ENGLISH
BERKSHIRE HATHAWAY INC.
To the Shareholders of Berkshire Hathaway Inc.:
Our gain in net worth during 1995 was $5.3 billion, or
45.0%. Per-share book value grew by a little less, 43.1%,
because we paid stock for two acquisitions, increasing our shares
outstanding by 1.3%. Over the last 31 years (that is, since
present management took over) per-share book value has grown from
$19 to $14,426, or at a rate of 23.6% compounded annually.
There's no reason to do handsprings over 1995's gains. This
was a year in which any fool could make a bundle in the stock
market. And we did. To paraphrase President Kennedy, a rising
tide lifts all yachts.
Putting aside the financial results, there was plenty of
good news at Berkshire last year: We negotiated three
acquisitions of exactly the type we desire. Two of these,
Helzberg's Diamond Shops and R.C. Willey Home Furnishings, are
included in our 1995 financial statements, while our largest
transaction, the purchase of GEICO, closed immediately after the
end of the year. (I'll tell you more about all three
acquisitions later in the report.)
These new subsidiaries roughly double our revenues. Even
so, the acquisitions neither materially increased our shares
outstanding nor our debt. And, though these three operations
employ over 11,000 people, our headquarters staff grew only from
11 to 12. (No sense going crazy.)
Charlie Munger, Berkshire's Vice Chairman and my partner,
and I want to build a collection of companies - both wholly- and
partly-owned - that have excellent economic characteristics and
that are run by outstanding managers. Our favorite acquisition
is the negotiated transaction that allows us to purchase 100% of
such a business at a fair price. But we are almost as happy when
the stock market offers us the chance to buy a modest percentage
of an outstanding business at a pro-rata price well below what it
would take to buy 100%. This double-barrelled approach -
purchases of entire businesses through negotiation or purchases
of part-interests through the stock market - gives us an
important advantage over capital-allocators who stick to a single
course. Woody Allen once explained why eclecticism works: "The
real advantage of being bisexual is that it doubles your chances
for a date on Saturday night."
Over the years, we've been Woody-like in our thinking,
attempting to increase our marketable investments in wonderful
businesses, while simultaneously trying to buy similar businesses
in their entirety. The following table illustrates our progress
on both fronts. In the tabulation, we show the marketable
securities owned per share of Berkshire at ten-year intervals. A
second column lists our per-share operating earnings (before
taxes and purchase-price adjustments but after interest and
corporate overhead) from all other activities. In other words,
the second column shows what we earned excluding the dividends,
interest and capital gains that we realized from investments.
Purchase-price accounting adjustments are ignored for reasons we
have explained at length in previous reports and which, as an act
of mercy, we won't repeat. (We'll be glad to send masochists the
earlier explanations, however.)
Pre-tax Earnings Per Share
Marketable Securities Excluding All Income from
Year Per Share Investments
---- --------------------- --------------------------
1965 ................ $ 4 $ 4.08
1975 ................ 159 (6.48)
1985 ................ 2,443 18.86
1995 ................ 22,088 258.20
Yearly Growth Rate: 1965-95 33.4% 14.7%
These results have not sprung from some master plan that we
concocted in 1965. In a general way, we knew then what we hoped
to accomplish but had no idea what specific opportunities might
make it possible. Today we remain similarly unstructured: Over
time, we expect to improve the figures in both columns but have
no road map to tell us how that will come about.
We proceed with two advantages: First, our operating
managers are outstanding and, in most cases, have an unusually
strong attachment to Berkshire. Second, Charlie and I have had
considerable experience in allocating capital and try to go at
that job rationally and objectively. The giant disadvantage we
face is size: In the early years, we needed only good ideas, but
now we need good big ideas. Unfortunately, the difficulty of
finding these grows in direct proportion to our financial
success, a problem that increasingly erodes our strengths.
I will have more to say about Berkshire's prospects later in
this report, when I discuss our proposed recapitalization.
Acquisitions
It may seem strange that we exult over a year in which we
made three acquisitions, given that we have regularly used these
pages to question the acquisition activities of most managers.
Rest assured, Charlie and I haven't lost our skepticism: We
believe most deals do damage to the shareholders of the acquiring
company. Too often, the words from HMS Pinafore apply: "Things
are seldom what they seem, skim milk masquerades as cream."
Specifically, sellers and their representatives invariably
present financial projections having more entertainment value
than educational value. In the production of rosy scenarios,
Wall Street can hold its own against Washington.
In any case, why potential buyers even look at projections
prepared by sellers baffles me. Charlie and I never give them a
glance, but instead keep in mind the story of the man with an
ailing horse. Visiting the vet, he said: "Can you help me?
Sometimes my horse walks just fine and sometimes he limps." The
vet's reply was pointed: "No problem - when he's walking fine,
sell him." In the world of mergers and acquisitions, that horse
would be peddled as Secretariat.
At Berkshire, we have all the difficulties in perceiving the
future that other acquisition-minded companies do. Like they
also, we face the inherent problem that the seller of a business
practically always knows far more about it than the buyer and
also picks the time of sale - a time when the business is likely
to be walking "just fine."
Even so, we do have a few advantages, perhaps the greatest
being that we don't have a strategic plan. Thus we feel no need
to proceed in an ordained direction (a course leading almost
invariably to silly purchase prices) but can instead simply
decide what makes sense for our owners. In doing that, we always
mentally compare any move we are contemplating with dozens of
other opportunities open to us, including the purchase of small
pieces of the best businesses in the world via the stock market.
Our practice of making this comparison - acquisitions against
passive investments - is a discipline that managers focused
simply on expansion seldom use.
Talking to Time Magazine a few years back, Peter Drucker got
to the heart of things: "I will tell you a secret: Dealmaking
beats working. Dealmaking is exciting and fun, and working is
grubby. Running anything is primarily an enormous amount of
grubby detail work . . . dealmaking is romantic, sexy. That's
why you have deals that make no sense."
In making acquisitions, we have a further advantage: As
payment, we can offer sellers a stock backed by an extraordinary
collection of outstanding businesses. An individual or a family
wishing to dispose of a single fine business, but also wishing to
defer personal taxes indefinitely, is apt to find Berkshire stock
a particularly comfortable holding. I believe, in fact, that
this calculus played an important part in the two acquisitions
for which we paid shares in 1995.
Beyond that, sellers sometimes care about placing their
companies in a corporate home that will both endure and provide
pleasant, productive working conditions for their managers. Here
again, Berkshire offers something special. Our managers operate
with extraordinary autonomy. Additionally, our ownership
structure enables sellers to know that when I say we are buying
to keep, the promise means something. For our part, we like
dealing with owners who care what happens to their companies and
people. A buyer is likely to find fewer unpleasant surprises
dealing with that type of seller than with one simply auctioning
off his business.
In addition to the foregoing being an explanation of our
acquisition style, it is, of course, a not-so-subtle sales pitch.
If you own or represent a business earning $25 million or more
before tax, and it fits the criteria listed on page 23, just
give me a call. Our discussion will be confidential. And if you
aren't interested now, file our proposition in the back of your
mind: We are never going to lose our appetite for buying
companies with good economics and excellent management.
Concluding this little dissertation on acquisitions, I can't
resist repeating a tale told me last year by a corporate
executive. The business he grew up in was a fine one, with a
long-time record of leadership in its industry. Its main
product, however, was distressingly glamorless. So several
decades ago, the company hired a management consultant who -
naturally - advised diversification, the then-current fad.
("Focus" was not yet in style.) Before long, the company
acquired a number of businesses, each after the consulting firm
had gone through a long - and expensive - acquisition study. And
the outcome? Said the executive sadly, "When we started, we were
getting 100% of our earnings from the original business. After
ten years, we were getting 150%."
Helzberg's Diamond Shops
A few years back, management consultants popularized a
technique called "management by walking around" (MBWA). At
Berkshire, we've instituted ABWA (acquisitions by walking
around).
In May 1994, a week or so after the Annual Meeting, I was
crossing the street at 58th and Fifth Avenue in New York, when a
woman called out my name. I listened as she told me she'd been
to, and had enjoyed, the Annual Meeting. A few seconds later, a
man who'd heard the woman stop me did so as well. He turned out
to be Barnett Helzberg, Jr., who owned four shares of Berkshire
and had also been at our meeting.
In our few minutes of conversation, Barnett said he had a
business we might be interested in. When people say that, it
usually turns out they have a lemonade stand - with potential, of
course, to quickly grow into the next Microsoft. So I simply
asked Barnett to send me particulars. That, I thought to myself.
will be the end of that.
Not long after, Barnett sent me the financial statements of
Helzberg's Diamond Shops. The company had been started by his
grandfather in 1915 from a single store in Kansas City and had
developed by the time we met into a group with 134 stores in 23
states. Sales had grown from $10 million in 1974 to $53 million
in 1984 and $282 million in 1994. We weren't talking lemonade
stands.
Barnett, then 60, loved the business but also wanted to feel
free of it. In 1988, as a step in that direction, he had brought
in Jeff Comment, formerly President of Wanamaker's, to help him
run things. The hiring of Jeff turned out to be a homerun, but
Barnett still found that he couldn't shake a feeling of ultimate
responsibility. Additionally, he owned a valuable asset that was
subject to the vagaries of a single, very competitive industry,
and he thought it prudent to diversify his family's holdings.
Berkshire was made to order for him. It took us awhile to
get together on price, but there was never any question in my
mind that, first, Helzberg's was the kind of business that we
wanted to own and, second, Jeff was our kind of manager. In
fact, we would not have bought the business if Jeff had not been
there to run it. Buying a retailer without good management is
like buying the Eiffel Tower without an elevator.
We completed the Helzberg purchase in 1995 by means of a
tax-free exchange of stock, the only kind of transaction that
interested Barnett. Though he was certainly under no obligation
to do so, Barnett shared a meaningful part of his proceeds from
the sale with a large number of his associates. When someone
behaves that generously, you know you are going to be treated
right as a buyer.
The average Helzberg's store has annual sales of about $2
million, far more than competitors operating similarly-sized
stores achieve. This superior per-store productivity is the key
to Helzberg's excellent profits. If the company continues its
first-rate performance - and we believe it will - it could grow
rather quickly to several times its present size.
Helzberg's, it should be added, is an entirely different
sort of operation from Borsheim's, our Omaha jewelry business,
and the two companies will operate independently of each other.
Borsheim's had an excellent year in 1995, with sales up 11.7%.
Susan Jacques, its 36-year-old CEO, had an even better year,
giving birth to her second son at the start of the Christmas
season. Susan has proved to be a terrific leader in the two
years since her promotion.
R.C. Willey Home Furnishings
It was Nebraska Furniture Mart's Irv Blumkin who did the
walking around in the case of R.C. Willey, long the leading home
furnishings business in Utah. Over the years, Irv had told me
about the strengths of that company. And he had also told Bill
Child, CEO of R.C. Willey, how pleased the Blumkin family had
been with its Berkshire relationship. So in early 1995, Bill
mentioned to Irv that for estate tax and diversification reasons,
he and the other owners of R.C. Willey might be interested in
selling.
From that point forward, things could not have been simpler.
Bill sent me some figures, and I wrote him a letter indicating
my idea of value. We quickly agreed on a number, and found our
personal chemistry to be perfect. By mid-year, the merger was
completed.
R.C. Willey is an amazing story. Bill took over the
business from his father-in-law in 1954 when sales were about
$250,000. From this tiny base, Bill employed Mae West's
philosophy: "It's not what you've got - it's what you do with
what you've got." Aided by his brother, Sheldon, Bill has built
the company to its 1995 sales volume of $257 million, and it now
accounts for over 50% of the furniture business in Utah. Like
Nebraska Furniture Mart, R.C. Willey sells appliances,
electronics, computers and carpets in addition to furniture.
Both companies have about the same sales volume, but NFM gets all
of its business from one complex in Omaha, whereas R.C. Willey
will open its sixth major store in the next few months.
Retailing is a tough business. During my investment career,
I have watched a large number of retailers enjoy terrific growth
and superb returns on equity for a period, and then suddenly
nosedive, often all the way into bankruptcy. This shooting-star
phenomenon is far more common in retailing than it is in
manufacturing or service businesses. In part, this is because a
retailer must stay smart, day after day. Your competitor is
always copying and then topping whatever you do. Shoppers are
meanwhile beckoned in every conceivable way to try a stream of
new merchants. In retailing, to coast is to fail.
In contrast to this have-to-be-smart-every-day business,
there is what I call the have-to-be-smart-once business. For
example, if you were smart enough to buy a network TV station
very early in the game, you could put in a shiftless and backward
nephew to run things, and the business would still do well for
decades. You'd do far better, of course, if you put in Tom
Murphy, but you could stay comfortably in the black without him.
For a retailer, hiring that nephew would be an express ticket to
bankruptcy.
The two retailing businesses we purchased this year are
blessed with terrific managers who love to compete and have done
so successfully for decades. Like the CEOs of our other
operating units, they will operate autonomously: We want them to
feel that the businesses they run are theirs. This means no
second-guessing by Charlie and me. We avoid the attitude of the
alumnus whose message to the football coach is "I'm 100% with you
- win or tie." Our basic goal as an owner is to behave with our
managers as we like our owners to behave with us.
As we add more operations, I'm sometimes asked how many
people I can handle reporting to me. My answer to that is
simple: If I have one person reporting to me and he is a lemon,
that's one too many, and if I have managers like those we now
have, the number can be almost unlimited. We are lucky to have
Bill and Sheldon associated with us, and we hope that we can
acquire other businesses that bring with them managers of similar
caliber.
GEICO Corporation
Right after yearend, we completed the purchase of 100% of
GEICO, the seventh largest auto insurer in the United States,
with about 3.7 million cars insured. I've had a 45-year
association with GEICO, and though the story has been told
before, it's worth a short recap here.
I attended Columbia University's business school in 1950-51,
not because I cared about the degree it offered, but because I
wanted to study under Ben Graham, then teaching there. The time
I spent in Ben's classes was a personal high, and quickly induced
me to learn all I could about my hero. I turned first to Who's
Who in America, finding there, among other things, that Ben was
Chairman of Government Employees Insurance Company, to me an
unknown company in an unfamiliar industry.
A librarian next referred me to Best's Fire and Casualty
insurance manual, where I learned that GEICO was based in
Washington, DC. So on a Saturday in January, 1951, I took the
train to Washington and headed for GEICO's downtown headquarters.
To my dismay, the building was closed, but I pounded on the door
until a custodian appeared. I asked this puzzled fellow if there
was anyone in the office I could talk to, and he said he'd seen
one man working on the sixth floor.
And thus I met Lorimer Davidson, Assistant to the President,
who was later to become CEO. Though my only credentials were
that I was a student of Graham's, "Davy" graciously spent four
hours or so showering me with both kindness and instruction. No
one has ever received a better half-day course in how the
insurance industry functions nor in the factors that enable one
company to excel over others. As Davy made clear, GEICO's method
of selling - direct marketing - gave it an enormous cost
advantage over competitors that sold through agents, a form of
distribution so ingrained in the business of these insurers that
it was impossible for them to give it up. After my session with
Davy, I was more excited about GEICO than I have ever been about
a stock.
When I finished at Columbia some months later and returned
to Omaha to sell securities, I naturally focused almost
exclusively on GEICO. My first sales call - on my Aunt Alice,
who always supported me 100% - was successful. But I was then a
skinny, unpolished 20-year-old who looked about 17, and my pitch
usually failed. Undaunted, I wrote a short report late in 1951
about GEICO for "The Security I Like Best" column in The
Commercial and Financial Chronicle, a leading financial
publication of the time. More important, I bought stock for my
own account.
You may think this odd, but I have kept copies of every tax
return I filed, starting with the return for 1944. Checking
back, I find that I purchased GEICO shares on four occasions
during 1951, the last purchase being made on September 26. This
pattern of persistence suggests to me that my tendency toward
self-intoxication was developed early. I probably came back on
that September day from unsuccessfully trying to sell some
prospect and decided - despite my already having more than 50% of
my net worth in GEICO - to load up further. In any event, I
accumulated 350 shares of GEICO during the year, at a cost of
$10,282. At yearend, this holding was worth $13,125, more than
65% of my net worth.
You can see why GEICO was my first business love. Furthermore,
just to complete this stroll down memory lane, I should add
that I earned most of the funds I used to buy GEICO shares by
delivering The Washington Post, the chief product of a
company that much later made it possible for Berkshire to turn
$10 million into $500 million.
Alas, I sold my entire GEICO position in 1952 for $15,259,
primarily to switch into Western Insurance Securities. This act
of infidelity can partially be excused by the fact that Western
was selling for slightly more than one times its current earnings,
a p/e ratio that for some reason caught my eye. But in the next
20 years, the GEICO stock I sold grew in value to about $1.3
million, which taught me a lesson about the inadvisability of
selling a stake in an identifiably-wonderful company.
In the early 1970's, after Davy retired, the executives
running GEICO made some serious errors in estimating their claims
costs, a mistake that led the company to underprice its policies
- and that almost caused it to go bankrupt. The company was
saved only because Jack Byrne came in as CEO in 1976 and took
drastic remedial measures.
Because I believed both in Jack and in GEICO's fundamental
competitive strength, Berkshire purchased a large interest in the
company during the second half of 1976, and also made smaller
purchases later. By yearend 1980, we had put $45.7 million into
GEICO and owned 33.3% of its shares. During the next 15 years,
we did not make further purchases. Our interest in the company,
nonetheless, grew to about 50% because it was a big repurchaser
of its own shares.
Then, in 1995, we agreed to pay $2.3 billion for the half of
the company we didn't own. That is a steep price. But it gives
us full ownership of a growing enterprise whose business remains
exceptional for precisely the same reasons that prevailed in
1951. In addition, GEICO has two extraordinary managers: Tony
Nicely, who runs the insurance side of the operation, and Lou
Simpson, who runs investments.
Tony, 52, has been with GEICO for 34 years. There's no one
I would rather have managing GEICO's insurance operation. He has
brains, energy, integrity and focus. If we're lucky, he'll stay
another 34 years.
Lou runs investments just as ably. Between 1980 and 1995,
the equities under Lou's management returned an average of 22.8%
annually vs. 15.7% for the S&P. Lou takes the same conservative,
concentrated approach to investments that we do at Berkshire, and
it is an enormous plus for us to have him on board. One point
that goes beyond Lou's GEICO work: His presence on the scene
assures us that Berkshire would have an extraordinary
professional immediately available to handle its investments if
something were to happen to Charlie and me.
GEICO, of course, must continue both to attract good
policyholders and keep them happy. It must also reserve and
price properly. But the ultimate key to the company's success is
its rock-bottom operating costs, which virtually no competitor
can match. In 1995, moreover, Tony and his management team
pushed underwriting and loss adjustment expenses down further to
23.6% of premiums, nearly one percentage point below 1994's
ratio. In business, I look for economic castles protected by
unbreachable "moats." Thanks to Tony and his management team,
GEICO's moat widened in 1995.
Finally, let me bring you up to date on Davy. He's now 93
and remains my friend and teacher. He continues to pay close
attention to GEICO and has always been there when the company's
CEOs - Jack Byrne, Bill Snyder and Tony - have needed him. Our
acquisition of 100% of GEICO caused Davy to incur a large tax.
Characteristically, he still warmly supported the transaction.
Davy has been one of my heroes for the 45 years I've known
him, and he's never let me down. You should understand that
Berkshire would not be where it is today if Davy had not been so
generous with his time on a cold Saturday in 1951. I've often
thanked him privately, but it is fitting that I use this report
to thank him on behalf of Berkshire's shareholders.
Insurance Operations
In addition to acquiring GEICO, we enjoyed other favorable
developments in insurance during 1995.
As we've explained in past reports, what counts in our
insurance business is, first, the amount of "float" we generate
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 a huge winner. For the table, we
have calculated 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 three,
our cost of float has been negative, which means we have
calculated 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%
1995 ...... profit 3,607.2 less than zero 5.95%
Since 1967, when we entered the insurance business, our float
has grown at an annual compounded rate of 20.7%. In more years
than not, our cost of funds has been less than nothing. This
access to "free" money has boosted Berkshire's performance in a
major way.
Any company's level of profitability is determined by three
items: (1) what its assets earn; (2) what its liabilities cost;
and (3) its utilization of "leverage" - that is, the degree to
which its assets are funded by liabilities rather than by equity.
Over the years, we have done well on Point 1, having produced high
returns on our assets. But we have also benefitted greatly - to a
degree that is not generally well-understood - because our
liabilities have cost us very little. An important reason for this
low cost is that we have obtained float on very advantageous terms.
The same cannot be said by many other property and casualty
insurers, who may generate plenty of float, but at a cost that
exceeds what the funds are worth to them. In those circumstances,
leverage becomes a disadvantage.
Since our float has cost us virtually nothing over the years,
it has in effect served as equity. Of course, it differs from true
equity in that it doesn't belong to us. Nevertheless, let's assume
that instead of our having $3.4 billion of float at the end of
1994, we had replaced it with $3.4 billion of equity. Under this
scenario, we would have owned no more assets than we did during
1995. We would, however, have had somewhat lower earnings because
the cost of float was negative last year. That is, our float threw
off profits. And, of course, to obtain the replacement equity, we
would have needed to sell many new shares of Berkshire. The net
result - more shares, equal assets and lower earnings - would have
materially reduced the value of our stock. So you can understand
why float wonderfully benefits a business - if it is obtained at a
low cost.
Our acquisition of GEICO will immediately increase our float
by nearly $3 billion, with additional growth almost certain. We
also expect GEICO to operate at a decent underwriting profit in
most years, a fact that will increase the probability that our
total float will cost us nothing. Of course, we paid a very
substantial price for the GEICO float, whereas virtually all of the
gains in float depicted in the table were developed internally.
Our enthusiasm over 1995's insurance results must be tempered
once again because we had our third straight year of good fortune
in the super-cat business. In this operation, we sell policies
that insurance and reinsurance companies buy to protect themselves
from the effects of mega-catastrophes. 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. We know that
the results of years like the past three will be at least partially
offset by some truly terrible year in the future. We just hope
that "partially" turns out to be the proper adverb.
There were plenty of catastrophes last year, but no super-cats
of the insured variety. The Southeast had a close call when Opal,
sporting winds of 150 miles per hour, hovered off Florida.
However, the storm abated before hitting land, and so a second
Andrew was dodged. For insurers, the Kobe earthquake was another
close call: The economic damage was huge - perhaps even a record -
but only a tiny portion of it was insured. The insurance industry
won't always be that lucky.
Ajit Jain is the guiding genius of our super-cat business and
writes important non-cat business as well. In insurance, the term
"catastrophe" is applied to an event, such as a hurricane or
earthquake, that causes a great many insured losses. The other
deals Ajit enters into usually cover only a single large loss. A
simplified description of three transactions from last year will
illustrate both what I mean and Ajit's versatility. We insured: (1)
The life of Mike Tyson for a sum that is large initially and that,
fight-by-fight, gradually declines to zero over the next few years;
(2) Lloyd's against more than 225 of its "names" dying during the
year; and (3) The launch, and a year of orbit, of two Chinese
satellites. Happily, both satellites are orbiting, the Lloyd's folk
avoided abnormal mortality, and if Mike Tyson looked any healthier,
no one would get in the ring with him.
Berkshire is sought out for many kinds of insurance, both
super-cat and large single-risk, because: (1) our financial
strength is unmatched, and insureds know we can and will pay our
losses under the most adverse of circumstances; (2) we can supply a
quote faster than anyone in the business; and (3) we will issue
policies with limits larger than anyone else is prepared to write.
Most of our competitors have extensive reinsurance treaties and
lay off much of their business. While this helps them avoid shock
losses, it also hurts their flexibility and reaction time. As you
know, Berkshire moves quickly to seize investment and acquisition
opportunities; in insurance we respond with the same exceptional
speed. In another important point, large coverages don't frighten
us but, on the contrary, intensify our interest. We have offered a
policy under which we could have lost $1 billion; the largest
coverage that a client accepted was $400 million.
We will get hit from time to time with large losses. Charlie
and I, however, are quite willing to accept relatively volatile
results in exchange for better long-term earnings than we would
otherwise have had. In other words, we prefer a lumpy 15% to a
smooth 12%. Since most managers opt for smoothness, we are left
with a competitive advantage that we try to maximize. We do,
though, monitor our aggregate exposure in order to keep our "worst
case" at a level that leaves us comfortable.
Indeed, our worst case from a "once-in-a-century" super-cat is
far less severe - relative to net worth - than that faced by many
well-known primary companies writing great numbers of property
policies. These insurers don't issue single huge-limit policies as
we do, but their small policies, in aggregate, can create a risk of
staggering size. The "big one" would blow right through the
reinsurance covers of some of these insurers, exposing them to
uncapped losses that could threaten their survival. In our case,
losses would be large, but capped at levels we could easily handle.
Prices are weakening in the super-cat field. That is
understandable considering the influx of capital into the
reinsurance business a few years ago and the natural desire of
those holding the capital to employ it. No matter what others may
do, we will not knowingly write business at inadequate rates. We
unwittingly did this in the early 1970's and, after more than 20
years, regularly receive significant bills stemming from the
mistakes of that era. My guess is that we will still be getting
surprises from that business 20 years from now. A bad reinsurance
contract is like hell: easy to enter and impossible to exit.
I actively participated in those early reinsurance decisions,
and Berkshire paid a heavy tuition for my education in the
business. Unfortunately, reinsurance students can't attend school
on scholarship. GEICO, incidentally, suffered a similar,
disastrous experience in the early 1980's, when it plunged
enthusiastically into the writing of reinsurance and large risks.
GEICO's folly was brief, but it will be cleaning things up for at
least another decade. The well-publicized problems at Lloyd's
further illustrate the perils of reinsurance and also underscore
how vital it is that the interests of the people who write
insurance business be aligned - on the downside as well as the
upside - with those of the people putting up the capital. When
that kind of symmetry is missing, insurers almost invariably run
into trouble, though its existence may remain hidden for some time.
A small, apocryphal story about an insurance CEO who was
visited by an analyst tells a lot about this industry. To the
analyst's questions about his business, the CEO had nothing but
gloomy answers: Rates were ridiculously low; the reserves on his
balance sheet weren't adequate for ordinary claims, much less those
likely to arise from asbestos and environmental problems; most of
his reinsurers had long since gone broke, leaving him holding the
sack. But then the CEO brightened: "Still, things could be a lot
worse," he said. "It could be my money." At Berkshire, it's our
money.
Berkshire's other insurance operations, though relatively
small, performed magnificently in 1995. National Indemnity's
traditional business had a combined ratio of 84.2 and developed, as
usual, a large amount of float compared to premium volume. Over
the last three years, this segment of our business, run by Don
Wurster, has had an average combined ratio of 85.6. Our homestate
operation, managed by Rod Eldred, grew at a good rate in 1995 and
achieved a combined ratio of 81.4. Its three-year combined ratio
is an amazing 82.4. Berkshire's California workers' compensation
business, run by Brad Kinstler, faced fierce price-cutting in 1995
and lost a great many renewals when we refused to accept inadequate
rates. Though this operation's volume dropped materially, it
produced an excellent underwriting profit. Finally, John Kizer, at
Central States Indemnity, continues to do an extraordinary job.
His premium volume was up 23% in 1995, and underwriting profit grew
by 59%. Ajit, Don, Rod, Brad and John are all under 45, an
embarrassing fact demolishing my theory that managers only hit
their stride after they reach 70.
To sum up, we entered 1995 with an exceptional insurance
operation of moderate size. By adding GEICO, we entered 1996 with
a business still better in quality, much improved in its growth
prospects, and doubled in size. More than ever, insurance is our
core strength.
Sources of Reported Earnings
The table below shows the main sources of Berkshire's reported
earnings. In this presentation, purchase-premium charges 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.
(in millions)
---------------------------------------
Berkshire's Share
of Net Earnings
(after taxes and
Pre-Tax Earnings minority interests)
------------------ ------------------
1995 1994 1995 1994
-------- -------- -------- --------
Operating Earnings:
Insurance Group:
Underwriting ............... $ 20.5 $129.9 $ 11.3 $ 80.9
Net Investment Income ...... 501.6 419.4 417.7 350.5
Buffalo News ................. 46.8 54.2 27.3 31.7
Fechheimer ................... 16.9 14.3 8.8 7.1
Finance Businesses ........... 20.8 22.1 12.6 14.6
Home Furnishings ............. 29.7(1) 17.4 16.7(1) 8.7
Jewelry ...................... 33.9(2) ---(3) 19.1(2) ---(3)
Kirby ........................ 50.2 42.3 32.1 27.7
Scott Fetzer Manufacturing Group 34.1 39.5 21.2 24.9
See's Candies ................ 50.2 47.5 29.8 28.2
Shoe Group ................... 58.4 85.5 37.5 55.8
World Book ................... 8.8 24.7 7.0 17.3
Purchase-Price Premium Charges (27.0) (22.6) (23.4) (19.4)
Interest Expense(4) .......... (56.0) (60.1) (34.9) (37.3)
Shareholder-Designated
Contributions ............ (11.6) (10.4) (7.0) (6.7)
Other ........................ 37.4 35.7 24.4 22.3
-------- -------- -------- --------
Operating Earnings ............. 814.7 839.4 600.2 606.2
Sales of Securities ............ 194.1 91.3 125.0 61.1
Decline in Value of
USAir Preferred Stock ...... --- (268.5) --- (172.6)
--------- -------- -------- --------
Total Earnings - All Entities $1,008.8 $662.2 $725.2 $494.8
========= ======== ======== ========
(1) Includes R.C. Willey from June 29, 1995.
(2) Includes Helzberg's from April 30, 1995.
(3) Jewelry earnings were included in "Other" in 1994.
(4) Excludes interest expense of Finance Businesses.
A large amount of information about these businesses is given
on pages 41-52, where you will also find our segment earnings
reported on a GAAP basis. In addition, on pages 57-63, 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.
At Berkshire, we believe in Charlie's dictum - "Just tell me
the bad news; the good news will take care of itself" - and that is
the behavior we expect of our managers when they are reporting to
us. Consequently, I also owe you - Berkshire's owners - a report
on three operations that, though they continued to earn decent (or
better) returns on invested capital, experienced a decline in
earnings last year. Each encountered a different type of problem.
Our shoe business operated in an industry that suffered
depressed earnings throughout last year, and many of our
competitors made only marginal profits or worse. That means we at
least maintained, and in some instances widened, our competitive
superiority. So I have no doubt that our shoe operations will
climb back to top-grade earnings in the future. In other words,
though the turn has not yet occurred, we believe you should view
last year's figures as reflecting a cyclical problem, not a secular
one.
The Buffalo News, though still doing very well in comparison
to other newspapers, is another story. In this case, industry
trends are not good. In the 1991 Annual Report, I explained that
newspapers had lost a notch in their economic attractiveness from
the days when they appeared to have a bullet-proof franchise.
Today, the industry retains its excellent economics, but has lost
still another notch. Over time, we expect the competitive strength
of newspapers to gradually erode, though the industry should
nevertheless remain a fine business for many years to come.
Berkshire's most difficult problem is World Book, which
operates in an industry beset by increasingly tough competition
from CD-ROM and on-line offerings. True, we are still profitable,
a claim that perhaps no other print encyclopedia can make. But our
sales and earnings trends have gone in the wrong direction. At the
end of 1995, World Book made major changes in the way it
distributes its product, stepped up its efforts with electronic
products and sharply reduced its overhead costs. It will take time
for us to evaluate the effects of these initiatives, but we are
confident they will significantly improve our viability.
All of our operations, including those whose earnings fell
last year, benefit from exceptionally talented and dedicated
managers. Were we to have the choice of any other executives now
working in their industries, there is not one of our managers we
would replace.
Many of our managers don't have to work for a living, but
simply go out and perform every day for the same reason that
wealthy golfers stay on the tour: They love both doing what they
do and doing it well. To describe them as working may be a
misnomer - they simply prefer spending much of their time on a
productive activity at which they excel to spending it on leisure
activities. Our job is to provide an environment that will keep
them feeling this way, and so far we seem to have succeeded:
Thinking back over the 1965-95 period, I can't recall that a single
key manager has left Berkshire to join another employer.
Common Stock Investments
Below we present our common stock investments. Those with a
market value of more than $600 million are itemized.
12/31/95
Shares Company Cost Market
---------- ------- -------- --------
(dollars in millions)
49,456,900 American Express Company ............. $1,392.7 $2,046.3
20,000,000 Capital Cities/ABC, Inc. ............. 345.0 2,467.5
100,000,000 The Coca-Cola Company ................ 1,298.9 7,425.0
12,502,500 Federal Home Loan Mortgage Corp.
("Freddie Mac") ................... 260.1 1,044.0
34,250,000 GEICO Corp. .......................... 45.7 2,393.2
48,000,000 The Gillette Company ................. 600.0 2,502.0
6,791,218 Wells Fargo & Company ................ 423.7 1,466.9
Others ............................... 1,379.0 2,655.4
-------- ---------
Total Common Stocks .................. $5,745.1 $22,000.3
======== =========
We continue in our Rip Van Winkle mode: Five of our six top
positions at yearend 1994 were left untouched during 1995. The
sixth was American Express, in which we increased our ownership to
about 10%.
In early 1996, two major events affected our holdings: First,
our purchase of the GEICO stock we did not already own caused that
company to be converted into a wholly-owned subsidiary. Second, we
exchanged our Cap Cities shares for a combination of cash and
Disney stock.
In the Disney merger, Cap Cities shareholders had a choice of
actions. If they chose, they could exchange each of their Cap
Cities shares for one share of Disney stock plus $65. Or they
could ask for - though not necessarily get - all cash or all stock,
with their ultimate allotment of each depending on the choices made
by other shareholders and certain decisions made by Disney. For
our 20 million shares, we sought stock, but do not know, as this
report goes to press, how much we were allocated. We are certain,
however, to receive something over 20 million Disney shares. We
have also recently bought Disney stock in the market.
One more bit of history: I first became interested in Disney
in 1966, when its market valuation was less than $90 million, even
though the company had earned around $21 million pre-tax in 1965
and was sitting with more cash than debt. At Disneyland, the $17
million Pirates of the Caribbean ride would soon open. Imagine my
excitement - a company selling at only five times rides!
Duly impressed, Buffett Partnership Ltd. bought a significant
amount of Disney stock at a split-adjusted price of 31› per share.
That decision may appear brilliant, given that the stock now sells
for $66. But your Chairman was up to the task of nullifying it:
In 1967 I sold out at 48› per share.
Oh well - we're happy to be once again a large owner of a
business with both unique assets and outstanding management.
Convertible Preferred Stocks
As many of you will remember, Berkshire made five private
purchases of convertible preferred stocks during the 1987-91 period
and the time seems right to discuss their status. Here are the
particulars:
Dividend Year of Market
Company Rate Purchase Cost Value
------- -------- -------- ------ --------
(dollars in millions)
Champion International Corp. ... 9 1/4% 1989 $300 $388(1)
First Empire State Corp. ....... 9% 1991 40 110
The Gillette Company ........... 8 3/4% 1989 600 2,502(2)
Salomon Inc .................... 9% 1987 700 728(3)
USAir Group, Inc. .............. 9 1/4% 1989 358 215
(1) Proceeds from sale of common we received through conversion in 1995.
(2) 12/31/95 value of common we received through conversion in 1991.
(3) Includes $140 we received in 1995 from partial redemption.
In each case we had the option of sticking with these
preferreds as fixed-income securities or converting them into
common stock. Initially, their value to us came primarily from
their fixed-income characteristics. The option we had to convert
was a kicker.
Our $300 million private purchase of American Express "Percs"
- described in the 1991 Annual Report - is not included in the
table because that security was a modified form of common stock
whose fixed-income characteristics contributed only a minor portion
of its initial value. Three years after we bought them, the Percs
automatically were converted to common stock. In contrast, the
five securities in the table were set to become common stocks only
if we wished them to - a crucial difference.
When we purchased our convertible securities, I told you that
we expected to earn after-tax returns from them that "moderately"
exceeded what we could earn from the medium-term fixed-income
securities they replaced. We beat this expectation - but only
because of the performance of a single issue. I also told you that
these securities, as a group, would "not produce the returns we can
achieve when we find a business with wonderful economic prospects."
Unfortunately, that prediction was fulfilled. Finally, I said
that "under almost any conditions, we expect these preferreds to
return us our money plus dividends." That's one I would like to
have back. Winston Churchill once said that "eating my words has
never given me indigestion." My assertion, however, that it was
almost impossible for us to lose money on our preferreds has caused
me some well-deserved heartburn.
Our best holding has been Gillette, which we told you from the
start was a superior business. Ironically, though, this is also
the purchase in which I made my biggest mistake - of a kind,
however, never recognized on financial statements.
We paid $600 million in 1989 for Gillette preferred shares
that were convertible into 48 million (split-adjusted) common
shares. Taking an alternative route with the $600 million, I
probably could have purchased 60 million shares of common from the
company. The market on the common was then about $10.50, and given
that this would have been a huge private placement carrying
important restrictions, I probably could have bought the stock at a
discount of at least 5%. I can't be sure about this, but it's
likely that Gillette's management would have been just as happy to
have Berkshire opt for common.
But I was far too clever to do that. Instead, for less than
two years, we received some extra dividend income (the difference
between the preferred's yield and that of the common), at which
point the company - quite properly - called the issue, moving to do
that as quickly as was possible. If I had negotiated for common
rather than preferred, we would have been better off at yearend
1995 by $625 million, minus the "excess" dividends of about $70
million.
In the case of Champion, the ability of the company to call
our preferred at 115% of cost forced a move out of us last August
that we would rather have delayed. In this instance, we converted
our shares just prior to the pending call and offered them to the
company at a modest discount.
Charlie and I have never had a conviction about the paper
industry - actually, I can't remember ever owning the common stock
of a paper producer in my 54 years of investing - so our choice in
August was whether to sell in the market or to the company.
Champion's management had always been candid and honorable in
dealing with us and wished to repurchase common shares, so we
offered our stock to the company. Our Champion capital gain was
moderate - about 19% after tax from a six-year investment - but the
preferred delivered us a good after-tax dividend yield throughout
our holding period. (That said, many press accounts have
overstated the after-tax yields earned by property-casualty
insurance companies on dividends paid to them. What the press has
failed to take into account is a change in the tax law that took
effect in 1987 and that significantly reduced the dividends
received credit applicable to insurers. For details, see our 1986
Annual Report.)
Our First Empire preferred will be called on March 31, 1996,
the earliest date allowable. We are comfortable owning stock in
well-run banks, and we will convert and keep our First Empire
common shares. Bob Wilmers, CEO of the company, is an outstanding
banker, and we love being associated with him.
Our other two preferreds have been disappointing, though the
Salomon preferred has modestly outperformed the fixed-income
securities for which it was a substitute. However, the amount of
management time Charlie and I have devoted to this holding has been
vastly greater than its economic significance to Berkshire.
Certainly I never dreamed I would take a new job at age 60 -
Salomon interim chairman, that is - because of an earlier purchase
of a fixed-income security.
Soon after our purchase of the Salomon preferred in 1987, I
wrote that I had "no special insights regarding the direction or
future profitability of investment banking." Even the most
charitable commentator would conclude that I have since proved my
point.
To date, our option to convert into Salomon common has not
proven of value. Furthermore, the Dow Industrials have doubled
since I committed to buy the preferred, and the brokerage group has
performed equally as well. That means my decision to go with
Salomon because I saw value in the conversion option must be graded
as very poor. Even so, the preferred has continued under some
trying conditions to deliver as a fixed-income security, and the
9% dividend is currently quite attractive.
Unless the preferred is converted, its terms require
redemption of 20% of the issue on October 31 of each year, 1995-99,
and $140 million of our original $700 million was taken on schedule
last year. (Some press reports labeled this a sale, but a senior
security that matures is not "sold.") Though we did not elect to
convert the preferred that matured last year, we have four more
bites at the conversion apple, and I believe it quite likely that
we will yet find value in our right to convert.
I discussed the USAir investment at length in last year's
report. The company's results improved in 1995, but it still faces
significant problems. On the plus side for us is the fact that our
preferred is structurally well-designed: For example, though we
have not been paid dividends since June 1994, the amounts owed us
are compounding at 5% over the prime rate. On the minus side is
the fact that we are dealing with a weak credit.
We feel much better about our USAir preferred than we did a
year ago, but your guess is as good as mine as to its ultimate
value. (Indeed, considering my record with this investment, it's
fair to say that your guess may be better than mine.) At yearend
we carried our preferred (in which there is no public market) at
60% of par, though USAir also has outstanding a junior preferred
that is significantly inferior to ours in all respects except
conversion price and that was then trading at 82% of par. As I
write this, the junior issue has advanced to 97% of par. Let's
hope the market is right.
Overall, our preferreds have performed well, but that is true
only because of one huge winner, Gillette. Leaving aside Gillette,
our preferreds as a group have delivered us after-tax returns no
more than equal to those we could have earned from the medium-term
fixed-income issues that they replaced.
A Proposed Recapitalization
At the Annual Meeting you will be asked to approve a
recapitalization of Berkshire, creating two classes of stock. If
the plan is adopted, our existing common stock will be designated
as Class A Common Stock and a new Class B Common Stock will be
authorized.
Each share of the "B" will have the rights of 1/30th of an "A"
share with these exceptions: First, a B share will have 1/200th of
the vote of an A share (rather than 1/30th of the vote). Second,
the B will not be eligible to participate in Berkshire's
shareholder-designated charitable contributions program.
When the recapitalization is complete, each share of A will
become convertible, at the holder's option and at any time, into 30
shares of B. This conversion privilege will not extend in the
opposite direction. That is, holders of B shares will not be able
to convert them into A shares.
We expect to list the B shares on the New York Stock Exchange,
where they will trade alongside the A stock. To create the
shareholder base necessary for a listing - and to ensure a liquid
market in the B stock - Berkshire expects to make a public offering
for cash of at least $100 million of new B shares. The offering
will be made only by means of a prospectus.
The market will ultimately determine the price of the B
shares. Their price, though, should be in the neighborhood of
1/30th of the price of the A shares.
Class A shareholders who wish to give gifts may find it
convenient to convert a share or two of their stock into Class B
shares. Additionally, arbitrage-related conversions will occur if
demand for the B is strong enough to push its price to slightly
above 1/30th of the price of A.
However, because the Class A stock will entitle its holders to
full voting rights and access to Berkshire's contributions program,
these shares will be superior to the Class B shares and we would
expect most shareholders to remain holders of the Class A - which
is precisely what the Buffett and Munger families plan to do,
except in those instances when we ourselves might convert a few
shares to facilitate gifts. The prospect that most shareholders
will stick to the A stock suggests that it will enjoy a somewhat
more liquid market than the B.
There are tradeoffs for Berkshire in this recapitalization.
But they do not arise from the proceeds of the offering - we will
find constructive uses for the money - nor in any degree from the
price at which we will sell the B shares. As I write this - with
Berkshire stock at $36,000 - Charlie and I do not believe it
undervalued. Therefore, the offering we propose will not diminish
the per-share intrinsic value of our existing stock. Let me also
put our thoughts about valuation more baldly: Berkshire is selling
at a price at which Charlie and I would not consider buying it.
What Berkshire will incur by way of the B stock are certain
added costs, including those involving the mechanics of handling a
larger number of shareholders. On the other hand, the stock should
be a convenience for people wishing to make gifts. And those of
you who have hoped for a split have gained a do-it-yourself method
of bringing one about.
We are making this move, though, for other reasons - having to
do with the appearance of expense-laden unit trusts purporting to
be low-priced "clones" of Berkshire and sure to be aggressively
marketed. The idea behind these vehicles is not new: In recent
years, a number of people have told me about their wish to create
an "all-Berkshire" investment fund to be sold at a low dollar
price. But until recently, the promoters of these investments
heard out my objections and backed off.
I did not discourage these people because I prefer large
investors over small. Were it possible, Charlie and I would love
to turn $1,000 into $3,000 for multitudes of people who would find
that gain an important answer to their immediate problems.
In order to quickly triple small stakes, however, we would
have to just as quickly turn our present market capitalization of
$43 billion into $129 billion (roughly the market cap of General
Electric, America's most highly valued company). We can't come
close to doing that. The very best we hope for is - on average - to
double Berkshire's per-share intrinsic value every five years, and
we may well fall far short of that goal.
In the end, Charlie and I do not care whether our shareholders
own Berkshire in large or small amounts. What we wish for are
shareholders of any size who are knowledgeable about our
operations, share our objectives and long-term perspective, and are
aware of our limitations, most particularly those imposed by our
large capital base.
The unit trusts that have recently surfaced fly in the face of
these goals. They would be sold by brokers working for big
commissions, would impose other burdensome costs on their
shareholders, and would be marketed en masse to unsophisticated
buyers, apt to be seduced by our past record and beguiled by the
publicity Berkshire and I have received in recent years. The sure
outcome: a multitude of investors destined to be disappointed.
Through our creation of the B stock - a low-denomination
product far superior to Berkshire-only trusts - we hope to make the
clones unmerchandisable.
But both present and prospective Berkshire shareholders should
pay special attention to one point: Though the per-share intrinsic
value of our stock has grown at an excellent rate during the past
five years, its market price has grown still faster. The stock, in
other words, has outperformed the business.
That kind of market overperformance cannot persist indefinitely,
neither for Berkshire nor any other stock. Inevitably, there
will be periods of underperformance as well. The price
volatility that results, though endemic to public markets, is
not to our liking. What we would prefer instead is to have the
market price of Berkshire precisely track its intrinsic value.
Were the stock to do that, every shareholder would benefit during
his period of ownership in exact proportion to the progress
Berkshire itself made in the period.
Obviously, the market behavior of Berkshire's stock will never
conform to this ideal. But we will come closer to this goal than
we would otherwise if our present and prospective shareholders are
informed, business-oriented and not exposed to high-commission
salesmanship when making their investment decisions. To that end,
we are better off if we can blunt the merchandising efforts of the
unit trusts - and that is the reason we are creating the B stock.
We look forward to answering your questions about the
recapitalization at the Annual Meeting.
Miscellaneous
Berkshire isn't the only American corporation utilizing the
new, exciting ABWA strategy. At about 1:15 p.m. on July 14, 1995,
Michael Eisner, CEO of The Walt Disney Company, was walking up
Wildflower Lane in Sun Valley. At the same time, I was leaving a
lunch at Herbert Allen's home on that street to meet Tom Murphy,
CEO of Cap Cities/ABC, for a golf game.
That morning, speaking to a large group of executives and
money managers assembled by Allen's investment bank, Michael had
made a brilliant presentation about Disney, and upon seeing him, I
offered my congratulations. We chatted briefly - and the subject
of a possible combination of Disney and Cap Cities came up. This
wasn't the first time a merger had been discussed, but progress had
never before been made, in part because Disney wanted to buy with
cash and Cap Cities desired stock.
Michael and I waited a few minutes for Murph to arrive, and in
the short conversation that ensued, both Michael and Murph
indicated they might bend on the stock/cash question. Within a few
weeks, they both did, at which point a contract was put together in
three very busy days.
The Disney/Cap Cities deal makes so much sense that I'm sure
it would have occurred without that chance encounter in Sun Valley.
But when I ran into Michael that day on Wildflower Lane, he was
heading for his plane, so without that accidental meeting the deal
certainly wouldn't have happened in the time frame it did. I
believe both Disney and Cap Cities will benefit from the fact that
we all serendipitously met that day.
* * * * * * * * * * * *
It's appropriate that I say a few words here about Murph. To
put it simply, he is as fine an executive as I have ever seen in my
long exposure to business. Equally important, he possesses human
qualities every bit the equal of his managerial qualities. He's an
extraordinary friend, parent, husband and citizen. In those rare
instances in which Murph's personal interests diverged from those
of shareholders, he unfailingly favored the owners. When I say
that I like to be associated with managers whom I would love to
have as a sibling, in-law, or trustee of my will, Murph is the
exemplar of what I mean.
If Murph should elect to run another business, don't bother to
study its value - just buy the stock. And don't later be as dumb
as I was two years ago when I sold one-third of our holdings in Cap
Cities for $635 million (versus the $1.27 billion those shares
would bring in the Disney merger).
* * * * * * * * * * * *
About 96.3% of all eligible shares participated in Berkshire's
1995 shareholder-designated contributions program. Contributions
made were $11.6 million and 3,600 charities were recipients. A
full description of the shareholder-designated contributions
program appears on pages 54-55.
Every year a few shareholders miss out on the program because
they don't have their shares registered in their own names on the
prescribed record date or because they fail to get their
designation form back to us within the 60-day period allowed. That
second problem pained me especially this year because two good
friends with substantial holdings missed the deadline. We had to
deny their requests to be included because we can't make exceptions
for some shareholders while refusing to make them for others.
To participate in future programs, you must own Class A shares
that are registered in the name of the actual owner, not the
nominee name of a broker, bank or depository. Shares not so
registered on August 31, 1996, will be ineligible for the 1996
program. When you get the form, return it promptly so that it does
not get put aside or forgotten.
* * * * * * * * * * * *
When it comes to our Annual Meetings, Charlie and I are
managerial oddballs: We thoroughly enjoy the event. So come join
us on Monday, May 6. At Berkshire, we have no investor relations
department and don't use financial analysts as a channel for
disseminating information, earnings "guidance," or the like.
Instead, we prefer direct manager-to-owner communication and
believe that the Annual Meeting is the ideal place for this
interchange of ideas. Talking to you there is efficient for us and
also democratic in that all present simultaneously hear what we
have to say.
Last year, for the first time, we had the Annual Meeting at
the Holiday Convention Centre and the logistics seemed to work.
The ballroom there was filled with about 3,200 people, and we had a
video feed into a second room holding another 800 people. Seating
in the main room was a little tight, so this year we will probably
configure it to hold 3,000. This year we will also have two rooms
for the overflow.
All in all, we will be able to handle 5,000 shareholders. The
meeting will start at 9:30 a.m., but be warned that last year the
main ballroom was filled shortly after 8:00 a.m.
Shareholders from 49 states attended our 1995 meeting - where
were you, Vermont? - and a number of foreign countries, including
Australia, Sweden and Germany, were represented. As always, the
meeting attracted shareholders who were interested in Berkshire's
business - as contrasted to shareholders who are primarily
interested in themselves - and the questions were all good.
Charlie and I ate lunch on stage and answered questions for about
five hours.
We feel that if owners come from all over the world, we should
try to make sure they have an opportunity to ask their questions.
Most shareholders leave about noon, but a thousand or so hardcore
types usually stay to see whether we will drop. Charlie and I are
in training to last at least five hours again this year.
We will have our usual array of Berkshire products at the
meeting and this year will add a sales representative from GEICO.
At the 1995 meeting, we sold 747 pounds of candy, 759 pairs of
shoes, and over $17,500 of World Books and related publications.
In a move that might have been dangerous had our stock been weak,
we added knives last year from our Quikut subsidiary and sold 400
sets of these. (We draw the line at soft fruit, however.) All of
these goods will again be available this year. We don't consider a
cultural event complete unless a little business is mixed in.
Because we expect a large crowd for the meeting, we recommend
that you promptly get both plane and hotel reservations. 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
7:30, 8:00 and 8:30 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.
NFM's main store, on its 64-acre site about two miles north of
the Centre, is open from 10 a.m. to 9 p.m. on weekdays, 10 a.m. to
6 p.m. on Saturdays, and noon to 6 p.m. on Sundays. Rose Blumkin -
"Mrs. B" - is now 102, but will be hard at work in Mrs. B's
Warehouse. She was honored in November at the opening of The Rose,
a classic downtown theater of the 20's that has been magnificently
restored, but that would have been demolished had she not saved it.
Ask her to tell you the story.
Borsheim's normally is closed on Sunday but will be open for
shareholders and their guests from 10 a.m. to 6 p.m. on May 5th.
Additionally, we will have a special opening for shareholders on
Saturday, the 4th, from 6 p.m. to 9 p.m. Last year, on
Shareholders Day, we wrote 1,733 tickets in the six hours we were
open - which is a sale every 13 seconds. Remember, though, that
records are made to be broken.
At Borsheim's, we will also have the world's largest faceted
diamond on display. Two years in the cutting, this inconspicuous
bauble is 545 carats in size. Please inspect this stone and let it
guide you in determining what size gem is appropriate for the one
you love.
On Saturday evening, May 4, there will be a baseball game at
Rosenblatt Stadium between the Omaha Royals and the Louisville
Redbirds. I expect to make the opening pitch - owning a quarter of
the team assures me of one start per year - but our manager, Mike
Jirschele, will probably make his usual mistake and yank me
immediately after. About 1,700 shareholders attended last year's
game. Unfortunately, we had a rain-out, which greatly disappointed
the many scouts in the stands. But the smart ones will be back
this year, and I plan to show them my best stuff.
Our proxy statement will include information about obtaining
tickets to the game. We will also offer an information packet this
year listing restaurants that will be open on Sunday night and
describing various things that you can do in Omaha on the weekend.
For years, I've unsuccessfully tried to get my grade school
classmate, "Pal" Gorat, to open his steakhouse for business on the
Sunday evening preceding the meeting. But this year he's relented.
Gorat's is a family-owned enterprise that has thrived for 52
years, and if you like steaks, you'll love this place. I've told
Pal he will get a good crowd, so call Gorat's at 402-551-3733 for a
reservation. You'll spot me there - I'll be the one eating the
rare T-bone with a double order of hash browns.
Warren E. Buffett
March 1, 1996 Chairman of the Board
中文译文
致伯克希尔·哈撒韦公司的股东：
我们1995年的净值增长了53亿美元，即45.0%。每股账面价值增长略低，为43.1%，这是因为我们为两次收购支付了股票，使流通股增加了1.3%。过去31年（即现任管理层接手以来），每股账面价值从19美元增长到14,426美元，年复合增长率23.6%。
没有必要为1995年的收益翻筋斗。这一年，任何傻瓜都能在股市大赚一笔。我们也不例外。借用肯尼迪总统的话说：水涨船高，所有的游艇都跟着上升。
撇开财务业绩不谈，去年伯克希尔还有很多好消息：我们谈成了三笔收购，都正好是我们想要的那种类型。其中两家，Helzberg's Diamond Shops（赫兹堡珠宝店）和R.C. Willey Home Furnishings（R.C.威利家居），已纳入我们1995年的财务报表；而最大的一笔交易——收购GEICO（政府雇员保险公司），则在年底后立即完成。（我将在报告后面详细介绍这三笔收购。）
这些新的子公司大约使我们的收入翻了一番。即便如此，这些收购既没有显著增加我们的流通股，也没有增加我们的债务。而且，尽管这三项业务雇用了超过11,000人，我们的总部员工只从11人增加到12人。（没必要发疯。）
Charlie Munger，伯克希尔的副董事长兼我的合伙人，和我想要构建一个公司集合——既有全资拥有的，也有部分拥有的——这些公司拥有卓越的经济特性，并由杰出的管理者经营。我们最喜欢的收购是谈判交易，让我们能够以公平价格购买这类企业100%的股份。但我们也同样高兴，当股票市场给我们机会以远低于买入100%所需的价格，按比例购买一家优秀企业的一小部分股份时。这种双管齐下的方法——通过谈判购买整个企业，或通过股票市场购买部分权益——使我们在资本配置上比那些固守单一途径的人具有重要优势。Woody Allen曾解释过折衷主义的好处：“双性恋的真正优势在于，它让你周六晚上约到人的机会翻倍。”
多年来，我们一直像Woody那样思考，试图增加我们在优秀企业上的有价证券投资，同时尝试整体买入类似的企业。下表展示了我们在这两方面的进展。表中，我们列出了每十年间隔时，伯克希尔每股所拥有的有价证券。第二列列出了来自所有其他活动的每股经营利润（税前且不计购买价格调整，但扣除利息和公司管理费用）。换句话说，第二列显示了我们扣除从投资中实现的股息、利息和资本收益后的盈利。购买价格会计调整被忽略，原因我们在以前的报告中已详细解释，出于仁慈，我们不再重复。（不过，我们很乐意将先前的解释寄给受虐狂。）
每股税前利润
每股有价证券 （不含投资收入）
年份
---- --------------------- --------------------------
1965 ................ $ 4 $ 4.08
1975 ................ 159 (6.48)
1985 ................ 2,443 18.86
1995 ................ 22,088 258.20
年增长率：1965-95 33.4% 14.7%
这些成果并非源自我们在1965年精心策划的什么宏伟蓝图。大体上，我们当时知道自己希望达成什么目标，但对于具体哪些机会能让它成真却毫无头绪。如今，我们依然保持着这种没有固定框架的状态：随着时间推移，我们期望改善两栏的数字，但并没有一张路线图告诉我们该如何实现。
我们前行有两大优势：第一，我们的经营管理者极为出色，而且在大多数情况下，他们对伯克希尔有着非同寻常的深厚感情。第二，查理和我在资本配置方面经验丰富，并努力以理性客观的态度对待这项任务。我们面临的巨大劣势是规模：早年，我们只需要好主意，但现在我们需要好的大主意。不幸的是，找到这些主意的难度与我们的财务成功成正比，这个问题正日益侵蚀我们的优势。
在本报告的后面部分，当我讨论我们提议的资本重组时，我将更多谈及伯克希尔的前景。
收购
鉴于我们经常在这些页面上质疑大多数管理者的收购活动，因此我们在一年内完成了三笔收购还沾沾自喜，这似乎有些奇怪。请放心，查理和我并未失去我们的怀疑精神：我们认为大多数交易都会损害收购方股东的利益。很多时候，《皮纳福号军舰》中的台词恰如其分：“事情很少像表面那样，脱脂牛奶冒充奶油。”具体来说，卖方及其代表总是提供那些娱乐价值大于教育价值的财务预测。在制造美好前景方面，华尔街丝毫不亚于华盛顿。
无论如何，潜在买家居然会去看卖方准备的预测，这让我百思不得其解。查理和我对此从不瞥一眼，而是牢记那个关于一匹病马的故事。有个人带着他的病马去看兽医，他说：“你能帮帮我吗？我的马有时候走路好好的，有时候却一瘸一拐。”兽医的回答一针见血：“没问题——它走路正常的时候，卖掉它。”在并购的世界里，那匹马会被吹嘘成Secretariat（美国传奇赛马）。
在伯克希尔，我们和其他热衷收购的公司一样，在预知未来方面同样困难重重。与他们一样，我们也面临一个固有问题：卖方几乎总是比买方更了解自己的业务，而且他们会选择出售时机——一个业务很可能“走路正常”的时机。
即便如此，我们确实拥有一些优势，也许最大的优势就是我们没有战略规划。因此，我们觉得没有必要沿着某个既定的方向前进（那样几乎总会导致愚蠢的购买价格），而是可以简单地决定什么对我们的所有者有意义。在这样做的时候，我们总是在脑海里将我们正在考虑的任何行动与摆在我们面前的其他几十种机会进行比较，包括通过股票市场购买世界上最优秀企业的一小部分股权。我们进行这种比较——收购与被动投资相比——的做法，是一种单纯专注于扩张的管理者很少使用的纪律。
几年前在接受《时代》杂志采访时，彼得·德鲁克一语中的：“我告诉你一个秘密：做交易比干活强。做交易令人兴奋且有趣，而干活则是苦差事。经营任何东西主要就是一大堆琐碎的苦活……做交易是浪漫的、性感的。这就是为什么会出现毫无意义的交易。”
在进行收购时，我们还有一个优势：作为支付对价，我们可以向卖家提供一种股票，这种股票背后有一批非凡的优秀企业作为支撑。那些希望出售一家优质企业、但又希望无限期延递个人税款的个人或家族，很可能会发现伯克希尔的股票是一种特别舒适的持有物。事实上，我相信这种考量在我们1995年以股票支付的两笔收购中发挥了重要作用。
除此之外，卖家有时也会关心他们的企业能否找到一个持久的企业归宿，同时为其管理层提供愉快且富有成效的工作环境。在这一点上，伯克希尔同样有其独特之处。我们的管理层享有极大的自主权。此外，我们的所有权结构让卖家明白，当我说"我们买入即持有"时，这个承诺是有分量的。就我们而言，我们喜欢与那些关心自己企业和员工命运的卖家打交道。与那些只是拍卖自己的企业的卖家相比，买家跟前者打交道，遇到意外麻烦的可能性要小得多。
上述内容不仅是对我们收购风格的说明，当然也是一番不那么含蓄的推销。如果你拥有一家或代表一家税前利润在2500万美元或以上的企业，并且符合第23页所列的标准，直接给我打电话。我们的讨论将严格保密。如果你现在不感兴趣，也请将我们的提议记在心里：我们永远不会失去收购那些拥有良好经济前景和优秀管理层的公司的胃口。
在结束这篇关于收购的小短文时，我忍不住要复述一位企业高管去年告诉我的故事。他成长的那家企业是一家好公司，在其行业中拥有长期领先的记录。然而，其主要产品却令人遗憾地毫无亮点。于是几十年前，公司聘请了一位管理顾问——自然——他建议实行多元化，这是当时的风潮（"聚焦"当时还不流行）。不久之后，公司收购了多家企业，每一次都是在咨询公司进行了漫长且昂贵的收购研究之后。结果如何？这位高管悲伤地说："刚开始时，我们100%的收入来自原来的业务。十年后，我们的收入变成了原来的150%。"
**赫兹堡钻石店**
几年前，管理顾问们推广了一种叫做"走动式管理"（MBWA）的技巧。在伯克希尔，我们推行了"走动式收购"（ABWA）。
1994年5月，也就是年会结束大约一周后，我在纽约第五大道58街过马路时，一位女士叫了我的名字。我听着她告诉我，她参加了年会并且很喜欢。几秒钟后，一位听到那位女士叫住我的男士也停了下来。结果他是Barnett Helzberg Jr.，持有四股伯克希尔股票，也参加了我们的年会。
在我们短暂的交谈中，Barnett说他有一家我们可能感兴趣的企业。当人们这么说时，通常结果只是一个小摊——当然，有潜力迅速成长为下一个微软。所以我就简单让Barnett把详细资料寄给我。我心想，这件事就这么完了。
不久之后，Barnett把赫兹堡钻石店的财务报表寄给了我。这家公司由他的祖父于1915年在堪萨斯城从一家店面起步，到我们相识时已发展成一个拥有134家门店、遍布23个州的企业集团。销售额从1974年的1000万美元增长到1984年的5300万美元，再到1994年的2.82亿美元。这可不是什么小摊了。
---
当时60岁的Barnett热爱这项事业，但也渴望从中解脱。1988年，作为迈向这个目标的一步，他邀请了曾任Wanamaker's总裁的Jeff Comment来协助管理公司。聘请Jeff堪称一记本垒打，但Barnett仍无法摆脱那种最终责任人的感觉。此外，他拥有一项宝贵的资产，却受制于一个单一且竞争激烈的行业的起伏，他认为将家族资产分散投资是明智之举。
伯克希尔对他来说简直是量身定制。我们在价格上花了些时间达成一致，但我心里从未有过任何疑问：第一，Helzberg's是我们想要拥有的那种企业；第二，Jeff正是我们想要的管理者。事实上，如果Jeff不在那里经营，我们根本不会收购这家企业。没有优秀管理层的零售商，就像埃菲尔铁塔没装电梯一样。
我们于1995年通过免税换股完成了对Helzberg's的收购，这是Barnett唯一感兴趣的交易方式。虽然Barnett没有义务这么做，但他将出售所得中的很大一部分分享给了他的众多同事。既然他如此慷慨大方，你可以想见，作为买家，我们也会得到公平对待。
Helzberg's每家门店的平均年销售额约为200万美元，远超经营同等规模门店的竞争对手。这种卓越的单店生产力是Helzberg's获得丰厚利润的关键。如果该公司能继续保持一流的表现——我们相信它会——它可能会相当迅速地发展到目前规模的数倍。
需要补充的是，Helzberg's与我们奥马哈的珠宝业务Borsheim's是完全不同类型的经营，两家公司将独立运营。Borsheim's在1995年表现优异，销售额增长了11.7%。其36岁的CEO Susan Jacques这一年更为出色——她在圣诞季开始的时候生下了第二个儿子。事实证明，在升职后的两年里，Susan是一位出色的领导者。
R.C. Willey家居用品
这次发现R.C. Willey的是我们内布拉斯加家具城的Irv Blumkin。R.C. Willey长期以来一直是犹他州领先的家居用品企业。多年来，Irv一直向我讲述这家公司的优势。他也不断向R.C. Willey的CEO Bill Child提到，Blumkin家族对与伯克希尔的关系有多么满意。因此，在1995年初，Bill向Irv提及，出于遗产税和分散投资的原因，他本人和R.C. Willey的其他所有者可能有意出售。
从那一刻起，事情变得再简单不过了。Bill寄给我一些数据，我给他写了一封信，表明了我对价值的看法。我们很快在价格上达成一致，并发现我们之间个人化学反应非常完美。到了年中，并购就完成了。
R.C. Willey的故事令人惊叹。Bill于1954年从他的岳父手中接管了这家企业，当时销售额约为25万美元。从这个小得可怜的基础起步，Bill奉行了Mae West的哲学："重点不是你拥有什么，而是你用你所拥有的做了什么。"在他兄弟Sheldon的帮助下，Bill将公司发展到1995年2.57亿美元的销售额，如今占据了犹他州家具业务超过50%的份额。与内布拉斯加家具城一样，R.C. Willey除了家具外，还销售电器、电子产品、电脑和地毯。两家公司的销售额大致相同，但NFM的所有业务都来自奥马哈的一个综合园区，而R.C. Willey将在未来几个月内开设其第六家大型门店。
零售是门苦生意。在我的投资生涯中，我见过大量零售商一度实现井喷式增长和超高净资产收益率，然后突然急转直下，往往一路跌到破产。这种"流星"现象在零售业比制造业或服务业常见得多。部分原因在于，零售商必须日复一日地保持精明。你的竞争对手永远在抄袭你，然后超越你。而顾客则被各路新商家以各种方式轮番诱惑。在零售业，松懈就必败。
与这种"必须天天精明"的生意相反，有一种我称之为"只需精明一次"的生意。比方说，如果你足够聪明，在早期就买下一家电视网，哪怕你派个懒散迟钝的侄子去管理，这生意照样能红火几十年。当然，要是派汤姆·墨菲这样的人去干会好得多，但没有他你照样能舒舒服服地赚钱。可零售商要是雇了这么个侄子，那简直就是坐上了通往破产的特快列车。
我们今年收购的两家零售企业，有幸拥有极其出色的管理者——他们热爱竞争，并且几十年来一直成功竞争。和我们其他运营子公司的CEO一样，他们会自主经营：我们希望他们觉得经营的生意就是他们自己的。这意味着查理和我不会事后指手画脚。我们避免那种校友对足球教练说话的态度："我百分百支持你——赢球或平局。"作为所有者，我们的基本目标是：我们希望管理者怎么对待我们，我们就怎么对待管理者。
当我们不断增添运营公司时，有时别人会问我：我能应付多少人的汇报？我的回答很简单：如果只有一个人向我汇报，而他是个窝囊废，那一个人就太多了；如果管理者都像我们现在的这些一样，那人数几乎可以不受限制。我们有幸与比尔和谢尔顿合作，也希望未来收购的企业能带来同样出色的管理者。
GEICO公司
就在年底过后，我们完成了对GEICO（政府雇员保险公司）100%股权的收购。GEICO是美国第七大汽车保险公司，承保约370万辆汽车。我与GEICO的渊源已有45年，虽然这个故事以前讲过，但在这里值得简短重述。
1950至1951年，我在哥伦比亚大学商学院读书，并不是因为我在乎那个学位，而是因为我想师从当时在那里任教的本·格雷厄姆。在本的课堂上度过的时光是我个人的巅峰时刻，也促使我尽快去了解这位偶像的一切。我首先查阅了《美国名人录》，发现本竟然是政府雇员保险公司（Government Employees Insurance Company）的董事长——这家公司我完全不熟悉，所在的行业也很陌生。
接着一位图书管理员给我找来了《贝斯特火灾与意外险手册》，从中得知GEICO总部在华盛顿特区。于是1951年1月的一个星期六，我坐火车去了华盛顿，直奔GEICO位于市区的总部。令我沮丧的是，大楼关了门，但我使劲敲门，直到一个看门人出现。我问这个一脸困惑的人，办公室里有没有人可以聊聊，他说看到六楼有一个人在加班。
就这样，我见到了时任总裁助理的Lorimer Davidson，他后来成为了公司的CEO。尽管我唯一的资历只是格雷厄姆的学生，但"Davy"慷慨地花了大约四个小时，既对我关怀备至，又悉心指导。在保险行业如何运作，以及什么因素能让一家公司超越其他公司方面，没有人比我接受过更好的半天课程了。正如Davy明确指出的，GEICO的销售方式——直接营销——赋予它巨大的成本优势，相比于那些通过代理人销售的竞争对手；而代理人这种分销方式在这些保险公司的业务中根深蒂固，以至于他们无法放弃。与Davy交谈之后，我对GEICO的热情超过了对任何一只股票的热情。
几个月后，我在哥伦比亚大学完成学业，回到奥马哈销售证券，自然几乎全身心扑在GEICO上。我的第一次销售拜访——对象是我的爱丽丝阿姨，她始终百分之百支持我——成功了。但那时我是个瘦弱、稚嫩的20岁年轻人，看起来只有17岁，我的推销往往以失败告终。不过我没有气馁，1951年底，我为当时的主要金融刊物《商业与金融纪事报》的“我最喜欢的证券”专栏写了一篇关于GEICO的简短报告。更重要的是，我用自己的账户买入了股票。
你可能会觉得奇怪，但我保留了自己提交过的每一份纳税申报单的副本，从1944年的那份开始。翻查记录，我发现自己在1951年分四次买入了GEICO股票，最后一次买入是在9月26日。这种坚持不懈的模式让我觉得，我自我陶醉的倾向很早就形成了。很可能在那个9月的一天，我推销未果、垂头丧气地回来，然后决定——尽管我已经把超过50%的净资产投在了GEICO上——再加仓。无论如何，那一年我累计买入了350股GEICO股票，总成本为10,282美元。到年底，这笔持仓价值13,125美元，超过我净资产的65%。
你可以理解为什么GEICO是我在商业上的初恋。此外，为了完成这段记忆之旅，我还应该补充一点，我购买GEICO股票所用的资金，大部分是通过投递《华盛顿邮报》赚来的——这家公司的主要产品后来让伯克希尔得以将1,000万美元变成5亿美元。
可惜的是，1952年我卖掉了全部GEICO持仓，获利15,259美元，主要是为了转投西部保险证券。这种不忠行为可以部分得到谅解，因为西部保险的售价仅略高于其当期盈利的一倍——这个市盈率不知为何吸引了我的注意。但在接下来的20年里，我卖掉的GEICO股票价值增长到了大约130万美元，这给我上了一课：出售一家被明确认定为优秀公司的股权是不明智的。
1970年代初，Davy退休后，掌管GEICO的管理层在估算理赔成本时犯了一些严重错误，导致公司保单定价过低——这几乎让公司破产。公司之所以得救，全靠Jack Byrne在1976年出任CEO并采取了严厉的补救措施。
因为我既信任Jack，又相信GEICO的基本竞争优势，伯克希尔在1976年下半年买入了这家公司的大量股份，后来又进行了一些小额购买。到1980年底，我们已向GEICO投入了4,570万美元，持有其33.3%的股份。在接下来的15年里，我们没有再进行购买。尽管如此，由于公司大规模回购自己的股份，我们在公司的权益比例增长到了约50%。
1995年，我们同意以23亿美元收购GEICO剩余的一半股权。这个价格不便宜，但让我们完整拥有了一家不断成长的企业——它的业务从1951年起就始终如一地卓越，原因至今不变。此外，GEICO还有两位杰出的管理者：负责保险运营的Tony Nicely，以及负责投资业务的Lou Simpson。
Tony现年52岁，已在GEICO工作34年。如果要我挑一个人来管理GEICO的保险业务，非他莫属。他头脑聪明、精力充沛、正直诚信且专注投入。要是运气好，希望他能再干34年。
Lou在投资方面同样出色。1980年至1995年间，他管理的股票组合年均回报率达22.8%，而同期标普500指数为15.7%。Lou采取的投资策略与我们在伯克希尔的做法一样——保守、集中。能有他加盟，对我们来说是巨大的加分项。顺便提一句，Lou的作用不只限于GEICO：他坐镇于此，意味着万一我和Charlie出了什么意外，伯克希尔立刻就能有一位顶尖专业人士接手投资事务。
当然，GEICO必须继续吸引优质保单持有人并让他们满意，同时做好准备金和定价。但公司成功的终极关键，是其极低的运营成本——几乎没有竞争对手能匹敌。1995年，Tony和他的管理团队更是将承销及理赔费用占保费的比例压至23.6%，比1994年又低了近一个百分点。在商业领域，我寻找的是由坚不可摧的"护城河"保护的经济城堡。多亏Tony和他的团队，GEICO的护城河在1995年又拓宽了。
最后，跟您汇报一下Davy的近况。他现在93岁，依然是我的良师益友。他一直密切关注着GEICO，每当公司CEO——Jack Byrne、Bill Snyder和Tony——需要他的时候，他总是在场。我们收购GEICO全部股权，让Davy承担了巨额税务。但他仍一如既往地热情支持这笔交易。
认识Davy的45年来，他一直是我心目中的英雄，从未让我失望过。您应该明白：如果没有1951年那个寒冷的周六Davy慷慨地花时间指点我，伯克希尔就不会有今天。我私下里常向他道谢，但借这份报告代表伯克希尔股东向他表示感谢，也是恰如其分的。
保险业务
除了收购GEICO，1995年我们在保险领域还遇到了其他有利发展。
正如我们在往期报告中解释过的，对我们保险业务来说，最重要的第一是产生的"浮存金"规模，第二是它的成本。浮存金是我们持有但不拥有的资金。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了解并解决理赔案件。
通常情况下，保险公司收取的保费不足以覆盖必须支付的损失和费用。这就产生了"承销亏损"——而亏损就是浮存金的成本。如果浮存金的成本低于公司以其他方式获取资金的成本，那么保险业务长期来看就是盈利的。但如果浮存金的成本高于市场利率，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。在表格中，我们通过加总损失准备金、理赔费用准备金、假设再保险下的留存资金及未到期保费准备金，再减去代理人余额、预付展业成本、预付税金及与假设再保险相关的递延费用，计算出我们的浮存金——相对于保费规模而言，浮存金的产生量非常可观。浮存金成本由承保亏损或利润决定。在某些年份，例如过去三年，我们实现了承保盈利，那么浮存金成本即为负值，这意味着我们通过将承保利润与浮存金投资收益相加来计算保险收益。
(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
利润 （百万美元） （1与2之比） 收益率
------------ ------------- --------------- -------------
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%
1995 ...... 盈利 3,607.2 低于零 5.95%
自1967年我们进入保险业务以来，浮存金的年复合增长率达到20.7%。在多数年份里，我们的资金成本低于零。这种"免费"资金的获取极大地提升了伯克希尔的业绩表现。
任何公司的盈利能力取决于三个因素：(1) 资产收益；(2) 负债成本；(3) 对“杠杆”的利用——即资产由负债而非权益融资的程度。这些年来，我们在第一点做得不错，资产回报率很高。但我们也从中大大受益——其程度尚未被普遍理解——因为我们的负债成本极低。这种低成本的一个重要原因是，我们以非常有利的条件获得了浮存金。许多其他财产/意外险公司却做不到这一点，它们也许能产生大量浮存金，但成本超过了这些资金对它们的价值。在这种情况下，杠杆就变成了劣势。
既然这些年来我们的浮存金几乎没有成本，它实际上就起到了权益资本的作用。当然，它与真正的权益资本不同，因为它不属于我们。不过，假设我们在1994年底不是拥有34亿美元浮存金，而是用34亿美元权益资本取而代之。在这种情形下，1995年我们拥有的资产并不会比实际更多。但我们的盈利会略低一些，因为去年浮存金的成本是负的。也就是说，我们的浮存金还创造了利润。而且，要获得替代的权益资本，我们还需要出售大量伯克希尔的新股。最终结果——更多的股份、相等的资产和更低的盈利——会大大降低我们股票的价值。因此你们可以理解，为什么浮存金对企业如此有益——只要成本很低。
我们收购GEICO将立即增加近30亿美元的浮存金，而且几乎可以肯定还会继续增长。我们还预计GEICO在大多数年份都能实现可观的承销利润，这一事实将增加我们的总浮存金成本为零的可能性。当然，我们为GEICO的浮存金支付了非常高的价格，而表中显示的浮存金增长几乎全部是内部产生的。
我们对1995年保险业绩的热情必须再次降温，因为我们在超级巨灾业务上连续第三年好运。在这项业务中，我们出售保单，保险公司和再保险公司购买这些保单来保护自己免受特大灾难的影响。由于真正的特大灾难不常发生，我们的超级巨灾业务在大多数年份预计会显示大额利润，但偶尔也会记录巨额亏损。换句话说，我们超级巨灾业务的吸引力需要很多年才能衡量。我们知道，像过去三年这样的结果，未来至少会被某个真正糟糕的年份部分抵消。我们只是希望“部分”这个副词是恰当的。
去年有很多灾难，但没有造成保险损失的超级巨灾。东南部有一次险情：奥帕尔飓风以每小时150英里的风速在佛罗里达外海徘徊。但风暴在登陆前减弱了，因此躲过了第二次安德鲁飓风。对保险公司而言，神户地震是另一次险情：经济损失巨大——甚至可能是创纪录的——但只有很小一部分有保险。保险行业不会总是那么幸运。
Ajit Jain 是我们超级巨灾业务的灵魂人物，同时也撰写重要的非巨灾业务。在保险业中，"巨灾"一词用于指代像飓风或地震这样会导致大量承保损失的事件。Ajit 承揽的其他交易通常只覆盖单一巨额损失。去年三笔交易的简化描述可以说明我的意思以及 Ajit 的多才多艺。我们承保了：(1) 迈克·泰森（Mike Tyson）的生命，起初保额巨大，但随着每场比赛的进行，保额在接下来的几年里逐渐降至零；(2) 劳合社（Lloyd's）超过 225 名"承保人"在当年内死亡的风险；以及 (3) 两颗中国卫星的发射及第一年的在轨运行。幸运的是，两颗卫星都在轨道上运行，劳合社那边避免了异常的死亡率，而如果迈克·泰森看起来更健康一点，恐怕就没人敢跟他进拳击台了。
伯克希尔之所以被寻求承保多种保险，无论是超级巨灾还是单一巨额风险，是因为：(1) 我们的财务实力无与伦比，投保人知道我们能够在最不利的情况下支付赔款；(2) 我们能比业内任何人都更快地提供报价；以及 (3) 我们愿意签下比别人都愿意承保的更高保额保单。我们的大多数竞争对手都拥有大量的再保险合约，会分出大量业务。虽然这有助于他们避免冲击性损失，但也损害了他们的灵活性和反应速度。如你所知，伯克希尔在把握投资和收购机会时行动迅速；在保险方面，我们同样拥有非凡的速度。另一点重要的是，巨额保额并不会吓到我们，反而会激发我们的兴趣。我们曾提供过一份可能让我们损失 10 亿美元的保单；客户接受的最大保额是 4 亿美元。
我们时不时会遭受巨额损失。不过，Charlie 和我非常愿意接受相对波动的业绩，以换取比不这样做时更好的长期收益。换句话说，我们更喜欢波动的 15%，而不是平稳的 12%。既然大多数管理者都选择平稳，这反而给我们留下了一个我们试图最大化的竞争优势。不过，我们确实会监控总体的风险敞口，以确保我们的"最坏情况"处于一个我们感到舒适的级别。
事实上，就我们的净资产而言，我们"百年一遇"的超级巨灾的最坏情况，远没有许多承保大量财产险业务的知名主保险公司面临的那么严重。这些保险公司不像我们这样签发单张巨额限额保单，但他们的众多小额保单加起来，可能会造成规模惊人的风险。一场"大灾难"可能会击穿其中一些保险公司的再保险覆盖，使其面临可能威胁生存的无上限损失。就我们而言，损失会是巨大的，但会被限制在我们能够轻松处理的水平。
超级巨灾领域的价格正在走弱。考虑到几年前有大量资本涌入再保险行业，以及那些持有资本的人自然想要运用这些资本，这可以理解。无论其他人怎么做，我们都不会故意以不足的费率承保业务。我们在 1970 年代初曾无意中这样做过，并且二十多年后，我们仍定期收到源于那个时代错误的大量账单。我猜，从现在起二十年后，我们还会从那部分业务中获得意外。一份糟糕的再保险合同就像地狱：进去容易，出来无门。
我曾积极参与那些早期的再保险决策，伯克希尔为我在这一行上的学付了高昂的学费。不幸的是，学再保险的学生没法领奖学金上学。顺便说一句，GEICO 在 1980 年代初期也遭遇过类似的灾难性经历，当时它满腔热情地投身于再保险和大额风险承保。GEICO 犯傻的时间不长，但收拾烂摊子至少得花上十年。劳合社（Lloyd's）那众所周知的麻烦，进一步说明了再保险的危险性，也凸显了一个关键问题：承保人的利益必须与出资方的利益保持一致——无论是顺境还是逆境。如果这种对等关系缺失了，保险公司几乎必然会陷入麻烦，尽管它可能在相当长一段时间内不为人知。
有一个关于保险公司CEO的小传闻，一位分析师去拜访他，这个故事很能说明这个行业。面对分析师关于业务的提问，这位CEO只有悲观的回答：费率低得离谱；资产负债表上的准备金连普通理赔都不够，更别提石棉和环境问题可能引发的索赔了；他的大部分再保承保人早就破产了，让他一个人背锅。但随后CEO眼睛一亮："不过，情况本来可能更糟，"他说，"那亏的就是我自己的钱了。"在伯克希尔，亏的正是我们自己的钱。
伯克希尔的其他保险业务，虽然规模相对较小，但在1995年表现卓越。国家赔偿公司（National Indemnity）的传统业务综合成本率为84.2，而且像往常一样，相对于保费规模产生了大量的浮存金。过去三年里，由Don Wurster管理的这部分业务，平均综合成本率为85.6。由Rod Eldred管理的本州业务，在1995年增长良好，综合成本率为81.4，三年综合成本率更是惊人地低至82.4。伯克希尔的加州劳工赔偿业务，由Brad Kinstler管理，在1995年面临激烈的价格战，当我们拒绝接受不合理的费率时，失去了大量续保业务。尽管该业务规模大幅萎缩，但产生了优异的承保利润。最后，中央州赔偿公司（Central States Indemnity）的John Kizer继续表现得极其出色，1995年保费规模增长23%，承保利润增长59%。Ajit、Don、Rod、Brad和John都不到45岁，这个尴尬的事实彻底摧毁了我那个"经理人过了70岁才能进入最佳状态"的理论。
总而言之，我们进入1995年时，拥有一家中等规模但卓越的保险业务。通过收购GEICO，我们进入1996年时，这项业务质量更优、增长前景大大提高，规模翻了一倍。保险比以往任何时候都更成为我们的核心优势。
报告收益来源
下表列示了伯克希尔报告收益的主要来源。在这个列示中，购买溢价摊销没有分配到它们所对应的具体业务，而是汇总后单独列示。这样做可以让您看到，假使我们没有收购这些业务，它们的收益会是什么样子。在我们看来，这种列示方式比按照GAAP要求逐项业务扣除购买溢价摊销的方式，对投资者和管理者更为有用。当然，我们在表中显示的收益总额，与经审计财务报表中的GAAP总额完全相同。
（单位：百万美元）
─────────────────────────────────────
伯克希尔应占
净利润（扣除
少数股东权益
和所得税之后）
税前收益
───────────────── ─────────────────
1995 1994 1995 1994
──────── ──────── ──────── ────────
经营利润：
保险集团：
承销业务 ............... $ 20.5 $129.9 $ 11.3 $ 80.9
净投资收益 ............. 501.6 419.4 417.7 350.5
布法罗新闻报 ............. 46.8 54.2 27.3 31.7
费希海默 ............... 16.9 14.3 8.8 7.1
金融业务 ............... 20.8 22.1 12.6 14.6
家居用品 ............... 29.7(1) 17.4 16.7(1) 8.7
珠宝业务 ............... 33.9(2) ---(3) 19.1(2) ---(3)
柯比公司 ............... 50.2 42.3 32.1 27.7
斯科特·费策尔制造集团 34.1 39.5 21.2 24.9
喜诗糖果 ............... 50.2 47.5 29.8 28.2
鞋业集团 ............... 58.4 85.5 37.5 55.8
世界图书 ............... 8.8 24.7 7.0 17.3
购买溢价摊销费用 ....... (27.0) (22.6) (23.4) (19.4)
利息支出(4) ............ (56.0) (60.1) (34.9) (37.3)
股东指定捐赠 ........... (11.6) (10.4) (7.0) (6.7)
其他 .................. 37.4 35.7 24.4 22.3
──────── ──────── ──────── ────────
经营利润合计 ............. 814.7 839.4 600.2 606.2
证券出售收益 ............. 194.1 91.3 125.0 61.1
全美航空优先股减值 ....... --- (268.5) --- (172.6)
──────── ──────── ──────── ────────
所有实体总收益 ........... $1,008.8 $662.2 $725.2 $494.8
════════ ════════ ════════ ════════
(1) 包括1995年6月29日收购的R.C. Willey。
(2) 包括1995年4月30日收购的Helzberg's。
(3) 1994年珠宝业务收益包含在"其他"项中。
(4) 不含金融业务的利息支出。
关于这些业务的详细信息，请见第41至52页，您还能在那里找到我们按通用会计准则（GAAP）报告的分部收益。此外，在第57至63页，我们将伯克希尔的财务数据重新按非GAAP基础分为四个板块呈现，这种展示方式与查理和我看待公司的思路一致。我们的目标是向您提供那些——如果我们角色互换——您希望我们提供的财务信息。
在伯克希尔，我们信奉查理的格言——"只告诉我坏消息，好消息会自己照顾自己"——这也是我们要求旗下经理向我们汇报时应有的态度。因此，我也必须向你们——伯克希尔的所有者——报告三项业务的情况：它们虽然继续创造了相当不错（甚至更好）的投入资本回报率，但去年盈利都出现了下降。每项业务遇到了不同类型的问题。
我们的鞋业经营所在的行业去年全年盈利低迷，许多竞争对手仅能勉强保本甚至亏损。这意味着我们至少维持了竞争优势，在某些领域甚至扩大了优势。因此我毫不怀疑，我们的鞋业业务未来将重返一流盈利水平。换言之，尽管转折尚未出现，但我们认为你应把去年的业绩视为周期性问题，而非长期性问题。
《布法罗新闻报》（The Buffalo News）尽管与其他报纸相比依然表现良好，但却是另一回事。这次，行业趋势不容乐观。在1991年的年报中，我曾解释过，相比过去看起来拥有坚不可摧的专营权时，报纸的经济吸引力已下降了一个台阶。如今，该行业依然拥有出色的经济特性，但又下降了一个台阶。随着时间的推移，我们预计报纸的竞争优势将逐步削弱，不过该行业在未来许多年里仍应是一门好生意。
伯克希尔最棘手的问题是世界图书公司（World Book），它所在的行业正受到来自光盘和在线产品的日益激烈竞争。诚然，我们仍在盈利——这或许没有其他印刷版百科全书能做到。但我们的销售和盈利趋势正朝着错误的方向发展。1995年底，世界图书公司对其产品分销方式进行了重大变革，加大了对电子产品的投入，并大幅削减了管理费用。我们需要时间来评估这些举措的效果，但我们相信它们将显著提高我们的生存能力。
我们所有的业务——包括那些去年盈利下滑的——都得益于极其才华横溢、尽心尽责的管理者。如果让我们在各自行业中目前在职的管理者中任意挑选，我们没有一位想替换的经理人。
我们的很多经理人不必为了谋生而工作，他们每天出来大显身手，原因与富有的高尔夫球手继续巡回比赛一样：他们热爱自己所做之事，也热爱把它做好。用"工作"来形容他们或许用词不当——他们宁愿把大部分时间花在自己擅长的生产性活动上，而不是休闲活动上。我们的任务就是提供一个能让他们保持这种感觉的环境，而迄今为止我们似乎成功了：回顾1965年至1995年这段时期，我想不起来有任何一位关键经理人离开伯克希尔去为其他雇主工作。
**普通股投资**
下面列示我们的普通股投资。市值超过6亿美元的投资项目已单独列出。
1995年12月31日
股数 公司 成本 市值
---------- ------- -------- --------
（单位：百万美元）
49,456,900 American Express Company（美国运通公司） 1,392.7 2,046.3
20,000,000 Capital Cities/ABC, Inc.（资本城/ABC公司） 345.0 2,467.5
100,000,000 The Coca-Cola Company（可口可乐公司） 1,298.9 7,425.0
12,502,500 Federal Home Loan Mortgage Corp.
("Freddie Mac")（联邦住房贷款抵押公司，简称"房地美"） 260.1 1,044.0
34,250,000 GEICO Corp.（GEICO保险公司） 45.7 2,393.2
48,000,000 The Gillette Company（吉列公司） 600.0 2,502.0
6,791,218 Wells Fargo & Company（富国银行） 423.7 1,466.9
其他 1,379.0 2,655.4
-------- ---------
普通股合计 $5,745.1 $22,000.3
======== =========
我们继续维持在瑞普·凡·温克尔式的沉睡状态：1994年底我们持有的六大重仓股中，有五只在1995年全年未作丝毫变动。第六只是美国运通，我们将持股比例增至约10%。
1996年初，两件大事影响了我们的持仓：其一，我们收购了此前尚未持有的GEICO股票，使其成为全资子公司。其二，我们以所持的大都会/ABC股份换取了现金与迪士尼股票的组合。
在迪士尼并购中，大都会/ABC股东有多种选择。他们可以每股大都会/ABC股票换取一股迪士尼股票外加65美元现金；也可以要求——但不一定能得到——全部现金或全部股票，最终分配取决于其他股东的选择和迪士尼的某些决策。就我们所持的2000万股而言，我们选择了换股，但本报告付印时，尚不知最终分到多少。不过可以肯定，我们将获得超过2000万股迪士尼股票。近期我们还在市场上买入了迪士尼股票。
再说一段往事：我第一次对迪士尼产生兴趣是在1966年，当时该公司市场估值不到9000万美元，而1965年其税前利润约2100万美元，持有的现金还多于债务。迪士尼乐园耗资1700万美元的"加勒比海盗"项目即将开放。想想我有多兴奋——一只价格仅为游乐项目五倍的公司！
我深受触动，巴菲特合伙有限公司以拆股调整后每股31美分的价格买入了大量迪士尼股票。鉴于该股如今售价66美元，这个决定看似英明。但你们的董事长完全有能力搞砸它：1967年，我在每股48美分时清仓了。
唉，算了——我们很高兴能再次成为这家拥有独特资产和杰出管理层的公司的大股东。
可转换优先股
各位或许还记得，伯克希尔在1987年至1991年间进行了五次可转换优先股的私募购买，现在似乎是时候讨论它们的状况了。具体细节如下：
股息率 购买年份 成本 市值
公司 -------- -------- ------ --------
(单位：百万美元)
冠军国际公司 ............... 9 1/4% 1989 300 388(1)
第一帝国州公司 ............. 9% 1991 40 110
吉列公司 ................... 8 3/4% 1989 600 2,502(2)
所罗门公司 ................. 9% 1987 700 728(3)
全美航空集团 ............... 9 1/4% 1989 358 215
(1) 1995年转换后出售普通股所得。
(2) 1991年转换后获得普通股，1995年12月31日市值。
(3) 包括1995年部分赎回收到的1.4亿美元。
在每种情况下，我们都可以选择继续持有这些优先股作为固定收益证券，或者将其转换为普通股。最初，其价值主要来自固定收益特征，转换期权只是一个"甜头"。
我们以3亿美元私募买入的美国运通"PERCS"——已在1991年年报中描述——未包含在上表中，因为该证券是普通股的一种变形，其固定收益特征对初始价值的贡献很小。购买三年后，PERCS自动转换为普通股。相比之下，上表中的五种证券只有在我们希望时才会转换为普通股——这是一个关键区别。
当我们买入这些可转换证券时，我曾告诉过各位，我们预期它们的税后收益会"温和"超过它们所替代的中期固定收益证券。我们确实超过了这个预期——但只靠一只股票的表现。我还说过，作为一个整体，这些证券"不会像我们找到经济前景极佳的企业那样带来高回报"。不幸的是，这个预测成真了。最后，我说过"几乎在任何情况下，我们都预期这些优先股能拿回本金加股息"。这句话我真希望收回。温斯顿·丘吉尔曾说过"吃言从未让我消化不良"。然而，我断言我们几乎不可能在优先股上亏钱，这让我频频胃灼热，也是活该。
我们表现最好的持股是Gillette（吉列），从一开始我们就说这是一家卓越的企业。但讽刺的是，这也是我犯下最大错误的买入——不过这种错误在财报上永远看不出来。
1989年我们为吉列优先股支付了6亿美元，这些优先股可转换为4800万股普通股（经分红调整）。如果换条路走，拿这6亿美元，我本可以从公司直接买入6000万股普通股。当时普通股股价约10.50美元，考虑到这是一笔附带重要限制的大宗私募，我很有可能以至少5%的折扣买到这些股票。这一点我不确定，但吉列管理层很可能同样乐意让伯克希尔选择普通股。
但我聪明过头了，偏不那样做。结果，不到两年里我们多拿了一些股息差额（优先股与普通股之间的收益率差），之后公司——完全正常——提前赎回了这个品种，而且动作尽可能快。如果我当初谈的是普通股而不是优先股，到1995年底我们会多赚6.25亿美元，再减去大约7000万美元的"超额"股息。
在Champion（冠军国际）这个案例中，公司能以115%的成本价赎回我们的优先股，这迫使我们在去年8月就退出，我们本来想再拖一拖。这次，我们在赎回前转换了股份，并以小幅折价把股票卖给了公司。
查理和我对造纸业从来没什么信心——实际上，我都不记得自己投资54年来买过纸业公司的普通股——所以去年8月我们的选择就是：在市场卖出，还是卖给公司。冠军国际的管理层与我们打交道时一直坦诚正直，而且他们希望回购普通股，于是我们就把股票卖给了公司。我们在冠军国际的资本利得不温不火——持有六年，税后收益约19%——但在整个持有期间，优先股给了我们不错的税后股息收益率。（不过话说回来，很多媒体报道夸大了财险公司从股息中获得的税后收益率。这些报道没有考虑到1987年生效的税法变化，该变化大幅降低了适用于保险公司的股息免税额度。详细情况见我们1986年的年报。）
我们的First Empire（第一帝国）优先股将在1996年3月31日被赎回，这是允许的最早日期。我们很乐意持有经营良好的银行的股票，因此我们会转股并继续持有第一帝国的普通股。公司CEO Bob Wilmers（鲍勃·威尔默斯）是一位杰出的银行家，我们很高兴与他合作。
我们另外两只优先股令人失望，尽管所罗门优先股作为其替代的固定收益证券，表现略好。然而，查理和我花费在这项持仓上的管理时间，远远超过了它对伯克希尔的经济意义。当然，我从未想过自己会在60岁时因为之前购买固定收益证券而找到一份新工作——即所罗门临时董事长。
1987年买入所罗门优先股后不久，我曾写道："我对投资银行业务的方向或未来盈利能力没有特别见解。"即使是最善意的评论者也会得出结论：我随后就证明了这一点。
迄今为止，我们将所罗门优先股转换为普通股的选择权并未体现出价值。此外，自承诺买入优先股以来，道指翻了一番，券商板块表现同样出色。这意味着我因看到转换选择权的价值而选择所罗门的决策，必须评为非常糟糕。即便如此，在艰难条件下，该优先股作为固定收益证券继续履行了义务，其9%的股息目前相当有吸引力。
除非优先股被转换，其条款要求1995-1999年每年10月31日赎回20%的发行量，去年我们的原始7亿美元中有1.4亿美元如期被赎回。（一些新闻报道称之为出售，但到期的优先证券不是"出售"。）虽然我们没有选择将去年到期的优先股转换，但我们还有四次转换苹果的机会，我相信我们极有可能在转换权中找到价值。
我在去年的报告中详细讨论了全美航空（USAir）的投资。该公司1995年业绩有所改善，但仍面临重大难题。对我们有利的一面是，我们的优先股结构设计良好：例如，虽然自1994年6月以来我们未获得股息，但欠我们的金额以高于基准利率5%的复利累积。不利的一面是，我们面对的是一个信用评级很弱的公司。
我们对全美航空优先股的感受比一年前好多了，但关于其最终价值，你的猜测和我的一样准。（事实上，考虑到我在这一投资上的记录，可以说你的猜测可能比我的更准。）年底，我们持有的优先股（没有公开市场）按面值的60%计价，不过全美航空还有一只次级优先股，除了转换价格外，在各方面都远不如我们的优先股，当时按面值的82%交易。在我写这封信时，该次级优先股已涨至面值的97%。希望市场是对的。
总体而言，我们的优先股表现不错，但这只因为一个大赢家——吉列（Gillette）。撇开吉列，我们的优先股作为一个整体，带来的税后回报并不高于我们所替代的中期固定收益证券。
**拟议的资本重组**
在年度股东大会上，将提请批准伯克希尔的资本重组，创建两类股票。如果该计划获得通过，我们现有的普通股将被指定为A类普通股，并将授权发行新的B类普通股。
每股"B"股将拥有"A"股三十分之一的权利，但有以下例外：第一，B股拥有A股二百分之一的投票权（而非三十分之一）。第二，B股无资格参与伯克希尔的股东指定慈善捐赠计划。
当资本重组完成后，每股A类股将可根据持有人的选择随时转换为30股B类股。这种转换权不可反向行使。也就是说，B类股持有人不能将其转换为A类股。
我们预计将B类股在纽约证券交易所上市，与A类股一同交易。为了达到上市所需的股东基础——并确保B股具备流动性——伯克希尔预计将通过公开发行募集至少1亿美元的新B类股。此次发行仅通过招股说明书进行。
市场最终将决定B类股的价格。但它的价格应大致在A类股价格的三十分之一左右。
希望赠送礼物的A类股股东可能会发现将一两股股票转换为B类股很方便。此外，如果对B类股的需求足够强劲，使其价格略高于A类股的三十分之一，则会出现与套利相关的转换。
然而，由于A类股赋予其持有人完整的投票权以及参与伯克希尔捐赠计划的资格，这些股票将优于B类股，我们预计大多数股东将继续持有A类股——这正是巴菲特和芒格家族打算做的，除非我们自己也转换少数股票以方便赠送礼物。多数股东将坚持持有A类股的前景表明，它的市场流动性将比B类股更好一些。
伯克希尔在此次资本重组中需要权衡利弊。但这些利弊并非源于发行所得款项——我们会为这笔钱找到有建设性的用途——也不来自于我们将出售B类股的价格。在我写这封信时——伯克希尔股价为36,000美元——查理和我并不认为它被低估了。因此，我们提议的发行不会降低现有股票每股的内在价值。让我更直白地说明我们对估值的看法：伯克希尔目前的价格，查理和我是不会考虑买入的。
伯克希尔因发行B类股而将承担某些额外成本，包括处理更多股东的相关事务成本。另一方面，B类股将为希望赠送礼物的人提供便利。而那些原本希望拆股的股东现在有了一种自行实现拆股的方法。
不过，我们之所以采取这一行动，还有其他原因——这涉及那些费用高昂的单位信托，它们自称是伯克希尔的低价"克隆"产品，并且必然会受到大力推销。这些工具背后的想法并不新鲜：近年来，不少人告诉我他们希望创设一只"全伯克希尔"投资基金，以低价美元出售。但直到最近，这些投资产品的发起人才听取了反对意见并放弃了。
我劝阻这些人并非因为我偏爱大投资者而轻视小投资者。如果可能，查理和我会很乐意让众多人把1,000美元变成3,000美元，这笔收益对他们解决眼前问题将至关重要。
然而，要迅速将小额资金翻三倍，我们就必须同样迅速地将我们目前430亿美元的总市值变成1,290亿美元（大致相当于美国市值最高的公司通用电气的总市值）。我们远远做不到这一点。我们最好的期望是——平均而言——每五年将伯克希尔的每股内在价值翻一番，而我们也可能远远达不到这个目标。
最后，查理和我并不在意我们的股东持有伯克希尔股份的多寡。我们所希望的是，无论持股多少，股东们都能了解我们的经营，认同我们的目标与长期视角，并且清楚我们的局限性——尤其是我们庞大资本基础所带来的那些限制。
最近冒出来的单位信托基金与这些目标背道而驰。它们将由赚取高额佣金的经纪人销售，会给股东带来其他沉重的成本，并且会大规模地推销给不成熟的买家——这些人容易被我们过去的业绩所诱惑，被伯克希尔和我近年来获得的公众关注所迷惑。必然的结果是：大量投资者注定会失望。
通过我们创设B股——这是一种低面值产品，远优于那些只投资伯克希尔的信托基金——我们希望让那些克隆产品无法推销。
但伯克希尔现有的和潜在的股东都应特别注意一点：尽管过去五年我们股票每股内在价值以极好的速度增长，但市场价格增长得更快。换句话说，股票的表现超过了业务本身。
这种市场超额表现不可能永远持续，无论对伯克希尔还是对其他股票都是如此。不可避免的，也会出现表现不佳的时期。由此产生的价格波动，虽然在公开市场中司空见惯，却并非我们所愿。我们更希望伯克希尔的市场价格能精确地跟踪其内在价值。如果股票能做到这一点，每位股东在其持有期间获得的收益，就会与伯克希尔在该期间自身的进展完全成比例。
显然，伯克希尔股票的市场行为永远不会符合这一理想。但如果我们的现有和潜在股东在做投资决策时能掌握充分信息、以商业为导向，并且不受高佣金推销术的影响，那么我们将比原本更接近这个目标。为此，如果我们能削弱那些单位信托基金的销售努力，情况会更好——而这就是我们创设B股的原因。
我们期待在年会上回答你们关于资本重组的问题。
杂项
伯克希尔并非唯一一家采用这一令人兴奋的新ABWA战略的美国公司。1995年7月14日下午1点15分左右，华特迪士尼公司（The Walt Disney Company）的CEO Michael Eisner正在太阳谷的野花小道上行走。与此同时，我刚结束了在那条街上Herbert Allen家中的午餐，正准备去和Cap Cities/ABC（大都会/ABC）的CEO Tom Murphy打高尔夫球。
当天上午，Michael在Allen的投资银行召集的一大群高管和资金管理者面前，做了一场关于迪士尼的精彩演讲。见到他时，我向他表示祝贺。我们简短地聊了几句——于是提到迪士尼与Cap Cities可能合并的话题。这并非双方第一次讨论合并，但此前从未取得进展，部分原因是迪士尼希望用现金收购，而Cap Cities想要股票。
Michael和我等了几分钟，等Murph（Murphy的昵称）到来。在随后的简短交谈中，Michael和Murph都表示可能会在股票/现金问题上做出让步。几周之内，他们确实让步了，随后在三个非常忙碌的日子里，一份合同就被拟好了。
迪士尼/大都会的这笔交易太合理了，我敢肯定，就算没有那次在太阳谷的偶遇，它最终也会发生。不过那天我在野花巷碰见迈克尔时，他正赶着上飞机，所以没有那次意外相遇，这笔交易肯定不可能在那段时间内达成。我相信，迪士尼和大都会都会因为咱们那天机缘巧合的碰面而受益。
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这里我得说几句墨菲。简单来说，在我漫长的商业生涯中，他是我见过最出色的高管。同样重要的是，他的人品丝毫不逊于他的管理才能。他是位了不起的朋友、父亲、丈夫和公民。在那些极少数墨菲个人利益与股东利益发生冲突的情况下，他始终站在股东一边。当我说我乐意与那些我希望能成为我兄弟姐妹、姻亲或遗嘱受托人的经理人合作时，墨菲就是活生生的榜样。
如果墨菲选择去经营另一家企业，别费心研究它的价值——直接买股票就行。而且以后别像我两年前那么傻，那时我卖掉了我们持有的大都会三分之一股份，卖了6.35亿美元（而这些股份在迪士尼合并中价值12.7亿美元）。
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大约96.3%符合资格的股份参与了伯克希尔1995年股东指定捐赠计划。捐赠总额为1160万美元，受益慈善机构达3,600家。股东指定捐赠计划的完整说明见第54-55页。
每年都有少数股东错过这个计划，要么是因为在规定的登记日他们没有以自己的名义登记股份，要么是因为未能在允许的60天内将指定表格寄回给我们。第二个问题今年尤其让我痛心，因为有两位持有大量股份的好朋友错过了截止日期。我们不得不拒绝他们的参与请求，因为我们不能为某些股东开先例，却拒绝其他股东。
要参与未来的计划，你必须持有实际所有者名下登记的A类股，而不是以经纪人、银行或存管机构名义登记的股份。未在1996年8月31日前以这种方式登记的股份将没有资格参加1996年的计划。收到表格后请及时寄回，以免被搁置或遗忘。
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说到我们的股东大会，查理和我是管理层的怪胎：我们非常享受这个活动。所以请于5月6日星期一来参加吧。在伯克希尔，我们没有投资者关系部门，也不通过金融分析师来传播信息、盈利"指引"或类似东西。相反，我们更喜欢直接的管理层与所有者沟通，并认为股东大会是实现这种思想交流的理想场所。在那里跟你们交谈对我们来说效率很高，也很民主，因为所有在场的人都能同时听到我们说什么。
去年，我们第一次在假日会议中心举办股东大会，后勤工作似乎还不错。主宴会厅坐了大约3200人，我们通过视频传输到另一个房间，又容纳了800人。主厅的座位有点挤，所以今年我们可能会调整成容纳3000人。今年我们还会准备两个房间来容纳超出的股东。
总而言之，我们能够接待5000名股东。会议将于上午9:30开始，但提醒你一下，去年主宴会厅在早上8点刚过就坐满了。
来自49个州的股东参加了我们1995年的年会——佛蒙特州，你们在哪？——还有来自澳大利亚、瑞典和德国等几个国家的代表。和往常一样，年会吸引的是那些关心伯克希尔生意的股东——而不是那些主要关心自己的股东——所有提问都很有水平。查理和我在台上吃了午饭，并回答了大约五个小时的提问。
我们觉得，既然股东来自世界各地，就该尽量确保他们有机会提问。大多数股东中午前后就离开了，但大概有一千名左右的铁杆股东通常会留下来，看看我们会不会撑不住倒下去。查理和我在训练自己能再撑五小时，今年也一样。
年会上我们照常摆出伯克希尔的各种产品，今年还新增了GEICO（盖可保险）的销售代表。在1995年年会上，我们卖出了747磅糖果、759双鞋，以及超过17,500美元的《世界百科全书》及相关出版物。我们还做了一件如果股价疲软可能会很危险的事：去年我们加上了来自Quikut（奎克特）子公司的刀具，卖出了400套。（不过软水果我们可不敢卖。）所有这些商品今年也会再次供应。我们觉得，不带点买卖掺和进去，文化活动就不算完整。
由于预计参会人数众多，我们建议您尽早预订机票和酒店。喜欢住在市中心（距会展中心约六英里）的朋友，可以选择Radisson Redick Tower（雷迪森雷迪克塔楼酒店），虽小（88间房）但很精致，或者几个街区外规模大得多的Red Lion Hotel（红狮酒店）。会展中心附近有Holiday Inn（假日酒店，403间房）、Homewood Suites（惠庭套房酒店，118间房）和Hampton Inn（汉普顿酒店，136间房）。另一个推荐下榻地是Marriott（万豪酒店），位于奥马哈西区，距离Borsheim's（博希姆珠宝）约100码，开车到会展中心十分钟。万豪酒店届时会有巴士，分别在7:30、8:00和8:30发车前往年会，并在年会结束后返回。
随附的股东委托书材料说明了如何获取入场所需的卡片。会展中心有充足的停车位，而住在假日酒店、惠庭套房酒店和汉普顿酒店的股东可以步行到会场。和往年一样，年会结束后我们会安排巴士送您到Nebraska Furniture Mart（内布拉斯加家具城）和Borsheim's（博希姆珠宝），随后再送您回酒店或机场。
NFM（内布拉斯加家具城）的主店位于会展中心以北约两英里的64英亩场地上，周一至周五营业时间为上午10点至晚上9点，周六上午10点至下午6点，周日中午12点至下午6点。Rose Blumkin（罗斯·布卢姆金）——"B夫人"——现在102岁了，但仍会在B夫人仓库里辛勤工作。去年11月，她因拯救了一座20年代经典的市中心剧院——The Rose（玫瑰剧院）而受到表彰，该剧院经过精美修复，要是没有她，早就被拆毁了。请让她给您讲讲这个故事。
Borsheim's（博希姆珠宝）通常周日关门，但5月5日将为股东及嘉宾从上午10点营业至下午6点。此外，我们将在4日（周六）下午6点至晚上9点为股东特别开放。去年股东日，我们在营业的六小时内开了1,733张单——相当于每13秒成交一笔。不过请记住，记录就是用来被打破的。
在Borsheim's（博希姆珠宝），我们还将展出世界上最大的刻面钻石。这颗不起眼的小玩意儿切割了两年，重达545克拉。请仔细端详这颗石头，让它指引您为所爱之人挑选合适大小的宝石。
5月4日（星期六）晚，奥马哈皇家队和路易斯维尔红雀队将在罗森布拉特体育场（Rosenblatt Stadium）打一场棒球赛。我打算去开球——因为持有球队四分之一的股份，我每年能保证先发一次——但我们的经理迈克·杰舍尔（Mike Jirschele）十有八九又会犯老毛病，一上来就把我换下场。去年大约有1,700名股东观看了比赛。可惜那天下雨，比赛取消了，让看台上的众多球探大失所望。但聪明人今年还会再来，我打算向他们亮亮我的绝活。
我们的股东委托书里会附上比赛门票的获取信息。今年我们还会提供一套资料包，列出周日晚上营业的餐厅，并介绍周末在奥马哈可以做的各种事情。
多年来，我一直试图说服我的小学同学"老友"戈拉特（Pal Gorat）在股东大会前的周日晚上开门营业他的牛排馆，但一直没成功。不过今年他松口了。戈拉特牛排馆是一家家族企业，已经红火了52年，如果你喜欢牛排，你一定会爱上这里。我告诉老友会来很多人捧场，所以请拨打电话402-551-3733给戈拉特预订。你会在那儿看到我——那个吃着三分熟T骨牛排、外加双份薯饼的人就是我。
沃伦·E·巴菲特
董事会主席
1996年3月1日