ENGLISH
BERKSHIRE HATHAWAY INC.
To the Shareholders of Berkshire Hathaway Inc.:
Our gain in net worth during 1994 was $1.45 billion or 13.9%.
Over the last 30 years (that is, since present management took
over) our per-share book value has grown from $19 to $10,083, or
at a rate of 23% compounded annually.
Charlie Munger, Berkshire's Vice Chairman and my partner,
and I make few predictions. One we will confidently offer,
however, is that the future performance of Berkshire won't come
close to matching the performance of the past.
The problem is not that what has worked in the past will
cease to work in the future. To the contrary, we believe that
our formula - the purchase at sensible prices of businesses that
have good underlying economics and are run by honest and able
people - is certain to produce reasonable success. We expect,
therefore, to keep on doing well.
A fat wallet, however, is the enemy of superior investment
results. And Berkshire now has a net worth of $11.9 billion
compared to about $22 million when Charlie and I began to manage
the company. Though there are as many good businesses as ever,
it is useless for us to make purchases that are inconsequential
in relation to Berkshire's capital. (As Charlie regularly
reminds me, "If something is not worth doing at all, it's not
worth doing well.") We now consider a security for purchase only
if we believe we can deploy at least $100 million in it. Given
that minimum, Berkshire's investment universe has shrunk
dramatically.
Nevertheless, we will stick with the approach that got us
here and try not to relax our standards. Ted Williams, in
The Story of My Life, explains why: "My argument is, to be
a good hitter, you've got to get a good ball to hit. It's the
first rule in the book. If I have to bite at stuff that is out
of my happy zone, I'm not a .344 hitter. I might only be a .250
hitter." Charlie and I agree and will try to wait for
opportunities that are well within our own "happy zone."
We will continue to ignore political and economic forecasts,
which are an expensive distraction for many investors and
businessmen. Thirty years ago, no one could have foreseen the
huge expansion of the Vietnam War, wage and price controls, two
oil shocks, the resignation of a president, the dissolution of
the Soviet Union, a one-day drop in the Dow of 508 points, or
treasury bill yields fluctuating between 2.8% and 17.4%.
But, surprise - none of these blockbuster events made the
slightest dent in Ben Graham's investment principles. Nor did
they render unsound the negotiated purchases of fine businesses
at sensible prices. Imagine the cost to us, then, if we had let
a fear of unknowns cause us to defer or alter the deployment of
capital. Indeed, we have usually made our best purchases when
apprehensions about some macro event were at a peak. Fear is the
foe of the faddist, but the friend of the fundamentalist.
A different set of major shocks is sure to occur in the next
30 years. We will neither try to predict these nor to profit
from them. If we can identify businesses similar to those we
have purchased in the past, external surprises will have little
effect on our long-term results.
What we promise you - along with more modest gains - is that
during your ownership of Berkshire, you will fare just as Charlie
and I do. If you suffer, we will suffer; if we prosper, so will
you. And we will not break this bond by introducing compensation
arrangements that give us a greater participation in the upside
than the downside.
We further promise you that our personal fortunes will
remain overwhelmingly concentrated in Berkshire shares: We will
not ask you to invest with us and then put our own money
elsewhere. In addition, Berkshire dominates both the investment
portfolios of most members of our families and of a great many
friends who belonged to partnerships that Charlie and I ran in
the 1960's. We could not be more motivated to do our best.
Luckily, we have a good base from which to work. Ten years
ago, in 1984, Berkshire's insurance companies held securities
having a value of $1.7 billion, or about $1,500 per Berkshire
share. Leaving aside all income and capital gains from those
securities, Berkshire's pre-tax earnings that year were only
about $6 million. We had earnings, yes, from our various
manufacturing, retailing and service businesses, but they were
almost entirely offset by the combination of underwriting losses
in our insurance business, corporate overhead and interest
expense.
Now we hold securities worth $18 billion, or over $15,000
per Berkshire share. If you again exclude all income from these
securities, our pre-tax earnings in 1994 were about $384 million.
During the decade, employment has grown from 5,000 to 22,000
(including eleven people at World Headquarters).
We achieved our gains through the efforts of a superb corps
of operating managers who get extraordinary results from some
ordinary-appearing businesses. Casey Stengel described managing
a baseball team as "getting paid for home runs other fellows
hit." That's my formula at Berkshire, also.
The businesses in which we have partial interests are
equally important to Berkshire's success. A few statistics will
illustrate their significance: In 1994, Coca-Cola sold about 280
billion 8-ounce servings and earned a little less than a penny on
each. But pennies add up. Through Berkshire's 7.8% ownership of
Coke, we have an economic interest in 21 billion of its servings,
which produce "soft-drink earnings" for us of nearly $200
million. Similarly, by way of its Gillette stock, Berkshire has
a 7% share of the world's razor and blade market (measured by
revenues, not by units), a proportion according us about $250
million of sales in 1994. And, at Wells Fargo, a $53 billion
bank, our 13% ownership translates into a $7 billion "Berkshire
Bank" that earned about $100 million during 1994.
It's far better to own a significant portion of the Hope
diamond than 100% of a rhinestone, and the companies just
mentioned easily qualify as rare gems. Best of all, we aren't
limited to simply a few of this breed, but instead possess a
growing collection.
Stock prices will continue to fluctuate - sometimes sharply
- and the economy will have its ups and down. Over time,
however, we believe it highly probable that the sort of
businesses we own will continue to increase in value at a
satisfactory rate.
Book Value and Intrinsic Value
We regularly report our per-share book value, an easily
calculable number, though one of limited use. Just as regularly,
we tell you that what counts is intrinsic value, a number that is
impossible to pinpoint but essential to estimate.
For example, in 1964, we could state with certitude that
Berkshire's per-share book value was $19.46. However, that
figure considerably overstated the stock's intrinsic value since
all of the company's resources were tied up in a sub-profitable
textile business. Our textile assets had neither going-concern
nor liquidation values equal to their carrying values. In 1964,
then, anyone inquiring into the soundness of Berkshire's balance
sheet might well have deserved the answer once offered up by a
Hollywood mogul of dubious reputation: "Don't worry, the
liabilities are solid."
Today, Berkshire's situation has reversed: Many of the
businesses we control are worth far more than their carrying
value. (Those we don't control, such as Coca-Cola or Gillette,
are carried at current market values.) We continue to give you
book value figures, however, because they serve as a rough,
albeit significantly understated, tracking measure for Berkshire's
intrinsic value. Last year, in fact, the two measures moved in
concert: Book value gained 13.9%, and that was the approximate
gain in intrinsic value also.
We define intrinsic value as the discounted value of the
cash that can be taken out of a business during its remaining
life. Anyone calculating intrinsic value necessarily comes up
with a highly subjective figure that will change both as
estimates of future cash flows are revised and as interest rates
move. Despite its fuzziness, however, intrinsic value is all-
important and is the only logical way to evaluate the relative
attractiveness of investments and businesses.
To see how historical input (book value) and future output
(intrinsic value) can diverge, let's look at another form of
investment, a college education. Think of the education's cost
as its "book value." If it is to be accurate, the cost should
include the earnings that were foregone by the student because he
chose college rather than a job.
For this exercise, we will ignore the important non-economic
benefits of an education and focus strictly on its economic
value. First, we must estimate the earnings that the graduate
will receive over his lifetime and subtract from that figure an
estimate of what he would have earned had he lacked his
education. That gives us an excess earnings figure, which must
then be discounted, at an appropriate interest rate, back to
graduation day. The dollar result equals the intrinsic economic
value of the education.
Some graduates will find that the book value of their
education exceeds its intrinsic value, which means that whoever
paid for the education didn't get his money's worth. In other
cases, the intrinsic value of an education will far exceed its
book value, a result that proves capital was wisely deployed. In
all cases, what is clear is that book value is meaningless as an
indicator of intrinsic value.
Now let's get less academic and look at Scott Fetzer, an
example from Berkshire's own experience. This account will not
only illustrate how the relationship of book value and intrinsic
value can change but also will provide an accounting lesson that
I know you have been breathlessly awaiting. Naturally, I've
chosen here to talk about an acquisition that has turned out to
be a huge winner.
Berkshire purchased Scott Fetzer at the beginning of 1986.
At the time, the company was a collection of 22 businesses, and
today we have exactly the same line-up - no additions and no
disposals. Scott Fetzer's main operations are World Book, Kirby,
and Campbell Hausfeld, but many other units are important
contributors to earnings as well.
We paid $315.2 million for Scott Fetzer, which at the time
had $172.6 million of book value. The $142.6 million premium we
handed over indicated our belief that the company's intrinsic
value was close to double its book value.
In the table below we trace the book value of Scott Fetzer,
as well as its earnings and dividends, since our purchase.
(1) (4)
Beginning (2) (3) Ending
Year Book Value Earnings Dividends Book Value
---- ---------- -------- --------- ----------
(In $ Millions) (1)+(2)-(3)
1986 ............... $172.6 $ 40.3 $125.0 $ 87.9
1987 ............... 87.9 48.6 41.0 95.5
1988 ............... 95.5 58.0 35.0 118.6
1989 ............... 118.6 58.5 71.5 105.5
1990 ............... 105.5 61.3 33.5 133.3
1991 ............... 133.3 61.4 74.0 120.7
1992 ............... 120.7 70.5 80.0 111.2
1993 ............... 111.2 77.5 98.0 90.7
1994 ............... 90.7 79.3 76.0 94.0
Because it had excess cash when our deal was made, Scott
Fetzer was able to pay Berkshire dividends of $125 million in
1986, though it earned only $40.3 million. I should mention that
we have not introduced leverage into Scott Fetzer's balance
sheet. In fact, the company has gone from very modest debt when
we purchased it to virtually no debt at all (except for debt used
by its finance subsidiary). Similarly, we have not sold plants
and leased them back, nor sold receivables, nor the like.
Throughout our years of ownership, Scott Fetzer has operated as a
conservatively-financed and liquid enterprise.
As you can see, Scott Fetzer's earnings have increased
steadily since we bought it, but book value has not grown
commensurately. Consequently, return on equity, which was
exceptional at the time of our purchase, has now become truly
extraordinary. Just how extraordinary is illustrated by
comparing Scott Fetzer's performance to that of the Fortune 500,
a group it would qualify for if it were a stand-alone company.
Had Scott Fetzer been on the 1993 500 list - the latest
available for inspection - the company's return on equity would
have ranked 4th. But that is far from the whole story. The top
three companies in return on equity were Insilco, LTV and Gaylord
Container, each of which emerged from bankruptcy in 1993 and none
of which achieved meaningful earnings that year except for those
they realized when they were accorded debt forgiveness in
bankruptcy proceedings. Leaving aside such non-operating
windfalls, Scott Fetzer's return on equity would have ranked it
first on the Fortune 500, well ahead of number two. Indeed,
Scott Fetzer's return on equity was double that of the company
ranking tenth.
You might expect that Scott Fetzer's success could only be
explained by a cyclical peak in earnings, a monopolistic
position, or leverage. But no such circumstances apply. Rather,
the company's success comes from the managerial expertise of CEO
Ralph Schey, of whom I'll tell you more later.
First, however, the promised accounting lesson: When we
paid a $142.6 million premium over book value for Scott Fetzer,
that figure had to be recorded on Berkshire's balance sheet.
I'll spare you the details of how this worked (these were laid
out in an appendix to our 1986 Annual Report) and get to the
bottom line: After a premium is initially recorded, it must in
almost all cases be written off over time through annual charges
that are shown as costs in the acquiring company's earnings
statement.
The following table shows, first, the annual charges
Berkshire has made to gradually extinguish the Scott Fetzer
acquisition premium and, second, the premium that remains on our
books. These charges have no effect on cash or the taxes we pay,
and are not, in our view, an economic cost (though many
accountants would disagree with us). They are merely a way for
us to reduce the carrying value of Scott Fetzer on our books so
that the figure will eventually match the net worth that Scott
Fetzer actually employs in its business.
Beginning Purchase-Premium Ending
Purchase Charge to Purchase
Year Premium Berkshire Earnings Premium
---- --------- ------------------ --------
(In $ Millions)
1986 ................ $142.6 $ 11.6 $131.0
1987 ................ 131.0 7.1 123.9
1988 ................ 123.9 7.9 115.9
1989 ................ 115.9 7.0 108.9
1990 ................ 108.9 7.1 101.9
1991 ................ 101.9 6.9 95.0
1992 ................ 95.0 7.7 87.2
1993 ................ 87.2 28.1 59.1
1994 ................ 59.1 4.9 54.2
Note that by the end of 1994 the premium was reduced to
$54.2 million. When this figure is added to Scott Fetzer's year-
end book value of $94 million, the total is $148.2 million, which
is the current carrying value of Scott Fetzer on Berkshire's
books. That amount is less than half of our carrying value for
the company when it was acquired. Yet Scott Fetzer is now
earning about twice what it then did. Clearly, the intrinsic
value of the business has consistently grown, even though we have
just as consistently marked down its carrying value through
purchase-premium charges that reduced Berkshire's earnings and
net worth.
The difference between Scott Fetzer's intrinsic value and
its carrying value on Berkshire's books is now huge. As I
mentioned earlier - but am delighted to mention again - credit
for this agreeable mismatch goes to Ralph Schey, a focused, smart
and high-grade manager.
The reasons for Ralph's success are not complicated. Ben
Graham taught me 45 years ago that in investing it is not
necessary to do extraordinary things to get extraordinary
results. In later life, I have been surprised to find that this
statement holds true in business management as well. What a
manager must do is handle the basics well and not get diverted.
That's precisely Ralph's formula. He establishes the right goals
and never forgets what he set out to do. On the personal side,
Ralph is a joy to work with. He's forthright about problems and
is self-confident without being self-important.
He is also experienced. Though I don't know Ralph's age, I
do know that, like many of our managers, he is over 65. At
Berkshire, we look to performance, not to the calendar. Charlie
and I, at 71 and 64 respectively, now keep George Foreman's
picture on our desks. You can make book that our scorn for a
mandatory retirement age will grow stronger every year.
Intrinsic Value and Capital Allocation
Understanding intrinsic value is as important for managers
as it is for investors. When managers are making capital
allocation decisions - including decisions to repurchase shares -
it's vital that they act in ways that increase per-share
intrinsic value and avoid moves that decrease it. This principle
may seem obvious but we constantly see it violated. And, when
misallocations occur, shareholders are hurt.
For example, in contemplating business mergers and
acquisitions, many managers tend to focus on whether the
transaction is immediately dilutive or anti-dilutive to earnings
per share (or, at financial institutions, to per-share book
value). An emphasis of this sort carries great dangers. Going
back to our college-education example, imagine that a 25-year-old
first-year MBA student is considering merging his future economic
interests with those of a 25-year-old day laborer. The MBA
student, a non-earner, would find that a "share-for-share" merger
of his equity interest in himself with that of the day laborer
would enhance his near-term earnings (in a big way!). But what
could be sillier for the student than a deal of this kind?
In corporate transactions, it's equally silly for the would-
be purchaser to focus on current earnings when the prospective
acquiree has either different prospects, different amounts of
non-operating assets, or a different capital structure. At
Berkshire, we have rejected many merger and purchase
opportunities that would have boosted current and near-term
earnings but that would have reduced per-share intrinsic value.
Our approach, rather, has been to follow Wayne Gretzky's advice:
"Go to where the puck is going to be, not to where it is." As a
result, our shareholders are now many billions of dollars richer
than they would have been if we had used the standard catechism.
The sad fact is that most major acquisitions display an
egregious imbalance: They are a bonanza for the shareholders of
the acquiree; they increase the income and status of the
acquirer's management; and they are a honey pot for the
investment bankers and other professionals on both sides. But,
alas, they usually reduce the wealth of the acquirer's shareholders,
often to a substantial extent. That happens because the acquirer
typically gives up more intrinsic value than it receives. Do that
enough, says John Medlin, the retired head of Wachovia Corp., and
"you are running a chain letter in reverse."
Over time, the skill with which a company's managers
allocate capital has an enormous impact on the enterprise's
value. Almost by definition, a really good business generates
far more money (at least after its early years) than it can use
internally. The company could, of course, distribute the money
to shareholders by way of dividends or share repurchases. But
often the CEO asks a strategic planning staff, consultants or
investment bankers whether an acquisition or two might make
sense. That's like asking your interior decorator whether you
need a $50,000 rug.
The acquisition problem is often compounded by a biological
bias: Many CEO's attain their positions in part because they
possess an abundance of animal spirits and ego. If an executive
is heavily endowed with these qualities - which, it should be
acknowledged, sometimes have their advantages - they won't
disappear when he reaches the top. When such a CEO is encouraged
by his advisors to make deals, he responds much as would a
teenage boy who is encouraged by his father to have a normal sex
life. It's not a push he needs.
Some years back, a CEO friend of mine - in jest, it must be
said - unintentionally described the pathology of many big deals.
This friend, who ran a property-casualty insurer, was explaining
to his directors why he wanted to acquire a certain life
insurance company. After droning rather unpersuasively through
the economics and strategic rationale for the acquisition, he
abruptly abandoned the script. With an impish look, he simply
said: "Aw, fellas, all the other kids have one."
At Berkshire, our managers will continue to earn
extraordinary returns from what appear to be ordinary businesses.
As a first step, these managers will look for ways to deploy
their earnings advantageously in their businesses. What's left,
they will send to Charlie and me. We then will try to use those
funds in ways that build per-share intrinsic value. Our goal
will be to acquire either part or all of businesses that we
believe we understand, that have good, sustainable underlying
economics, and that are run by managers whom we like, admire and
trust.
Compensation
At Berkshire, we try to be as logical about compensation as
about capital allocation. For example, we compensate Ralph Schey
based upon the results of Scott Fetzer rather than those of
Berkshire. What could make more sense, since he's responsible
for one operation but not the other? A cash bonus or a stock
option tied to the fortunes of Berkshire would provide totally
capricious rewards to Ralph. He could, for example, be hitting
home runs at Scott Fetzer while Charlie and I rang up mistakes at
Berkshire, thereby negating his efforts many times over.
Conversely, why should option profits or bonuses be heaped upon
Ralph if good things are occurring in other parts of Berkshire
but Scott Fetzer is lagging?
In setting compensation, we like to hold out the promise of
large carrots, but make sure their delivery is tied directly to
results in the area that a manager controls. When capital
invested in an operation is significant, we also both charge
managers a high rate for incremental capital they employ and
credit them at an equally high rate for capital they release.
The product of this money's-not-free approach is definitely
visible at Scott Fetzer. If Ralph can employ incremental funds
at good returns, it pays him to do so: His bonus increases when
earnings on additional capital exceed a meaningful hurdle charge.
But our bonus calculation is symmetrical: If incremental
investment yields sub-standard returns, the shortfall is costly
to Ralph as well as to Berkshire. The consequence of this two-
way arrangement is that it pays Ralph - and pays him well - to
send to Omaha any cash he can't advantageously use in his
business.
It has become fashionable at public companies to describe
almost every compensation plan as aligning the interests of
management with those of shareholders. In our book, alignment
means being a partner in both directions, not just on the upside.
Many "alignment" plans flunk this basic test, being artful forms
of "heads I win, tails you lose."
A common form of misalignment occurs in the typical stock
option arrangement, which does not periodically increase the
option price to compensate for the fact that retained earnings
are building up the wealth of the company. Indeed, the
combination of a ten-year option, a low dividend payout, and
compound interest can provide lush gains to a manager who has
done no more than tread water in his job. A cynic might even
note that when payments to owners are held down, the profit to
the option-holding manager increases. I have yet to see this
vital point spelled out in a proxy statement asking shareholders
to approve an option plan.
I can't resist mentioning that our compensation arrangement
with Ralph Schey was worked out in about five minutes,
immediately upon our purchase of Scott Fetzer and without the
"help" of lawyers or compensation consultants. This arrangement
embodies a few very simple ideas - not the kind of terms favored
by consultants who cannot easily send a large bill unless they
have established that you have a large problem (and one, of
course, that requires an annual review). Our agreement with
Ralph has never been changed. It made sense to him and to me in
1986, and it makes sense now. Our compensation arrangements with
the managers of all our other units are similarly simple, though
the terms of each agreement vary to fit the economic
characteristics of the business at issue, the existence in some
cases of partial ownership of the unit by managers, etc.
In all instances, we pursue rationality. Arrangements that
pay off in capricious ways, unrelated to a manager's personal
accomplishments, may well be welcomed by certain managers. Who,
after all, refuses a free lottery ticket? But such arrangements
are wasteful to the company and cause the manager to lose focus
on what should be his real areas of concern. Additionally,
irrational behavior at the parent may well encourage imitative
behavior at subsidiaries.
At Berkshire, only Charlie and I have the managerial
responsibility for the entire business. Therefore, we are the
only parties who should logically be compensated on the basis of
what the enterprise does as a whole. Even so, that is not a
compensation arrangement we desire. We have carefully designed
both the company and our jobs so that we do things we enjoy with
people we like. Equally important, we are forced to do very few
boring or unpleasant tasks. We are the beneficiaries as well of
the abundant array of material and psychic perks that flow to the
heads of corporations. Under such idyllic conditions, we don't
expect shareholders to ante up loads of compensation for which we
have no possible need.
Indeed, if we were not paid at all, Charlie and I would be
delighted with the cushy jobs we hold. At bottom, we subscribe
to Ronald Reagan's creed: "It's probably true that hard work
never killed anyone, but I figure why take the chance."
Sources of Reported Earnings
The table on the next page shows the main sources of
Berkshire's reported earnings. In this presentation, purchase-
premium charges of the type we discussed in our earlier analysis
of Scott Fetzer are not assigned to 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. This form of presentation seems to us to be more useful to
investors and managers than one utilizing GAAP, which requires
purchase premiums to be charged off, business-by-business. The
total earnings we show in the table are, of course, identical to
the GAAP total in our audited financial statements.
Berkshire's Share
of Net Earnings
(after taxes and
Pre-Tax Earnings minority interests)
------------------- -------------------
1994 1993 1994 1993
-------- -------- -------- --------
(000s omitted)
Operating Earnings:
Insurance Group:
Underwriting ............... $129,926 $ 30,876 $ 80,860 $ 20,156
Net Investment Income ...... 419,422 375,946 350,453 321,321
Buffalo News ................. 54,238 50,962 31,685 29,696
Fechheimer ................... 14,260 13,442 7,107 6,931
Finance Businesses ........... 21,568 22,695 14,293 14,161
Kirby ........................ 42,349 39,147 27,719 25,056
Nebraska Furniture Mart ...... 17,356 21,540 8,652 10,398
Scott Fetzer Manufacturing Group 39,435 38,196 24,909 23,809
See's Candies ................ 47,539 41,150 28,247 24,367
Shoe Group ................... 85,503 44,025* 55,750 28,829
World Book ................... 24,662 19,915 17,275 13,537
Purchase-Price Premium Charges (22,595) (17,033) (19,355) (13,996)
Interest Expense** ........... (60,111) (56,545) (37,264) (35,614)
Shareholder-Designated
Contributions ............. (10,419) (9,448) (6,668) (5,994)
Other ........................ 36,232 28,428 22,576 15,094
-------- -------- -------- --------
Operating Earnings ............. 839,365 643,296 606,239 477,751
Sales of Securities ............ 91,332 546,422 61,138 356,702
Decline in Value of
USAir Preferred Stock ..... (268,500) --- (172,579) ---
Tax Accruals Caused by
New Accounting Rules ...... --- --- --- (146,332)
-------- --------- -------- --------
Total Earnings - All Entities .. $662,197 $1,189,718 $494,798 $688,121
======== ========= ======== ========
* Includes Dexter's earnings only from the date it was acquired,
November 7, 1993.
**Excludes interest expense of Finance Businesses.
A large amount of information about these businesses is given
on pages 37-48, where you will also find our segment earnings
reported on a GAAP basis. In addition, on pages 53-59, we have
rearranged Berkshire's financial data into four segments on a non-
GAAP basis, a presentation that corresponds to the way Charlie and
I think about the company. Our intent is to supply you with the
financial information that we would wish you to give us if our
positions were reversed.
"Look-Through" Earnings
In past reports, we've discussed look-through earnings, which
we believe more accurately portray the earnings of Berkshire than
does our GAAP result. As we calculate them, look-through earnings
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. The "operating earnings" of which we speak here
exclude capital gains, special accounting items and major
restructuring charges.
If our intrinsic value is to grow at our target rate of 15%,
our look-through earnings, over time, must also increase at about
that pace. When I first explained this concept a few years back, I
told you that meeting this 15% goal would require us to generate
look-through earnings of about $1.8 billion by 2000. Because we've
since issued about 3% more shares, that figure has grown to $1.85
billion.
We are now modestly ahead of schedule in meeting our goal, but
to a significant degree that is because our super-cat insurance
business has recently delivered earnings far above trend-line
expectancy (an outcome I will discuss in the next section). Giving
due weight to that abnormality, we still expect to hit our target
but that, of course, is no sure thing.
The following table shows how we calculate look-through
earnings, though 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 12, 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)
--------------------------- ----------------------- ------------------
1994 1993 1994 1993
------ ------ ------ ------
American Express Company ...... 5.5% 2.4% $ 25(2) $ 16
Capital Cities/ABC, Inc. ...... 13.0% 13.0% 85 83(2)
The Coca-Cola Company ......... 7.8% 7.2% 116(2) 94
Federal Home Loan Mortgage Corp. 6.3%(1) 6.8%(1) 47(2) 41(2)
Gannett Co., Inc. ............. 4.9% --- 4(2) ---
GEICO Corp. ................... 50.2% 48.4% 63(3) 76(3)
The Gillette Company .......... 10.8% 10.9% 51 44
PNC Bank Corp. ................ 8.3% --- 10(2) ---
The Washington Post Company ... 15.2% 14.8% 18 15
Wells Fargo & Company ......... 13.3% 12.2% 73 53(2)
------ ------
Berkshire's share of undistributed
earnings of major investees $ 492 $422
Hypothetical tax on these undistributed
investee earnings(4) (68) (59)
Reported operating earnings of Berkshire 606 478
------- ------
Total look-through earnings of Berkshire $1,030 $ 841
(1) Does not include shares allocable to the minority interest
at Wesco
(2) Calculated on average ownership for the year
(3) Excludes realized capital gains, which have been both
recurring and significant
(4) The tax rate used is 14%, which is the rate Berkshire pays
on the dividends it receives
Insurance Operations
As we've explained in past reports, what counts in our
insurance business is, first, the amount of "float" we develop and,
second, its cost to us. Float is money we hold but don't own. In
an insurance operation, float arises because most policies require
that premiums be prepaid and, more importantly, because it usually
takes time for an insurer to hear about and resolve loss claims.
Typically, the premiums that an insurer takes in do not cover
the losses and expenses it must pay. That leaves it running an
"underwriting loss" - and that loss is the cost of float.
An insurance business is profitable over time if its cost of
float is less than the cost the company would otherwise incur to
obtain funds. But the business has a negative value if the cost of
its float is higher than market rates for money.
As the numbers in the following table show, Berkshire's
insurance business has been an enormous winner. For the table, we
have compiled our float - which we generate in exceptional amounts
relative to our premium volume - by adding loss reserves, loss
adjustment reserves, funds held under reinsurance assumed and unearned
premium reserves and then subtracting agents' balances, prepaid
acquisition costs, prepaid taxes and deferred charges applicable to
assumed reinsurance. Our cost of float is determined by our
underwriting loss or profit. In those years when we have had an
underwriting profit, such as the last two, our cost of float has been
negative, and we have determined our insurance earnings by adding
underwriting profit to float income.
(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 .......... 119.59 1,895.0 6.31% 7.40%
1992 .......... 108.96 2,290.4 4.76% 7.39%
1993 .......... profit 2,624.7 less than zero 6.35%
1994 .......... profit 3,056.6 less than zero 7.88%
Charlie and I are delighted that our float grew in 1994 and
are even more pleased that it proved to be cost-free. But our
message this year echoes the one we delivered in 1993: Though we
have a fine insurance business, it is not as good as it currently
looks.
The reason we must repeat this caution is that our "super-cat"
business (which sells policies that insurance and reinsurance
companies buy to protect themselves from the effects of mega-
catastrophes) was again highly profitable. Since truly major
catastrophes occur infrequently, our super-cat business can be
expected to show large profits in most years but occasionally to
record a huge loss. In other words, the attractiveness of our
super-cat business will take many years to measure. Certainly 1994
should be regarded as close to a best-case. Our only significant
losses arose from the California earthquake in January. I will add
that we do not expect to suffer a major loss from the early-1995
Kobe earthquake.
Super-cat policies are small in number, large in size and non-
standardized. Therefore, the underwriting of this business
requires far more judgment than, say, the underwriting of auto
policies, for which a mass of data is available. Here Berkshire
has a major advantage: Ajit Jain, our super-cat manager, whose
underwriting skills are the finest. His value to us is simply
enormous.
In addition, Berkshire has a special advantage in the super-
cat business because of our towering financial strength, which
helps us in two ways. First, a prudent insurer will want its
protection against true mega-catastrophes - such as a $50 billion
windstorm loss on Long Island or an earthquake of similar cost in
California - to be absolutely certain. But that same insurer knows
that the disaster making it dependent on a large super-cat recovery
is also the disaster that could cause many reinsurers to default.
There's not much sense in paying premiums for coverage that will
evaporate precisely when it is needed. So the certainty that
Berkshire will be both solvent and liquid after a catastrophe of
unthinkable proportions is a major competitive advantage for us.
The second benefit of our capital strength is that we can
write policies for amounts that no one else can even consider. For
example, during 1994, a primary insurer wished to buy a short-term
policy for $400 million of California earthquake coverage and we
wrote the policy immediately. We know of no one else in the world
who would take a $400 million risk, or anything close to it, for
their own account.
Generally, brokers attempt to place coverage for large amounts
by spreading the burden over a number of small policies. But, at
best, coverage of that sort takes considerable time to arrange. In
the meantime, the company desiring reinsurance is left holding a
risk it doesn't want and that may seriously threaten its well-
being. At Berkshire, on the other hand, we will quote prices for
coverage as great as $500 million on the same day that we are asked
to bid. No one else in the industry will do the same.
By writing coverages in large lumps, we obviously expose
Berkshire to lumpy financial results. That's totally acceptable to
us: Too often, insurers (as well as other businesses) follow sub-
optimum strategies in order to "smooth" their reported earnings.
By accepting the prospect of volatility, we expect to earn higher
long-term returns than we would by pursuing predictability.
Given the risks we accept, Ajit and I constantly focus on our
"worst case," knowing, of course, that it is difficult to judge
what this is, since you could conceivably have a Long Island
hurricane, a California earthquake, and Super Cat X all in the same
year. Additionally, insurance losses could be accompanied by non-
insurance troubles. For example, were we to have super-cat losses
from a large Southern California earthquake, they might well be
accompanied by a major drop in the value of our holdings in See's,
Wells Fargo and Freddie Mac.
All things considered, we believe our worst-case insurance
loss from a super-cat is now about $600 million after-tax, an
amount that would slightly exceed Berkshire's annual earnings from
other sources. If you are not comfortable with this level of
exposure, the time to sell your Berkshire stock is now, not after
the inevitable mega-catastrophe.
Our super-cat volume will probably be down in 1995. Prices
for garden-variety policies have fallen somewhat, and the torrent
of capital that was committed to the reinsurance business a few
years ago will be inclined to chase premiums, irrespective of their
adequacy. Nevertheless, we have strong relations with an important
group of clients who will provide us with a substantial amount of
business in 1995.
Berkshire's other insurance operations had excellent results
in 1994. Our homestate operation, led by Rod Eldred; our workers'
compensation business, headed by Brad Kinstler; our credit card
operation, managed by the Kizer family; National Indemnity's
traditional auto and general liability business, led by Don Wurster
- all of these generated significant underwriting profits
accompanied by substantial float.
We can conclude this section as we did last year: All in all,
we have a first-class insurance business. Though its results will
be highly volatile, this operation possesses an intrinsic value
that exceeds its book value by a large amount - larger, in fact,
than is the case at any other Berkshire business.
Common Stock Investments
Below we list our common stockholdings having a value of over
$300 million. A small portion of these investments belongs to
subsidiaries of which Berkshire owns less than 100%.
12/31/94
Shares Company Cost Market
------ ------- ---------- ----------
(000s omitted)
27,759,941 American Express Company. .......... $ 723,919 $ 818,918
20,000,000 Capital Cities/ABC, Inc. ........... 345,000 1,705,000
100,000,000 The Coca-Cola Company. ............. 1,298,888 5,150,000
12,761,200 Federal Home Loan Mortgage Corp.
("Freddie Mac") ................. 270,468 644,441
6,854,500 Gannett Co., Inc. .................. 335,216 365,002
34,250,000 GEICO Corp. ........................ 45,713 1,678,250
24,000,000 The Gillette Company ............... 600,000 1,797,000
19,453,300 PNC Bank Corporation ............... 503,046 410,951
1,727,765 The Washington Post Company ........ 9,731 418,983
6,791,218 Wells Fargo & Company .............. 423,680 984,727
Our investments continue to be few in number and simple in
concept: The truly big investment idea can usually be explained in
a short paragraph. We like a business with enduring competitive
advantages that is run by able and owner-oriented people. When
these attributes exist, and when we can make purchases at sensible
prices, it is hard to go wrong (a challenge we periodically manage
to overcome).
Investors should remember that their scorecard is not computed
using Olympic-diving methods: Degree-of-difficulty doesn't count.
If you are right about a business whose value is largely dependent
on a single key factor that is both easy to understand and
enduring, the payoff is the same as if you had correctly analyzed
an investment alternative characterized by many constantly shifting
and complex variables.
We try to price, rather than time, purchases. In our view, it
is folly to forego buying shares in an outstanding business whose
long-term future is predictable, because of short-term worries
about an economy or a stock market that we know to be
unpredictable. Why scrap an informed decision because of an
uninformed guess?
We purchased National Indemnity in 1967, See's in 1972,
Buffalo News in 1977, Nebraska Furniture Mart in 1983, and Scott
Fetzer in 1986 because those are the years they became available
and because we thought the prices they carried were acceptable. In
each case, we pondered what the business was likely to do, not what
the Dow, the Fed, or the economy might do. If we see this approach
as making sense in the purchase of businesses in their entirety,
why should we change tack when we are purchasing small pieces of
wonderful businesses in the stock market?
Before looking at new investments, we consider adding to old
ones. If a business is attractive enough to buy once, it may well
pay to repeat the process. We would love to increase our economic
interest in See's or Scott Fetzer, but we haven't found a way to
add to a 100% holding. In the stock market, however, an investor
frequently gets the chance to increase his economic interest in
businesses he knows and likes. Last year we went that direction by
enlarging our holdings in Coca-Cola and American Express.
Our history with American Express goes way back and, in fact,
fits the pattern of my pulling current investment decisions out of
past associations. In 1951, for example, GEICO shares comprised
70% of my personal portfolio and GEICO was also the first stock I
sold - I was then 20 - as a security salesman (the sale was 100
shares to my Aunt Alice who, bless her, would have bought anything
I suggested). Twenty-five years later, Berkshire purchased a major
stake in GEICO at the time it was threatened with insolvency. In
another instance, that of the Washington Post, about half of my
initial investment funds came from delivering the paper in the
1940's. Three decades later Berkshire purchased a large position
in the company two years after it went public. As for Coca-Cola,
my first business venture - this was in the 1930's - was buying a
six-pack of Coke for 25 cents and selling each bottle for 5 cents.
It took only fifty years before I finally got it: The real money
was in the syrup.
My American Express history includes a couple of episodes: In
the mid-1960's, just after the stock was battered by the company's
infamous salad-oil scandal, we put about 40% of Buffett Partnership
Ltd.'s capital into the stock - the largest investment the
partnership had ever made. I should add that this commitment gave
us over 5% ownership in Amex at a cost of $13 million. As I write
this, we own just under 10%, which has cost us $1.36 billion.
(Amex earned $12.5 million in 1964 and $1.4 billion in 1994.)
My history with Amex's IDS unit, which today contributes about
a third of the earnings of the company, goes back even further. I
first purchased stock in IDS in 1953 when it was growing rapidly
and selling at a price-earnings ratio of only 3. (There was a lot
of low-hanging fruit in those days.) I even produced a long report
- do I ever write a short one? - on the company that I sold for $1
through an ad in the Wall Street Journal.
Obviously American Express and IDS (recently renamed American
Express Financial Advisors) are far different operations today from
what they were then. Nevertheless, I find that a long-term
familiarity with a company and its products is often helpful in
evaluating it.
Mistake Du Jour
Mistakes occur at the time of decision. We can only make our
mistake-du-jour award, however, when the foolishness of the
decision become obvious. By this measure, 1994 was a vintage year
with keen competition for the gold medal. Here, I would like to
tell you that the mistakes I will describe originated with Charlie.
But whenever I try to explain things that way, my nose begins to
grow.
And the nominees are . . .
Late in 1993 I sold 10 million shares of Cap Cities at $63; at
year-end 1994, the price was $85.25. (The difference is $222.5
million for those of you who wish to avoid the pain of calculating
the damage yourself.) When we purchased the stock at $17.25 in
1986, I told you that I had previously sold our Cap Cities holdings
at $4.30 per share during 1978-80, and added that I was at a loss
to explain my earlier behavior. Now I've become a repeat offender.
Maybe it's time to get a guardian appointed.
Egregious as it is, the Cap Cities decision earns only a
silver medal. Top honors go to a mistake I made five years ago
that fully ripened in 1994: Our $358 million purchase of USAir
preferred stock, on which the dividend was suspended in September.
In the 1990 Annual Report I correctly described this deal as an
"unforced error," meaning that I was neither pushed into the
investment nor misled by anyone when making it. Rather, this was a
case of sloppy analysis, a lapse that may have been caused by the
fact that we were buying a senior security or by hubris. Whatever
the reason, the mistake was large.
Before this purchase, I simply failed to focus on the problems
that would inevitably beset a carrier whose costs were both high
and extremely difficult to lower. In earlier years, these life-
threatening costs posed few problems. Airlines were then protected
from competition by regulation, and carriers could absorb high
costs because they could pass them along by way of fares that were
also high.
When deregulation came along, it did not immediately change
the picture: The capacity of low-cost carriers was so small that
the high-cost lines could, in large part, maintain their existing
fare structures. During this period, with the longer-term problems
largely invisible but slowly metastasizing, the costs that were
non-sustainable became further embedded.
As the seat capacity of the low-cost operators expanded, their
fares began to force the old-line, high-cost airlines to cut their
own. The day of reckoning for these airlines could be delayed by
infusions of capital (such as ours into USAir), but eventually a
fundamental rule of economics prevailed: In an unregulated
commodity business, a company must lower its costs to competitive
levels or face extinction. This principle should have been obvious
to your Chairman, but I missed it.
Seth Schofield, CEO of USAir, has worked diligently to correct
the company's historical cost problems but, to date, has not
managed to do so. In part, this is because he has had to deal with
a moving target, the result of certain major carriers having
obtained labor concessions and other carriers having benefitted
from "fresh-start" costs that came out of bankruptcy proceedings.
(As Herb Kelleher, CEO of Southwest Airlines, has said:
"Bankruptcy court for airlines has become a health spa.")
Additionally, it should be no surprise to anyone that those airline
employees who contractually receive above-market salaries will
resist any reduction in these as long as their checks continue to
clear.
Despite this difficult situation, USAir may yet achieve the
cost reductions it needs to maintain its viability long-term. But
it is far from sure that will happen.
Accordingly, we wrote our USAir investment down to $89.5
million, 25 cents on the dollar at yearend 1994. This valuation
reflects both a possibility that our preferred will have its value
fully or largely restored and an opposite possibility that the
stock will eventually become worthless. Whatever the outcome, we
will heed a prime rule of investing: You don't have to make it
back the way that you lost it.
The accounting effects of our USAir writedown are complicated.
Under GAAP accounting, insurance companies are required to carry
all stocks on their balance sheets at estimated market value.
Therefore, at the end of last year's third quarter, we were
carrying our USAir preferred at $89.5 million, or 25% of cost. In
other words, our net worth was at that time reflecting a value for
USAir that was far below our $358 million cost.
But in the fourth quarter, we concluded that the decline in
value was, in accounting terms, "other than temporary," and that
judgment required us to send the writedown of $269 million through
our income statement. The amount will have no other fourth-quarter
effect. That is, it will not reduce our net worth, because the
diminution of value had already been reflected.
Charlie and I will not stand for reelection to USAir's board
at the upcoming annual meeting. Should Seth wish to consult with
us, however, we will be pleased to be of any help that we can.
Miscellaneous
Two CEO's who have done great things for Berkshire
shareholders retired last year: Dan Burke of Capital Cities/ABC
and Carl Reichardt of Wells Fargo. Dan and Carl encountered very
tough industry conditions in recent years. But their skill as
managers allowed the businesses they ran to emerge from these
periods with record earnings, added luster, and bright prospects.
Additionally, Dan and Carl prepared well for their departure and
left their companies in outstanding hands. We owe them our
gratitude.
* * * * * * * * * * * *
About 95.7% of all eligible shares participated in Berkshire's
1994 shareholder-designated contributions program. Contributions
made through the program were $10.4 million and 3,300 charities
were recipients.
Every year a few shareholders miss participating in the
program because they either do not have their shares registered in
their own names on the prescribed record date or because they fail
to get the designation form back to us within the 60-day period
allowed for its return. Since we don't make exceptions when
requirements aren't met, we urge that both new shareholders and old
read the description of our shareholder-designated contributions
program that appears on pages 50-51.
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, 1995 will be ineligible for the 1995
program.
* * * * * * * * * * * *
We made only one minor acquisition during 1994 - a small
retail shoe chain - but our interest in finding good candidates
remains as keen as ever. The criteria we employ for purchases or
mergers is detailed in the appendix on page 21.
Last spring, we offered to merge with a large, family-
controlled business on terms that included a Berkshire convertible
preferred stock. Though we failed to reach an agreement, this
episode made me realize that we needed to ask our shareholders to
authorize preferred shares in case we wanted in the future to move
quickly if a similar acquisition opportunity were to appear.
Accordingly, our proxy presents a proposal that you authorize a
large amount of preferred stock, which will be issuable on terms
set by the Board of Directors. You can be sure that Charlie and I
will not use these shares without being completely satisfied that
we are receiving as much in intrinsic value as we are giving.
* * * * * * * * * * * *
Charlie and I hope you can come to the Annual Meeting - at a
new site. Last year, we slightly overran the Orpheum Theater's
seating capacity of 2,750, and therefore we will assemble at 9:30
a.m. on Monday, May 1, 1995, at the Holiday Convention Centre. The
main ballroom at the Centre can handle 3,300, and if need be, we
will have audio and video equipment in an adjacent room capable of
handling another 1,000 people.
Last year we displayed some of Berkshire's products at the
meeting, and as a result sold about 800 pounds of candy, 507 pairs
of shoes, and over $12,000 of World Books and related publications.
All these goods will be available again this year. Though we like
to think of the meeting as a spiritual experience, we must remember
that even the least secular of religions includes the ritual of the
collection plate.
Of course, what you really should be purchasing is a video
tape of the 1995 Orange Bowl. Your Chairman views this classic
nightly, switching to slow motion for the fourth quarter. Our
cover color this year is a salute to Nebraska's football coach, Tom
Osborne, and his Cornhuskers, the country's top college team. I
urge you to wear Husker red to the annual meeting and promise you
that at least 50% of your managerial duo will be in appropriate
attire.
We recommend that you promptly get hotel reservations for the
meeting, as we expect a large crowd. Those of you who like to be
downtown (about six miles from the Centre) may wish to stay at the
Radisson Redick Tower, a small (88 rooms) but nice hotel or at the
much larger Red Lion Hotel a few blocks away. In the vicinity of
the Centre are the Holiday Inn (403 rooms), Homewood Suites (118
rooms) and Hampton Inn (136 rooms). Another recommended spot is
the Marriott, whose west Omaha location is about 100 yards from
Borsheim's and a ten-minute drive from the Centre. There will be
buses at the Marriott that will leave at 8:45 and 9:00 for the
meeting and return after it ends.
An attachment to our proxy material explains how you can
obtain the card you will need for admission to the meeting. A
good-sized parking area is available at the Centre, while those who
stay at the Holiday Inn, Homewood Suites and Hampton Inn will be
able to walk to the meeting.
As usual, we will have buses to take you to the Nebraska
Furniture Mart and Borsheim's after the meeting and to take you
from there to hotels or the airport later. I hope you make a
special effort to visit the Nebraska Furniture Mart because it has
opened the Mega Mart, a true retailing marvel that sells
electronics, appliances, computers, CD's, cameras and audio
equipment. Sales have been sensational since the opening, and you
will be amazed by both the variety of products available and their
display on the floor.
The Mega Mart, adjacent to NFM's main store, is on our 64-acre
site about two miles north of the Centre. The stores are open from
10 a.m. to 9 p.m. on Fridays, 10 a.m. to 6 p.m. on Saturdays and
noon to 6 p.m. on Sundays. When you're there be sure to say hello
to Mrs. B, who, at 101, will be hard at work in our Mrs. B's
Warehouse. She never misses a day at the store - or, for that
matter, an hour.
Borsheim's normally is closed on Sunday but will be open for
shareholders and their guests from noon to 6 p.m. on Sunday. This
is always a special day, and we will try to have a few surprises.
Usually this is the biggest sales day of the year, so for more
reasons than one Charlie and I hope to see you there.
On Saturday evening, April 29, there will be a baseball game
at Rosenblatt Stadium between the Omaha Royals and the Buffalo
Bisons. The Buffalo team is owned by my friends, Mindy and Bob
Rich, Jr., and I'm hoping they will attend. If so, I will try to
entice Bob into a one-pitch duel on the mound. Bob is a
capitalist's Randy Johnson - young, strong and athletic - and not
the sort of fellow you want to face early in the season. So I will
need plenty of vocal support.
The proxy statement will include information about obtaining
tickets to the game. About 1,400 shareholders attended the event
last year. Opening the game that night, I had my stuff and threw a
strike that the scoreboard reported at eight miles per hour. What
many fans missed was that I shook off the catcher's call for my
fast ball and instead delivered my change-up. This year it will be
all smoke.
Warren E. Buffett
March 7, 1995 Chairman of the Board
中文译文
伯克希尔·哈撒韦公司
致伯克希尔·哈撒韦全体股东：
1994年，我们的净资产增长了14.5亿美元，增幅13.9%。过去30年（即现任管理层接手以来），我们的每股账面价值从19美元增长至10,083美元，年复合增长率达到23%。
查理·芒格——伯克希尔副董事长，也是我的合伙人——和我很少做预测。不过有一件事我们可以底气十足地断言：伯克希尔未来的业绩表现，绝不可能与过去相提并论。
问题不在于过去行之有效的方法在未来会失效。恰恰相反，我们相信自己的公式——以合理价格买入那些具备良好经济基础、并由诚实能干的人管理的企业——必将带来合理的成功。因此，我们预期自己仍会做得不错。
然而，钱包太鼓是卓越投资业绩的大敌。如今伯克希尔的净资产已达119亿美元，而查理和我刚接手公司时仅为2200万美元。尽管好生意和过去一样多，但对我们而言，去购买那些相对于伯克希尔资本规模来说无足轻重的东西，毫无意义。（就像查理常提醒我的："如果一件事根本不值得做，那就不值得把它做好。"）我们现在只会在认为自己至少能投入1亿美元的情况下，才考虑买入一只证券。有了这个最低门槛，伯克希尔的投资版图已大幅缩水。
尽管如此，我们仍将坚持让我们走到今天的方法，并努力不放松标准。泰德·威廉姆斯在《我的故事》中解释了原因："我的观点是，要成为一个好的击球手，你首先得找到好球来打。这是铁律。如果我被迫去咬那些不在我最佳击球区里的球，我就不再是0.344的击球手了，可能只会是0.250。"查理和我深表赞同，我们将耐心等待那些完全处于我们"最佳击球区"之内的机会。
我们将继续无视政治和经济预测——对许多投资者和商人来说，这些是代价高昂的干扰。三十年前，没人能预见越战大幅升级、工资与价格管制、两次石油危机、一位总统辞职、苏联解体、道指单日暴跌508点，或是国库券收益率在2.8%到17.4%之间剧烈波动。
但令人惊奇的是——所有这些重磅事件，丝毫未损本·格雷厄姆的投资原则根基，也未让"以合理价格协商买入优质企业"的做法变得不可靠。试想，如果我们当初因为对未知的恐惧而推迟或改变资本配置，那将付出多大代价？事实上，我们通常正是在对宏观经济事件担忧达到顶峰时，做出了最好的买入。恐惧是跟风者的敌人，却是基本面信徒的朋友。
未来30年，必然还会发生一系列截然不同的重大冲击。我们既不会试图预测它们，也不会试图从中获利。如果我们能识别出那些与过去买入的生意相似的企业，外部意外对我们的长期结果影响甚微。
我们向你们承诺——同时期望的收益也会更温和——在你们持有伯克希尔期间，你们的待遇将和查理与我完全一样。如果你们遭受损失，我们会一起承受；如果我们 prosper，你们也会一起 prosper。我们不会通过引入那种让我们在上涨时比下跌时受益更多的薪酬安排，来打破这种纽带。
我们进一步向你们承诺：我们个人的财富将始终压倒性地集中于伯克希尔的股票——我们不会要求你们与我们一同投资，却把自己的钱投到别处。此外，伯克希尔不仅主导着我家大多数成员的投资组合，也主导着查理和我上世纪六十年代经营合伙企业时期许多朋友的投资组合。我们不可能有更强的动力去全力以赴了。
幸运的是，我们有一个良好的基础可以开展工作。十年前，也就是1984年，伯克希尔的保险公司持有价值17亿美元的证券，约合每股伯克希尔股票1,500美元。撇开这些证券带来的所有收入和资本利得不谈，伯克希尔那年的税前利润只有约600万美元。我们确实从各类制造、零售和服务业务中赚取了利润，但它们几乎完全被保险业务的承销亏损、公司管理费用和利息支出这三项合计所抵消。
如今，我们持有价值180亿美元的证券，每股伯克希尔股票超过15,000美元。如果再次剔除这些证券的所有收入，我们1994年的税前利润约为3.84亿美元。在这十年间，员工人数从5,000人增加到22,000人（包括世界总部11人）。
我们的成就归功于一支卓越的运营经理团队，他们从一些看似普通的业务中取得了非凡的成果。Casey Stengel 曾这样描述管理一支棒球队："别人打本垒打，你拿工资。" 那正是我在伯克希尔的公式。
我们拥有部分权益的公司对伯克希尔的成功同样重要。几个数据足以说明其意义：1994年，可口可乐卖出了约2,800亿份8盎司装饮料，每份盈利不到一美分。但美分积少成多。通过伯克希尔持有可口可乐7.8%的股份，我们在其21亿份饮料中拥有经济权益，这为我们带来了近2亿美元的"软饮利润"。同样，通过持有的吉列股票，伯克希尔拥有全球剃须刀片市场7%的份额（按收入而非数量计算），这一比例在1994年为我们贡献了约2.5亿美元的销售额。而在富国银行——一家资产530亿美元的银行——我们13%的所有权相当于一座70亿美元的"伯克希尔银行"，它在1994年赚取了约1亿美元。
拥有希望之钻（Hope diamond）的相当一部分，远比100%拥有一颗人造钻石要好得多。而刚刚提到的那些公司，轻易就够资格被称为稀有珍宝。最棒的是，我们并非仅限于拥有寥寥数颗这样的珍宝，而是拥有一组不断壮大的藏品。
股票价格将继续波动——有时幅度很大——经济也将经历起落沉浮。然而，随着时间的推移，我们坚信我们所拥有的这类企业极大概率会以令人满意的速率持续增值。
## 账面价值与内在价值
我们定期报告每股账面价值——一个易于计算的数字，尽管用途有限。同样定期地，我们告诉你们：真正重要的是内在价值——一个无法精确确定、但必须估算的数字。
例如，1964年，我们可以确定地指出伯克希尔的每股账面价值为19.46美元。然而，这个数字大大高估了股票的内在价值，因为公司所有资源都捆绑在一项利润微薄的纺织业务上。我们的纺织资产无论是持续经营价值还是清算价值，都不等于其账面价值。因此，在1964年，任何探究伯克希尔资产负债表稳健性的人，都值得获得一位声誉可疑的好莱坞大亨曾经给出的回答："别担心，负债是扎实的。"
今天，伯克希尔的局面反了过来：我们控制的许多企业，其价值远超账面价值。（那些我们不控制的企业，比如可口可乐或吉列，则按当前市价入账。）不过，我们仍然会向你们披露账面价值数据，因为它可以作为一个粗略的指标——尽管明显被低估——来追踪伯克希尔的内在价值。事实上，去年这两项指标同步变动：账面价值增长了13.9%，内在价值也大致增长了同样的幅度。
我们将内在价值定义为：一家企业在剩余存续期内可提取现金的折现值。任何人计算内在价值，得出的都必然是一个高度主观的数字，它会随着未来现金流预估的修正以及利率的变动而改变。然而，尽管它模糊不清，内在价值却至关重要，是评估投资和企业相对吸引力的唯一合乎逻辑的方法。
要看清历史投入（账面价值）与未来产出（内在价值）如何产生差异，让我们看看另一种形式的投资：大学教育。把教育的成本视为其"账面价值"。如果要精确的话，这个成本应该包括学生因选择上大学而不是参加工作所放弃的收入。
在这个例子中，我们将忽略教育带来的重要非经济收益，只聚焦于其经济价值。首先，我们必须估算这位毕业生一生中将获得的收入，然后减去他如果没有接受教育本应赚取的收入估算值。这样我们就得到了一个超额收入数字，然后需要以合适的利率将其折现到毕业那天。得到的美元金额就是教育的经济内在价值。
有些毕业生会发现，他们教育的账面价值超过了内在价值，这意味着无论谁支付了这笔教育费用，都没有物有所值。而在另一些情况下，教育的内在价值远超其账面价值，这个结果证明了资本得到了明智的部署。在所有情况下，显而易见的是，账面价值作为内在价值的指标毫无意义。
现在，我们少一些学术腔，看看伯克希尔自身的一个例子：Scott Fetzer。这个描述不仅会说明账面价值与内在价值的关系如何变化，还会提供一堂你们一定迫不及待想听的会计课。当然，我选择谈一笔大获成功的收购。
伯克希尔在1986年初收购了Scott Fetzer。当时，这家公司由22项业务组成，今天我们拥有完全相同的阵容——没有增加，也没有处置。Scott Fetzer的主要业务包括World Book、Kirby和Campbell Hausfeld，不过还有许多其他业务部门也对盈利做出了重要贡献。
我们为Scott Fetzer支付了3.152亿美元，而当时它的账面价值为1.726亿美元。我们支付的1.426亿美元溢价表明，我们认为这家公司的内在价值接近其账面价值的两倍。
下表追踪了自我们收购以来Scott Fetzer的账面价值、盈利和股息情况。
(1) (4)
期初账面价值 (2) (3) 期末账面价值
年份 Book Value Earnings Dividends Ending Book Value
---- ---------- -------- --------- ----------
（单位：百万美元） (1)+(2)-(3)
1986 172.6 40.2 12.5 200.3
1987 200.3 48.6 10.8 238.1
1988 238.1 58.0 10.8 285.3
1989 285.3 55.0 12.5 327.8
1990 327.8 55.6 12.5 370.9
1991 370.9 69.4 12.5 427.8
1992 427.8 78.5 14.5 491.8
1993 491.8 72.5 14.5 549.8
1986 ............... $172.6 $ 40.3 $125.0 $ 87.9
1987 ............... 87.9 48.6 41.0 95.5
1988 ............... 95.5 58.0 35.0 118.6
1989 ............... 118.6 58.5 71.5 105.5
1990 ............... 105.5 61.3 33.5 133.3
1991 ............... 133.3 61.4 74.0 120.7
1992 ............... 120.7 70.5 80.0 111.2
1993 ............... 111.2 77.5 98.0 90.7
1994 ............... 90.7 79.3 76.0 94.0
因为在我们达成交易时Scott Fetzer（斯科特·费泽）手头现金充裕，所以尽管1986年它只赚了4030万美元，却向伯克希尔支付了1.25亿美元股息。需要说明的是，我们并没有在Scott Fetzer的资产负债表中引入杠杆。事实上，该公司从我们收购时的极低债务变成了几乎零债务（其金融子公司使用的债务除外）。同样，我们也没有出售厂房再回租，没有出售应收账款，也没有做诸如此类的事情。在我们持有期间，Scott Fetzer始终是一家财务保守、流动性充足的企业。
如你所见，自我们收购以来，Scott Fetzer的收益稳步增长，但账面价值并未同步增加。因此，收购时本就出众的净资产收益率，如今已变得极为惊人。这种惊人程度，只需将Scott Fetzer的业绩与《财富》500强对比便一目了然——如果它是独立公司，完全有资格入围。
假如Scott Fetzer出现在1993年的《财富》500强榜单（目前可查的最新一期），其净资产收益率将位列第四。但这远非全貌。净资产收益率排名前三的公司是Insilco、LTV和Gaylord Container，这三家公司均在1993年从破产中重生，且除了在破产程序中获得债务减免所带来的收益之外，当年并未取得有意义的盈利。撇开这些非经营性横财，Scott Fetzer的净资产收益率在《财富》500强中将高居榜首，远远甩开第二名。事实上，它的净资产收益率是第十名的两倍。
你可能会以为，Scott Fetzer的成功只能用收益处于周期性高峰、拥有垄断地位或使用了杠杆来解释。但上述情况都不成立。相反，公司的成功源自首席执行官Ralph Schey（拉尔夫·谢伊）的管理才华，稍后我会详细介绍他。
不过先说好，接下来是一堂会计课：当我们为Scott Fetzer支付了1.426亿美元的账面价值溢价时，这笔金额必须记录在伯克希尔的资产负债表上。具体如何操作我就不赘述了（我们在1986年年报的附录中已详细说明），直接说重点：在最初记录溢价之后，几乎所有情况下都必须通过年度费用逐年摊销，这些费用在收购方的利润表中列示为成本。
下表首先列出了伯克希尔为逐步摊销Scott Fetzer收购溢价而计提的年度费用，其次是我们账面上尚未摊销的溢价余额。这些费用不影响现金支出或我们缴纳的税款，而且我们认为它并非经济成本（尽管许多会计师不同意）。它们只是我们在账面上降低Scott Fetzer账面价值的一种方式，以便该数字最终与Scott Fetzer实际用于经营的净资产相匹配。
---
期初 计入伯克希尔 期末
购买溢价 收益的购买 购买溢价
年份 溢价 溢价摊销
---- --------- ------------------ --------
(单位：百万美元)
1986 ................ $142.6 $ 11.6 $131.0
1987 ................ 131.0 7.1 123.9
1988 ................ 123.9 7.9 115.9
1989 ................ 115.9 7.0 108.9
1990 ................ 108.9 7.1 101.9
1991 ................ 101.9 6.9 95.0
1992 ................ 95.0 7.7 87.2
1993 ................ 87.2 28.1 59.1
1994 ................ 59.1 4.9 54.2
注意到1994年底，溢价已降至5,420万美元。将这个数字加上斯科特·费泽（Scott Fetzer）年末账面价值9,400万美元，总计1.482亿美元，也就是目前斯科特·费泽在伯克希尔账面上的账面价值。这个数字还不到我们当初收购该公司时账面价值的一半。然而，如今斯科特·费泽的盈利大约是当时的两倍。显然，这家企业的内在价值一直在持续增长，尽管我们通过购买溢价摊销（这些摊销减少了伯克希尔的收益和净值）不断调低其账面价值。
如今，斯科特·费泽的内在价值与伯克希尔账面上的账面价值之间，差距已经非常巨大。正如我之前提到的——但我很乐意再次提到——这个令人愉快的落差要归功于拉尔夫·谢伊（Ralph Schey），一位专注、聪明且品格高尚的经理人。
拉尔夫成功的原因并不复杂。45年前，本·格雷厄姆（Ben Graham）就教导过我，在投资中，不需要做非凡的事情就能获得非凡的成果。后来，我惊讶地发现，这句话在企业管理中也同样成立。经理人需要做的就是把基础工作做好，不要分心。这正是拉尔夫的秘诀。他设定正确的目标，并且从不忘记自己当初要做什么。从个人层面来说，和拉尔夫共事是一种享受。他对待问题坦诚直率，自信但不自以为是。
他也经验丰富。虽然我不知道拉尔夫的年龄，但我清楚，和我们许多经理人一样，他已经超过65岁了。在伯克希尔，我们看的是表现，而不是日历。查理和我，分别71岁和64岁，现在办公桌上都放着乔治·福尔曼（George Foreman）的照片。你可以打赌，我们对强制退休年龄的鄙夷每年都会与日俱增。
内在价值与资本配置
理解内在价值对经理人和投资者同样重要。当经理人做出资本配置决策时——包括决定回购股份——至关重要的是，他们必须采取能提高每股内在价值的行动，避免那些会降低内在价值的举措。这个原则看似显而易见，但我们不断看到它被违反。而且，一旦资源配置失当，股东就会受到伤害。
例如，在考虑企业并购时，许多管理者往往只关注交易是否会立即稀释或反稀释每股收益（对金融机构而言，则是每股账面价值）。这种倾向暗藏巨大危险。回到我们上大学的例子：想象一位25岁的MBA一年级学生，正考虑将自己未来的经济利益与一位25岁的日工合并。这位MBA学生眼下没有收入，若将自己的"股权"与日工按"一股换一股"合并，他的短期收益将（大幅！）增加。但还有什么比这更愚蠢的交易呢？
在企业交易中，当潜在收购对象有着不同的前景、不同的非经营性资产规模或不同的资本结构时，收购方若只盯着当期收益，同样愚蠢。在伯克希尔，我们拒绝过许多能立即提升短期收益、但会减少每股内在价值的并购机会。我们的做法，反倒是遵循韦恩·格雷茨基的建议："去冰球将要去的地方，而不是它现在所在的地方。" 正因如此，如果当初我们采用那套标准教条，我们的股东现在会少赚数十亿美元。
可悲的事实是，大多数重大收购都存在严重失衡：它们为被收购方股东带来横财；它们提升了收购方管理层的收入和地位；它们成为投资银行家及双方其他专业人士的蜜罐。但可惜的是，它们往往大幅减少收购方股东的财富。原因在于，收购方通常放弃的内在价值多于它获得的价值。瓦乔维亚公司（Wachovia Corp.）退休负责人约翰·梅德林说，这种事做多了，"你就是在反向运作连锁信。"
随着时间的推移，公司管理层配置资本的技能对企业价值影响巨大。几乎可以定义地说，一家真正优秀的企业（至少在其早期阶段之后）内部产生的资金远超其能有效运用的规模。公司当然可以通过分红或股份回购将资金返还给股东。但CEO常常会问战略规划团队、顾问或投资银行家：是否该做一两次收购？这就好比问你的室内装饰师：你是否需要一块5万美元的地毯？
收购问题往往因一种生物性偏见而加剧：许多CEO之所以能坐上高位，部分原因在于他们拥有充沛的动物精神和自我意识。如果一位高管天生具备这些特质——应该承认，它们有时确实有好处——那么当他达到顶峰时，这些特质也不会消失。当这样的CEO被顾问们鼓励去做交易时，他的反应就像被父亲鼓励去拥有正常性生活的青春期男孩。他需要的不是推波助澜。
几年前，我的一位CEO朋友——必须说明，他是开玩笑的——无意中描述了许多重大交易的病态。这位朋友经营一家财产意外险公司，他正向董事们解释为何要收购某家人寿保险公司。在喋喋不休地阐述收购的经济和战略理由（毫无说服力）之后，他突然丢开讲稿，调皮地说："哎呀，伙计们，其他孩子都有了一个。"
在伯克希尔，我们的经理人会继续从看似普通的业务中赚取非凡的回报。第一步，他们会设法把盈利高效地再投入自己的业务。剩下的部分，他们会交给查理和我。然后，我们会努力用这些资金去提升每股内在价值。我们的目标是收购那些我们自认为了解、拥有良好且可持续的经济基础、并由我们喜欢、钦佩和信任的经理人管理的企业的部分或全部股权。
薪酬
在伯克希尔，我们力求在薪酬和资本配置上同样保持理性。例如，我们根据Scott Fetzer的业绩来给Ralph Schey发薪酬，而不是根据伯克希尔的整体业绩。这再合理不过了，因为他只负责这一项业务，不负责其他。如果根据伯克希尔的运势给他发奖金或股票期权，那对他的奖励就完全随意了。比如说，他可能在Scott Fetzer打出全垒打，而查理和我却在伯克希尔连连犯错，把他这边的努力抵消掉好几倍。反过来，如果伯克希尔其他业务表现不错，而Scott Fetzer落后了，又凭什么让Ralph赚取期权收益或奖金呢？
在设定薪酬时，我们喜欢许以大大的胡萝卜，但确保发放直接与经理人可控范围内的业绩挂钩。当一项业务投入的资本规模较大时，我们会对经理人额外动用的资本收取高额费用，同时对经理人释放出来的资本也给予同等高额的信用。
这种“资金不是免费的”做法在Scott Fetzer身上效果明显。如果Ralph能用增量资金获得良好回报，他就有动力去做：当额外资本赚取的收益超过一个合理门槛费用时，他的奖金就会增加。但我们的奖金计算是对称的：如果增量投资回报低于标准，那么缺口对Ralph和伯克希尔都有代价。这种双向安排的结果是，Ralph有动力——而且动力不小——把他无法在其业务中有效使用的现金送回奥马哈。
如今上市公司流行把几乎每一份薪酬计划都说成是让管理层与股东利益一致。按我们的标准，利益一致意味着双向的合伙，而不仅仅是向上的一面。许多“利益一致”计划通不过这个基本测试，不过是“正面我赢，反面你输”的巧妙变体。
常见的一种利益不一致形式出现在典型的股票期权安排中——期权价格不会定期上调，以反映留存收益不断积累公司财富这一事实。事实上，一个十年期期权、低派息率和复利相结合，可以让一个在工作中仅仅是原地踏步的经理人获得丰厚的收益。愤世嫉俗者甚至可能会指出，当付给所有者的钱被压低时，持有期权的经理人获利反而增加。我还没见过哪份股东委托书在请求股东批准期权计划时，把这个关键点说清楚的。
我忍不住要提一下，我们与Ralph Schey的薪酬安排，大约五分钟就敲定了——就在我们收购Scott Fetzer之后立即谈妥，完全没有律师或薪酬顾问的"帮忙"。这个安排只包含几个非常简单的想法——可不是顾问们喜欢的那种套路，因为他们要是不能让你相信你有个大问题（而且还得每年复查一次），就没法轻松开出大额账单。我们与Ralph的协议从未更改过。1986年对他和我都合理，现在也一样合理。我们与所有其他子公司经理人的薪酬安排也同样简单，尽管每份协议的具体条款会根据业务的经济特征、经理人在某些情况下是否持有部分股权等因素有所调整。
在任何情况下，我们都追求理性。那些与经理人个人成就无关、支付方式随意的薪酬安排，某些经理人可能会欢迎——毕竟谁会拒绝一张免费的彩票呢？但这种安排对公司是浪费，还会让经理人偏离他真正应该关注的领域。此外，母公司的非理性行为很可能引发子公司的效仿。
在伯克希尔，只有查理和我对整个企业负管理责任。因此，从逻辑上讲，只有我们才应该根据企业的整体表现获得薪酬。即便如此，这也并非我们想要的薪酬安排。我们精心设计了公司和我们的工作，这样我们就能和喜欢的人一起做喜欢的事。同样重要的是，我们几乎不用做什么无聊或令人厌烦的事。我们还享受着公司高管所拥有的各种物质和精神上的额外福利。在如此理想的环境下，我们不指望股东为那些我们根本不需要的薪酬买单。
事实上，即使不给我们一分钱，查理和我也会为我们这份轻松的工作感到高兴。从根本上说，我们信奉罗纳德·里根的信条："努力工作大概从未害死过谁，但我想何必冒那个险呢。"
报告收益的来源
下一页的表格列出了伯克希尔报告收益的主要来源。在此呈现方式中，我们在之前分析Scott Fetzer时讨论过的购买溢价摊销，并不分配到具体业务，而是汇总后单独列示。这样，你可以看到我们未收购这些业务时本应报告的收益。我们认为，这种呈现方式对投资者和经理人比美国通用会计准则更有用——而GAAP要求将购买溢价按业务逐一摊销。当然，表格中显示的收益总额与我们经审计的财务报表中的GAAP总额完全相同。
**伯克希尔的净利润份额（税后及少数股东权益后）**
| | 税前利润 | 税前利润 | 伯克希尔净利润份额 | 伯克希尔净利润份额 |
| ------------------------------------ | ----------------- | ----------------- | ------------------ | ------------------ |
| | 1994 | 1993 | 1994 | 1993 |
| | **（千美元略去）** | **（千美元略去）** | **（千美元略去）** | **（千美元略去）** |
| **经营利润：** | | | | |
| 保险集团： | | | | |
| 承销 | $129,926 | $30,876 | $80,860 | $20,156 |
| 净投资收益 | 419,422 | 375,946 | 350,453 | 321,321 |
| 布法罗新闻 | 54,238 | 50,962 | 31,685 | 29,696 |
| 费希海默 | 14,260 | 13,442 | 7,107 | 6,931 |
| 金融业务 | 21,568 | 22,695 | 14,293 | 14,161 |
| 科比 | 42,349 | 39,147 | 27,719 | 25,056 |
| 内布拉斯加家具城 | 17,356 | 21,540 | 8,652 | 10,398 |
| 斯科特·费策制造集团 | 39,435 | 38,196 | 24,909 | 23,809 |
| 喜诗糖果 | 47,539 | 41,150 | 28,247 | 24,367 |
| 鞋业集团 | 85,503 | 44,025* | 55,750 | 28,829 |
| 世界图书 | 24,662 | 19,915 | 17,275 | 13,537 |
| 购买价格溢价摊销 | (22,595) | (17,033) | (19,355) | (13,996) |
| 利息费用** | (60,111) | (56,545) | (37,264) | (35,614) |
| 股东指定捐赠 | (10,419) | (9,448) | (6,668) | (5,994) |
| 其他 | 36,232 | 28,428 | 22,576 | 15,094 |
| **经营利润合计** | **839,365** | **643,296** | **606,239** | **477,751** |
| 出售证券 | 91,332 | 546,422 | 61,138 | 356,702 |
| US Air优先股价值下降 | (268,500) | — | (172,579) | — |
| 新会计准则导致的应计税款 | — | — | — | (146,332) |
| **所有实体总利润** | **$662,197** | **$1,189,718** | **$494,798** | **$688,121** |
* 包含德克斯特自1993年11月7日收购完成后的利润。
** 不含金融业务的利息费用。
关于这些业务的详细信息见第37-48页，您还可以在那里找到按美国通用会计准则报告的分部利润。此外，在第53-59页，我们按非美国通用会计准则基础将伯克希尔的财务数据重新整理为四个分部，这种呈现方式与查理和我的思考方式一致。我们的目的是提供你们希望我们提供的财务信息——假如我们角色互换的话。
**透视盈余**
在过去的报告中，我们讨论过透视盈余，我们认为它比GAAP结果更能准确反映伯克希尔的盈利情况。据我们计算，透视盈余包括：(1)上一节报告的经营利润，加上(2)主要被投资公司的留存经营利润（根据GAAP会计，这些利润未反映在我们的利润中），减去(3)如果这些被投资公司的留存利润已分配给伯克希尔，伯克希尔应缴纳的备付税款。这里所说的"经营利润"不包括资本利得、特殊会计项目和重大重组费用。
如果我们的内在价值要达到15%的目标增长率，那么从长远来看，透视盈余也必须以大致相同的速度增长。几年前我第一次解释这个概念时，曾告诉各位，要实现15%的目标，到2000年我们需要产生约18亿美元的透视盈余。由于此后我们又增发了约3%的股份，这一数字已增至18.5亿美元。
目前，我们略有超前于既定目标，但这在很大程度上是因为我们的超级巨灾保险业务近期的盈利远超趋势线预期（这种结果将在下一节讨论）。在充分考虑了这一异常情况后，我们仍然预期能实现目标，不过这当然不是板上钉钉的事。
下表展示了我们如何计算透视盈余，不过我要提醒各位，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12页逐项列出的经营利润中，主要列在"保险集团：净投资收益"项下。）
伯克希尔享有的
未分配经营利润
伯克希尔主要被投资公司 伯克希尔年末大致持股比例 （单位：百万美元）
--------------------------- ----------------------- ------------------
1994 1993 1994 1993
------ ------ ------ ------
美国运通公司 ......................... 5.5% 2.4% $ 25(2) $ 16
大都会/ABC公司 ...................... 13.0% 13.0% 85 83(2)
可口可乐公司 ........................ 7.8% 7.2% 116(2) 94
联邦住房贷款抵押公司 ................ 6.3%(1) 6.8%(1) 47(2) 41(2)
甘尼特公司 .......................... 4.9% --- 4(2) ---
GEICO公司 ........................... 50.2% 48.4% 63(3) 76(3)
吉列公司 ............................ 10.8% 10.9% 51 44
PNC银行公司 ......................... 8.3% --- 10(2) ---
华盛顿邮报公司 ...................... 15.2% 14.8% 18 15
富国银行 ............................ 13.3% 12.2% 73 53(2)
------ ------
伯克希尔享有的主要被投资公司未分配利润 $ 492 $422
这些未分配被投资公司利润的假设税项(4) (68) (59)
伯克希尔报告的经营利润 606 478
------- ------
伯克希尔透视盈余总计 $1,030 $ 841
(1) 不包括威斯科公司少数股东权益应占股份
(2) 按当年平均持股比例计算
(3) 不包括已实现资本利得，该利得既属经常性又金额重大
(4) 使用的税率为14%，这是伯克希尔就其收到的股息所缴纳的税率
保险业务
正如我们在过去的报告中解释过的，我们的保险业务中，首要的是我们创造的"浮存金"规模，其次是它的成本。浮存金是我们持有但并不拥有的资金。在保险业务中，浮存金产生的原因在于，大多数保单要求预付保费，而且更重要的是，保险公司通常需要时间才能获悉并处理理赔。
通常，保险公司收取的保费无法覆盖其必须支付的损失和费用。这就导致了"承销损失"——而这一损失就是浮存金的成本。
一家保险业务是否长期盈利，取决于其浮存金成本是否低于公司通过其他渠道获取资金的成本。如果浮存金成本高于市场利率，那么这项业务就具有负价值。
如下表所示，伯克希尔的保险业务取得了巨大成功。表中，我们通过加总损失准备金、损失调整准备金、分保接收暂留资金和未到期保费准备金，再减去代理人结余、预付购置成本、预付税款及分保接收相关递延费用，计算出了我们的浮存金——相对于保费规模，我们产生的浮存金数额异常庞大。我们的浮存金成本由承保亏损或利润决定。在承保盈利的年份，比如最近两年，我们的浮存金成本为负值，此时我们通过将承保利润与浮存金收益相加来计算保险业务盈利。
(1) (2) 年末
承保亏损 近似 长期政府
损失 平均浮存金 资金成本 债券收益率
------------ ------------- ------------- -------------
（百万美元） （1与2之比）
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 .......... 119.59 1,895.0 6.31% 7.40%
1992 .......... 108.96 2,290.4 4.76% 7.39%
1993 .......... 盈利 2,624.7 低于零 6.35%
1994 .......... 盈利 3,056.6 低于零 7.88%
Charlie和我很高兴1994年我们的浮存金有所增长，更令我们欣慰的是，它依然是零成本的。但今年的信息与1993年如出一辙：尽管我们拥有一家优秀的保险业务，但它并没有看上去那么好。
我们之所以必须重复这一警示，是因为我们的"超级巨灾"业务（为保险公司和再保险公司提供抵御巨型灾难损失的保单）再次实现了高额盈利。由于真正的大型灾难并不常发生，超级巨灾业务在多数年份都应能获取丰厚利润，但偶尔也会录得巨额亏损。换言之，评估我们超级巨灾业务的吸引力需要多年时间。当然，1994年应被视为接近最佳年份。我们唯一显著的损失来自一月份的加州地震。我愿补充一点：我们不预期1995年初的神户地震会给我们造成重大损失。
超级巨灾保单数量少、保额大，且非标准化。因此，这类业务的承销远比汽车保单的承销更需要判断力——后者有大量数据可供参考。在这方面，伯克希尔拥有一个重大优势：我们的超级巨灾经理Ajit Jain，其承销技能首屈一指。他对我们的价值无比巨大。
此外，伯克希尔在超级巨灾业务中还有一项特殊优势，即我们雄厚的财务实力，这从两个方面帮助我们。第一，审慎的保险公司希望其抵御真正巨型灾难的保障——比如长岛遭遇500亿美元风暴损失，或加州发生同等成本的 earthquake——必须绝对可靠。但同一家保险公司也清楚，使其依赖于大额超级巨灾赔付的灾难，恰恰也是可能导致许多再保险公司违约的灾难。为那些在急需时却消失的保障支付保费，实在没什么意义。因此，在一场规模难以想象的灾难之后，伯克希尔仍能保持偿付能力和流动性，这一点构成了我们的主要竞争优势。
第二，我们资本实力的另一个好处是，我们可以承保别人根本不敢想象的保额。例如，1994年，一家原保险公司希望购买一份4亿美元的加州地震短期保单，我们立即签发了这份保单。据我们所知，全世界没有任何其他公司愿意为自身账户承担4亿美元（或接近这个数额）的风险。
通常，经纪人试图通过将大额保障分散到多张小保单上来安排。但充其量，这种安排需要相当长的时间来组织。与此同时，希望获得再保险的保险公司只能承担着它不想要的、可能严重威胁其经营健康的风险。而在伯克希尔，对于高达5亿美元的保障，我们可以在被询价的当天就报出价格。业内没有其他公司愿意这样做。
通过承保大额整块的保障，我们显然使伯克希尔的业绩面临大起大落。这完全是我们能够接受的：太常见的是，保险公司（以及其他企业）为了"平滑"其报告的利润而采取次优策略。通过接受波动的可能性，我们期望能获得比追求稳定性更高的长期回报。
考虑到我们承担的风险，Ajit和我持续关注我们的"最坏情形"——当然，我们深知很难判断这到底是什么，因为你可以想象在同年发生一场长岛飓风、一场加州地震和一场超级巨灾X。此外，保险损失还可能伴随着非保险业务的麻烦。例如，如果我们因南加州大地震遭遇超级巨灾损失，这些损失很可能伴随着我们持有的喜诗糖果、富国银行和房地美股份的大幅缩水。
总而言之，我们相信超级巨灾造成的保险损失，在税后最坏情况下约为6亿美元，这个数字会稍稍超过伯克希尔其他来源的年度盈利。如果你对这个风险敞口感到不安，现在就是卖出伯克希尔股票的时候，而不是等到那场难以避免的超级巨灾来临之后。
1995年我们的超级巨灾业务量可能会下降。普通保单的价格已经有所下跌，几年前涌入再保险行业的大量资本，无论保费是否充足，都会有追逐保费的倾向。不过，我们与一群重要客户保持着稳固关系，他们将在1995年为我们提供可观的业务量。
伯克希尔的其他保险业务在1994年表现优异。由Rod Eldred领导的本土业务、Brad Kinstler负责的工伤保险业务、Kizer家族管理的信用卡业务、Don Wurster主持的国家赔偿公司（National Indemnity）传统汽车及一般责任险业务——所有这些都创造了可观的承保利润，同时伴随着大量浮存金。
我们可以像去年一样总结本节：总而言之，我们拥有一流的保险业务。尽管其业绩会有剧烈波动，但这一业务的内在价值远超其账面价值——实际上，超出的幅度比伯克希尔其他任何业务都大。
**普通股投资**
下表列出我们市值超过3亿美元的普通股持仓。这些投资中的一小部分属于伯克希尔持股不足100%的子公司。
1994年12月31日
持股数 公司 成本 市值
------ ------- ---------- ----------
（千美元，零头省略）
27,759,941 American Express Company. ............. $723,919 $818,918
20,000,000 Capital Cities/ABC, Inc. ........... 345,000 1,705,000
100,000,000 The Coca-Cola Company. ............. 1,298,888 5,150,000
12,761,200 Federal Home Loan Mortgage Corp.
("Freddie Mac") ................. 270,468 644,441
6,854,500 Gannett Co., Inc. .................. 335,216 365,002
34,250,000 GEICO Corp. ........................ 45,713 1,678,250
24,000,000 The Gillette Company ............... 600,000 1,797,000
19,453,300 PNC Bank Corporation ............... 503,046 410,951
1,727,765 The Washington Post Company ........ 9,731 418,983
6,791,218 Wells Fargo & Company .............. 423,680 984,727
我们的投资继续遵循数量少、概念简单的原则：真正重大的投资想法通常可以用一小段话解释清楚。我们喜欢拥有持久竞争优势、由既有能力又以股东利益为导向的管理者经营的企业。当这些特质存在，并且我们能以合理价格买入时，就很难犯错（偶尔我们也会做不到）。
投资者应该记住，他们的记分牌不是用奥运会跳水评分法计算的：难度系数不计分。如果你对一家企业的判断正确——其价值很大程度上取决于一个既容易理解又持久的关键因素——你获得的回报，与你正确分析了另一个充满不断变化且复杂变量的投资选项是一样的。
我们尝试给买入定价，而不是择时。在我们看来，因为对经济或股市的短期担忧——而我们知道这些是难以预测的——就放弃买入一家长期前景可预测的杰出企业的股票，这是愚蠢的。为什么要因为一个无知的猜测而放弃一个明智的决策？
我们在1967年买下了National Indemnity（国民赔偿公司），1972年买下See's（喜诗糖果），1977年买下Buffalo News（布法罗新闻报），1983年买下Nebraska Furniture Mart（内布拉斯加家具城），1986年买下Scott Fetzer（斯科特·费策）——因为那几年它们正好被挂牌出售，而我们觉得价格合适。每次做决策时，我们思考的都是这家企业未来会怎样发展，而不是道指、美联储或宏观经济会怎样。既然我们认为这种思路在整体收购企业时行之有效，那么当我们通过股市买入优秀企业的小份额时，为什么又要换一套打法呢？
在寻找新投资之前，我们首先考虑加仓旧投资。如果一家企业好到值得买一次，那么很可能值得再来一次。我们很想增加在喜诗糖果或斯科特·费策中的经济权益，但我们已经100%控股，没法再增持。然而在股市中，投资者常常有机会增持自己熟悉和喜欢的企业。去年我们就朝这个方向走了——增持了Coca-Cola（可口可乐）和American Express（美国运通）的股份。
我们与美国运通的渊源可追溯至很久以前，实际上，我这人常常从过去的经历中衍生出当下的投资决策。比如1951年，GEICO（政府雇员保险公司）股票占我个人投资组合的70%，而且GEICO也是我作为证券推销员卖出的第一只股票——当时我才20岁——卖了100股给我爱丽丝阿姨。她真是好人，我推荐什么她都会买。25年后，伯克希尔在GEICO面临破产威胁时买下了它的一大笔股权。另一个例子是Washington Post（华盛顿邮报），我40年代靠送那份报纸赚到了初始投资资金的大约一半。三十年后，伯克希尔在它上市两年后大量买入了该公司的股票。至于可口可乐，我第一笔生意——那是在30年代——是花25美分买一提6瓶装的可乐，然后每瓶卖5美分。过了整整五十年我才终于开窍：真正赚钱的是糖浆。
我与美国运通的交集有几个片段：1960年代中期，就在该公司因臭名昭著的色拉油丑闻股价暴跌之后，我们把Buffett Partnership Ltd.（巴菲特合伙有限公司）约40%的资金投进了这只股票——这是合伙公司有史以来最大的一笔投资。需要补充的是，这笔投资让我们以1300万美元的成本持有了美国运通超过5%的股份。在我写这封信此刻，我们持有将近10%的股份，成本是13.6亿美元。（美国运通1964年赚了1250万美元，1994年赚了14亿美元。）
我与美国运通旗下IDS部门（美国运通财务顾问）的历史更早。这个部门如今贡献了公司大约三分之一的利润。我在1953年第一次买入IDS的股票，那时它正快速增长，市盈率只有3倍。（那时满大街都是低垂的果实。）我甚至还写了一篇关于这家公司的长篇报告——我什么时候写过短东西？——通过《华尔街日报》登广告，以1美元一份卖掉了它。
显然，今天的美国运通和IDS（最近更名为American Express Financial Advisors（美国运通财务顾问））与当初已是天壤之别。尽管如此，我发现对一家公司及其产品的长期熟悉，往往有助于你评估它。
今日最蠢决策奖（Mistake Du Jour）
错误发生在做决策的那一刻。但只有等到决策的愚蠢变得一目了然时，我们才能颁发出“今日最蠢决策奖”。按这个标准，1994年是个丰收年，角逐金牌的竞争异常激烈。此刻，我很想告诉你，下面要描述的错误都来自查理。但每当我试图这样解释时，我的鼻子就开始变长。
提名的是……
1993年底，我以每股63美元卖出了1000万股Cap Cities（大都会）股票；到了1994年底，价格涨到了85.25美元。（对于那些不忍心亲手计算损失的人，差额是2.225亿美元。）当我们在1986年以17.25美元买入这只股票时，我曾告诉你们，我在1978-80年间以每股4.30美元卖出过我们持有的Cap Cities，并说我对自己早年的行为无法解释。现在我又成了惯犯。也许该找人管管我了。
虽然这笔Cap Cities交易够丢人的，但也只够拿块银牌。最光荣的错误是五年前犯下、并在1994年完全发酵的那个：我们以3.58亿美元买入了USAir的优先股，而那笔股息在9月份被暂停了。在1990年的年报中，我如实将这笔交易描述为"非受迫性失误"，意思是既没人逼我投资，也没人误导我。这纯粹是分析草率，也许是因为买的是高级证券，也许是因为傲慢，反正不管什么原因，错误很严重。
在买入之前，我完全没注意到那些必然困扰一家成本高昂且极难降低的航空公司的问题。早些年，这些致命成本问题不大。那时航空公司受监管保护免于竞争，高成本企业可以通过同样高昂的票价把成本转嫁出去。
放松管制后，形势并未立即改变：低成本航空公司的运力很小，高成本航线在很大程度上还能维持原有的票价结构。在此期间，长期问题基本隐而不见，却在缓慢扩散，那些不可持续的成本反而越扎越深。
随着低成本运营商扩大座位运力，它们的票价开始迫使老牌高成本航空公司降价。这些航空公司可以通过注入资本（比如我们对USAir的投资）来推迟清算日，但最终经济的基本规律还是占了上风：在不受管制的商品型行业中，公司必须把成本降到有竞争力的水平，否则就只有消亡。这个道理本该是董事长一目了然的事，我却视而不见。
USAir的CEO Seth Schofield一直在努力纠正公司历史上的成本问题，但至今未能成功。部分原因是他面对的是一个移动靶——某些主要航空公司获得了劳工让步，另一些则因破产程序而享受了"新起点成本"的优惠。（正如西南航空CEO Herb Kelleher所说："对航空公司来说，破产法庭已经变成了健康水疗中心。"）此外，那些按合同领取高于市场水平薪水的员工，只要支票还能兑现，就会抵制减薪，这一点也不奇怪。
尽管处境艰难，USAir或许仍能实现所需的成本削减，以维持长期生存能力，但这远非确定。
因此，我们在1994年底将这笔USAir投资减记至8950万美元，相当于票面价值的25%。这一估值既反映了优先股可能全部或大部分恢复价值，也反映了最终可能变得一文不值。无论结果如何，我们都会遵循一条首要投资法则：你不用非要用亏损的方式把钱赚回来。
我们对USAir减记的会计影响比较复杂。按照美国通用会计准则，保险公司必须将所有股票按估计市值计入资产负债表。因此，去年第三季度末，我们将USAir优先股按8,950万美元入账，仅为成本的25%。也就是说，当时我们的净资产反映的USAir价值已远低于3.58亿美元的成本。
但在第四季度，我们判断这一价值下跌在会计上属于"非暂时性"，这一判断要求我们将2.69亿美元的减记计入利润表。该金额不会对第四季度产生其他影响。也就是说，它不会减少我们的净资产，因为价值缩水已经反映过了。
查理和我在即将召开的股东年会上将不再竞选进入USAir董事会。如果Seth希望与我们商议，我们将乐意提供力所能及的帮助。
杂项
两位为伯克希尔股东做出巨大贡献的CEO去年退休了：Capital Cities/ABC的Dan Burke和Wells Fargo的Carl Reichardt。Dan和Carl近年来遇到了非常严峻的行业环境。但他们凭借管理才能，带领各自的企业渡过了这些时期，实现了创纪录的利润、增添了光彩，前景也一片光明。此外，Dan和Carl为离职做好了充分准备，将公司交到了杰出接班人手中。我们向他们表示感谢。
* * * * * * * * * * * *
约95.7%的合格股份参与了伯克希尔1994年股东指定捐款计划。通过该计划捐出的款项为1,040万美元，惠及3,300家慈善机构。
每年都有少数股东错过参与该计划，原因要么是他们未在规定登记日将股份登记在自己名下，要么是未在规定的60天返还期内将指定表格寄回给我们。由于我们对未满足要求的情况不予例外，我们敦促新老股东都阅读一下第50-51页关于我们股东指定捐款计划的说明。
要参与未来的计划，你必须确保你的股份登记在实际所有人名下，而不是经纪人、银行或存管机构的代名人名下。未在1995年8月31日如此登记的股份将没有资格参与1995年的计划。
* * * * * * * * * * * *
1994年我们只进行了一笔小型收购——一家小型零售鞋连锁——但我们寻找优秀候选标的的兴趣一如既往地浓厚。我们进行收购或并购的标准详见第21页附录。
去年春天，我们曾提议与一家大型家族企业合并，条件包括伯克希尔的可转换优先股。虽然未能达成协议，但这件事让我意识到，我们需要请股东授权优先股，以备将来出现类似收购机会时能够迅速行动。因此，我们的股东委托书中提出了一项提案，要求你授权大量优先股，这些股票将按董事会设定的条款发行。你可以放心，查理和我在完全确信我们获得的内在价值与我们付出的对等之前，是不会动用这些股票的。
* * * * * * * * * * * *
查理和我希望你能来参加年会——这次换了新地方。去年，我们稍稍超出了奥菲姆剧院2,750个座位的容量，因此今年我们将于1995年5月1日星期一上午9:30在假日会议中心集合。中心的主宴会厅可容纳3,300人，如有需要，我们还会在隔壁房间配备音频和视频设备，再容纳1,000人。
去年，我们在会上展示了一些伯克希尔的产品，卖掉了大约800磅糖果、507双鞋，以及超过12,000美元的《世界百科全书》及相关出版物。今年所有这些商品同样会出售。虽然我们倾向于把年会看作一种精神体验，但必须记住，即便最非世俗的宗教也少不了募捐盘这个仪式。
当然，你真正该买的应该是1995年橙碗（Orange Bowl）比赛的录像带。你们的主席每晚都要看这场经典比赛，第四节还会切换到慢动作。今年我们的封面颜色是向内布拉斯加大学橄榄球队教练汤姆·奥斯本（Tom Osborne）和他的玉米收割者队（Cornhuskers）——全国最佳大学球队——致敬。我力劝大家穿着玉米收割者队的红色球衣来参加年会，并向你们保证，管理层二人组中至少有一人会穿上合适的服装。
我们建议你尽快预订酒店房间，因为预计参会人数会很多。喜欢住在市区的朋友（距离会议中心约6英里），可以选择雷迪森雷迪克塔酒店（Radisson Redick Tower），那是一家小而精的酒店（88间客房），或者几个街区外更大的红狮酒店（Red Lion Hotel）。会议中心附近有假日酒店（403间客房）、Homewood Suites（118间客房）和汉普顿酒店（136间客房）。另一个推荐地点是万豪酒店，位于奥马哈西部的分店距离波仙珠宝（Borsheim's）约100码，开车到会议中心十分钟。万豪酒店有巴士在8:45和9:00出发送客人去开会，会议结束后再送回。
随股东委托书附上的说明会告诉你如何获取入场所需的门卡。会议中心有充足的停车位，而住在假日酒店、Homewood Suites和汉普顿酒店的客人可以步行前往会场。
和往常一样，会议结束后会有巴士送大家去内布拉斯加家具城（Nebraska Furniture Mart）和波仙珠宝，之后再从那里送到酒店或机场。我希望你特别抽空去内布拉斯加家具城看看，因为那里新开了"超级卖场"（Mega Mart），一个真正的零售奇迹，销售电子产品、家电、电脑、CD、相机和音响设备。开业以来销售火爆，你会被琳琅满目的商品和展示方式惊到。
超级卖场紧邻NFM主店，位于我们占地64英亩的地块上，距离会议中心以北约两英里。商店营业时间：周五上午10点至晚上9点，周六上午10点至下午6点，周日上午10点（原文noon？但这里按逻辑应为中午？原文说noon to 6 p.m.，所以周日中午至下午6点）。原文：Sundays noon to 6 p.m. 所以周日中午至下午6点。注意：Borsheim's normally closed on Sunday but will be open... 所以周日中午到下午6点。这里需要准确。实际上原文是："The stores are open from 10 a.m. to 9 p.m. on Fridays, 10 a.m. to 6 p.m. on Saturdays and noon to 6 p.m. on Sundays." 所以周日中午12点到下午6点。好。
当你去那里时，一定要向B夫人问好，她101岁了，仍在B夫人折扣店（Mrs. B's Warehouse）辛勤工作。她从不缺席一天——甚至一小时。
波仙珠宝通常周日关门，但周日中午至下午6点会专门为股东及其客人开放。这一天总是很特别，我们会准备一些惊喜。通常这是全年销售额最高的一天，所以不止一个原因——查理和我都希望在那里见到你。
4月29日（星期六）晚，罗森布拉特体育场将上演一场奥马哈皇家队对阵布法罗野牛队的棒球比赛。野牛队由我的朋友敏迪和鲍勃·里奇（小）经营，我希望他们能亲临现场。若真如此，我会设法怂恿鲍勃跟我来一场投手丘上的单挑对决。鲍勃堪称资本家的兰迪·约翰逊——年轻、强壮、运动天赋异禀——绝非赛季初你想面对的那种对手。所以我需要全场球迷的鼎力声援。
股东委托书中将附有比赛门票获取信息。去年约有1,400名股东参加了这项活动。当晚我负责开球，手感不错，投出一记好球——记分牌显示时速八英里。许多球迷没注意到的是，我拒绝了接球手叫我投快速球的暗号，改用了变速球。今年我可要全力飙速了。
沃伦·E·巴菲特
董事会主席
1995年3月7日