... 77,399 58,310 47,896 35,782
---------- ---------- ---------- ----------
经营收益 400,508 482,477 315,753 370,745
证券出售收益 192,478 33,989 124,155 23,348
总收益——所有实体 $ 592,986 $ 516,466 $ 439,908 $ 394,093
*不包括斯科特·费策金融集团及互助储蓄与贷款公司的利息费用。
透视盈余
我们之前讨论过透视盈余，它由以下三部分组成：（1）上一节报告的经营收益，加上（2）主要被投资公司的留存经营收益（按照美国通用会计准则，这部分并不反映在我们的利润中），减去（3）如果这些被投资公司留存收益被分配给伯克希尔，伯克希尔本应支付的税款备抵。
我曾告诉过你们，如果我们的内在商业价值要以每年约15%的速度增长，那么随着时间的推移，透视盈余也必须以大约每年15%的速度增长。事实上，自1965年现任管理层接手以来，我们的透视盈余一直以几乎与账面价值23%的增长率完全相同的速度增长。
然而去年，我们的透视盈余不但没有增长，反而下降了14%。在某种程度上，这一下降是由我在去年的报告中讨论过的两个因素促成的，我当时曾提醒你们，它们会对透视盈余产生负面影响。
首先，我曾告诉过你们，我们的媒体业务收益——无论是直接收益还是透视收益——"必然会下滑"，事实也确实如此。第二个因素在4月1日显现：我们持有的吉列优先股被赎回，迫使我们将它转换为普通股。1990年，我们从优先股获得的税后收益约为4500万美元，这一数字略高于1991年三个月的优先股股息加上九个月普通股透视收益的总和。
另外两个我未曾预料到的结果也对1991年的透视收益造成了不利影响。首先，我们在富国银行的权益收益为零（我们从该公司获得的股息被负的留存收益抵消了）。去年我曾说过，富国银行出现这种情况是"一种低概率可能——并非大概率事件"。其次，我们录得了显著降低——虽然依然优异——的保险利润。
下表显示了我们如何计算透视收益，但我提醒你，这些数字必然非常粗略。（这些被投资公司支付给我们的股息已计入第6页列示的经营利润中，主要归在"保险集团：净投资收益"项下。）
伯克希尔应占
未分配收益
伯克希尔主要被投资公司 伯克希尔年末大致持股比例 (百万美元)
--------------------------- ----------------------- ------------------
1991 1990 1991 1990
------ ------ -------- --------
大都会/ABC公司 ........ 18.1% 17.9% $ 61 $ 85
可口可乐公司 .......... 7.0% 7.0% 69 58
联邦住宅贷款抵押公司 .. 3.4%(1) 3.2%(1) 15 10
吉列公司 .............. 11.0% --- 23(2) ---
GEICO保险公司 ......... 48.2% 46.1% 69 76
华盛顿邮报公司 ........ 14.6% 14.6% 10 18
富国银行 .............. 9.6% 9.7% (17) 19(3)
-------- --------
伯克希尔应占主要被投资公司未分配收益 $230 $266
对这些未分配投资收益的假设税 (30) (35)
伯克希尔报告的经营利润 316 371
-------- --------
伯克希尔透视收益合计 $516 $602
======== ========
(1) 扣除威斯科公司的少数股东权益
(2) 自4月1日伯克希尔转换优先股后的九个月
(3) 按当年平均持股比例计算
* * * * * * * * * * * *
我们也相信投资者可以通过关注自身的透视收益而受益。要计算这些收益，他们应确定自己投资组合中持有的股份所对应的标的收益，并加总这些收益。每位投资者的目标应该是构建一个投资组合（实际上，就是一家"公司"），该组合能在十年或更久以后，为其带来尽可能高的透视收益。
这种思维方式将迫使投资者思考长期业务前景，而不是短期股市前景——这种视角很可能改善投资结果。当然，从长期来看，投资决策的记分牌是市场价格。但价格将由未来收益决定。在投资中，就像在棒球比赛中一样，要把得分记上记分牌，你必须盯着球场，而不是记分牌。
媒体经济学的变化及一些估值算术
在去年的年报中，我曾表示媒体公司盈利能力的下滑既反映了周期性因素，也反映了结构性因素。1991年的情况进一步印证了这一判断：随着零售模式的改变，以及广告和娱乐选择的大量涌现，昔日那些曾经强大的媒体企业，其经济实力正在持续削弱。不幸的是，在商界，后视镜总是比挡风玻璃更清晰：就在几年前，所有与媒体行业相关的人——无论是债权人、所有者还是金融分析师——都没有预见到这个行业即将面临的经济恶化。（不过，给我几年时间，我大概会说服自己，我当时确实看到了。）
事实上，报纸、电视台和杂志社在经济行为上已经越来越像"企业"而非"特许经营权"。我们快速看一下区分这两类实体的特征，但要记住，许多经营实体处于某种中间地带，最好被描述为"弱特许经营权"或"强企业"。
一项经济特许经营权源自这样一种产品或服务：(1) 被需要或渴望；(2) 被顾客认为没有近似替代品；(3) 不受价格管制。这三个条件同时存在，会体现在公司能够持续对其产品或服务进行激进定价，从而获得高资本回报率上。此外，特许经营权能够容忍管理不善。无能的管理层可能会削弱特许经营权的盈利能力，但无法对其造成致命伤害。
相比之下，"一家企业"只有在它是低成本运营者，或者其产品或服务的供应紧张时，才能获得超额利润。供应的紧张通常不会持续太久。在优秀的管理下，一家公司可能更长时间地保持低成本运营者的地位，但即便如此，它也始终面临着竞争攻击的可能性。而且，企业不同于特许经营权，糟糕的管理会毁了它。
直到最近，媒体资产还具备特许经营权的三个特征，因此既能激进定价，也能被松散管理。但现在，寻求信息和娱乐（消费者主要兴趣在于后者）的消费者，在寻找这些内容时拥有了大大拓宽的选择。不幸的是，需求无法随着这种新的供给而扩大：可供使用的只有5亿美国人的眼球和每天24小时。结果是竞争加剧了，市场碎片化了，媒体行业已经失去了部分——尽管远非全部——的特许经营权实力。
* * * * * * * * * * * *
行业特许经营权的削弱对其价值的影响，远远超出了对盈利的直接冲击。为了理解这一现象，我们来看一些过于简化但相关的算术。
几年前，传统观点认为，报纸、电视台或杂志社将永远以每年6%左右的速度增长，而且无需额外资本投入，因为折旧费用大致会与资本支出相抵，营运资本需求也很小。因此，报告盈利（无形资产摊销前）也是可自由分配的盈利，这意味着拥有媒体资产可以被理解为拥有一个每年增长6%的永久年金。接下来，假设使用10%的贴现率来确定该盈利流的现值。那么可以算出，为一个当前税后盈利为100万美元的资产支付高达2500万美元是合理的（这个25倍的税后乘数，换算成税前盈利乘数大约是16倍）。
现在改变假设，假设100万美元代表"正常盈利能力"，且盈利会围绕这个数字周期性波动。大多数企业的命运确实是"上下波动"——它们的收入流只有在所有者愿意投入更多资本（通常以留存收益形式）时才会增长。根据修改后的假设，100万美元的盈利，以同样的10%折现，估值变为1000万美元。这样一来，一个看似微小的假设调整，就把这项资产的估值降到了税后盈利的10倍（或者说税前盈利的大约6.5倍）。
钱就是钱，不管它是来自媒体公司还是钢铁厂的经营。过去，买家之所以对媒体公司的每1美元盈利估值远高于钢铁公司，是因为媒体业务的盈利预期会持续增长（且无需企业投入大量额外资本），而钢铁业的盈利显然属于"上下波动"的范畴。然而如今，对媒体的预期也已转向波动模式。正如我们简化的例子所示，当预期发生修正时，估值必须随之剧变。
我们在媒体领域有大量投资——既直接拥有布法罗新闻报（Buffalo News），也持股华盛顿邮报公司（The Washington Post Company）和大都会/美国广播公司（Capital Cities/ABC）。由于该行业正在经历的结构性转型，这项投资的内在价值已大幅缩水。（周期性因素也损害了我们当前的透视盈余，但这些因素并不会降低内在价值。）不过，正如我们在第2-3页的经营原则所述，我们运营伯克希尔的规则之一是，不会仅仅因为看到其他地方有更有利可图的资金用途，就出售企业或被我们列为永久持有的被投资公司股份。（之前我们确实出售过某些其他媒体持股，但那些规模相对较小。）
我们遭受的内在价值损失有所缓和，因为布法罗新闻报在斯坦·利普西（Stan Lipsey）领导下，表现远优于大多数报纸；同时，大都会和华盛顿邮报都管理得极为出色。特别是，这些公司在20世纪80年代末期媒体资产买家普遍支付非理性价格的时期，始终置身事外。此外，大都会和华盛顿邮报的债务都很低，大致被其持有的现金所抵消。因此，其资产价值的缩水并未因杠杆效应而加剧。在上市的媒体公司中，我们的这两家被投资公司几乎是唯一基本没有负债的。其他大多数公司，由于过去激进的收购政策叠加盈利萎缩，其债务已达到当前净利润的5倍或更多。
大都会和华盛顿邮报强劲的资产负债表和优秀的管理层，让我们对这些投资感到更加安心，远胜于持有其他任何媒体公司的股份。此外，大多数媒体资产的经济特征仍然远优于美国普通企业。但那种拥有防弹特许经营权、经济回报丰厚的日子，已经一去不复返了。
**糖果店里的二十年**
我们刚刚跨越了一个里程碑：20年前，即1972年1月3日，蓝筹印花公司（当时是伯克希尔的关联公司，后来并入伯克希尔）收购了See's糖果店的控制权，这是一家西海岸的盒装巧克力制造商和零售商。卖家最初的要价——按我们最终获得的100%所有权计算——是4000万美元。但该公司有1000万美元的冗余现金，因此实际出让价为3000万美元。当时查理和我还没有充分认识到经济特许权的价值，看到公司仅有700万美元的有形净资产，便坚持最高出价2500万美元（我们是认真的）。幸运的是，卖家接受了我们的报价。
此后，蓝筹印花的交易印花销售额从1972年的1.025亿美元下降到1991年的120万美元。但同期See's的糖果销售额却从2900万美元增长到1.96亿美元。而且，See's的利润增长比销售额更快，税前利润从1972年的420万美元增加到去年的4240万美元。
要正确评估利润的增长，必须将其与产生利润所需的增量资本投资进行比较。在这方面，See's的表现令人惊叹：该公司现在仅需2500万美元的净资产就能舒适运营，这意味着我们最初的700万美元基础仅需通过1800万美元的留存收益进行补充。与此同时，在这20年间，See's剩余的4.1亿美元税前利润被分配给蓝筹印花/伯克希尔，由这些公司（在纳税后）以最合理的方式进行部署。
收购See's时，查理和我有一个重要的洞察：我们看到了这家企业拥有未被利用的定价权。此外，我们两次交了好运。首先，我们愚蠢地坚持2500万美元的报价并没有导致交易告吹。其次，我们找到了当时See's的执行副总裁Chuck Huggins，并立即让他负责。与Chuck的共事和私人交往都非常愉快。举个例子：收购时，我们与Chuck握手达成了一项薪酬安排——大约五分钟就构思完成，从未落实到书面合同——至今未变。
1991年，以美元计价的See's销售额与1990年持平。但按磅计算，销量下降了4%。所有下降都发生在当年最后两个月，而这个时期通常会产生超过80%的年度利润。尽管销售疲软，去年利润仍增长了7%，我们的税前利润率达到了创纪录的21.6%。
See's近80%的销售额来自加州，我们的业务显然受到了经济衰退的影响，该州在今年晚些时候受到的冲击尤为严重。另一个不利因素是加州从年中开始对"零食"征收7%-8.25%（因县而异）的销售税，这被认为适用于我们的糖果。
对认识论细微差别感兴趣的股东们，将会欣赏加州对"零食"和"非零食"食品的分类：
应税"零食"食品 免税"非零食"食品
-------------------- ----------------------------
Ritz饼干 苏打饼干
爆米花（已爆） 未爆玉米粒
格兰诺拉燕麦棒 格兰诺拉燕麦片
馅饼片（包装） 整个馅饼
Milky Way巧克力棒 Milky Way冰淇淋棒
你肯定会问——融化的银河牌冰淇淋棒的税务状态是什么？在那不男不女的形式下，它更像一根冰淇淋棒，还是像一根放在太阳下晒过的糖果棒？难怪加州州平等委员会主席Brad Sherman——他曾反对零食法案，现在却必须执行它——说：“我当初以税法专家的身份接受这份工作，现在才发现我的选民本该选Julia Child来当。”
Charlie和我有很多理由感谢我们与Chuck和See's（喜诗糖果）的合作。显而易见的理由是：我们获得了非凡的回报，而且过程中乐趣十足。同样重要的是，拥有See's让我们学到了大量关于评估特许经营企业的知识。我们在某些普通股上赚了大钱，正是因为在See's学到的经验。
H. H. Brown（H. H. 布朗公司）
我们在1991年完成了一笔大规模的收购——H. H. Brown公司——这笔生意背后有一段有趣的历史。1927年，一位29岁的企业家Ray Heffernan以1万美元买下了这家当时位于马萨诸塞州北布鲁克菲尔德的公司，并开始了长达62年的经营生涯。（他还有时间从事其他爱好：到了90岁，他还在加入新的高尔夫俱乐部。）到1990年初Heffernan先生退休时，H. H. Brown在美国有三家工厂，在加拿大有一家；雇佣了近2000人；税前年利润约2500万美元。
其间，Ray的女儿之一Frances Heffernan嫁给了Frank Rooney。婚礼前，Heffernan先生严厉告诫Frank，最好打消任何为岳父工作的念头。那是Heffernan先生为数不多的错误之一：Frank后来成为了Melville Shoe（现Melville Corp.）的CEO。在他从1964年到1986年担任老板的23年里，Melville的净资产收益率平均超过20%，其股价（经拆股调整）从16美元涨到了960美元。而Frank退休几年后，Heffernan先生病倒了，请他回来管理Brown公司。
1990年底Heffernan先生去世后，他的家人决定出售公司——我们运气不错。我认识Frank有几年了，但还没熟到让他想到伯克希尔是潜在买家的程度。他把出售Brown的任务交给了一家大型投资银行，这家银行也没想起我们。但去年春天，Frank在佛罗里达和John Loomis打高尔夫，John是我的老朋友也是伯克希尔的股东，他总是留意着可能适合我们的东西。听说Brown即将出售，John告诉Frank这家公司应该正对伯克希尔的路子，Frank立刻给我打了电话。我当即觉得我们能做成这笔交易，没过多久就搞定了。
我之所以如此热衷这笔收购，很大程度上是因为Frank愿意继续担任CEO。像我们大多数经理人一样，他并不缺钱，但他依旧工作，因为他热爱这个游戏，喜欢做到最好。这种类型的经理人无法用通常意义上的“雇佣”来获得。我们必须提供一个音乐厅，让这类商业艺术家愿意在此表演。
布朗公司（顺便说一句，与圣路易斯的布朗鞋业毫无关系）是北美领先的工作鞋靴制造商，历史上销售利润率和资产回报率都异常出色。鞋子是一个艰难的行业——美国每年购买的10亿双鞋中，约85%是进口的——行业中的大多数制造商表现不佳。生产商提供的款式和尺码极为广泛，导致库存积压；大量资金也沉淀在应收账款中。在这种环境下，只有像Frank和Heffernan先生培养的团队这样出色的管理者才能繁荣兴旺。
H.H. Brown 有一个与众不同的特点，那是我见过的最不寻常的薪酬制度之一——却让我心生暖意：几位核心高管年薪只有 7,800 美元，外加按公司利润（扣除资本成本后）的一定比例提成。这些高管因此真正站在所有者的立场上。相比之下，大多数管理者只是嘴上说说，却不身体力行，他们更倾向于采用胡萝卜给得多、大棒用得少的薪酬体系（而且几乎总是把股权资本当作免费资源来对待）。无论如何，Brown 的这种安排在公司和其管理者身上都收效极佳，这并不意外：那些渴望用自己的能力下重注的管理者，通常也确实有足够的能力去下注。
* * * * * * * * * * * *
令人沮丧的是，尽管我们有过四次大规模收购，且卖方都由知名投资银行代理，但其中只有一次是投资银行主动联系我们的。其余三次，都是在投资银行向自己的潜在客户名单征求过后，由我本人或一位朋友在某个节点发起的交易。我们很希望有中介机构能想到我们并赚取佣金——因此在此重申我们寻找的目标：
(1) 大规模收购（税后利润至少 1,000 万美元），
(2) 具备持续稳健的盈利能力（未来预测对我们没什么意义，“扭亏为盈”型更不感兴趣），
(3) 企业净资产收益率良好，且几乎不依赖或完全不依赖负债，
(4) 现有管理层到位（我们提供不了管理团队），
(5) 业务简单（涉及太多高科技，我们搞不懂），
(6) 一个明确的报价（在价格未知的情况下，哪怕只是初步商谈，我们也不想浪费自己的时间，更不想浪费卖方的时间）。
我们不会进行敌意收购。我们可以保证绝对保密，并且回复极快——通常五分钟内就能告知是否感兴趣。（收购 Brown 时，我们连五分钟都没用到。）我们倾向于现金收购，但如果我们能得到与付出同样多的内在商业价值，也会考虑发行股票。
我们最喜欢的收购模式，是像收购 Nebraska Furniture Mart（内布拉斯加家具城）、Fechheimer's（费奇海默）和 Borsheim's（波仙珠宝）那样的。在这些案例中，公司的所有者兼管理者希望获得大量现金，有时是为了自己，但更多是为了他们的家人或不活跃的股东。与此同时，这些管理者希望继续保留重要股权，并像过去一样继续经营自己的公司。我们觉得，我们特别适合有这种想法的所有者，并欢迎潜在的卖方通过与我们有过业务往来的人来了解我们。
查理和我会经常接触到一些根本不符合我们标准的收购意向：我们发现，如果你放出话想买柯利牧羊犬，很多人会打电话来想卖给你可卡犬。有一句乡村歌曲的歌词正好表达了我们对新业务、扭亏为盈或拍卖式销售的看法：“电话铃不响，你就知道是我。”
除了对上述类型的企业收购感兴趣，我们也对协商购买大量但非控股的股票感兴趣，就像我们持有 Capital Cities（首都广播公司）、Salomon（所罗门兄弟）、Gillette（吉列）、USAir（全美航空）、Champion（冠军国际）和 American Express（美国运通）那样。不过，我们并不希望收到关于我们在公开市场应该买什么的建议。
保险业务
下面是我们通常所列的财产意外险行业关键数据的最新版表格：
保费收入 股东分红后 已发生亏损 GDP平减指数
年度变化(%) 综合成本率 年度变化(%) 衡量的通胀率(%)
------------- ------------------ ------------- ----------------
1981 ..... 3.8 106.0 6.5 10.0
1982 ..... 3.7 109.6 8.4 6.2
1983 ..... 5.0 112.0 6.8 4.0
1984 ..... 8.5 118.0 16.9 4.5
1985 ..... 22.1 116.3 16.1 3.7
1986 ..... 22.2 108.0 13.5 2.7
1987 ..... 9.4 104.6 7.8 3.1
1988 ..... 4.4 105.4 5.5 3.9
1989 ..... 3.2 109.2 7.7 4.4
1990 (修订) 4.4 109.6 4.8 4.1
1991 (预估) 3.1 109.1 2.9 3.7
综合成本率代表保险总成本（已发生亏损加费用）与保费收入的比值：低于100表示承保盈利，高于100表示承保亏损。比率越高，年份越差。当考虑保险公司持有保单持有人资金（"浮存金"）所赚取的投资收益时，综合成本率在107-111范围内通常产生整体盈亏平衡结果，不包括股东资金带来的收益。
基于过去报告详述的原因，我们预计行业已发生亏损将以接近每年10%的速度增长，即使在总体通胀率远低于此的时期也是如此。（过去25年中，已发生亏损实际增长速度更快，为11%。）如果同期保费增长严重落后于10%的增长率，承保亏损将加剧。
然而，行业在业务恶化时倾向于计提不足的准备金，可能会暂时掩盖情况——而这很可能描述了去年的状况。尽管保费远未增长10%，但综合成本率并未如我预期的那样恶化，反而略有改善。行业亏损准备金数据表明，有理由对该结果持怀疑态度，而且1991年的比率可能实际上应该比报告显示的更差。当然，从长远来看，那些用会计手法掩盖经营问题的管理层终将面临麻烦。最终，这类管理层与重病却告诉医生的患者结果相同："我负担不起手术，但你愿意收点小费把X光片修饰一下吗？"
伯克希尔的保险业务已经发生变化，使得综合成本率（无论是我们自己的还是行业的）与我们的业绩基本无关。对我们而言，重要的是"保险业务产生的资金成本"，通俗来说就是"浮存金成本"。
浮存金——我们以非同寻常的规模产生——是损失准备金、损失调整费用准备金和未赚保费准备金之和，减去代理人余额、预付收购费用和适用于假设再保险的递延费用。而浮存金成本由我们的承保亏损衡量。
下表显示了自1967年我们进入该行业以来的浮存金成本。
(1) (2) 年末长期
承保亏损 平均浮存金 近似资金成本 政府债券收益率
(百万美元) (百万美元) (1除以2的比率) (百分比)
------------ ------------- --------------- -------------
1967 ...... 0.27 17.3 1.6% 5.5%
1968 ...... 0.60 21.7 2.8% 5.9%
1969 ...... 1.05 27.7 3.8% 6.7%
1970 ...... 0.28 32.4 0.9% 6.5%
1971 ...... 0.90 44.9 2.0% 5.8%
1972 ...... 0.11 68.4 0.2% 6.2%
1973 ...... 0.36 73.6 0.5% 6.9%
1974 ...... 0.30 81.1 0.4% 7.3%
1975 ...... 1.36 88.2 1.5% 7.9%
1976 ...... 0.03 97.7 0.0% 7.3%
1977 ...... 0.58 117.4 0.5% 7.6%
1978 ...... 1.30 140.7 0.9% 8.9%
1979 ...... 1.11 176.8 0.6% 9.6%
1980 ...... 2.76 217.7 1.3% 11.3%
1981 ...... 3.88 244.6 1.6% 13.1%
1982 ...... 4.39 286.1 1.5% 10.4%
1983 ...... 3.74 339.2 1.1% 11.7%
1984 ...... 4.86 364.2 1.3% 11.4%
1985 ...... 5.27 378.4 1.4% 9.2%
1986 ...... 2.93 479.1 0.6% 7.3%
1987 ...... 5.05 579.8 0.9% 8.9%
1988 ...... 4.23 627.7 0.7% 9.0%
1989 ...... 2.44 704.0 0.3% 8.0%
1990 ...... 2.69 756.9 0.4% 8.0%
1991 ...... 2.85 853.7 0.3% 7.2%
1967 ........ 盈利 $17.3 低于零 5.50%
1968 ........ 盈利 19.9 低于零 5.90%
1969 ........ 盈利 23.4 低于零 6.79%
1970 ........ $0.37 32.4 1.14% 6.25%
1971 ........ 盈利 52.5 低于零 5.81%
1972 ........ 盈利 69.5 低于零 5.82%
1973 ........ 盈利 73.3 低于零 7.27%
1974 ........ 7.36 79.1 9.30% 8.13%
1975 ........ 11.35 87.6 12.96% 8.03%
1976 ........ 盈利 102.6 低于零 7.30%
1977 ........ 盈利 139.0 低于零 7.97%
1978 ........ 盈利 190.4 低于零 8.93%
1979 ........ 盈利 227.3 低于零 10.08%
1980 ........ 盈利 237.0 低于零 11.94%
1981 ........ 盈利 228.4 低于零 13.61%
1982 ........ 21.56 220.6 9.77% 10.64%
1983 ........ 33.87 231.3 14.64% 11.84%
1984 ........ 48.06 253.2 18.98% 11.58%
1985 ........ 44.23 390.2 11.34% 9.34%
1986 ........ 55.84 797.5 7.00% 7.60%
1987 ........ 55.43 1,266.7 4.38% 8.95%
1988 ........ 11.08 1,497.7 0.74% 9.00%
1989 ........ 24.40 1,541.3 1.58% 7.97%
1990 ........ 26.65 1,637.3 1.63% 8.24%
1991 ........ 119.6 1,895.0 6.31% 7.40%
如你所见，1991年我们的资金成本远低于美国政府新发行长期债券的成本。事实上，在我们经营保险业务的25年中，有20年的资金成本低于政府的利率，而且往往低出一大截。同样在这段时间里，我们持有的资金量也大幅增长——只要资金成本令人满意，这就算是一个有利的发展。我们的浮存金应该会继续增长；挑战在于以合理的成本获取这些资金。
伯克希尔依然是一家规模非常大的——也许是全球最大的——"超级巨灾"保险承保商，这类保险是其他保险公司为防范重大灾难损失而购买的。这个业务的利润波动极大。正如我去年所说，大约1亿美元的超级巨灾保费（这差不多是我们每年的预期水平），可能给我们带来1亿美元的利润（在没有大灾难的年份），也可能带来2亿美元的亏损（在接连发生几场大飓风和/或地震的年份）。
我们对这个业务的定价，预期在长期内大约支付所收保费的90%。但在任何单一年份，我们很可能会显得要么利润巨大，要么亏损巨大。部分原因在于，按美国通用会计准则，我们不允许在无巨灾的年份为其他年份必然发生的损失计提准备金。实际上，一年期的会计周期与这个业务的性质并不相配——当你评估我们的年度业绩时，这是你需要认清的现实。
去年，按照我们的定义，只发生了一次超级巨灾，但仅触发我们约25%保单的赔付。因此，我们目前估计1991年巨灾业务的承销利润约为1100万美元。（你可能惊讶于1991年最大巨灾的身份：既不是奥克兰火灾，也不是鲍勃飓风，而是日本九月的台风，它给行业带来的保险损失目前估计在40-50亿美元之间。按较高数字计算，这场台风的损失将超过此前纪录保持者——雨果飓风。）
保险公司永远需要大量再保险来防范海难、空难以及自然灾害。在80年代，这类再保险很大一部分是由"天真汉"提供的——也就是那些根本不了解业务风险的保险公司——但如今它们已被烧得面目全非。（巴菲特本人过去在亲自经营保险业务时，也常常是个天真汉。）不过，保险公司跟投资者一样，最终会重蹈覆辙。在某个时候——很可能是在连续几年巨灾稀少之后——天真汉会卷土重来，超级巨灾保单的价格也会跌到荒唐的水平。
但只要费率看上去还过得去，我们就会继续积极参与超级巨灾保障业务。在推销这一产品时，我们拥有显著的竞争优势，因为我们有一流的财务实力。有头脑的保险公司知道，当"大灾"来临时，许多当初轻松签下保单的再保险公司，会发现很难轻松地开出支票。（有些再保险公司可以像Jackie Mason那样说："我这辈子不愁了——只要我不买东西。"）而伯克希尔即使在极端不利的情况下，也毫无疑问有能力履行所有承诺。
总体而言，保险业给伯克希尔带来了最大的机遇。Mike Goldberg自接手以来，在这一业务上创造了奇迹，使它成为一项非常有价值的资产——尽管无法精确估值。
上市普通股
下一页我们列出了市值超过1亿美元的普通股持股。这些投资中有一小部分属于伯克希尔持股不到100%的子公司。
1991年12月31日
股份数 公司 成本 市值
------ ------- ---------- ----------
（单位：千美元）
3,000,000 Capital Cities/ABC, Inc. ................... $ 517,500 $1,300,500
46,700,000 The Coca-Cola Company. .................... 1,023,920 3,747,675
2,495,200 Federal Home Loan Mortgage Corp. ........... 77,245 343,090
6,850,000 GEICO Corp. .............................. 45,713 1,363,150
24,000,000 The Gillette Company ...................... 600,000 1,347,000
31,247,000 Guinness PLC ............................. 264,782 296,755
1,727,765 The Washington Post Company ............... 9,731 336,050
5,000,000 Wells Fargo & Company 289,431 290,000
一如既往，这份投资清单体现了我们“瑞普·凡·温克尔”式的投资风格。健力士是新持仓。但其余七只股票一年前就已持有（考虑到了吉列头寸从优先股转为普通股），并且其中六只持股数量未变。唯一例外是联邦住宅贷款抵押公司（“房地美”），我们对它的持股略有增加。这种“按兵不动”反映了我们的观点：股票市场充当的是资金流动的枢纽，资金从活跃分子流向耐心持有者。（我半开玩笑地指出，近期事件表明，备受诟病的“游手好闲的有钱人”其实被冤枉了：他们保持甚至增加了财富，而许多“精力旺盛的有钱人”——激进的地产开发商、企业收购者、石油钻探商等——却见证了财富的消失。）
我们对健力士的持仓代表伯克希尔首次大举投资美国境外注册的公司。不过，健力士的赚钱方式和可口可乐、吉列非常相似——这两家美国公司大部分利润也来自国际业务。事实上，从利润来源的地域分布（按大洲划分）来看，可口可乐和健力士有着极强的相似性。（但你绝不会搞混它们的饮料——你主席依然坚定不移地站在樱桃可乐阵营。）
我们持续寻找那些拥有易懂、持久且令人垂涎的经济前景的大型企业，并由能干且以股东为导向的管理层经营。这种专注并不能保证结果：我们既要买在合理价格，又要从公司实际经营中获得验证我们判断的业绩。但这种投资方法——寻找超级明星——才是我们真正成功的唯一可能。以我们操作的庞大资金规模，查理和我根本没聪明到能通过机敏地买卖平庸企业的一部分来获得优异结果。我们也不认为其他人通过像蝴蝶一样在花朵间频繁切换就能实现长期投资成功。事实上，我们相信给活跃交易的机构冠以“投资者”之名，就像把频繁一夜情的人称作浪漫主义者一样。
如果我的可选生意范围仅限于，比方说，奥马哈的私营公司，我会首先尝试评估每家企业的长期经济特征；其次评估负责经营的管理层素质；第三，尝试以合理价格买入其中几家最好的经营实体。我当然不希望拥有城里每家公司的等额股份。那么，当伯克希尔面对更大范围的上市公司时，为什么应该采取不同的策略呢？既然寻找优秀企业和杰出经理人如此困难，我们为何要抛弃已经证明过的产品？（我差点想用“正宗的”这个词。）我们的信条是：“如果一开始你就成功了，那就别再多费力气。”
约翰·梅纳德·凯恩斯，作为实践投资家的才华与作为思想家的才华相匹配，在1934年8月15日写给商业伙伴F·C·斯科特的信中一针见血地指出：“随着时间的推移，我越来越确信，正确的投资方法是将相当大笔的资金投入那些你自认为有所了解、并且对其管理层完全信任的企业。认为通过将资金分散到许多自己知之甚少、也没有特别信心的企业就能限制风险，这是一个错误……一个人的知识和经验肯定有限，在任何时候，我个人认为完全值得信赖的企业很少超过两三家。”
今日之误
在1989年的年报中，我写到了"前25年的错误"，并承诺在2015年向你们汇报最新进展。但在这第二个"学期"的头几年，我的经历表明，如果坚持原计划，我需要讨论的积压事项将变得难以处理。因此，我会偶尔在这些页面中卸下包袱，希望公开忏悔能阻止我继续犯糊涂。（事后检讨对医院和橄榄球队都有用——为什么对企业和投资者就不行呢？）
通常，我们最严重的错误属于"不作为"而非"作为"一类。这或许能让查理和我少一些尴尬，因为你们看不到这些失误；但看不见并不代表它们不造成损失。在这次自责中，我指的不是错过那些依赖晦涩发明（如施乐）、高科技（如苹果）、甚至卓越营销（如沃尔玛）的公司。我们永远也不会培养出早期识别这类企业的能力。我指的是那些查理和我都能理解、而且看起来明显有吸引力的商业机会——但我们最终却干瞪眼，没有买入。
每位作者都知道用生动的例子更有说服力，但我真希望现在这个例子别那么戏剧化：1988年初，我们决定买入3000万股（之后经拆股调整）联邦国民抵押贷款协会（房利美），这将是一笔3.5亿到4亿美元的投资。几年前我们曾持有过这只股票，也了解这家公司的业务。此外，我们很清楚，房利美的CEO大卫·麦克斯韦出色地处理了他接手时的一些问题，并已将公司打造成一个金融巨头——最好的日子还在后头。我去华盛顿拜访了大卫，并确认如果我们大举建仓，他不会感到不适。
在我们买入约700万股后，股价开始上涨。沮丧之下，我停止了买入（好在后来买入可口可乐时股价同样上涨，我没有重蹈覆辙）。更愚蠢的是，我屈服于自己对持有小仓位的不适，卖掉了我们拥有的那700万股。
我真希望自己能给出一个还算合理的解释，来说明我在房利美上的业余行为。但没有。我能给出的，是截至1991年底关于伯克希尔因董事长犯错而错失的大致收益估算：约14亿美元。
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固定收益证券
1991年，我们对固定收益组合做了几项重大调整。如前所述，我们的吉列优先股被赎回，这迫使我们转换为普通股；我们清仓了RJR纳贝斯克的一只债券（该债券涉及换股要约及后续赎回）；我们买入了美国运通和第一帝国州公司（一家总部位于布法罗的银行控股公司）的固定收益证券。我们还增持了1990年底建立的小仓位ACF工业。年底时我们最大的持仓是：
(单位：千美元)
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优先股成本及债券摊销价值 市值
发行人 ------------------------ ------------
ACF Industries ................ $ 93,918(2) $118,683
American Express .............. 300,000 263,265(1)(2)
Champion International ........ 300,000(2) 300,000(1)
First Empire State 40,000 50,000(1)(2)
RJR Nabisco 222,148(2) 285,683
Salomon 700,000(2) 714,000(1)
USAir 358,000(2) 232,700(1)
Washington Public Power Systems 158,553(2) 203,071
(1) Charlie和我确定的公允价值
(2) 我们财务报表中的账面价值
我们持有的First Empire State优先股金额4000万美元，票面利率9%，1996年前不可赎回，可按每股78.91美元转换为普通股。通常我会认为这笔投资规模太小，不适合伯克希尔，但我对First Empire的CEO Bob Wilmers极为敬重，无论规模大小，我都乐意做他的合伙人。
美国运通（American Express）优先股并非普通的固定收益证券。它属于"Perc"（优先收益可转换证券），按我们3亿美元的成本计算，固定股息率为8.85%。除后面提到的一个例外情况外，该优先股在发行三年后必须转换为最多12,244,898股普通股。如有必要，转换比例将向下调整，以确保我们获得的普通股总价值不超过4.14亿美元。因此，转换时我们获得的普通股价值虽然设有上限，但没有下限。不过，该优先股条款中包含一项规定：如果在购买满三周年时普通股价格低于24.50美元，我们可以将转换日期延长一年。
总体而言，我们的固定收益投资无论长期还是近期都表现良好。我们从中实现了可观的资本利得，1991年约为1.52亿美元。此外，我们的税后收益率远超过大多数固定收益投资组合的收益。
尽管如此，我们还是遇到了一些意外，其中最大的意外莫过于我不得不亲自深度介入所罗门（Salomon）事件。在写这封信的同时，我也在撰写所罗门公司年报的致股东信，关于该公司的最新情况，请参阅那份报告（来函请寄：所罗门公司秘书，纽约世界贸易中心七号，邮编10048）。尽管该公司历经磨难，但Charlie和我认为，我们在1991年持有的所罗门优先股价值略有上升。利率下降以及所罗门普通股价格上涨带来了这一结果。
去年我曾告诉各位，我们在全美航空（USAir）的投资"应该能顺利渡过难关，除非航空业在未来几年遭受重创"。不幸的是，1991年对该行业来说就是重创之年：中途航空（Midway）、泛美航空（Pan Am）和美西航空（America West）均宣告破产。（如果把时间拉长到14个月，还可以加上大陆航空（Continental）和环球航空（TWA）。）
我们在表格中给予全美航空（USAir）的低估值，反映了这个行业几乎对所有参与者都可能持续亏损的风险——这种风险远非微不足道。法院一直鼓励破产运营商继续运营，这进一步加剧了风险。这些破产运营商可以暂时收取低于行业成本的票价，因为它们无需像偿债能力正常的同行那样承担资本成本，而且可以通过变卖资产来弥补亏损——从而避免停业。破产运营商这种"拆家具生火"的定价方式，导致原本就处于盈亏边缘的运营商接连倒闭，形成一种精心设计的多米诺效应，最终让整个行业一蹶不振。
1991年出任全美航空CEO的塞思·斯科菲尔德（Seth Schofield）正在对航空公司的运营进行重大调整，以提高其成为少数幸存者之一的可能性。在美国企业界，没有比经营航空公司更艰难的工作了：尽管这个行业自基蒂霍克（Kitty Hawk）诞生以来注入了巨额股权资本，但整体上一直处于净亏损状态。航空公司管理者需要头脑、胆识和经验——塞思三者兼备。
**杂项**
伯克希尔1991年股东指定捐赠计划中，约97.7%的合格股份参与了该计划。通过该计划做出的捐赠总额为680万美元，共有2,630家慈善机构受益。
我们建议新股东阅读第48-49页关于股东指定捐赠计划的说明。要参与未来的计划，您必须确保您的股票以实际所有者的名义登记，而不是以经纪人、银行或存管机构的代名人名义登记。未在1992年8月31日以这种方式登记的股票将没有资格参与1992年的计划。
除了伯克希尔分配的股东指定捐赠外，我们经营企业的管理者也会做出捐赠（包括实物捐赠），平均每年约150万美元。这些捐赠支持当地的慈善机构，例如联合劝募会（The United Way），并为我们的企业带来大致相称的回报。
然而，我们的经营管理者或母公司的官员均不使用伯克希尔的资金向全国性的大型计划或他们个人特别感兴趣的慈善活动捐款，除非他们以股东身份这样做。如果您的高管（包括您的CEO）希望向母校或其他他们个人有感情联系的机构捐款，我们认为他们应该用自己的钱，而不是您的。
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细心的读者会注意到，多年来查理（Charlie）致韦斯科（Wesco）股东的信件首次没有在本报告中重印。由于今年查理的报告相对简略，他说他觉得没必要包含在这里；不过，我本人建议您索取一份韦斯科的报告。只需写信至：Corporate Secretary, Wesco Financial Corporation, 315 East Colorado Boulevard, Pasadena, CA 91101。
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马尔科姆·G·蔡斯二世（Malcolm G. Chace, Jr.），现年88岁，已决定今年不再竞选董事。但蔡斯家族与伯克希尔的联系不会中断：马尔科姆的儿子马尔科姆三世（金）将被提名为接替人选。
1931年，马尔科姆进入伯克希尔精细纺纱联合公司（Berkshire Fine Spinning Associates）工作，这家公司于1955年与哈撒韦制造公司（Hathaway Manufacturing Co.）合并，形成了我们现在的公司。两年后，马尔科姆成为伯克希尔·哈撒韦（Berkshire Hathaway）的董事长——1965年初，他也担任这一职务，当时他促成巴菲特合伙有限公司（Buffett Partnership, Ltd.）从他的一些亲戚手中买下了一大批伯克希尔股票。这笔收购让我们的合伙公司实际控制了该公司。马尔科姆的直系亲属则保留了他们的伯克希尔股票，并在过去27年里一直持有公司第二大股份，仅次于巴菲特家族。与马尔科姆共事令人愉快，我们也很高兴查斯家族与伯克希尔之间的长期关系延续到了新一代。
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今年的年会将于1992年4月27日星期一上午9:30在奥马哈市中心的奥菲姆剧院举行。去年参会人数创下1,550人的记录，但奥菲姆剧院仍有足够空间。
我们建议您尽早到以下酒店之一预订房间：
（1）雷迪森-雷迪克塔酒店（Radisson-Redick Tower），这是一家小巧（88间客房）但不错的酒店，就在奥菲姆剧院对面；
（2）大得多的红狮酒店（Red Lion Hotel），步行到奥菲姆大约五分钟；
（3）万豪酒店（Marriott），位于奥马哈西区，距离波仙珠宝（Borsheim's）约100码，距市中心车程20分钟。我们将在万豪酒店安排巴士，8:30和8:45出发前往会场，会议结束后返回。
查理和我总是很享受这次会议，希望您能参加。我们股东的质量体现在我们收到的问题质量上：我们从未在任何其他年会上见到过如此一贯高水平的、与所有者相关的聪明问题。
股东委托书附件将说明如何获取参会所需入场卡。我们会在入场卡中附上奥菲姆剧院附近停车设施的信息。如果您开车来，请早到一点。附近停车场很快会停满，您可能需要走几个街区。
像往常一样，会议结束后我们将有巴士送您前往内布拉斯加家具城（Nebraska Furniture Mart）和波仙珠宝，之后还能从那里送往市中心酒店或机场。希望您留出足够时间充分探索两家店的魅力。提前到达的股东可以在一周中的任何一天参观家具城；家具城周六上午10点至下午5:30营业，周日下午12点至5:30营业。在那里，请到喜诗糖果（See's Candy）推车旁歇歇脚，亲自感受一下为什么美国人去年吃掉了2,600万磅喜诗的产品。
波仙珠宝通常周日不营业，但我们将在4月26日（周日）中午12点至下午6点对股东及其嘉宾开放。波仙珠宝在前一天晚上还将举办一场特别派对，欢迎股东参加。（不过，您需要写信给奥马哈办公室的格拉迪斯·凯泽夫人索取邀请函。）当晚将展出百达翡丽（Patek Philippe）150年来最杰出的钟表作品，包括曾属于维多利亚女王、教皇庇护九世、鲁德亚德·吉卜林、居里夫人和阿尔伯特·爱因斯坦的手表。展览的核心是一块价值500万美元的手表，其设计和制造耗费了百达翡丽工匠九年的心血。这块手表将与其余藏品一起在周日于店内展出——除非查理在那之前冲动地把它买了下来。
尼古拉斯·肯纳又一次在去年的股东会上抓了我的现行——他指出我在1990年年报里说他在1990年5月是11岁，但实际上他当时才9岁。于是尼古拉斯相当尖刻地质问我："如果你连这个都搞不对，我怎么知道你后面那些数字（财务数据）是准确的呢？"我到现在还在琢磨怎么给个漂亮的回击。尼古拉斯今年也会来参加股东会——他今天拒绝了我请他去迪士尼乐园的提议——所以欢迎各位来围观这场一边倒的智力较量的续集。
沃伦·E·巴菲特
董事会主席
1992年2月28日