Berkshire's Corporate Performance vs. the S&P 500
| Year | Annual Percentage Change | |||
| in Per-Share Book Value of Berkshire (1) | in S&P 500 with Dividends Included (2) | Relative Results (1)-(2) | ||
| 1965 | 23.8 | 10.0 | 13.8 | |
| 1966 | 20.3 | (11.7) | 32.0 | |
| 1967 | 11.0 | 30.9 | (19.9) | |
| 1968 | 19.0 | 11.0 | 8.0 | |
| 1969 | 16.2 | (8.4) | 24.6 | |
| 1970 | 12.0 | 3.9 | 8.1 | |
| 1971 | 16.4 | 14.6 | 1.8 | |
| 1972 | 21.7 | 18.9 | 2.8 | |
| 1973 | 4.7 | (14.8) | 19.5 | |
| 1974 | 5.5 | (26.4) | 31.9 | |
| 1975 | 21.9 | 37.2 | (15.3) | |
| 1976 | 59.3 | 23.6 | 35.7 | |
| 1977 | 31.9 | (7.4) | 39.3 | |
| 1978 | 24.0 | 6.4 | 17.6 | |
| 1979 | 35.7 | 18.2 | 17.5 | |
| 1980 | 19.3 | 32.3 | (13.0) | |
| 1981 | 31.4 | (5.0) | 36.4 | |
| 1982 | 40.0 | 21.4 | 18.6 | |
| 1983 | 32.3 | 22.4 | 9.9 | |
| 1984 | 13.6 | 6.1 | 7.5 | |
| 1985 | 48.2 | 31.6 | 16.6 | |
| 1986 | 26.1 | 18.6 | 7.5 | |
| 1987 | 19.5 | 5.1 | 14.4 | |
| 1988 | 20.1 | 16.6 | 3.5 | |
| 1989 | 44.4 | 31.7 | 12.7 | |
| 1990 | 7.4 | (3.1) | 10.5 | |
| 1991 | 39.6 | 30.5 | 9.1 | |
| 1992 | 20.3 | 7.6 | 12.7 | |
| 1993 | 14.3 | 10.1 | 4.2 | |
| 1994 | 13.9 | 1.3 | 12.6 | |
| 1995 | 43.1 | 37.6 | 5.5 | |
| 1996 | 31.8 | 23.0 | 8.8 | |
| 1997 | 34.1 | 33.4 | .7 | |
| 1998 | 48.3 | 28.6 | 19.7 | |
| 1999 | .5 | 21.0 | (20.5) | |
| 2000 | 6.5 | (9.1) | 15.6 | |
| 2001 | (6.2) | (11.9) | 5.7 | |
| 2002 | 10.0 | (22.1) | 32.1 | |
| 2003 | 21.0 | 28.7 | (7.7) | |
| 2004 | 10.5 | 10.9 | (.4) | |
| 2005 | 6.4 | 4.9 | 1.5 | |
| 2006 | 18.4 | 15.8 | 2.6 | |
| 2007 | 11.0 | 5.5 | 5.5 | |
| 2008 | (9.6) | (37.0) | 27.4 | |
| Compounded Annual Gain – 1965-2008 | 20.3% | 8.9% | 11.4 | |
| Overall Gain – 1964-2008 | 362,319% | 4,276% | ||
Notes: Data are for calendar years with these exceptions: 1965 and 1966, year ended 9/30; 1967, 15 months ended 12/31.
Starting in 1979, accounting rules required insurance companies to value the equity securities they hold at market rather than at the lower of cost or market, which was previously the requirement. In this table, Berkshire's results through 1978 have been restated to conform to the changed rules. In all other respects, the results are calculated using the numbers originally reported.
The S&P 500 numbers are pre-tax whereas the Berkshire numbers are after-tax. If a corporation such as Berkshire were simply to have owned the S&P 500 and accrued the appropriate taxes, its results would have lagged the S&P 500 in years when that index showed a positive return, but would have exceeded the S&P 500 in years when the index showed a negative return. Over the years, the tax costs would have caused the aggregate lag to be substantial.
BERKSHIRE HATHAWAY INC.
To the Shareholders of Berkshire Hathaway Inc.:
Our decrease in net worth during 2008 was \$11.5 billion, which reduced the per-share book value of both our Class A and Class B stock by 9.6%. Over the last 44 years (that is, since present management took over) book value has grown from \$19 to \$70,530, a rate of 20.3% compounded annually.*
The table on the preceding page, recording both the 44-year performance of Berkshire's book value and the S&P 500 index, shows that 2008 was the worst year for each. The period was devastating as well for corporate and municipal bonds, real estate and commodities. By yearend, investors of all stripes were bloodied and confused, much as if they were small birds that had strayed into a badminton game.
As the year progressed, a series of life-threatening problems within many of the world's great financial institutions was unveiled. This led to a dysfunctional credit market that in important respects soon turned non-functional. The watchword throughout the country became the creed I saw on restaurant walls when I was young: “In God we trust; all others pay cash.”
By the fourth quarter, the credit crisis, coupled with tumbling home and stock prices, had produced a paralyzing fear that engulfed the country. A freefall in business activity ensued, accelerating at a pace that I have never before witnessed. The U.S. – and much of the world – became trapped in a vicious negative-feedback cycle. Fear led to business contraction, and that in turn led to even greater fear.
This debilitating spiral has spurred our government to take massive action. In poker terms, the Treasury and the Fed have gone “all in.” Economic medicine that was previously meted out by the cupful has recently been dispensed by the barrel. These once-unthinkable dosages will almost certainly bring on unwelcome aftereffects. Their precise nature is anyone’s guess, though one likely consequence is an onslaught of inflation. Moreover, major industries have become dependent on Federal assistance, and they will be followed by cities and states bearing mind-boggling requests. Weaning these entities from the public teat will be a political challenge. They won’t leave willingly.
Whatever the downsides may be, strong and immediate action by government was essential last year if the financial system was to avoid a total breakdown. Had one occurred, the consequences for every area of our economy would have been cataclysmic. Like it or not, the inhabitants of Wall Street, Main Street and the various Side Streets of America were all in the same boat.
Amid this bad news, however, never forget that our country has faced far worse travails in the past. In the 20 $^{th}$ Century alone, we dealt with two great wars (one of which we initially appeared to be losing); a dozen or so panics and recessions; virulent inflation that led to a 21 1/2% prime rate in 1980; and the Great Depression of the 1930s, when unemployment ranged between 15% and 25% for many years. America has had no shortage of challenges.
Without fail, however, we've overcome them. In the face of those obstacles – and many others – the real standard of living for Americans improved nearly seven-fold during the 1900s, while the Dow Jones Industrials rose from 66 to 11,497. Compare the record of this period with the dozens of centuries during which humans secured only tiny gains, if any, in how they lived. Though the path has not been smooth, our economic system has worked extraordinarily well over time. It has unleashed human potential as no other system has, and it will continue to do so. America's best days lie ahead.
Take a look again at the 44-year table on page 2. In 75% of those years, the S&P stocks recorded a gain. I would guess that a roughly similar percentage of years will be positive in the next 44. But neither Charlie Munger, my partner in running Berkshire, nor I can predict the winning and losing years in advance. (In our usual opinionated view, we don’t think anyone else can either.) We’re certain, for example, that the economy will be in shambles throughout 2009 – and, for that matter, probably well beyond – but that conclusion does not tell us whether the stock market will rise or fall.
In good years and bad, Charlie and I simply focus on four goals:
(1) maintaining Berkshire's Gibraltar-like financial position, which features huge amounts of excess liquidity, near-term obligations that are modest, and dozens of sources of earnings and cash;
(2) widening the “moats” around our operating businesses that give them durable competitive advantages;
(3) acquiring and developing new and varied streams of earnings;
(4) expanding and nurturing the cadre of outstanding operating managers who, over the years, have delivered Berkshire exceptional results.
Berkshire in 2008
Most of the Berkshire businesses whose results are significantly affected by the economy earned below their potential last year, and that will be true in 2009 as well. Our retailers were hit particularly hard, as were our operations tied to residential construction. In aggregate, however, our manufacturing, service and retail businesses earned substantial sums and most of them – particularly the larger ones – continue to strengthen their competitive positions. Moreover, we are fortunate that Berkshire’s two most important businesses – our insurance and utility groups – produce earnings that are not correlated to those of the general economy. Both businesses delivered outstanding results in 2008 and have excellent prospects.
As predicted in last year's report, the exceptional underwriting profits that our insurance businesses realized in 2007 were not repeated in 2008. Nevertheless, the insurance group delivered an underwriting gain for the sixth consecutive year. This means that our \$58.5 billion of insurance “float” – money that doesn't belong to us but that we hold and invest for our own benefit – cost us less than zero. In fact, we were paid \$2.8 billion to hold our float during 2008. Charlie and I find this enjoyable.
Over time, most insurers experience a substantial underwriting loss, which makes their economics far different from ours. Of course, we too will experience underwriting losses in some years. But we have the best group of managers in the insurance business, and in most cases they oversee entrenched and valuable franchises. Considering these strengths, I believe that we will earn an underwriting profit over the years and that our float will therefore cost us nothing. Our insurance operation, the core business of Berkshire, is an economic powerhouse.
Charlie and I are equally enthusiastic about our utility business, which had record earnings last year and is poised for future gains. Dave Sokol and Greg Abel, the managers of this operation, have achieved results unmatched elsewhere in the utility industry. I love it when they come up with new projects because in this capital-intensive business these ventures are often large. Such projects offer Berkshire the opportunity to put out substantial sums at decent returns.
Things also went well on the capital-allocation front last year. Berkshire is always a buyer of both businesses and securities, and the disarray in markets gave us a tailwind in our purchases. When investing, pessimism is your friend, euphoria the enemy.
In our insurance portfolios, we made three large investments on terms that would be unavailable in normal markets. These should add about \$1 $\frac{1}{2}$ billion pre-tax to Berkshire's annual earnings and offer possibilities for capital gains as well. We also closed on our Marmon acquisition (we own 64% of the company now and will purchase its remaining stock over the next six years). Additionally, certain of our subsidiaries made "tuck-in" acquisitions that will strengthen their competitive positions and earnings.
That's the good news. But there's another less pleasant reality: During 2008 I did some dumb things in investments. I made at least one major mistake of commission and several lesser ones that also hurt. I will tell you more about these later. Furthermore, I made some errors of omission, sucking my thumb when new facts came in that should have caused me to re-examine my thinking and promptly take action.
Additionally, the market value of the bonds and stocks that we continue to hold suffered a significant decline along with the general market. This does not bother Charlie and me. Indeed, we enjoy such price declines if we have funds available to increase our positions. Long ago, Ben Graham taught me that “Price is what you pay; value is what you get.” Whether we’re talking about socks or stocks, I like buying quality merchandise when it is marked down.
Yardsticks
Berkshire has two major areas of value. The first is our investments: stocks, bonds and cash equivalents. At yearend those totaled \$122 billion (not counting the investments held by our finance and utility operations, which we assign to our second bucket of value). About \$58.5 billion of that total is funded by our insurance float.
Berkshire's second component of value is earnings that come from sources other than investments and insurance. These earnings are delivered by our 67 non-insurance companies, itemized on page 96. We exclude our insurance earnings from this calculation because the value of our insurance operation comes from the investable funds it generates, and we have already included this factor in our first bucket.
In 2008, our investments fell from \$90,343 per share of Berkshire (after minority interest) to \$77,793, a decrease that was caused by a decline in market prices, not by net sales of stocks or bonds. Our second segment of value fell from pre-tax earnings of \$4,093 per Berkshire share to \$3,921 (again after minority interest).
Both of these performances are unsatisfactory. Over time, we need to make decent gains in each area if we are to increase Berkshire's intrinsic value at an acceptable rate. Going forward, however, our focus will be on the earnings segment, just as it has been for several decades. We like buying underpriced securities, but we like buying fairly-priced operating businesses even more.
Now, let's take a look at the four major operating sectors of Berkshire. Each of these has vastly different balance sheet and income account characteristics. Therefore, lumping them together, as is done in standard financial statements, impedes analysis. So we'll present them as four separate businesses, which is how Charlie and I view them.
Regulated Utility Business
Berkshire has an 87.4% (diluted) interest in MidAmerican Energy Holdings, which owns a wide variety of utility operations. The largest of these are (1) Yorkshire Electricity and Northern Electric, whose 3.8 million end users make it the U.K.'s third largest distributor of electricity; (2) MidAmerican Energy, which serves 723,000 electric customers, primarily in Iowa; (3) Pacific Power and Rocky Mountain Power, serving about 1.7 million electric customers in six western states; and (4) Kern River and Northern Natural pipelines, which carry about 9% of the natural gas consumed in the U.S.
Our partners in ownership of MidAmerican are its two terrific managers, Dave Sokol and Greg Abel, and my long-time friend, Walter Scott. It’s unimportant how many votes each party has; we make major moves only when we are unanimous in thinking them wise. Nine years of working with Dave, Greg and Walter have reinforced my original belief: Berkshire couldn’t have better partners.
Somewhat incongruously, MidAmerican also owns the second largest real estate brokerage firm in the U.S., HomeServices of America. This company operates through 21 locally-branded firms that have 16,000 agents. Last year was a terrible year for home sales, and 2009 looks no better. We will continue, however, to acquire quality brokerage operations when they are available at sensible prices.
Here are some key figures on MidAmerican's operations:
| Earnings (in millions) | ||
| 2008 | 2007 | |
| U.K. utilities | $339 | $337 |
| Iowa utility | 425 | 412 |
| Western utilities | 703 | 692 |
| Pipelines | 595 | 473 |
| HomeServices | (45) | 42 |
| Other (net) | 186 | 130 |
| Operating earnings before corporate interest and taxes | 2,203 | 2,086 |
| Constellation Energy* | 1,092 | – |
| Interest, other than to Berkshire | (332) | (312) |
| Interest on Berkshire junior debt | (111) | (108) |
| Income tax | (1,002) | (477) |
| Net earnings | $1,850 | $1,189 |
| Earnings applicable to Berkshire** | $1,704 | $1,114 |
| Debt owed to others | 19,145 | 19,002 |
| Debt owed to Berkshire | 1,087 | 821 |
*Consists of a breakup fee of \$175 million and a profit on our investment of \$917 million.
**Includes interest earned by Berkshire (net of related income taxes) of \$72 in 2008 and \$70 in 2007.
MidAmerican's record in operating its regulated electric utilities and natural gas pipelines is truly outstanding. Here's some backup for that claim.
Our two pipelines, Kern River and Northern Natural, were both acquired in 2002. A firm called Mastio regularly ranks pipelines for customer satisfaction. Among the 44 rated, Kern River came in 9 $^{th}$ when we purchased it and Northern Natural ranked 39 $^{th}$ . There was work to do.
In Mastio's 2009 report, Kern River ranked $1^{\text{st}}$ and Northern Natural $3^{\text{rd}}$ . Charlie and I couldn't be more proud of this performance. It came about because hundreds of people at each operation committed themselves to a new culture and then delivered on their commitment.
Achievements at our electric utilities have been equally impressive. In 1995, MidAmerican became the major provider of electricity in Iowa. By judicious planning and a zeal for efficiency, the company has kept electric prices unchanged since our purchase and has promised to hold them steady through 2013.
MidAmerican has maintained this extraordinary price stability while making Iowa number one among all states in the percentage of its generation capacity that comes from wind. Since our purchase, MidAmerican's wind-based facilities have grown from zero to almost $20\%$ of total capacity.
Similarly, when we purchased PacifiCorp in 2006, we moved aggressively to expand wind generation. Wind capacity was then 33 megawatts. It’s now 794, with more coming. (Arriving at PacifiCorp, we found “wind” of a different sort: The company had 98 committees that met frequently. Now there are 28. Meanwhile, we generate and deliver considerably more electricity, doing so with 2% fewer employees.)
In 2008 alone, MidAmerican spent \$1.8 billion on wind generation at our two operations, and today the company is number one in the nation among regulated utilities in ownership of wind capacity. By the way, compare that \$1.8 billion to the \$1.1 billion of pre-tax earnings of PacifiCorp (shown in the table as “Western”) and Iowa. In our utility business, we spend all we earn, and then some, in order to fulfill the needs of our service areas. Indeed, MidAmerican has not paid a dividend since Berkshire bought into the company in early 2000. Its earnings have instead been reinvested to develop the utility systems our customers require and deserve. In exchange, we have been allowed to earn a fair return on the huge sums we have invested. It’s a great partnership for all concerned.
* * * * * * * * * * * *
Our long-avowed goal is to be the “buyer of choice” for businesses – particularly those built and owned by families. The way to achieve this goal is to deserve it. That means we must keep our promises; avoid leveraging up acquired businesses; grant unusual autonomy to our managers; and hold the purchased companies through thick and thin (though we prefer thick and thicker).
Our record matches our rhetoric. Most buyers competing against us, however, follow a different path. For them, acquisitions are “merchandise.” Before the ink dries on their purchase contracts, these operators are contemplating “exit strategies.” We have a decided advantage, therefore, when we encounter sellers who truly care about the future of their businesses.
Some years back our competitors were known as “leveraged-buyout operators.” But LBO became a bad name. So in Orwellian fashion, the buyout firms decided to change their moniker. What they did not change, though, were the essential ingredients of their previous operations, including their cherished fee structures and love of leverage.
Their new label became “private equity,” a name that turns the facts upside-down: A purchase of a business by these firms almost invariably results in dramatic reductions in the equity portion of the acquiree’s capital structure compared to that previously existing. A number of these acquirees, purchased only two to three years ago, are now in mortal danger because of the debt piled on them by their private-equity buyers. Much of the bank debt is selling below 70¢ on the dollar, and the public debt has taken a far greater beating. The private-equity firms, it should be noted, are not rushing in to inject the equity their wards now desperately need. Instead, they’re keeping their remaining funds very private.
In the regulated utility field there are no large family-owned businesses. Here, Berkshire hopes to be the “buyer of choice” of regulators. It is they, rather than selling shareholders, who judge the fitness of purchasers when transactions are proposed.
There is no hiding your history when you stand before these regulators. They can – and do – call their counterparts in other states where you operate and ask how you have behaved in respect to all aspects of the business, including a willingness to commit adequate equity capital.
When MidAmerican proposed its purchase of PacifiCorp in 2005, regulators in the six new states we would be serving immediately checked our record in Iowa. They also carefully evaluated our financing plans and capabilities. We passed this examination, just as we expect to pass future ones.
There are two reasons for our confidence. First, Dave Sokol and Greg Abel are going to run any businesses with which they are associated in a first-class manner. They don't know of any other way to operate. Beyond that is the fact that we hope to buy more regulated utilities in the future – and we know that our business behavior in jurisdictions where we are operating today will determine how we are welcomed by new jurisdictions tomorrow.
Insurance
Our insurance group has propelled Berkshire's growth since we first entered the business in 1967. This happy result has not been due to general prosperity in the industry. During the 25 years ending in 2007, return on net worth for insurers averaged $8.5\%$ versus $14.0\%$ for the Fortune 500. Clearly our insurance CEOs have not had the wind at their back. Yet these managers have excelled to a degree Charlie and I never dreamed possible in the early days. Why do I love them? Let me count the ways.
At GEICO, Tony Nicely – now in his 48th year at the company after joining it when he was 18 – continues to gobble up market share while maintaining disciplined underwriting. When Tony became CEO in 1993, GEICO had 2.0% of the auto insurance market, a level at which the company had long been stuck. Now we have a 7.7% share, up from 7.2% in 2007.
The combination of new business gains and an improvement in the renewal rate on existing business has moved GEICO into the number three position among auto insurers. In 1995, when Berkshire purchased control, GEICO was number seven. Now we trail only State Farm and Allstate.
GEICO grows because it saves money for motorists. No one likes to buy auto insurance. But virtually everyone likes to drive. So, sensibly, drivers look for the lowest-cost insurance consistent with first-class service. Efficiency is the key to low cost, and efficiency is Tony's specialty. Five years ago the number of policies per employee was 299. In 2008, the number was 439, a huge increase in productivity.
As we view GEICO's current opportunities, Tony and I feel like two hungry mosquitoes in a nudist camp. Juicy targets are everywhere. First, and most important, our new business in auto insurance is now exploding. Americans are focused on saving money as never before, and they are flocking to GEICO. In January 2009, we set a monthly record – by a wide margin – for growth in policyholders. That record will last exactly 28 days: As we go to press, it's clear February's gain will be even better.
Beyond this, we are gaining ground in allied lines. Last year, our motorcycle policies increased by 23.4%, which raised our market share from about 6% to more than 7%. Our RV and ATV businesses are also growing rapidly, albeit from a small base. And, finally, we recently began insuring commercial autos, a big market that offers real promise.
GEICO is now saving money for millions of Americans. Go to GEICO.com or call 1-800-847-7536 and see if we can save you money as well.
General Re, our large international reinsurer, also had an outstanding year in 2008. Some time back, the company had serious problems (which I totally failed to detect when we purchased it in late 1998). By 2001, when Joe Brandon took over as CEO, assisted by his partner, Tad Montross, General Re's culture had further deteriorated, exhibiting a loss of discipline in underwriting, reserving and expenses. After Joe and Tad took charge, these problems were decisively and successfully addressed. Today General Re has regained its luster. Last spring Joe stepped down, and Tad became CEO. Charlie and I are grateful to Joe for righting the ship and are certain that, with Tad, General Re's future is in the best of hands.
Reinsurance is a business of long-term promises, sometimes extending for fifty years or more. This past year has retaught clients a crucial principle: A promise is no better than the person or institution making it. That’s where General Re excels: It is the only reinsurer that is backed by an AAA corporation. Ben Franklin once said, “It’s difficult for an empty sack to stand upright.” That’s no worry for General Re clients.
Our third major insurance operation is Ajit Jain's reinsurance division, headquartered in Stamford and staffed by only 31 employees. This may be one of the most remarkable businesses in the world, hard to characterize but easy to admire.
From year to year, Ajit's business is never the same. It features very large transactions, incredible speed of execution and a willingness to quote on policies that leave others scratching their heads. When there is a huge and unusual risk to be insured, Ajit is almost certain to be called.
Ajit came to Berkshire in 1986. Very quickly, I realized that we had acquired an extraordinary talent. So I did the logical thing: I wrote his parents in New Delhi and asked if they had another one like him at home. Of course, I knew the answer before writing. There isn't anyone like Ajit.
Our smaller insurers are just as outstanding in their own way as the “big three,” regularly delivering valuable float to us at a negative cost. We aggregate their results below under “Other Primary.” For space reasons, we don’t discuss these insurers individually. But be assured that Charlie and I appreciate the contribution of each.
Here is the record for the four legs to our insurance stool. The underwriting profits signify that all four provided funds to Berkshire last year without cost, just as they did in 2007. And in both years our underwriting profitability was considerably better than that achieved by the industry. Of course, we ourselves will periodically have a terrible year in insurance. But, overall, I expect us to average an underwriting profit. If so, we will be using free funds of large size for the indefinite future.
| Underwriting Profit | Yearend Float | |||
| Insurance Operations | (in millions) | |||
| 2008 | 2007 | 2008 | 2007 | |
| General Re | $342 | $555 | $21,074 | $23,009 |
| BH Reinsurance | 1,324 | 1,427 | 24,221 | 23,692 |
| GEICO | 916 | 1,113 | 8,454 | 7,768 |
| Other Primary | 210 | 279 | 4,739 | 4,229 |
| $2,792 | $3,374 | $58,488 | $58,698 | |
Manufacturing, Service and Retailing Operations
Our activities in this part of Berkshire cover the waterfront. Let's look, though, at a summary balance sheet and earnings statement for the entire group.
Balance Sheet 12/31/08 (in millions)
| Assets | Liabilities and Equity Notes payable | $2,212 | |
| Cash and equivalents | $2,497 | ||
| Accounts and notes receivable | 5,047 | Other current liabilities | 8,087 |
| Inventory | 7,500 | Total current liabilities | 10,299 |
| Other current assets | 752 | ||
| Total current assets | 15,796 | ||
| Goodwill and other intangibles | 16,515 | Deferred taxes | 2,786 |
| Fixed assets | 16,338 | Term debt and other liabilities | 6,033 |
| Other assets | 1,248 | Equity | 30,779 |
| $49,897 | $49,897 |
Earnings Statement (in millions)
| 2008 | 2007 | 2006 | |
| Revenues | $66,099 | $59,100 | $52,660 |
| Operating expenses (including depreciation of $1,280 in 2008, $955 in 2007 and $823 in 2006) | 61,937 | 55,026 | 49,002 |
| Interest expense | 139 | 127 | 132 |
| Pre-tax earnings | 4,023* | 3,947* | 3,526* |
| Income taxes and minority interests | 1,740 | 1,594 | 1,395 |
| Net income | $2,283 | $2,353 | $2,131 |
*Does not include purchase-accounting adjustments.
This motley group, which sells products ranging from lollipops to motor homes, earned an impressive 17.9% on average tangible net worth last year. It’s also noteworthy that these operations used only minor financial leverage in achieving that return. Clearly we own some terrific businesses. We purchased many of them, however, at large premiums to net worth – a point reflected in the goodwill item shown on our balance sheet – and that fact reduces the earnings on our average carrying value to 8.1%.
Though the full-year result was satisfactory, earnings of many of the businesses in this group hit the skids in last year's fourth quarter. Prospects for 2009 look worse. Nevertheless, the group retains strong earning power even under today's conditions and will continue to deliver significant cash to the parent company. Overall, these companies improved their competitive positions last year, partly because our financial strength let us make advantageous tuck-in acquisitions. In contrast, many competitors were treading water (or sinking).
The most noteworthy of these acquisitions was Iscar's late-November purchase of Tungaloy, a leading Japanese producer of small tools. Charlie and I continue to look with astonishment – and appreciation! – at the accomplishments of Iscar's management. To secure one manager like Eitan Wertheimer, Jacob Harpaz or Danny Goldman when we acquire a company is a blessing. Getting three is like winning the Triple Crown. Iscar's growth since our purchase has exceeded our expectations – which were high – and the addition of Tungaloy will move performance to the next level.
MiTek, Benjamin Moore, Acme Brick, Forest River, Marmon and CTB also made one or more acquisitions during the year. CTB, which operates worldwide in the agriculture equipment field, has now picked up six small firms since we purchased it in 2002. At that time, we paid \$140 million for the company. Last year its pre-tax earnings were \$89 million. Vic Mancinelli, its CEO, followed Berkshire-like operating principles long before our arrival. He focuses on blocking and tackling, day by day doing the little things right and never getting off course. Ten years from now, Vic will be running a much larger operation and, more important, will be earning excellent returns on invested capital.
Finance and Financial Products
I will write here at some length about the mortgage operation of Clayton Homes and skip any financial commentary, which is summarized in the table at the end of this section. I do this because Clayton's recent experience may be useful in the public-policy debate about housing and mortgages. But first a little background.
Clayton is the largest company in the manufactured home industry, delivering 27,499 units last year. This came to about $34\%$ of the industry's 81,889 total. Our share will likely grow in 2009, partly because much of the rest of the industry is in acute distress. Industrywide, units sold have steadily declined since they hit a peak of 372,843 in 1998.
At that time, much of the industry employed sales practices that were atrocious. Writing about the period somewhat later, I described it as involving “borrowers who shouldn’t have borrowed being financed by lenders who shouldn’t have lent.”
To begin with, the need for meaningful down payments was frequently ignored. Sometimes fakery was involved. (“That certainly looks like a \$2,000 cat to me” says the salesman who will receive a \$3,000 commission if the loan goes through.) Moreover, impossible-to-meet monthly payments were being agreed to by borrowers who signed up because they had nothing to lose. The resulting mortgages were usually packaged (“securitized”) and sold by Wall Street firms to unsuspecting investors. This chain of folly had to end badly, and it did.
Clayton, it should be emphasized, followed far more sensible practices in its own lending throughout that time. Indeed, no purchaser of the mortgages it originated and then securitized has ever lost a dime of principal or interest. But Clayton was the exception; industry losses were staggering. And the hangover continues to this day.
This 1997-2000 fiasco should have served as a canary-in-the-coal-mine warning for the far-larger conventional housing market. But investors, government and rating agencies learned exactly nothing from the manufactured-home debacle. Instead, in an eerie rerun of that disaster, the same mistakes were repeated with conventional homes in the 2004-07 period: Lenders happily made loans that borrowers couldn't repay out of their incomes, and borrowers just as happily signed up to meet those payments. Both parties counted on “house-price appreciation” to make this otherwise impossible arrangement work. It was Scarlett O’Hara all over again: “I’ll think about it tomorrow.” The consequences of this behavior are now reverberating through every corner of our economy.
Clayton's 198,888 borrowers, however, have continued to pay normally throughout the housing crash, handing us no unexpected losses. This is not because these borrowers are unusually creditworthy, a point proved by FICO scores (a standard measure of credit risk). Their median FICO score is 644, compared to a national median of 723, and about $35\%$ are below 620, the segment usually designated "sub-prime." Many disastrous pools of mortgages on conventional homes are populated by borrowers with far better credit, as measured by FICO scores.
Yet at yearend, our delinquency rate on loans we have originated was 3.6%, up only modestly from 2.9% in 2006 and 2.9% in 2004. (In addition to our originated loans, we’ve also bought bulk portfolios of various types from other financial institutions.) Clayton’s foreclosures during 2008 were 3.0% of originated loans compared to 3.8% in 2006 and 5.3% in 2004.
Why are our borrowers – characteristically people with modest incomes and far-from-great credit scores – performing so well? The answer is elementary, going right back to Lending 101. Our borrowers simply looked at how full-bore mortgage payments would compare with their actual – not hoped-for – income and then decided whether they could live with that commitment. Simply put, they took out a mortgage with the intention of paying it off, whatever the course of home prices.
Just as important is what our borrowers did not do. They did not count on making their loan payments by means of refinancing. They did not sign up for “teaser” rates that upon reset were outsized relative to their income. And they did not assume that they could always sell their home at a profit if their mortgage payments became onerous. Jimmy Stewart would have loved these folks.
Of course, a number of our borrowers will run into trouble. They generally have no more than minor savings to tide them over if adversity hits. The major cause of delinquency or foreclosure is the loss of a job, but death, divorce and medical expenses all cause problems. If unemployment rates rise – as they surely will in 2009 – more of Clayton’s borrowers will have troubles, and we will have larger, though still manageable, losses. But our problems will not be driven to any extent by the trend of home prices.
Commentary about the current housing crisis often ignores the crucial fact that most foreclosures do not occur because a house is worth less than its mortgage (so-called “upside-down” loans). Rather, foreclosures take place because borrowers can’t pay the monthly payment that they agreed to pay. Homeowners who have made a meaningful down-payment – derived from savings and not from other borrowing – seldom walk away from a primary residence simply because its value today is less than the mortgage. Instead, they walk when they can’t make the monthly payments.
Home ownership is a wonderful thing. My family and I have enjoyed my present home for 50 years, with more to come. But enjoyment and utility should be the primary motives for purchase, not profit or refi possibilities. And the home purchased ought to fit the income of the purchaser.
The present housing debacle should teach home buyers, lenders, brokers and government some simple lessons that will ensure stability in the future. Home purchases should involve an honest-to-God down payment of at least $10\%$ and monthly payments that can be comfortably handled by the borrower's income. That income should be carefully verified.
Putting people into homes, though a desirable goal, shouldn't be our country's primary objective. Keeping them in their homes should be the ambition.
* * * * * * * * * * * *
Clayton's lending operation, though not damaged by the performance of its borrowers, is nevertheless threatened by an element of the credit crisis. Funders that have access to any sort of government guarantee – banks with FDIC-insured deposits, large entities with commercial paper now backed by the Federal Reserve, and others who are using imaginative methods (or lobbying skills) to come under the government's umbrella – have money costs that are minimal. Conversely, highly-rated companies, such as Berkshire, are experiencing borrowing costs that, in relation to Treasury rates, are at record levels. Moreover, funds are abundant for the government-guaranteed borrower but often scarce for others, no matter how creditworthy they may be.
This unprecedented “spread” in the cost of money makes it unprofitable for any lender who doesn’t enjoy government-guaranteed funds to go up against those with a favored status. Government is determining the “haves” and “have-nots.” That is why companies are rushing to convert to bank holding companies, not a course feasible for Berkshire.
Though Berkshire's credit is pristine – we are one of only seven AAA corporations in the country – our cost of borrowing is now far higher than competitors with shaky balance sheets but government backing. At the moment, it is much better to be a financial cripple with a government guarantee than a Gibraltar without one.
Today's extreme conditions may soon end. At worst, we believe we will find at least a partial solution that will allow us to continue much of Clayton's lending. Clayton's earnings, however, will surely suffer if we are forced to compete for long against government-favored lenders.
| Pre-Tax Earnings (in millions) | ||
| 2008 | 2007 | |
| Net investment income | $330 | $272 |
| Life and annuity operation | 23 | (60) |
| Leasing operations | 87 | 111 |
| Manufactured-housing finance (Clayton) | 206 | 526 |
| Other* | 141 | 157 |
| Income before investment and derivatives gains or losses | $787 | $1,006 |
*Includes \$92 million in 2008 and \$85 million in 2007 of fees that Berkshire charges Clayton for the use of Berkshire’s credit.
Tax-Exempt Bond Insurance
Early in 2008, we activated Berkshire Hathaway Assurance Company (“BHAC”) as an insurer of the tax-exempt bonds issued by states, cities and other local entities. BHAC insures these securities for issuers both at the time their bonds are sold to the public (primary transactions) and later, when the bonds are already owned by investors (secondary transactions).
By yearend 2007, the half dozen or so companies that had been the major players in this business had all fallen into big trouble. The cause of their problems was captured long ago by Mae West: “I was Snow White, but I drifted.”
The monolines (as the bond insurers are called) initially insured only tax-exempt bonds that were low-risk. But over the years competition for this business intensified, and rates fell. Faced with the prospect of stagnating or declining earnings, the monoline managers turned to ever-riskier propositions. Some of these involved the insuring of residential mortgage obligations. When housing prices plummeted, the monoline industry quickly became a basket case.
Early in the year, Berkshire offered to assume all of the insurance issued on tax-exempts that was on the books of the three largest monolines. These companies were all in life-threatening trouble (though they said otherwise.) We would have charged a 1 $\frac{1}{2}\%$ rate to take over the guarantees on about \$822 billion of bonds. If our offer had been accepted, we would have been required to pay any losses suffered by investors who owned these bonds – a guarantee stretching for 40 years in some cases. Ours was not a frivolous proposal: For reasons we will come to later, it involved substantial risk for Berkshire.
The monolines summarily rejected our offer, in some cases appending an insult or two. In the end, though, the turndowns proved to be very good news for us, because it became apparent that I had severely underpriced our offer.
Thereafter, we wrote about \$15.6 billion of insurance in the secondary market. And here's the punch line: About 77% of this business was on bonds that were already insured, largely by the three aforementioned monolines. In these agreements, we have to pay for defaults only if the original insurer is financially unable to do so.
We wrote this “second-to-pay” insurance for rates averaging 3.3%. That’s right; we have been paid far more for becoming the second to pay than the 1.5% we would have earlier charged to be the first to pay. In one extreme case, we actually agreed to be fourth to pay, nonetheless receiving about three times the 1% premium charged by the monoline that remains first to pay. In other words, three other monolines have to first go broke before we need to write a check.
Two of the three monolines to which we made our initial bulk offer later raised substantial capital. This, of course, directly helps us, since it makes it less likely that we will have to pay, at least in the near term, any claims on our second-to-pay insurance because these two monolines fail. In addition to our book of secondary business, we have also written \$3.7 billion of primary business for a premium of \$96 million. In primary business, of course, we are first to pay if the issuer gets in trouble.
We have a great many more multiples of capital behind the insurance we write than does any other monoline. Consequently, our guarantee is far more valuable than theirs. This explains why many sophisticated investors have bought second-to-pay insurance from us even though they were already insured by another monoline. BHAC has become not only the insurer of preference, but in many cases the sole insurer acceptable to bondholders.
Nevertheless, we remain very cautious about the business we write and regard it as far from a sure thing that this insurance will ultimately be profitable for us. The reason is simple, though I have never seen even a passing reference to it by any financial analyst, rating agency or monoline CEO.
The rationale behind very low premium rates for insuring tax-exempts has been that defaults have historically been few. But that record largely reflects the experience of entities that issued uninsured bonds. Insurance of tax-exempt bonds didn't exist before 1971, and even after that most bonds remained uninsured.
A universe of tax-exempts fully covered by insurance would be certain to have a somewhat different loss experience from a group of uninsured, but otherwise similar bonds, the only question being how different. To understand why, let's go back to 1975 when New York City was on the edge of bankruptcy. At the time its bonds – virtually all uninsured – were heavily held by the city's wealthier residents as well as by New York banks and other institutions. These local bondholders deeply desired to solve the city's fiscal problems. So before long, concessions and cooperation from a host of involved constituencies produced a solution. Without one, it was apparent to all that New York's citizens and businesses would have experienced widespread and severe financial losses from their bond holdings.
Now, imagine that all of the city's bonds had instead been insured by Berkshire. Would similar belt-tightening, tax increases, labor concessions, etc. have been forthcoming? Of course not. At a minimum, Berkshire would have been asked to “share” in the required sacrifices. And, considering our deep pockets, the required contribution would most certainly have been substantial.
Local governments are going to face far tougher fiscal problems in the future than they have to date. The pension liabilities I talked about in last year's report will be a huge contributor to these woes. Many cities and states were surely horrified when they inspected the status of their funding at yearend 2008. The gap between assets and a realistic actuarial valuation of present liabilities is simply staggering.
When faced with large revenue shortfalls, communities that have all of their bonds insured will be more prone to develop “solutions” less favorable to bondholders than those communities that have uninsured bonds held by local banks and residents. Losses in the tax-exempt arena, when they come, are also likely to be highly correlated among issuers. If a few communities stiff their creditors and get away with it, the chance that others will follow in their footsteps will grow. What mayor or city council is going to choose pain to local citizens in the form of major tax increases over pain to a far-away bond insurer?
Insuring tax-exempts, therefore, has the look today of a dangerous business – one with similarities, in fact, to the insuring of natural catastrophes. In both cases, a string of loss-free years can be followed by a devastating experience that more than wipes out all earlier profits. We will try, therefore, to proceed carefully in this business, eschewing many classes of bonds that other monolines regularly embrace.
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The type of fallacy involved in projecting loss experience from a universe of non-insured bonds onto a deceptively-similar universe in which many bonds are insured pops up in other areas of finance. “Back-tested” models of many kinds are susceptible to this sort of error. Nevertheless, they are frequently touted in financial markets as guides to future action. (If merely looking up past financial data would tell you what the future holds, the Forbes 400 would consist of librarians.)
Indeed, the stupefying losses in mortgage-related securities came in large part because of flawed, history-based models used by salesmen, rating agencies and investors. These parties looked at loss experience over periods when home prices rose only moderately and speculation in houses was negligible. They then made this experience a yardstick for evaluating future losses. They blissfully ignored the fact that house prices had recently skyrocketed, loan practices had deteriorated and many buyers had opted for houses they couldn't afford. In short, universe “past” and universe “current” had very different characteristics. But lenders, government and media largely failed to recognize this all-important fact.
Investors should be skeptical of history-based models. Constructed by a nerdy-sounding priesthood using esoteric terms such as beta, gamma, sigma and the like, these models tend to look impressive. Too often, though, investors forget to examine the assumptions behind the symbols. Our advice: Beware of geeks bearing formulas.
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A final post-script on BHAC: Who, you may wonder, runs this operation? While I help set policy, all of the heavy lifting is done by Ajit and his crew. Sure, they were already generating \$24 billion of float along with hundreds of millions of underwriting profit annually. But how busy can that keep a 31-person group? Charlie and I decided it was high time for them to start doing a full day's work.
Investments
Because of accounting rules, we divide our large holdings of common stocks this year into two categories. The table below, presenting the first category, itemizes investments that are carried on our balance sheet at market value and that had a yearend value of more than \$500 million.
| Shares | Company | Percentage of Company Owned | 12/31/08 | |
| Cost* | Market | |||
| (in millions) | ||||
| 151,610,700 | American Express Company | 13.1 | $ 1,287 | $ 2,812 |
| 200,000,000 | The Coca-Cola Company | 8.6 | 1,299 | 9,054 |
| 84,896,273 | ConocoPhillips | 5.7 | 7,008 | 4,398 |
| 30,009,591 | Johnson & Johnson | 1.1 | 1,847 | 1,795 |
| 130,272,500 | Kraft Foods Inc. | 8.9 | 4,330 | 3,498 |
| 3,947,554 | POSCO | 5.2 | 768 | 1,191 |
| 91,941,010 | The Procter & Gamble Company | 3.1 | 643 | 5,684 |
| 22,111,966 | Sanofi-Aventis | 1.7 | 1,827 | 1,404 |
| 11,262,000 | Swiss Re | 3.2 | 773 | 530 |
| 227,307,000 | Tesco plc | 2.9 | 1,326 | 1,193 |
| 75,145,426 | U.S. Bancorp | 4.3 | 2,337 | 1,879 |
| 19,944,300 | Wal-Mart Stores, Inc. | 0.5 | 942 | 1,118 |
| 1,727,765 | The Washington Post Company | 18.4 | 11 | 674 |
| 304,392,068 | Wells Fargo & Company | 7.2 | 6,702 | 8,973 |
| Others | 6,035 | 4,870 | ||
| Total Common Stocks Carried at Market | $37,135 | $49,073 | ||
*This is our actual purchase price and also our tax basis; GAAP “cost” differs in a few cases because of write-ups or write-downs that have been required.
In addition, we have holdings in Moody's and Burlington Northern Santa Fe that we now carry at “equity value” – our cost plus retained earnings since our purchase, minus the tax that would be paid if those earnings were paid to us as dividends. This accounting treatment is usually required when ownership of an investee company reaches 20%.
We purchased $15\%$ of Moody's some years ago and have not since bought a share. Moody's, though, has repurchased its own shares and, by late 2008, those repurchases reduced its outstanding shares to the point that our holdings rose above $20\%$ . Burlington Northern has also repurchased shares, but our increase to $20\%$ primarily occurred because we continued to buy this stock.
Unless facts or rules change, you will see these holdings reflected in our balance sheet at “equity accounting” values, whatever their market prices. You will also see our share of their earnings (less applicable taxes) regularly included in our quarterly and annual earnings.
I told you in an earlier part of this report that last year I made a major mistake of commission (and maybe more; this one sticks out). Without urging from Charlie or anyone else, I bought a large amount of ConocoPhillips stock when oil and gas prices were near their peak. I in no way anticipated the dramatic fall in energy prices that occurred in the last half of the year. I still believe the odds are good that oil sells far higher in the future than the current \$40-\$50 price. But so far I have been dead wrong. Even if prices should rise, moreover, the terrible timing of my purchase has cost Berkshire several billion dollars.
I made some other already-recognizable errors as well. They were smaller, but unfortunately not that small. During 2008, I spent \$244 million for shares of two Irish banks that appeared cheap to me. At yearend we wrote these holdings down to market: \$27 million, for an 89% loss. Since then, the two stocks have declined even further. The tennis crowd would call my mistakes “unforced errors.”
On the plus side last year, we made purchases totaling \$14.5 billion in fixed-income securities issued by Wrigley, Goldman Sachs and General Electric. We very much like these commitments, which carry high current yields that, in themselves, make the investments more than satisfactory. But in each of these three purchases, we also acquired a substantial equity participation as a bonus. To fund these large purchases, I had to sell portions of some holdings that I would have preferred to keep (primarily Johnson & Johnson, Procter & Gamble and ConocoPhillips). However, I have pledged – to you, the rating agencies and myself – to always run Berkshire with more than ample cash. We never want to count on the kindness of strangers in order to meet tomorrow’s obligations. When forced to choose, I will not trade even a night’s sleep for the chance of extra profits.
The investment world has gone from underpricing risk to overpricing it. This change has not been minor; the pendulum has covered an extraordinary arc. A few years ago, it would have seemed unthinkable that yields like today's could have been obtained on good-grade municipal or corporate bonds even while risk-free governments offered near-zero returns on short-term bonds and no better than a pittance on long-terms. When the financial history of this decade is written, it will surely speak of the Internet bubble of the late 1990s and the housing bubble of the early 2000s. But the U.S. Treasury bond bubble of late 2008 may be regarded as almost equally extraordinary.
Clinging to cash equivalents or long-term government bonds at present yields is almost certainly a terrible policy if continued for long. Holders of these instruments, of course, have felt increasingly comfortable – in fact, almost smug – in following this policy as financial turmoil has mounted. They regard their judgment confirmed when they hear commentators proclaim “cash is king,” even though that wonderful cash is earning close to nothing and will surely find its purchasing power eroded over time.
Approval, though, is not the goal of investing. In fact, approval is often counter-productive because it sedates the brain and makes it less receptive to new facts or a re-examination of conclusions formed earlier. Beware the investment activity that produces applause; the great moves are usually greeted by yawns.
Derivatives
Derivatives are dangerous. They have dramatically increased the leverage and risks in our financial system. They have made it almost impossible for investors to understand and analyze our largest commercial banks and investment banks. They allowed Fannie Mae and Freddie Mac to engage in massive misstatements of earnings for years. So indecipherable were Freddie and Fannie that their federal regulator, OFHEO, whose more than 100 employees had no job except the oversight of these two institutions, totally missed their cooking of the books.
Indeed, recent events demonstrate that certain big-name CEOs (or former CEOs) at major financial institutions were simply incapable of managing a business with a huge, complex book of derivatives. Include Charlie and me in this hapless group: When Berkshire purchased General Re in 1998, we knew we could not get our minds around its book of 23,218 derivatives contracts, made with 884 counterparties (many of which we had never heard of). So we decided to close up shop. Though we were under no pressure and were operating in benign markets as we exited, it took us five years and more than \$400 million in losses to largely complete the task. Upon leaving, our feelings about the business mirrored a line in a country song: “I liked you better before I got to know you so well.”
Improved “transparency” – a favorite remedy of politicians, commentators and financial regulators for averting future train wrecks – won’t cure the problems that derivatives pose. I know of no reporting mechanism that would come close to describing and measuring the risks in a huge and complex portfolio of derivatives. Auditors can’t audit these contracts, and regulators can’t regulate them. When I read the pages of “disclosure” in 10-Ks of companies that are entangled with these instruments, all I end up knowing is that I don’t know what is going on in their portfolios (and then I reach for some aspirin).
For a case study on regulatory effectiveness, let's look harder at the Freddie and Fannie example. These giant institutions were created by Congress, which retained control over them, dictating what they could and could not do. To aid its oversight, Congress created OFHEO in 1992, admonishing it to make sure the two behemoths were behaving themselves. With that move, Fannie and Freddie became the most intensely-regulated companies of which I am aware, as measured by manpower assigned to the task.
On June 15, 2003, OFHEO (whose annual reports are available on the Internet) sent its 2002 report to Congress – specifically to its four bosses in the Senate and House, among them none other than Messrs. Sarbanes and Oxley. The report’s 127 pages included a self-congratulatory cover-line: “Celebrating 10 Years of Excellence.” The transmittal letter and report were delivered nine days after the CEO and CFO of Freddie had resigned in disgrace and the COO had been fired. No mention of their departures was made in the letter, even while the report concluded, as it always did, that “Both Enterprises were financially sound and well managed.”
In truth, both enterprises had engaged in massive accounting shenanigans for some time. Finally, in 2006, OFHEO issued a 340-page scathing chronicle of the sins of Fannie that, more or less, blamed the fiasco on every party but – you guessed it – Congress and OFHEO.
The Bear Stearns collapse highlights the counterparty problem embedded in derivatives transactions, a time bomb I first discussed in Berkshire's 2002 report. On April 3, 2008, Tim Geithner, then the able president of the New York Fed, explained the need for a rescue: “The sudden discovery by Bear’s derivative counterparties that important financial positions they had put in place to protect themselves from financial risk were no longer operative would have triggered substantial further dislocation in markets. This would have precipitated a rush by Bear’s counterparties to liquidate the collateral they held against those positions and to attempt to replicate those positions in already very fragile markets.” This is Fedspeak for “We stepped in to avoid a financial chain reaction of unpredictable magnitude.” In my opinion, the Fed was right to do so.
A normal stock or bond trade is completed in a few days with one party getting its cash, the other its securities. Counterparty risk therefore quickly disappears, which means credit problems can't accumulate. This rapid settlement process is key to maintaining the integrity of markets. That, in fact, is a reason for NYSE and NASDAQ shortening the settlement period from five days to three days in 1995.
Derivatives contracts, in contrast, often go unsettled for years, or even decades, with counterparties building up huge claims against each other. “Paper” assets and liabilities – often hard to quantify – become important parts of financial statements though these items will not be validated for many years. Additionally, a frightening web of mutual dependence develops among huge financial institutions. Receivables and payables by the billions become concentrated in the hands of a few large dealers who are apt to be highly-leveraged in other ways as well. Participants seeking to dodge troubles face the same problem as someone seeking to avoid venereal disease: It’s not just whom you sleep with, but also whom they are sleeping with.
Sleeping around, to continue our metaphor, can actually be useful for large derivatives dealers because it assures them government aid if trouble hits. In other words, only companies having problems that can infect the entire neighborhood – I won’t mention names – are certain to become a concern of the state (an outcome, I’m sad to say, that is proper). From this irritating reality comes The First Law of Corporate Survival for ambitious CEOs who pile on leverage and run large and unfathomable derivatives books: Modest incompetence simply won’t do; it’s mindboggling screw-ups that are required.
Considering the ruin I've pictured, you may wonder why Berkshire is a party to 251 derivatives contracts (other than those used for operational purposes at MidAmerican and the few left over at Gen Re). The answer is simple: I believe each contract we own was mispriced at inception, sometimes dramatically so. I both initiated these positions and monitor them, a set of responsibilities consistent with my belief that the CEO of any large financial organization must be the Chief Risk Officer as well. If we lose money on our derivatives, it will be my fault.
Our derivatives dealings require our counterparties to make payments to us when contracts are initiated. Berkshire therefore always holds the money, which leaves us assuming no meaningful counterparty risk. As of yearend, the payments made to us less losses we have paid – our derivatives “float,” so to speak – totaled \$8.1 billion. This float is similar to insurance float: If we break even on an underlying transaction, we will have enjoyed the use of free money for a long time. Our expectation, though it is far from a sure thing, is that we will do better than break even and that the substantial investment income we earn on the funds will be frosting on the cake.
Only a small percentage of our contracts call for any posting of collateral when the market moves against us. Even under the chaotic conditions existing in last year's fourth quarter, we had to post less than $1\%$ of our securities portfolio. (When we post collateral, we deposit it with third parties, meanwhile retaining the investment earnings on the deposited securities.) In our 2002 annual report, we warned of the lethal threat that posting requirements create, real-life illustrations of which we witnessed last year at a variety of financial institutions (and, for that matter, at Constellation Energy, which was within hours of bankruptcy when MidAmerican arrived to effect a rescue).
Our contracts fall into four major categories. With apologies to those who are not fascinated by financial instruments, I will explain them in excruciating detail.
- We have added modestly to the “equity put” portfolio I described in last year’s report. Some of our contracts come due in 15 years, others in 20. We must make a payment to our counterparty at maturity if the reference index to which the put is tied is then below what it was at the inception of the contract. Neither party can elect to settle early; it’s only the price on the final day that counts.
To illustrate, we might sell a \$1 billion 15-year put contract on the S&P 500 when that index is at, say, 1300. If the index is at 1170 – down 10% – on the day of maturity, we would pay \$100 million. If it is above 1300, we owe nothing. For us to lose \$1 billion, the index would have to go to zero. In the meantime, the sale of the put would have delivered us a premium – perhaps \$100 million to \$150 million – that we would be free to invest as we wish.
Our put contracts total \$37.1 billion (at current exchange rates) and are spread among four major indices: the S&P 500 in the U.S., the FTSE 100 in the U.K., the Euro Stoxx 50 in Europe, and the Nikkei 225 in Japan. Our first contract comes due on September 9, 2019 and our last on January 24, 2028. We have received premiums of \$4.9 billion, money we have invested. We, meanwhile, have paid nothing, since all expiration dates are far in the future. Nonetheless, we have used Black-Scholes valuation methods to record a yearend liability of \$10 billion, an amount that will change on every reporting date. The two financial items – this estimated loss of \$10 billion minus the \$4.9 billion in premiums we have received – means that we have so far reported a mark-to-market loss of \$5.1 billion from these contracts.
We endorse mark-to-market accounting. I will explain later, however, why I believe the Black-Scholes formula, even though it is the standard for establishing the dollar liability for options, produces strange results when the long-term variety are being valued.
One point about our contracts that is sometimes not understood: For us to lose the full \$37.1 billion we have at risk, all stocks in all four indices would have to go to zero on their various termination dates. If, however – as an example – all indices fell 25% from their value at the inception of each contract, and foreign-exchange rates remained as they are today, we would owe about \$9 billion, payable between 2019 and 2028. Between the inception of the contract and those dates, we would have held the \$4.9 billion premium and earned investment income on it.
- The second category we described in last year's report concerns derivatives requiring us to pay when credit losses occur at companies that are included in various high-yield indices. Our standard contract covers a five-year period and involves 100 companies. We modestly expanded our position last year in this category. But, of course, the contracts on the books at the end of 2007 moved one year closer to their maturity. Overall, our contracts now have an average life of $2 \frac{1}{3}$ years, with the first expiration due to occur on September 20, 2009 and the last on December 20, 2013.
By yearend we had received premiums of \$3.4 billion on these contracts and paid losses of \$542 million. Using mark-to-market principles, we also set up a liability for future losses that at yearend totaled \$3.0 billion. Thus we had to that point recorded a loss of about \$100 million, derived from our \$3.5 billion total in paid and estimated future losses minus the \$3.4 billion of premiums we received. In our quarterly reports, however, the amount of gain or loss has swung wildly from a profit of \$327 million in the second quarter of 2008 to a loss of \$693 million in the fourth quarter of 2008.
Surprisingly, we made payments on these contracts of only \$97 million last year, far below the estimate I used when I decided to enter into them. This year, however, losses have accelerated sharply with the mushrooming of large bankruptcies. In last year's letter, I told you I expected these contracts to show a profit at expiration. Now, with the recession deepening at a rapid rate, the possibility of an eventual loss has increased. Whatever the result, I will keep you posted.
- In 2008 we began to write “credit default swaps” on individual companies. This is simply credit insurance, similar to what we write in BHAC, except that here we bear the credit risk of corporations rather than of tax-exempt issuers.
If, say, the XYZ company goes bankrupt, and we have written a \$100 million contract, we are obligated to pay an amount that reflects the shrinkage in value of a comparable amount of XYZ's debt. (If, for example, the company's bonds are selling for 30 after default, we would owe \$70 million.) For the typical contract, we receive quarterly payments for five years, after which our insurance expires.
At yearend we had written \$4 billion of contracts covering 42 corporations, for which we receive annual premiums of \$93 million. This is the only derivatives business we write that has any counterparty risk; the party that buys the contract from us must be good for the quarterly premiums it will owe us over the five years. We are unlikely to expand this business to any extent because most buyers of this protection now insist that the seller post collateral, and we will not enter into such an arrangement.
- At the request of our customers, we write a few tax-exempt bond insurance contracts that are similar to those written at BHAC, but that are structured as derivatives. The only meaningful difference between the two contracts is that mark-to-market accounting is required for derivatives whereas standard accrual accounting is required at BHAC.
But this difference can produce some strange results. The bonds covered – in effect, insured – by these derivatives are largely general obligations of states, and we feel good about them. At yearend, however, mark-to-market accounting required us to record a loss of \$631 million on these derivatives contracts. Had we instead insured the same bonds at the same price in BHAC, and used the accrual accounting required at insurance companies, we would have recorded a small profit for the year. The two methods by which we insure the bonds will eventually produce the same accounting result. In the short term, however, the variance in reported profits can be substantial.
We have told you before that our derivative contracts, subject as they are to mark-to-market accounting, will produce wild swings in the earnings we report. The ups and downs neither cheer nor bother Charlie and me. Indeed, the “downs” can be helpful in that they give us an opportunity to expand a position on favorable terms. I hope this explanation of our dealings will lead you to think similarly.
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The Black-Scholes formula has approached the status of holy writ in finance, and we use it when valuing our equity put options for financial statement purposes. Key inputs to the calculation include a contract's maturity and strike price, as well as the analyst's expectations for volatility, interest rates and dividends.
If the formula is applied to extended time periods, however, it can produce absurd results. In fairness, Black and Scholes almost certainly understood this point well. But their devoted followers may be ignoring whatever caveats the two men attached when they first unveiled the formula.
It’s often useful in testing a theory to push it to extremes. So let’s postulate that we sell a 100-year \$1 billion put option on the S&P 500 at a strike price of 903 (the index’s level on 12/31/08). Using the implied volatility assumption for long-dated contracts that we do, and combining that with appropriate interest and dividend assumptions, we would find the “proper” Black-Scholes premium for this contract to be \$2.5 million.
To judge the rationality of that premium, we need to assess whether the S&P will be valued a century from now at less than today. Certainly the dollar will then be worth a small fraction of its present value (at only 2% inflation it will be worth roughly 14¢). So that will be a factor pushing the stated value of the index higher. Far more important, however, is that one hundred years of retained earnings will hugely increase the value of most of the companies in the index. In the 20 $^{th}$ Century, the Dow-Jones Industrial Average increased by about 175-fold, mainly because of this retained-earnings factor.
Considering everything, I believe the probability of a decline in the index over a one-hundred-year period to be far less than 1%. But let's use that figure and also assume that the most likely decline – should one occur – is 50%. Under these assumptions, the mathematical expectation of loss on our contract would be \$5 million (\$1 billion X 1% X 50%).
But if we had received our theoretical premium of \$2.5 million up front, we would have only had to invest it at 0.7% compounded annually to cover this loss expectancy. Everything earned above that would have been profit. Would you like to borrow money for 100 years at a 0.7% rate?
Let's look at my example from a worst-case standpoint. Remember that $99\%$ of the time we would pay nothing if my assumptions are correct. But even in the worst case among the remaining $1\%$ of possibilities – that is, one assuming a total loss of \$1 billion – our borrowing cost would come to only $6.2\%$ . Clearly, either my assumptions are crazy or the formula is inappropriate.
The ridiculous premium that Black-Scholes dictates in my extreme example is caused by the inclusion of volatility in the formula and by the fact that volatility is determined by how much stocks have moved around in some past period of days, months or years. This metric is simply irrelevant in estimating the probability-weighted range of values of American business 100 years from now. (Imagine, if you will, getting a quote every day on a farm from a manic-depressive neighbor and then using the volatility calculated from these changing quotes as an important ingredient in an equation that predicts a probability-weighted range of values for the farm a century from now.)
Though historical volatility is a useful – but far from foolproof – concept in valuing short-term options, its utility diminishes rapidly as the duration of the option lengthens. In my opinion, the valuations that the Black-Scholes formula now place on our long-term put options overstate our liability, though the overstatement will diminish as the contracts approach maturity.
Even so, we will continue to use Black-Scholes when we are estimating our financial-statement liability for long-term equity puts. The formula represents conventional wisdom and any substitute that I might offer would engender extreme skepticism. That would be perfectly understandable: CEOs who have concocted their own valuations for esoteric financial instruments have seldom erred on the side of conservatism. That club of optimists is one that Charlie and I have no desire to join.
The Annual Meeting
Our meeting this year will be held on Saturday, May 2 $^{nd}$ . As always, the doors will open at the Qwest Center at 7 a.m., and a new Berkshire movie will be shown at 8:30. At 9:30 we will go directly to the question-and-answer period, which (with a break for lunch at the Qwest’s stands) will last until 3:00. Then, after a short recess, Charlie and I will convene the annual meeting at 3:15. If you decide to leave during the day’s question periods, please do so while Charlie is talking.
The best reason to exit, of course, is to shop. We will help you do that by filling the 194,300-square-foot hall that adjoins the meeting area with the products of Berkshire subsidiaries. Last year, the 31,000 people who came to the meeting did their part, and almost every location racked up record sales. But you can do better. (A friendly warning: If I find sales are lagging, I lock the exits.)
This year Clayton will showcase its new i-house that includes Shaw flooring, Johns Manville insulation and MiTek fasteners. This innovative “green” home, featuring solar panels and numerous other energy-saving products, is truly a home of the future. Estimated costs for electricity and heating total only about \$1 per day when the home is sited in an area like Omaha. After purchasing the i-house, you should next consider the Forest River RV and pontoon boat on display nearby. Make your neighbors jealous.
GEICO will have a booth staffed by a number of its top counselors from around the country, all of them ready to supply you with auto insurance quotes. In most cases, GEICO will be able to give you a shareholder discount (usually 8%). This special offer is permitted by 44 of the 50 jurisdictions in which we operate. (One supplemental point: The discount is not additive if you qualify for another, such as that given certain groups.) Bring the details of your existing insurance and check out whether we can save you money. For at least 50% of you, I believe we can.
On Saturday, at the Omaha airport, we will have the usual array of NetJets aircraft available for your inspection. Stop by the NetJets booth at the Qwest to learn about viewing these planes. Come to Omaha by bus; leave in your new plane. And take along – with no fear of a strip search – the Ginsu knives that you’ve purchased at the exhibit of our Quikut subsidiary.
Next, if you have any money left, visit the Bookworm, which will be selling about 30 books and DVDs. A shipping service will be available for those whose thirst for knowledge exceeds their carrying capacity.
Finally, we will have three fascinating cars on the exhibition floor, including one from the past and one of the future. Paul Andrews, CEO of our subsidiary, TTI, will bring his 1935 Duesenberg, a car that once belonged to Mrs. Forrest Mars, Sr., parent and grandparent of our new partners in the Wrigley purchase. The future will be represented by a new plug-in electric car developed by BYD, an amazing Chinese company in which we have a 10% interest.
An attachment to the proxy material that is enclosed with this report explains how you can obtain the credential you will need for admission to the meeting and other events. As for plane, hotel and car reservations, we have again signed up American Express (800-799-6634) to give you special help. Carol Pedersen, who handles these matters, does a terrific job for us each year, and I thank her for it. Hotel rooms can be hard to find, but work with Carol and you will get one.
At Nebraska Furniture Mart, located on a 77-acre site on 72 $^{nd}$ Street between Dodge and Pacific, we will again be having “Berkshire Weekend” discount pricing. We initiated this special event at NFM twelve years ago, and sales during the “Weekend” grew from 5.3 million in 1997 to a record 33.3 million in 2008. On Saturday of that weekend, we also set a single day record of 7.2 million. Ask any retailer what he thinks of such volume.
To obtain the Berkshire discount, you must make your purchases between Thursday, April 30th and Monday, May $4^{\text{th}}$ inclusive, and also present your meeting credential. The period's special pricing will even apply to the products of several prestigious manufacturers that normally have ironclad rules against discounting but which, in the spirit of our shareholder weekend, have made an exception for you. We appreciate their cooperation. NFM is open from 10 a.m. to 9 p.m. Monday through Saturday, and 10 a.m. to 6 p.m. on Sunday. On Saturday this year, from 5:30 p.m. to 8 p.m., NFM is having a western cookout to which you are all invited.
At Borsheims, we will again have two shareholder-only events. The first will be a cocktail reception from 6 p.m. to 10 p.m. on Friday, May 1 $^{st}$ . The second, the main gala, will be held on Sunday, May 3 $^{rd}$ , from 9 a.m. to 4 p.m. On Saturday, we will be open until 6 p.m.
We will have huge crowds at Borsheims throughout the weekend. For your convenience, therefore, shareholder prices will be available from Monday, April 27 $^{th}$ through Saturday, May 9 $^{th}$ . During that period, please identify yourself as a shareholder by presenting your meeting credentials or a brokerage statement that shows you are a Berkshire holder.
On Sunday, in the mall outside of Borsheims, a blindfolded Patrick Wolff, twice U.S. chess champion, will take on all comers – who will have their eyes wide open – in groups of six. Nearby, Norman Beck, a remarkable magician from Dallas, will bewilder onlookers. Additionally, we will have Bob Hamman and Sharon Osberg, two of the world’s top bridge experts, available to play bridge with our shareholders on Sunday afternoon.
Gorat's will again be open exclusively for Berkshire shareholders on Sunday, May $3^{\text{rd}}$ , and will be serving from 1 p.m. until 10 p.m. Last year Gorat's, which seats 240, served 975 dinners on Shareholder Sunday. The three-day total was 2,448 including 702 T-bone steaks, the entrée preferred by the cognoscenti. Please don't embarrass me by ordering foie gras. Remember: To come to Gorat's on that day, you must have a reservation. To make one, call 402-551-3733 on April $1^{\text{st}}$ (but not before).
We will again have a reception at 4 p.m. on Saturday afternoon for shareholders who have come from outside North America. Every year our meeting draws many people from around the globe, and Charlie and I want to be sure we personally greet those who have come so far. Last year we enjoyed meeting more than 700 of you from many dozens of countries. Any shareholder who comes from outside the U.S. or Canada will be given a special credential and instructions for attending this function.
This year we will be making important changes in how we handle the meeting's question periods. In recent years, we have received only a handful of questions directly related to Berkshire and its operations. Last year there were practically none. So we need to steer the discussion back to Berkshire's businesses.
In a related problem, there has been a mad rush when the doors open at 7 a.m., led by people who wish to be first in line at the 12 microphones available for questioners. This is not desirable from a safety standpoint, nor do we believe that sprinting ability should be the determinant of who gets to pose questions. (At age 78, I've concluded that speed afoot is a ridiculously overrated talent.) Again, a new procedure is desirable.
In our first change, several financial journalists from organizations representing newspapers, magazines and television will participate in the question-and-answer period, asking Charlie and me questions that shareholders have submitted by e-mail. The journalists and their e-mail addresses are: Carol Loomis, of Fortune, who may be emailed at cloomis@fortunemail.com; Becky Quick, of CNBC, at BerkshireQuestions@cnbc.com, and Andrew Ross Sorkin, of The New York Times, at arsorkin@nytimes.com. From the questions submitted, each journalist will choose the dozen or so he or she decides are the most interesting and important. (In your e-mail, let the journalist know if you would like your name mentioned if your question is selected.)
Neither Charlie nor I will get so much as a clue about the questions to be asked. We know the journalists will pick some tough ones and that's the way we like it.
In our second change, we will have a drawing at 8:15 at each microphone for those shareholders hoping to ask questions themselves. At the meeting, I will alternate the questions asked by the journalists with those from the winning shareholders. At least half the questions – those selected by the panel from your submissions – are therefore certain to be Berkshire-related. We will meanwhile continue to get some good – and perhaps entertaining – questions from the audience as well.
So join us at our Woodstock for Capitalists and let us know how you like the new format. Charlie and I look forward to seeing you.
February 27, 2009
Warren E. Buffett
Chairman of the Board
伯克希尔业绩与标普500对比
| 年份 | 伯克希尔每股账面价值年度变化率（1） | 标普500含股息年度变化率（2） | 相对业绩（1）-（2） | |
|---|---|---|---|---|
| 1965 | 23.8 | 10.0 | 13.8 | |
| 1966 | 20.3 | (11.7) | 32.0 | |
| 1967 | 11.0 | 30.9 | (19.9) | |
| 1968 | 19.0 | 11.0 | 8.0 | |
| 1969 | 16.2 | (8.4) | 24.6 | |
| 1970 | 12.0 | 3.9 | 8.1 | |
| 1971 | 16.4 | 14.6 | 1.8 | |
| 1972 | 21.7 | 18.9 | 2.8 | |
| 1973 | 4.7 | (14.8) | 19.5 | |
| 1974 | 5.5 | (26.4) | 31.9 | |
| 1975 | 21.9 | 37.2 | (15.3) | |
| 1976 | 59.3 | 23.6 | 35.7 | |
| 1977 | 31.9 | (7.4) | 39.3 | |
| 1978 | 24.0 | 6.4 | 17.6 | |
| 1979 | 35.7 | 18.2 | 17.5 | |
| 1980 | 19.3 | 32.3 | (13.0) | |
| 1981 | 31.4 | (5.0) | 36.4 | |
| 1982 | 40.0 | 21.4 | 18.6 | |
| 1983 | 32.3 | 22.4 | 9.9 | |
| 1984 | 13.6 | 6.1 | 7.5 | |
| 1985 | 48.2 | 31.6 | 16.6 | |
| 1986 | 26.1 | 18.6 | 7.5 | |
| 1987 | 19.5 | 5.1 | 14.4 | |
| 1988 | 20.1 | 16.6 | 3.5 | |
| 1989 | 44.4 | 31.7 | 12.7 | |
| 1990 | 7.4 | (3.1) | 10.5 | |
| 1991 | 39.6 | 30.5 | 9.1 | |
| 1992 | 20.3 | 7.6 | 12.7 | |
| 1993 | 14.3 | 10.1 | 4.2 | |
| 1994 | 13.9 | 1.3 | 12.6 | |
| 1995 | 43.1 | 37.6 | 5.5 | |
| 1996 | 31.8 | 23.0 | 8.8 | |
| 1997 | 34.1 | 33.4 | .7 | |
| 1998 | 48.3 | 28.6 | 19.7 | |
| 1999 | .5 | 21.0 | (20.5) | |
| 2000 | 6.5 | (9.1) | 15.6 | |
| 2001 | (6.2) | (11.9) | 5.7 | |
| 2002 | 10.0 | (22.1) | 32.1 | |
| 2003 | 21.0 | 28.7 | (7.7) | |
| 2004 | 10.5 | 10.9 | (.4) | |
| 2005 | 6.4 | 4.9 | 1.5 | |
| 2006 | 18.4 | 15.8 | 2.6 | |
| 2007 | 11.0 | 5.5 | 5.5 | |
| 2008 | (9.6) | (37.0) | 27.4 | |
| 复合年增长率 – 1965-2008 | 20.3% | 8.9% | 11.4 | |
| 总增长率 – 1964-2008 | 362,319% | 4,276% |
注：数据按日历年计算，但以下年份例外：1965和1966年截至9月30日；1967年截至12月31日的15个月。
自1979年起，会计准则要求保险公司按市价而非成本与市价孰低法（此前的要求）来计量其持有的权益证券。本表中，伯克希尔1978年及之前的业绩已按变更后的规则重述。除此外，所有其他方面的结果均依据最初报告的数字计算。
标普500指数数据为税前数据，而伯克希尔数据为税后数据。如果像伯克希尔这样的公司简单持有标普500指数并计提及缴纳相应税款，那么在该指数上涨的年份，其业绩将落后于标普500指数；但在该指数下跌的年份，其业绩将优于标普500指数。多年来，税务成本将导致累计差距相当显著。
伯克希尔·哈撒韦公司
致伯克希尔·哈撒韦公司股东：
2008年我们的净资产减少了115亿美元，这使我们的A类股和B类股的每股账面价值下降了9.6%。在过去的44年里（即自现任管理层接手以来），账面价值从19美元增长至70,530美元，年复合增长率为20.3%。*
前一页的表格记录了伯克希尔账面价值与标普500指数44年来的表现，显示2008年是两者最糟糕的年份。这一时期对公司和市政债券、房地产及大宗商品而言也是一场灾难。到年底，各类投资者都伤痕累累、困惑不已，仿佛是一群误闯羽毛球赛场的小鸟。
随着时间推移，世界上许多大型金融机构内部暴露出一系列危及存亡的问题。这导致了信贷市场功能失调，而且在重要方面很快变得近乎瘫痪。全国上下奉行的信条，就是我小时候在餐馆墙上看到的那句话：“我们信仰上帝；其余人等请付现金。”
到第四季度，信贷危机加上房价和股价暴跌，引发了一场笼罩全国的瘫痪性恐惧。随之而来的是商业活动的自由落体式下滑，其加速之猛烈是我前所未见的。美国——以及世界大部分地区——陷入了恶性负反馈循环。恐惧导致商业萎缩，而商业萎缩又引发更大的恐惧。
这种削弱性的螺旋促使我们的政府采取了大规模行动。用扑克牌术语来说，财政部和美联储已经"全押"了。过去以杯计量的经济药物，最近已被整桶整桶地开出。这些曾经无法想象的剂量几乎肯定会带来不受欢迎的副作用。其具体性质谁也无法猜测，尽管一个可能的后果是通胀浪潮。此外，主要行业已变得依赖联邦援助，接下来将是带着令人瞠目结舌请求的城市和州。让这些实体脱离公共奶嘴将是一个政治挑战。它们不会心甘情愿地离开。
无论有什么负面影响，去年政府采取强有力的即时行动对于避免金融体系彻底崩溃至关重要。如果崩溃真的发生，对我们经济每个领域的影响都将是灾难性的。不管你喜欢与否，华尔街、主街以及美国各条小街上的居民都身在同一艘船上。
然而，在这一片坏消息中，切勿忘记我们的国家过去曾面临过远比这更艰难的考验。仅在20世纪，我们就经历了两次世界大战（其中一次我们起初似乎处于战败边缘）；十几次恐慌和衰退；恶性通胀导致1980年优惠贷款利率达到21.5%；以及1930年代的大萧条，当时失业率连续多年在15%至25%之间。美国从不缺少挑战。
不过，我们总能够克服它们。面对这些障碍——以及其他许多困难——美国民众的实际生活水平在20世纪里几乎提升了七倍，同期道指从66点涨至11,497点。把这段时期与过去几十个世纪相比——那时人类生活方式的改善微乎其微（如果有的话）。尽管道路并不平坦，但我们的经济体系在漫长岁月里运行得异常出色。它释放了人类的潜力，这是其他任何体系都无法做到的，而且它还将继续如此。美国最好的日子还在后头。
再看一看第2页那张44年的表格。在这44年中，有75%的年份标普500股票录得上涨。我猜想，接下来的44年，大概也会有类似比例的年份是正收益。但无论是查理·芒格——我在伯克希尔的合伙人——还是我，都无法提前预测哪些年份会涨、哪些会跌。（按我们一贯固执的看法，我们觉得其他人也做不到。）例如，我们确信2009年经济将一团糟——而且很可能远不止这一年——但这个结论并不能告诉我们股市会涨还是会跌。
无论年景好坏，查理和我只专注于四个目标：
(1) 维持伯克希尔直布罗陀般稳固的财务状况，这包括庞大的超额流动性、适度的短期负债，以及数十个盈利和现金来源；
(2) 拓宽我们旗下经营业务的"护城河"，让它们拥有持久的竞争优势；
(3) 收购并开发新的、多样化的盈利来源；
(4) 扩大并培养优秀的管理者队伍——多年来，正是他们为伯克希尔带来了卓越的业绩。
2008年的伯克希尔
去年，伯克希尔旗下大多数受经济显著影响的企业，其业绩都低于应有水平，2009年也将如此。我们的零售业务受到的冲击尤为严重，与住宅建设相关的业务也是如此。但总体而言，我们的制造、服务和零售业务仍创造了可观的利润，而且其中大多数——尤其是规模较大的——正在继续巩固它们的竞争地位。此外，幸运的是，伯克希尔最重要的两大业务——保险和公用事业——其盈利与整体经济并无关联。这两项业务在2008年都取得了出色业绩，且前景极佳。
正如去年报告中所预测的，我们保险业务在2007年实现的异常承销利润，在2008年没有重现。尽管如此，保险部门仍连续第六年实现了承销盈利。这意味着我们持有的585亿美元保险"浮存金"——这些钱并不属于我们，但我们持有并用于自身投资——其成本低于零。事实上，2008年我们为了持有浮存金还获得了28亿美元的收入。查理和我对此乐在其中。
随着时间的推移，大多数保险公司都会出现大额承销亏损，这使得它们的经济状况与我们截然不同。当然，我们在某些年份也会遭遇承销亏损。但我们在保险业拥有最优秀的管理团队，而且大多数情况下，他们管理着根基稳固且价值非凡的特许经营权。考虑到这些优势，我相信我们多年来会实现承销盈利，因此我们的浮存金将不产生任何成本。我们的保险业务——伯克希尔的核心业务——是一座经济引擎。
查理和我对我们的公用事业业务同样充满热情。该业务去年盈利创下纪录，并已为未来增长蓄势待发。这项业务的经营者Dave Sokol和Greg Abel取得了同行无法企及的成就。我很喜欢他们提新项目，因为在这个资本密集型行业里，这些项目通常规模很大，能让伯克希尔获得投入大笔资金并收获合理回报的机会。
在资本配置方面，去年也进展顺利。伯克希尔一直是企业和证券的买家，而市场的混乱给我们的买入提供了顺风。投资时，悲观情绪是你的朋友，狂喜则是敌人。
在我们的保险投资组合中，我们做了三项大规模投资，其条件在正常市场环境下是无法获得的。这些投资预计将为伯克希尔的年度盈利增加约15亿美元税前收入，同时还提供了资本利得的可能。我们还完成了对Marmon的收购（目前持有该公司64%的股份，未来六年内将收购剩余股份）。此外，我们的某些子公司进行了"补强型"收购，这将增强它们的竞争地位和盈利能力。
以上是好消息。但还有另一个不太愉快的现实：2008年我在投资上干了些蠢事。我至少犯了一个重大错误（主动投资之错），还有几个较小的错误同样造成了损失。稍后我会详细说明。此外，我还犯了一些不作为之错——当新情况出现，本应让我重新审视思路并迅速采取行动时，我却犹豫不决。
另外，我们继续持有的债券和股票的市场价格也随之同大市大幅下跌。这并没有困扰查理和我。事实上，如果我们有资金加仓，我们很享受这样的价格下跌。很久以前，本·格雷厄姆教导我："价格是你支付的，价值是你得到的。"无论是袜子还是股票，我都喜欢在打折时买入优质商品。
衡量标准
伯克希尔有两块主要价值。第一块是我们的投资：股票、债券及现金等价物。年末这些投资总计1220亿美元（不包括我们划入第二块价值的金融和公用事业运营公司持有的投资）。其中约585亿美元由我们的保险浮存金提供资金。
伯克希尔的第二块价值来自投资和保险以外的盈利。这些盈利由我们的67家非保险公司贡献，详见第96页。我们将保险盈利排除在此项计算之外，因为保险业务的价值来自其产生的可投资资金，而我们已经将这个因素包含在第一块中。
2008年，我们的投资从每股伯克希尔（扣除少数股东权益后）90,343美元降至77,793美元，下降原因是市场价格下跌，而非股票或债券的净卖出。我们第二块价值从每股伯克希尔税前盈利4,093美元降至3,921美元（同样扣除少数股东权益）。
这两方面的表现都不令人满意。长期来看，如果我们要以可接受的速度提升伯克希尔的内在价值，就需要在每个领域都取得体面的增长。然而，展望未来，我们的重点仍将放在盈利这块，正如过去几十年一样。我们喜欢买入低估的证券，但我们更愿意以合理价格买入运营企业。
现在，让我们看看伯克希尔的四大主要运营板块。每个板块的资产负债表和利润表特征都截然不同。因此，像标准财务报表那样把它们合并在一起会妨碍分析。所以我们将其作为四个独立业务来呈现，查理和我也正是这样看待它们的。
受监管公用事业业务
伯克希尔（Berkshire）持有中美能源控股（MidAmerican Energy Holdings）87.4%的稀释后权益，后者旗下拥有多种公用事业业务。其中最大的包括：（1）Yorkshire Electricity和Northern Electric，其380万终端用户使其成为英国第三大电力分销商；（2）中美能源（MidAmerican Energy），主要为爱荷华州的72.3万电力客户提供服务；（3）太平洋电力（Pacific Power）和落基山电力（Rocky Mountain Power），为西部六个州约170万电力客户供电；（4）Kern River和Northern Natural管道，输送量约占美国天然气消费量的9%。
我们在中美能源的合作伙伴是其两位出色的管理者Dave Sokol和Greg Abel，以及我的老友Walter Scott。各方拥有多少投票权并不重要；只有在一致认为某项重大行动明智时，我们才会采取行动。与Dave、Greg和Walter共事九年，进一步印证了我最初的信念：伯克希尔不可能找到更好的合作伙伴了。
多少有些不太协调的是，中美能源还拥有美国第二大房地产经纪公司HomeServices of America。该公司通过21个本地品牌运营，拥有16,000名经纪人。去年是房屋销售惨淡的一年，2009年看起来也不乐观。不过，只要能够以合理价格收购优质经纪业务，我们仍会继续出手。
以下是中美能源运营的一些关键数据：
| 收益（百万美元） | ||
| 2008年 | 2007年 | |
| 英国公用事业 | 339 | 337 |
| 爱荷华州公用事业 | 425 | 412 |
| 西部公用事业 | 703 | 692 |
| 管道业务 | 595 | 473 |
| HomeServices | (45) | 42 |
| 其他（净额） | 186 | 130 |
| 公司利息及税前经营收益 | 2,203 | 2,086 |
| Constellation Energy* | 1,092 | – |
| 利息（付给伯克希尔以外的部分） | (332) | (312) |
| 伯克希尔次级债务利息 | (111) | (108) |
| 所得税 | (1,002) | (477) |
| 净收益 | 1,850 | 1,189 |
| 归属伯克希尔的收益** | 1,704 | 1,114 |
| 欠他人的债务 | 19,145 | 19,002 |
| 欠伯克希尔的债务 | 1,087 | 821 |
*包括1.75亿美元的终止费和我们投资所得的9.17亿美元利润。
**包括伯克希尔赚取的利息（扣除相关所得税后），2008年为7200万美元，2007年为7000万美元。
中美能源在运营受监管的电力公用事业和天然气管道方面的记录确实非常出色。以下是一些佐证。
我们的两条管道——Kern River和Northern Natural——均于2002年收购。一家名为Mastio的公司定期对管道进行客户满意度排名。在被评级的44条管道中，我们收购时Kern River排名第9，Northern Natural排名第39。有工作要做。
在Mastio的2009年报告中，Kern River排名第1，Northern Natural排名第3。Charlie和我对这样的表现再自豪不过了。这得益于每条管道的数百名员工致力于营造新文化，并兑现了他们的承诺。
我们的电力公用事业同样取得了令人瞩目的成就。1995年，中美能源成为爱荷华州的主要电力供应商。通过明智的规划和效率方面的热忱，该公司自我们收购以来一直保持电价不变，并承诺将维持该价格直至2013年。
中美能源（MidAmerican）在保持这一非凡价格稳定性的同时，使爱荷华州成为全美风力发电占比最高的州。自我们收购以来，中美能源的风力发电设施从零发展到几乎占其总发电容量的20%。
同样，2006年我们收购太平洋电力（PacifiCorp）时，也积极扩大风力发电。当时风电装机容量为33兆瓦，现在已达到794兆瓦，且还在增加。（初到太平洋电力时，我们发现了另一种"风"：公司有98个委员会频繁开会。现在只剩28个。与此同时，我们发电和输电量大增，员工反而减少了2%。）
仅在2008年，中美能源就在我们的两个业务中风力发电投入了18亿美元，如今该公司在受监管公用事业中拥有的风电装机容量位居全美第一。顺便说一句，将这18亿美元与太平洋电力（表中列为"西部"）和爱荷华业务的11亿美元税前利润相比。在我们的公用事业业务中，我们把赚来的每一分钱都花掉，甚至还多花，以满足服务区域的需求。事实上，自伯克希尔在2000年初入股中美能源以来，该公司从未支付过股息。其收益反而被再投资，用于建设客户需要且应得的公用事业系统。作为交换，我们被允许在我们投入的巨额资金上赚取合理的回报。这对所有相关方都是一场伟大的合伙。
我们长期公开宣称的目标是成为企业的"首选买家"——尤其是那些由家族创建和拥有的企业。实现这一目标的方法就是配得上它。这意味着我们必须信守承诺；避免让收购来的企业过度加杠杆；赋予经理人非同寻常的自主权；并且无论风雨都持有已收购的公司（尽管我们更喜欢风和日丽）。
我们的言行一致。然而，与我们竞争的多数买家走的是另一条路。对他们来说，收购就是"商品"。这些操盘手的收购合同墨迹未干，就开始盘算"退出策略"。因此，当我们遇到真正关心企业未来的卖家时，我们拥有明显的优势。
几年前，我们的竞争对手还被称为"杠杆收购操盘手"。但LBO这个名号变坏了。于是，这些收购公司奥威尔式地决定改头换面。然而，它们并未改变之前运作的核心要素，包括它们钟爱的收费结构和对杠杆的热爱。
它们的新标签变成了"私募股权"，这个名字颠倒了事实：这些公司收购一家企业，几乎无一例外会导致被收购方资本结构中权益部分相比之前大幅减少。许多仅在两三年前被收购的企业，如今正因私募股权买家堆积的债务而面临致命危险。大部分银行贷款的售价已低于面值的70美分，而公开发行的债券遭受的打击更严重。值得注意的是，这些私募股权公司并未急于注入其被收购企业如今急需的权益资本。相反，它们将剩余资金捂得紧紧的（非常"私募"）。
在受监管公用事业领域，没有大型家族企业。在这里，伯克希尔希望成为监管机构的"首选买家"。当交易提出时，是监管者而非出售股东来评判买家的合适性。
站在这些监管者面前时，你无法隐藏历史。他们可以——也确实会——打电话给你经营所在其他州的同行，询问你在业务各方面的表现，包括你投入充足权益资本的意愿。
当中美能源在2005年提议收购PacifiCorp时，我们将要服务的六个新州的监管机构立即调阅了我们在爱荷华州的记录。他们还仔细评估了我们的融资方案和能力。我们通过了这次考察，正如我们预期未来也会通过一样。
我们对这种信心有两方面理由。首先，Dave Sokol和Greg Abel将以一流的方式经营他们参与的任何企业。除此之外，他们还知道其他经营之道。除此之外，我们还希望未来收购更多受监管的公用事业公司——而且我们知道，我们今天在现有司法管辖区的商业行为，将决定新司法管辖区明天如何接纳我们。
保险
我们的保险集团自1967年首次涉足该业务以来，一直推动着伯克希尔的增长。这一令人欣喜的结果并非源于保险业的普遍繁荣。在截至2007年的25年间，保险公司的净资产收益率平均为8.5%，而财富500强为14.0%。显然，我们的保险CEO们并未享受到顺风。然而，这些经理人表现得如此出色，其程度是查理和我早年做梦也想不到的。为什么我爱他们？让我细数一下。
在GEICO（政府雇员保险公司），Tony Nicely——他18岁加入公司，如今已在职48年——在严守承销纪律的同时，继续蚕食市场份额。当Tony在1993年成为CEO时，GEICO在车险市场占有2.0%的份额，公司长期停滞在这一水平。如今我们的份额达到7.7%，高于2007年的7.2%。
新业务增长与现有业务续保率提升的双重作用，使GEICO升至车险公司第三位。1995年伯克希尔收购控股权时，GEICO排名第七。如今我们仅落后于State Farm（州农场保险）和Allstate（好事达保险）。
GEICO之所以增长，是因为它为驾车者省钱。没有人喜欢购买车险。但几乎每个人都喜欢开车。因此，理智的驾车者会在享受一流服务的同时寻找最低成本的保险。效率是低成本的关键，而效率是Tony的专长。五年前，每位雇员对应的保单数量为299份。2008年这一数字达到439份，生产率大幅提升。
当我们审视GEICO当前的机会时，Tony和我就像裸体营地里的两只饥饿的蚊子——到处都是汁多味美的目标。首先，也是最重要的，我们的车险新业务正在激增。美国人比以往任何时候都更注重省钱，他们纷纷涌向GEICO。2009年1月，我们创下了保单持有人增长的月度纪录——而且大幅领先。这个纪录将恰好保持28天：在我们截稿时，2月份的增长显然会更胜一筹。
除此之外，我们在相关险种中也取得了进展。去年，我们的摩托车保单增加了23.4%，市场份额从约6%提高到7%以上。我们的房车和全地形车业务虽然基数较小，但也在快速增长。最后，我们最近开始承保商用车，这是一个潜力巨大的市场。
GEICO如今为数百万美国人省钱。请访问GEICO.com或致电1-800-847-7536，看看我们是否也能为您省钱。
通用再保险（General Re），我们的大型国际再保险公司，在2008年也表现出色。早些时候，该公司曾面临严重问题（1998年底我们收购时我完全未能察觉）。到2001年，Joe Brandon接任CEO，搭档Tad Montross时，通用再保险的文化进一步恶化，在承销、准备金和费用方面丧失了纪律。Joe和Tad接手后，这些问题得到了果断而成功的解决。如今通用再保险已重拾光彩。去年春天Joe卸任，Tad成为CEO。查理和我感谢Joe力挽狂澜，并确信在Tad的领导下，通用再保险的未来掌握在最优秀的人手中。
再保险业务经营的是长期承诺，有时长达五十年甚至更久。过去这一年再次教会客户一个重要原则：承诺的价值取决于做出承诺的人或机构。这正是通用再保险（General Re）的强项——它是唯一一家由AAA级公司背书的再保险公司。本·富兰克林曾说过：“空袋子很难立得直。”通用再保险的客户大可放心。
我们的第三大保险业务是阿吉特·贾因（Ajit Jain）领导的再保险部门，总部设在斯坦福德，仅有31名员工。这可能是全球最非凡的业务之一，难以描述，却令人赞叹。
阿吉特的业务每年都不尽相同。它以交易规模巨大、执行速度惊人以及愿意承保其他公司挠头的保单而著称。一旦有巨大且不同寻常的风险需要投保，几乎肯定会找上阿吉特。
阿吉特在1986年加入伯克希尔。很快我就意识到，我们得到了一位非凡的天才。于是我做了合乎逻辑的事：给他的父母写信到新德里，问他们家里还有没有另一个像他这样的孩子。当然，写信之前我就知道答案——世界上没有第二个阿吉特。
我们那些规模较小的保险公司，在各自领域与“三巨头”同样出色，定期以负成本为我们提供宝贵的浮存金。我们在下面的“其他主要保险业务”中汇总了它们的业绩。限于篇幅，我们不逐一讨论这些保险公司。但请放心，查理和我对每一家的贡献都深表感激。
以下是支撑我们保险业务的四条腿的成绩记录。承销利润表明，这四条腿在2008年为零成本向伯克希尔提供了资金，和2007年一样。而在这两年里，我们的承销盈利能力都远高于行业水平。当然，我们自己也会偶尔遇到保险业绩糟糕的年份。但总体而言，我预计我们能够实现平均的承销利润。如果这样，我们将在未来无限期内持续使用大额免费资金。
| 承销利润 | 年末浮存金 | |||
| 保险业务 | （单位：百万美元） | |||
| 2008 | 2007 | 2008 | 2007 | |
| 通用再保险 | $342 | $555 | $21,074 | $23,009 |
| 伯克希尔再保险 | 1,324 | 1,427 | 24,221 | 23,692 |
| 盖可保险 | 916 | 1,113 | 8,454 | 7,768 |
| 其他主要 | 210 | 279 | 4,739 | 4,229 |
| $2,792 | $3,374 | $58,488 | $58,698 | |
制造、服务与零售业务
我们在伯克希尔这部分的活动覆盖了方方面面。不过，我们先来看看整个集团的简要资产负债表和利润表。
资产负债表 2008年12月31日（单位：百万美元）
| 资产 | 负债与权益 应付票据 | $2,212 | |
| 现金及现金等价物 | $2,497 | ||
| 应收账款项及票据 | 5,047 | 其他流动负债 | 8,087 |
| 存货 | 7,500 | 流动负债合计 | 10,299 |
| 其他流动资产 | 752 | ||
| 流动资产合计 | 15,796 | ||
| 商誉及其他无形资产 | 16,515 | 递延税项 | 2,786 |
| 固定资产 | 16,338 | 长期债务及其他负债 | 6,033 |
| 其他资产 | 1,248 | 权益 | 30,779 |
| $49,897 | $49,897 |
利润表（单位：百万美元）
| 2008 | 2007 | 2006 | |
| 营业收入 | 660.99亿美元 | 591.00亿美元 | 526.60亿美元 |
| 经营费用（含折旧：2008年12.80亿美元，2007年9.55亿美元，2006年8.23亿美元） | 619.37亿美元 | 550.26亿美元 | 490.02亿美元 |
| 利息支出 | 1.39亿美元 | 1.27亿美元 | 1.32亿美元 |
| 税前利润 | 40.23亿美元* | 39.47亿美元* | 35.26亿美元* |
| 所得税及少数股东权益 | 17.40亿美元 | 15.94亿美元 | 13.95亿美元 |
| 净利润 | 22.83亿美元 | 23.53亿美元 | 21.31亿美元 |
*不含购买法会计调整。
这群五花八门的公司，产品从棒棒糖到房车无所不有，去年平均有形净资产收益率达到了令人瞩目的17.9%。同样值得关注的是，这些业务在实现这一回报时只使用了极少的财务杠杆。显然，我们拥有一些非常出色的企业。不过，其中很多是我们以远高于净资产的价格买入的——这一点从资产负债表上的商誉项目可以看出——而这将我们的平均账面收益率拉低到了8.1%。
尽管全年业绩令人满意，但该组中许多业务去年第四季度的盈利急转直下。2009年的前景看起来更糟。即便如此，即使在当前条件下，该组仍拥有强大的盈利能力，并将继续向母公司输送大量现金。总体而言，这些公司在去年改善了竞争地位，部分原因是我们的财务实力让我们能够进行有利的补强型收购。相比之下，许多竞争对手要么在勉强维持，要么在沉没。
其中最值得关注的收购是伊斯卡（Iscar）在11月底买下了东芝泰珂洛（Tungaloy），一家日本领先的小型工具生产商。查理和我至今仍带着惊叹——以及感激！——看着伊斯卡管理层的成就。在我们收购一家公司时，能得到Eitan Wertheimer、Jacob Harpaz或Danny Goldman这样的管理者之一就是福气。一下得到三位，就像赢得了三冠王（Triple Crown）。自我们收购以来，伊斯卡的增长超出了我们的预期——原本就很高——而泰珂洛的加入将把业绩推向更高水平。
米泰克（MiTek）、本杰明摩尔（Benjamin Moore）、阿克米砖业（Acme Brick）、福瑞斯特河（Forest River）、玛蒙（Marmon）和CTB也在年内进行了一次或多次收购。CTB在全球农业设备领域运营，自我们2002年收购以来，已陆续收购了六家小公司。当时我们花了1.4亿美元。去年它的税前利润是8900万美元。其CEO Vic Mancinelli在我们到来之前就遵循了类似伯克希尔的经营原则。他专注于基本功，日复一日地把小事做对，从不偏离航向。十年后，Vic将运营一家规模大得多的公司，更重要的是，将用投入资本赚取丰厚的回报。
金融与金融产品
我会在这里多写一些关于克莱顿家园（Clayton Homes）抵押贷款业务的情况，跳过本部分末尾表格中总结的那些金融评论。我这样做，是因为克莱顿近期的经验可能对住房和抵押贷款方面的公共政策辩论有用。但先交代一点背景。
克莱顿是活动房屋（manufactured home）行业最大的公司，去年交付了27,499套，约占行业总量81,889套的34%。2009年我们的份额可能还会增长，部分原因是行业内其他大部分公司正深陷困境。全行业来看，自1998年达到峰值372,843套以来，销量一直在稳步下滑。
当时，行业内许多公司采用的销售手段极其恶劣。后来我在描述那段时期时，称其为“本不该借钱的人，由本不该放贷的人提供融资”。
首先，首付比例严重不足的问题常常被忽视。有时还伴随着弄虚作假。（“那只猫看起来确实值2000美元，”贷款销售员说，如果贷款获批，他能拿到3000美元佣金。）与此同时，借款人签署了根本无法承受的月供协议，因为他们反正也没什么好损失的。由此产生的抵押贷款通常被打包（“证券化”），由华尔街公司出售给不知情的投资者。这条愚蠢链条注定以惨烈结局收场——事实也正是如此。
需要强调的是，克莱顿在整个时期都遵循着远为审慎的放贷做法。事实上，任何购买由它发起并证券化的抵押贷款的投资者，都没有损失过一分钱本金或利息。但克莱顿是个例外；整个行业的损失是惊人的。而这场后遗症至今仍在延续。
1997年至2000年的这场闹剧本该成为煤矿里的金丝雀，为规模大得多的常规住宅市场敲响警钟。但投资者、政府和评级机构从这次活动房屋灾难中什么教训也没学到。相反，如同那场灾难的诡异重演，2004年至2007年间，同样的错误在常规住宅市场上再次上演：贷款机构乐意发放借款人靠收入无法偿还的贷款，借款人也同样乐意签约承诺偿还这些月供。双方都指望“房价上涨”来让这种原本不可能的安排变得可行。这简直就是斯嘉丽·奥哈拉的翻版：“我明天再想。”这种行为带来的后果如今正在我们经济的每个角落回响。
然而，克莱顿的198,888名借款人在整个房市崩盘期间一直正常还款，没有给我们带来任何意外损失。这并非因为这些借款人信用特别良好——FICO评分（一种标准信用风险衡量指标）证明了这一点。他们的中位FICO评分为644，而全国中位数为723，其中约35%低于620——这个分数段通常被定义为“次级”。按FICO评分衡量，许多由常规住宅组成的灾难性抵押贷款池中的借款人信用状况要好得多。
然而，到年底，我们发起的贷款逾期率为3.6%，仅比2006年的2.9%和2004年的2.9%略有上升（除了我们发起的贷款，我们还从其他金融机构购买了各种类型的组合贷款包）。克莱顿在2008年的止赎率为3.0%（占发起贷款比例），而2006年为3.8%，2004年为5.3%。
为什么我们的借款人——通常是收入微薄、信用评分远非优秀的群体——表现如此出色？答案很简单，直接回到了贷款101的基础原理。我们的借款人在申请贷款时，只是将全部月供与他们实际（而非期望）的收入进行比较，然后判断自己能否承受这一负担。简单来说，他们办理抵押贷款时是打算还清贷款的，无论房价走势如何。
同样重要的是，我们的借款人没有做什么。他们没有指望通过再融资来偿还贷款。他们没有签署那些重置后远超其收入的“诱惑利率”。他们也没有假设如果月供变得难以承受，自己总可以卖掉房屋获利。吉米·斯图尔特一定会喜欢这些人。
当然，我们的借款人中也会有一些遇到麻烦。他们通常只有很少的积蓄来渡过难关（如果逆境来临）。逾期或止赎的主要原因是失业，但死亡、离婚和医疗费用也会引发问题。如果失业率上升——2009年肯定会如此——克莱顿的更多借款人将陷入困境，我们将面临更大但仍可控的损失。但我们的问题不会受到房价走势的太大影响。
关于当前住房危机的评论常常忽略一个关键事实：大多数止赎并非因为房屋价值低于贷款（即所谓的“负资产”贷款），而是因为借款人无法支付他们当初同意承担的月供。那些支付了相当比例首付——来自储蓄而非其他借款——的房主，极少仅仅因为房屋当前价值低于贷款而放弃自住房。他们只有在无力支付月供时才会离开。
住房所有权是一件美好的事情。我和我的家人已经在现在的房子里住了50年，还将继续住下去。但购房的首要动机应该是居住的享受和实用性，而非盈利或再融资的可能性。而且，购买的房屋应当与购房者的收入相匹配。
当前的房地产灾难应当让购房者、贷款机构、经纪人和政府吸取一些简单的教训，以确保未来的稳定。购房应当涉及一个实打实的、至少10%的首付，以及借款人收入能够轻松承受的月供。而且，收入应当经过仔细核实。
让人们拥有住房虽然是一个理想的目标，但不应该成为我们国家的首要任务。让他们留在自己的房子里，才应该是我们的追求。
Clayton的贷款业务虽然并未因其借款人的表现而受损，但仍受到信贷危机中一个因素的威胁。那些能够获得某种政府担保的资金提供方——拥有FDIC（联邦存款保险公司）承保存款的银行、发行商业票据且现在由美联储支持的大型实体，以及采用有创意方法（或游说技巧）挤进政府保护伞下的其他机构——它们的资金成本极低。相反，像伯克希尔这样高评级的公司，其借款成本相对于国债利率却处于历史高位。此外，政府担保的借款人资金充裕，而其他借款人，无论其信誉多么良好，资金往往稀缺。
这种前所未有的资金成本“利差”使得任何不享受政府担保资金的贷款机构都无法与那些享有优惠地位的机构竞争。政府正在决定谁是“有产者”谁是“无产者”。这就是为什么公司纷纷争相转型为银行控股公司，而这条路对伯克希尔来说行不通。
尽管伯克希尔的信用纯净无瑕——我们是全美仅有的七家AAA级公司之一——但我们目前的借款成本却远高于那些资产负债表摇摇欲坠但有政府背书的竞争对手。眼下，当一个有政府担保的金融病号，比当一个没有担保的直布罗陀（坚不可摧之地）要好得多。
当今的极端状况可能很快就会结束。最坏的情况下，我们相信至少能找到部分解决方案，使我们能够继续开展Clayton的大部分贷款业务。然而，如果我们被迫长期与受政府偏袒的贷款机构竞争，Clayton的利润肯定会受损。
| 税前收益（单位：百万美元） | ||
| 2008年 | 2007年 | |
| 净投资收益 | $330 | $272 |
| 人寿与年金业务 | 23 | (60) |
| 租赁业务 | 87 | 111 |
| 活动房屋融资（Clayton） | 206 | 526 |
| 其他* | 141 | 157 |
| 扣除投资及衍生品损益前的收益 | $787 | $1,006 |
*包括2008年的9,200万美元和2007年的8,500万美元，这是伯克希尔因使用其信用而向Clayton收取的费用。
免税债券保险
2008年初，我们启动了伯克希尔·哈撒韦担保公司（"BHAC"），作为州、市及其他地方实体发行的免税债券的担保商。BHAC为这些债券的发行方提供担保，既包括债券向公众发售时（一级交易），也包括之后债券已由投资者持有之时（二级交易）。
到2007年底，五六家曾是这一行业主要参与者的公司都陷入了大麻烦。问题的根源很早以前就被梅·韦斯特一语道破："我曾是白雪公主，但我堕落了。"
这些单一险种保险商（即债券担保商）起初只担保低风险的免税债券。但多年来，这项业务的竞争加剧，费率下降。面对盈利停滞或下滑的前景，单一险种保险商的管理者转而涉足风险越来越高的业务。其中一些涉及住房抵押贷款债券的担保。当房价暴跌时，单一险种保险行业迅速变成了一个烂摊子。
年初，伯克希尔提出接管三大单一险种保险商账面上的所有免税债券保险。这些公司当时都面临生死攸关的麻烦（尽管它们自己否认）。我们原本打算以1.5%的费率接替约8220亿美元债券的担保。如果我们的报价被接受，我们将需要承担这些债券投资者遭受的任何损失——有些情况下担保期限长达40年。这并非一个轻率的提议：出于我们稍后会谈到的一些原因，这对伯克希尔来说涉及巨大风险。
这些单一险种保险商断然拒绝了我们的报价，有些还附上了一两句侮辱。不过，最终这些拒绝对我们来说是大好事，因为很明显我严重低估了我们的报价。
此后，我们在二级市场承保了约156亿美元的保险。关键点来了：其中约77%的业务是已经由上述三大单一险种保险商担保过的债券。在这些合约中，只有当原担保人因财务原因无法履行赔付时，我们才需要支付违约损失。
我们承保这种"第二顺位赔付"保险的平均费率为3.3%。没错；作为第二顺位赔付方，我们获得的报酬远高于之前要求的1.5%第一顺位赔付费率。在一个极端案例中，我们甚至同意成为第四顺位赔付方，但仍然收取了约为第一顺位赔付方（单一险种保险商）所收1%保费三倍的费用。换句话说，其他三家单一险种保险商必须先破产，我们才需要掏钱赔付。
我们最初批量报价的那三家单一险种保险商中，有两家后来筹集了大量资本。这当然直接对我们有利，因为至少短期内，这两家单一险种保险商倒闭导致我们因第二顺位赔付保险而支付索赔的可能性降低了。除了我们的二级业务保单组合外，我们还以9600万美元的保费承保了37亿美元的一级业务。在一级业务中，当然，如果发行方遇到麻烦，我们是第一顺位赔付方。
我们承保保险背后的资本倍数远高于任何其他单一险种保险商。因此，我们的担保比它们的担保有价值得多。这解释了为什么许多经验丰富的投资者即使已经由其他单一险种保险商担保，仍然从我们这里购买了第二顺位赔付保险。BHAC不仅成为了优先选择的担保商，而且在许多情况下成为了债券持有人唯一接受的担保商。
尽管如此，我们对承保的业务仍然非常谨慎，认为这项保险最终能为我们盈利远非板上钉钉之事。原因很简单，尽管我从未看到任何金融分析师、评级机构或单一险种保险商CEO哪怕是稍微提及过这一点。
承保免税债券的费率极低，理由是历史上违约案例很少。但这一记录很大程度上反映了那些发行无担保债券的实体的经历。免税债券的保险在1971年之前并不存在，即使在那之后，大多数债券仍然未投保。
一个完全由保险覆盖的免税债券群体，其损失表现肯定与一组未投保但其他方面相似的债券有所不同，唯一的问题在于差异有多大。要理解原因，让我们回到1975年，当时纽约市濒临破产。那时，该市的债券——几乎全部未投保——大量由市内较富裕的居民以及纽约银行和其他机构持有。这些本地债券持有人迫切希望解决该市的财政问题。于是不久后，众多相关利益方的让步与合作促成了一个解决方案。所有人都清楚，如果没有这个方案，纽约市民和企业将从他们持有的债券中遭受广泛而严重的财务损失。
现在，想象一下该市的所有债券原本都由伯克希尔承保。类似的紧缩措施、增税、劳工让步等是否还会出现？当然不会。至少，伯克希尔会被要求“分担”所需的牺牲。而且，考虑到我们财力雄厚，所需的贡献肯定相当可观。
地方政府未来将面临比迄今更严峻的财政问题。我去年报告中谈到的养老金负债将是这些困境的一大成因。许多城市和州在检查2008年底的资金状况时肯定感到惊恐。资产与当前负债的现实精算估值之间的差距简直大得惊人。
当面临巨额收入缺口时，所有债券都已投保的社区，比那些由当地银行和居民持有未投保债券的社区，更倾向于制定对债券持有人不那么有利的“解决方案”。免税债券领域的损失一旦出现，也很可能在发行人之间高度相关。如果少数几个社区赖账成功，其他社区效仿的可能性就会增加。哪位市长或市议会会选择通过大幅增税来让本地市民承受痛苦，而不是让远方的债券保险公司承受痛苦？
因此，承保免税债券如今看起来是一项危险的业务——实际上，它与承保自然灾害有相似之处。在这两种情况下，一连串没有损失的年份之后，可能会跟着一次灾难性的经历，足以抹去之前的所有利润。因此，我们将尽力谨慎开展这项业务，避开其他单一险种保险商通常承保的许多类别的债券。
将从未投保的债券群体的损失经历投射到看似相似但许多债券已投保的群体中所涉及的这类谬误，在金融的其他领域也会出现。各种“回测”模型很容易受到这种错误的影响。然而，它们常常被金融市场吹捧为未来行动的指南。（如果仅仅查阅过去的财务数据就能告诉你未来如何，《福布斯》400富豪榜上就该全是图书管理员了。）
确实，抵押贷款相关证券令人瞠目的损失，很大程度上是因为销售员、评级机构和投资者使用了有缺陷的、基于历史数据的模型。这些参与者只看房屋价格温和上涨、投机行为微不足道时期的损失经验，然后将其作为评估未来损失的标尺。他们乐呵呵地忽略了这样一个事实：房价此前已暴涨，贷款操作不断恶化，许多买家选择了他们根本负担不起的房子。简而言之，过去的宇宙和当前的宇宙特征截然不同。但贷款机构、政府和媒体基本没能认清这一至关重要的事实。
投资者应对基于历史数据的模型持怀疑态度。这些模型由一群听起来书呆子气的"祭司"用贝塔、伽马、西格玛之类晦涩术语搭建，看起来往往令人印象深刻。然而，投资者常常忘记审视这些符号背后的假设。我们的建议是：警惕那些背着公式来的怪才。
* * * * * * * * * * * *
最后补充一点关于BHAC的说明：你可能好奇，谁来运营这个业务？虽然我帮忙制定政策，但所有重担都落在Ajit和他的团队身上。当然，他们每年已经创造了240亿美元的浮存金以及数亿美元的承销利润。但这能让一个31人的团队忙到哪里去？查理和我认为，他们早该开始全天工作了。
投资
由于会计准则，我们将今年的普通股大额持仓分为两类。下表列出了第一类，即按市值计入资产负债表且年末价值超过5亿美元的投资。
| 持股数量 | 公司 | 持股比例 | 2008年12月31日 | |
| 成本* | 市值 | |||
| （单位：百万美元） | ||||
| 151,610,700 | 美国运通公司 (American Express Company) | 13.1 | $ 1,287 | $ 2,812 |
| 200,000,000 | 可口可乐公司 (The Coca-Cola Company) | 8.6 | 1,299 | 9,054 |
| 84,896,273 | 康菲石油公司 (ConocoPhillips) | 5.7 | 7,008 | 4,398 |
| 30,009,591 | 强生公司 (Johnson & Johnson) | 1.1 | 1,847 | 1,795 |
| 130,272,500 | 卡夫食品公司 (Kraft Foods Inc.) | 8.9 | 4,330 | 3,498 |
| 3,947,554 | 浦项制铁 (POSCO) | 5.2 | 768 | 1,191 |
| 91,941,010 | 宝洁公司 (The Procter & Gamble Company) | 3.1 | 643 | 5,684 |
| 22,111,966 | 赛诺菲-安万特 (Sanofi-Aventis) | 1.7 | 1,827 | 1,404 |
| 11,262,000 | 瑞士再保险 (Swiss Re) | 3.2 | 773 | 530 |
| 227,307,000 | 乐购公司 (Tesco plc) | 2.9 | 1,326 | 1,193 |
| 75,145,426 | 美国合众银行 (U.S. Bancorp) | 4.3 | 2,337 | 1,879 |
| 19,944,300 | 沃尔玛公司 (Wal-Mart Stores, Inc.) | 0.5 | 942 | 1,118 |
| 1,727,765 | 华盛顿邮报公司 (The Washington Post Company) | 18.4 | 11 | 674 |
| 304,392,068 | 富国银行 (Wells Fargo & Company) | 7.2 | 6,702 | 8,973 |
| 其他 | 6,035 | 4,870 | ||
| 按市值计价的普通股合计 | $37,135 | $49,073 | ||
*这是我们实际买入价，也是我们的计税基础；在某些情况下，由于要求进行的增记或减记，美国通用会计准则的"成本"有所不同。
此外，我们还持有多只股票，包括穆迪（Moody's）和伯灵顿北方圣塔菲（Burlington Northern Santa Fe），目前按“权益价值”入账——即我们的成本加上购买后留存收益，再减去若这些收益以股息形式支付给我们时需缴纳的税款。这种会计处理方法通常在被投资公司持股达到20%时需要采用。
多年前我们买入了穆迪15%的股份，此后未再增持一股。不过，穆迪回购了自家股票，到2008年底，这些回购使其流通股减少，我们的持股比例升至20%以上。伯灵顿北方圣塔菲也回购了股份，但我们持股增至20%主要是因为我们持续买入该股票。
除非事实或规则发生变化，无论这些持股的市场价格如何，你们都会在资产负债表中看到它们按“权益会计”价值列示。你们还会看到我们应占的收益（扣除相关税款）定期计入我们的季度和年度收益。
我在本报告前文曾提到，去年我犯了一个重大的“作为”错误（可能不止一个，但这个特别扎眼）。没有查理或任何人的敦促，我在油气价格接近峰值时买入了一大笔康菲石油（ConocoPhillips）的股票。我完全没有预料到2008年下半年能源价格会暴跌。我仍然认为，未来石油价格远高于当前40-50美元的可能性很大。但到目前为止，我错得离谱。即便油价将来上涨，我买入的糟糕时机也已经让伯克希尔损失了数十亿美元。
我还犯了其他一些已经显而易见的错误。它们规模较小，但遗憾的是也不算很小。2008年，我花了2.44亿美元买入两家在我看来很便宜的爱尔兰银行的股票。年底我们按市价将这些持仓减记为2700万美元，损失89%。自那以后，这两只股票进一步下跌。网球界会把我的失误称为“非受迫性失误”。
在积极方面，去年我们总计花了145亿美元买入箭牌（Wrigley）、高盛（Goldman Sachs）和通用电气（General Electric）发行的固定收益证券。我们非常喜欢这些承诺，它们提供了很高的当前收益率，仅凭这一点就让这些投资足够令人满意。但在这些买入中，我们还额外获得了一笔可观的股权参与。为了为这些大额买入提供资金，我不得不卖掉了部分我本希望持有的股票（主要是强生、宝洁和康菲石油）。不过，我已向你们、评级机构和我自己承诺——始终让伯克希尔持有远超充裕的现金。我们绝不想指望陌生人的善意来满足明天的义务。当被迫做出选择时，我绝不会为了获取额外利润而牺牲哪怕一夜的安眠。
投资界已从低估风险转向高估风险。这一变化并不轻微；钟摆划过了一道非同寻常的弧线。几年前，即便无风险国债提供接近零的短期收益率、长期收益率也少得可怜，而优质市政债券或公司债券却能有今天这样的收益率，这似乎是不可想象的。当本十年的金融史被书写时，它一定会谈到1990年代末的互联网泡沫和2000年代初的房地产泡沫。但2008年底的美国国债泡沫，或许也同样非同寻常。
在当前收益率下长期持有现金等价物或长期政府债券，几乎肯定是一项糟糕的策略。当然，随着金融动荡加剧，遵循这一策略的持有者感到越来越舒服——事实上，几乎可以说是自鸣得意。当他们听到评论员宣称“现金为王”时，就觉得自己的判断得到了确认，尽管那些美妙的现金几乎赚不到什么收益，而且随着时间的推移，其购买力肯定会被侵蚀。
然而，获得认可并非投资的目标。事实上，认可往往适得其反，因为它会让大脑麻痹，使人对新的事实或对之前形成的结论的重新审视变得迟钝。警惕那种引来掌声的投资举动；真正重大的动作通常只会招来哈欠。
衍生品
衍生品是危险的。它们极大地增加了我们金融体系中的杠杆和风险。它们使投资者几乎不可能理解和分析我们最大的商业银行和投资银行。它们使得房利美（Fannie Mae）和房地美（Freddie Mac）多年来得以大肆虚报盈利。房利美和房地美的账目如此难以解读，以至于其联邦监管机构OFHEO——旗下100多名员工唯一的职责就是监管这两家机构——完全错过了它们做假账的行径。
事实上，近期的事件表明，某些大型金融机构的知名CEO（或前CEO）完全无法管理一家拥有庞大而复杂的衍生品账册的企业。把查理和我也算在这个倒霉的群体里吧：当伯克希尔在1998年收购通用再保险（General Re）时，我们知道自己无法搞清它那涉及23,218份衍生品合约、与884个交易对手（其中许多我们从未听说过）的账册。所以我们决定关停这一业务。尽管我们在退出时并无压力，且市场环境良好，但我们还是花了五年时间，损失超过4亿美元，才基本完成这项任务。离开时，我们对这项业务的感受正如一首乡村歌曲中的一句歌词：“在我如此了解你之前，我更喜欢你。”
改进“透明度”——政客、评论员和金融监管者用以避免未来灾难的最爱药方——无法解决衍生品带来的问题。我不知道有哪种报告机制能够接近描述和衡量一个庞大而复杂的衍生品投资组合中的风险。审计师无法审计这些合约，监管者无法监管它们。当我阅读那些深陷这些工具的公司提交的10-K报告中的“披露”页时，我最终只知道我不知道他们的投资组合里发生了什么（然后我就得去找点阿司匹林）。
为了研究监管有效性的案例，让我们更仔细地看看房利美和房地美的例子。这两家巨型机构由国会创建，国会保留了对它们的控制权，规定它们能做什么、不能做什么。为了协助监督，国会于1992年设立了OFHEO，责令其确保这两位巨头行为规矩。通过这一举措，房利美和房地美成了我所知监管最严密的公司——按投入监管的人力来衡量。
2003年6月15日，OFHEO（其年度报告可在互联网上获取）将其2002年的报告提交给国会——具体来说是提交给参众两院的四位负责人，其中正是萨班斯（Sarbanes）和奥克斯利（Oxley）两位先生。这份127页的报告包含一条自我祝贺的封面标语：“庆祝卓越十周年。”这封转呈信和报告是在房地美CEO和CFO不光彩地辞职、COO被解雇九天之后送出的。信中丝毫没有提及他们的离职，尽管报告一如既往地总结道：“两家企业的财务状况良好，管理完善。”
事实上，这两家企业在相当长一段时间内都从事着大规模会计造假。最终，在2006年，OFHEO（联邦住房企业监督办公室）发布了一份340页的措辞严厉的报告，历数房利美的种种罪状，但这份报告或多或少地把责任推给了所有相关方——你猜对了——唯独没有国会和OFHEO自己。
贝尔斯登的崩溃凸显了衍生品交易中嵌入的交易对手风险问题，这是我在伯克希尔2002年年报中首次提到的一颗定时炸弹。2008年4月3日，时任纽约联储主席蒂姆·盖特纳（Tim Geithner）在解释救助必要性时表示：“贝尔斯登的衍生品交易对手突然发现，他们为保护自己免受金融风险而设立的重要金融头寸已不再有效，这将引发市场的进一步严重混乱。这将促使贝尔斯登的交易对手急于清算他们为这些头寸持有的抵押品，并试图在已经非常脆弱的市场中复制这些头寸。”这是美联储式的官话，意思是“我们介入是为了避免一场规模不可预测的金融连锁反应”。在我看来，美联储这么做是对的。
一笔普通的股票或债券交易，几天内就能完成，一方拿到现金，另一方拿到证券。因此，交易对手风险会迅速消失，这意味着信用问题无法累积。这种快速的结算流程是保持市场完整性的关键。事实上，这也是纽交所和纳斯达克在1995年将结算周期从五天缩短到三天的原因。
相比之下，衍生品合约通常要经过数年甚至数十年才能结算，交易对手之间会积累起巨额的相互债权。“纸面”资产和负债——往往难以量化——成为财务报表的重要组成部分，尽管这些项目在多年内都不会得到验证。此外，大型金融机构之间会形成一张可怕的相互依赖网。数十亿的应收和应付款项集中在少数几家大型交易商手中，而这些交易商很可能在其他方面也高度杠杆化。试图躲避麻烦的参与者，面临的问题和试图躲避性病的人一样：不仅取决于你和谁睡觉，还取决于你的睡伴正和谁睡觉。
继续用这个比喻，"睡一圈"对大型衍生品交易商来说其实可能是有用的，因为这能确保它们在遇到麻烦时得到政府的援助。换句话说，只有那些问题足以传染整个街区的公司——我就不点名了——才会确定无疑地成为国家的关注对象（我遗憾地说，这个结果本身是合理的）。从这个令人恼火的现实中，衍生出了那些热衷于堆积杠杆、经营庞大且深不可测的衍生品账簿的雄心勃勃的CEO们的《公司生存第一法则》：光是能力平庸还不够；非得捅出惊天动地的大篓子不可。
考虑到我所描述的毁灭性后果，你可能会奇怪为什么伯克希尔还持有251份衍生品合约（除了中美能源用于运营目的以及通用再保险剩余的那几份之外）。答案很简单：我相信我们持有的每一份合约在最初订立时都被错误定价了，有时错得离谱。这些头寸是我发起并监控的，这一职责符合我的信念：任何大型金融机构的CEO也必须担任首席风险官。如果我们在衍生品上亏了钱，那将是我的责任。
我们的衍生品交易要求对手方在合同启动时向我们付款。因此，伯克希尔始终持有这些资金，这意味着我们无需承担重大对手方风险。截至年底，支付给我们的款项减去我们已支付的亏损——即我们的衍生品“浮存金”，可以这么说——总计81亿美元。这种浮存金类似于保险浮存金：如果我们在一笔基础交易上实现盈亏平衡，我们就能长期享受免费资金的使用。尽管这远非确定之事，但我们的预期是，我们将实现优于盈亏平衡的结果，而我们从这些资金中赚取的可观投资收益将是锦上添花。
只有一小部分合同要求我们在市场走势对我们不利时提供抵押品。即使在去年第四季度存在的混乱条件下，我们也只需提供不到证券投资组合1%的抵押品。（当我们提供抵押品时，我们会将其存入第三方，同时保留所存证券的投资收益。）在2002年的年报中，我们曾警告过抵押品要求造成的致命威胁，去年我们在多家金融机构（同样，还有星座能源，在MidAmerican实施救援前的几小时内它差点破产）亲眼目睹了现实案例。
我们的合同分为四大类。对于不热衷金融工具的朋友，我先道个歉，接下来我将极其详细地解释它们。
- 我们适度增加了去年年报中描述的“股票看跌期权”组合。部分合同在15年后到期，其他在20年后。如果在到期日，看跌期权所挂钩的参考指数低于合同初始时的水平，我们就必须向对手方支付款项。任何一方都不能选择提前结算；只有最后一天的价格才算数。
举例来说，我们可能在标普500指数为1300点时卖出10亿美元、15年期的看跌期权合约。如果在到期日指数为1170点——下跌10%——我们将支付1亿美元。如果高于1300点，我们分文不付。要让我们损失10亿美元，指数必须跌至零。与此同时，卖出看跌期权将为我们带来一笔权利金——可能在1亿至1.5亿美元之间——我们可以自由投资。
我们的看跌期权合约总计371亿美元（按当前汇率），分布在四大主要指数：美国的标普500、英国的富时100、欧洲的欧洲斯托克50和日本的日经225。我们的首份合约于2019年9月9日到期，最后一份于2028年1月24日到期。我们已收取49亿美元的权利金，并已将这些资金进行投资。与此同时，我们尚未支付任何款项，因为所有到期日都还很遥远。尽管如此，我们使用布莱克-斯科尔斯估值方法记录了100亿美元的年末负债，该金额将在每个报告日变化。这两个财务项目——这100亿美元的估计亏损减去我们已收取的49亿美元权利金——意味着截至目前我们从这些合约中报告了51亿美元的按市值计价亏损。
我们支持按市值计价会计。然而，我稍后将解释，为什么我认为布莱克-斯科尔斯公式——尽管它是确定期权美元负债的标准方法——在估值长期期权时会产生奇怪的结果。
关于我们的合约，有一点有时不被理解：要让我们损失全部已承担风险的371亿美元，需要四只指数中的所有股票在其各自的终止日全部跌至零。但假如——举个例子——所有指数从每份合约起始日价值下跌25%，且汇率保持不变，我们将在2019年至2028年间支付约90亿美元。而从合约起始到那些日期之间，我们一直持有49亿美元的保费并赚取投资收益。
- 我们在去年报告中描述的第二类衍生品，涉及当多种高收益指数中包含的公司发生信用损失时我们需要支付的合约。我们的标准合约为期五年，覆盖100家公司。去年我们适度扩大了这类头寸。但当然，2007年底账面上的合约又向到期日迈进了一年。总体而言，我们的合约目前平均剩余期限为 (2 \frac{1}{3}) 年，第一份到期将于2009年9月20日发生，最后一份于2013年12月20日到期。
截至年底，我们从这些合约中已收到34亿美元保费，并支付了5.42亿美元的损失。按照市价会计原则，我们还为未来损失计提了负债，年底总额为30亿美元。因此，到那时我们记录的亏损约为1亿美元，来自我们已支付和预计未来损失总额35亿美元减去收到的34亿美元保费。但在我们的季度报告中，损益金额大幅波动，从2008年第二季度的盈利3.27亿美元到2008年第四季度的亏损6.93亿美元。
令人意外的是，去年我们仅为这些合约支付了9700万美元，远低于我当初决定签署它们时使用的估计值。但今年，随着大型破产案急剧增多，损失已加速上升。在去年的信中，我告诉各位我预计这些合约在到期时会显示盈利。如今，随着经济衰退迅速加深，最终亏损的可能性增加了。无论结果如何，我会随时向各位汇报。
- 2008年我们开始针对个别公司开出“信用违约互换”。这其实就是信用保险，类似于我们在BHAC开出的保单，只不过这里我们承担的是企业信用风险，而非免税发行人信用风险。
假如说，XYZ公司破产了，而我们开出了一份1亿美元的合约，那么我们有义务支付一笔反映XYZ债务同等金额减值程度的款项（例如，如果该公司债券在违约后以30美分交易，我们将欠付7000万美元）。对于典型的合约，我们每季度收取保费，持续五年，此后保险到期。
截至年底，我们已对42家公司开出40亿美元的合约，每年收取9300万美元保费。这是我们从事的唯一具有对手方风险的衍生品业务；从我们这里购买合约的一方必须在五年内有能力支付每季度应付的保费。我们不太可能大幅扩展这项业务，因为大多数此类保障的买家现在要求卖方提供抵押品，而我们不会接受这样的安排。
- 应客户要求，我们开出一些与BHAC承保单类似的免税债券保险合同，但这些合同以衍生品形式构建。两者之间唯一有意义的区别是，衍生品需按市价会计原则记账，而BHAC则需采用标准权责发生制会计。
但这种差异有时会带来奇怪的结果。我们通过这些衍生品覆盖的（实际上是“承保”的）债券，大多是各州的一般责任债券，我们对其前景感到踏实。然而，在年末，按市值计价的会计准则要求我们在这批衍生品合约上确认一笔6.31亿美元的亏损。假使我们在BHAC（伯克希尔·哈撒韦保险公司）以同样价格承保同一批债券，并使用保险公司要求的权责发生制会计，我们当年反而会录得小幅盈利。这两种不同的承保会计方法，最终会得到相同的会计结果——但在短期内，报告利润的差异可能相当大。
我们以前就告诉过你们，这些受按市值计价准则约束的衍生品合约，会导致我们报告的收益出现剧烈波动。这些起起伏伏既不会让查理和我开心，也不会让我们烦恼。实际上，“下挫”反而可能有好处，因为它给了我们以有利条件扩大头寸的机会。希望我对这些交易的这番解释，也能让你们抱持类似想法。
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布莱克-斯科尔斯公式在金融界几乎被奉为金科玉律，我们在为财务报表估值股票看跌期权时也用到了它。该公式的关键输入参数包括合约的期限和行权价，以及分析人员对波动率、利率和股息率的预期。
但如果把这个公式应用到超长的时间跨度上，它却会得出荒谬的结果。公平地说，布莱克和斯科尔斯本人几乎肯定清楚这一点。但他们那些狂热的追随者，很可能完全忽略了这两位当初首次推出该公式时附带的所有告诫。
检验一个理论时，把它推到极端往往很有用。那么我们来做个假设：我们卖出了一份期限100年、名义本金10亿美元、行权价为903点（2008年12月31日标普500指数的点位）的标普500看跌期权。使用我们对长期合约所采用的隐含波动率假设，再结合适当的利率和股息假设，我们会发现这份合约“合理”的布莱克-斯科尔斯期权费是250万美元。
要判断这笔期权费是否合理，我们需要评估100年后标普500指数是否可能低于今天。毫无疑问，届时美元的购买力将只是现在的一个零头（年通胀率仅2%的话，100年后100美元大约只值14美分）。所以这个因素会推高指数的名义值。但更重要的是，100年的留存收益将极大地增加指数中大多数公司的价值。在20世纪，道琼斯工业平均指数上涨了约175倍，主要就是因为留存收益的作用。
综合来看，我相信指数在一个世纪内下跌的概率远低于1%。但我们姑且就用这个数字，并进一步假设——如果真的下跌——最可能的跌幅是50%。在这些假设下，我们这份合约的损失数学期望为500万美元（10亿美元 × 1% × 50%）。
但如果我们事先拿到了理论上的250万美元期权费，我们只需要以年复合0.7%的利率进行投资，就能覆盖这个期望损失。超出这个回报率的部分都是利润。你愿意以0.7%的利率借100年的钱吗？
再来从最坏情况的角度看看我这个例子。请记住，如果我的假设正确，那么99%的时间里我们什么都不用赔。但即便是在剩下1%可能性中最糟糕的情况——即假设全额损失10亿美元——我们的借款成本也仅为6.2%。很明显，要么是我的假设太疯狂，要么是这个公式本身就不适用。
Black-Scholes模型在我这个极端案例中所确定的荒谬溢价，源于公式中包含了波动率这一变量，而波动率又取决于股票在过去若干天、若干月或若干年的价格波动幅度。这个指标在估算美国企业100年后的概率加权价值范围时，根本毫无意义。（试想，如果你有个躁郁症的邻居，每天给你报一遍他那块农地的价格，然后又用这些报价计算出的波动率作为关键参数，去预测一个世纪后这块农地的概率加权价值范围。）
尽管历史波动率在估值短期期权时是一个有用但不完全可靠的概念，但随着期权期限的延长，其效用会迅速衰减。依我看，Black-Scholes公式目前对我们长期看跌期权的估值，高估了我们的负债——尽管随着合约临近到期，这种高估会逐渐缩小。
即便如此，我们在估算财务报表中长期权益类看跌期权的负债时，仍会继续使用Black-Scholes。这个公式代表了市场共识，而我若提出任何替代方案，必定会引发极度怀疑。这完全可以理解：那些为奇异金融工具自行编造估值方法的CEO们，鲜少在稳健性上犯错。查理和我可不想加入那个乐观主义者俱乐部。
年会
今年的年会将在5月2日（星期六）举行。照例，Qwest中心早上7点开门，8:30播放一部新的伯克希尔影片。9:30我们直接进入问答环节（中间在Qwest的摊位处休息吃午餐），一直持续到下午3点。短暂休息后，查理和我在3:15召开年会。如果你决定在白天提问环节离开，请在查理发言时离场。
当然，离场的最佳理由就是去购物。我们会帮您做到这一点——年会场馆旁边有一个194,300平方英尺的大厅，里面摆满了伯克希尔子公司的产品。去年，到场的31,000位与会者都出了力，几乎每个摊位都创下了销售纪录。但你们还能做得更好。（温馨提醒：如果我发现销售额落后，我就锁住出口。）
今年，Clayton（克莱顿）将展示其新款i-house，使用了Shaw（肖氏）地板、Johns Manville（佳斯曼维尔）保温材料和MiTek（米泰克）紧固件。这座创新的"绿色"住宅配备太阳能电池板以及众多其他节能产品，堪称未来之宅。若选址在奥马哈这样的地区，电力和取暖费用预计每天仅需约1美元。买完i-house，你接下来应该看看旁边展示的Forest River（森林河）房车和浮筒船——让你的邻居羡慕去吧。
GEICO（政府雇员保险公司）将设立一个展位，由来自全国各地的多位顶级顾问坐镇，随时准备为您提供车险报价。在大多数情况下，GEICO能给您提供股东折扣（通常为8%）。在我们开展业务的50个司法管辖区中，有44个允许此项特惠。（补充一点：如果您符合其他折扣条件，例如针对特定团体的折扣，则此折扣不可叠加。）请带上您现有保险的详细信息，看看我们能否帮您省钱。我相信，在座至少有一半的人，我们都能省下一笔。
周六，在奥马哈机场，我们将像往常一样展示一系列NetJets（奈特杰）飞机供您参观。请到Qwest中心的NetJets展位了解如何参观这些飞机。坐大巴来奥马哈，开一架新飞机回去。再带上您在我们Quikut（奎库特）子公司展位买到的Ginsu（金苏）刀具——完全不用担心被搜身。
接下来，如果你还有余钱，不妨去逛逛"书虫"摊位，那里会销售约30种图书和DVD。对于那些知识渴求超过负重能力的人，现场还会提供邮寄服务。
最后，展区里将停放三辆引人注目的汽车，一辆来自过去，一辆来自未来。我们子公司TTI的首席执行官Paul Andrews会开来他那辆1935年的杜森伯格（Duesenberg），这辆车曾归福瑞斯特·玛氏（Forrest Mars Sr.）夫人所有，而她的子女及孙辈，正是我们在收购箭牌（Wrigley）时的合作伙伴。代表未来的则是一辆比亚迪（BYD）开发的新型插电式电动车——这家令人惊叹的中国公司，我们持有其10%的股份。
随此报告附上的股东委托书附件中，会说明如何获取参会凭证及其他活动入场券。至于飞机、酒店和租车预订，我们再次请美国运通（American Express，电话800-799-6634）为大家提供特别协助。负责此事的Carol Pedersen每年都做得极为出色，我在此向她致谢。酒店房间可能不好找，但跟Carol沟通，你一定能订到。
在内布拉斯加家具城（Nebraska Furniture Mart，位于72街与道奇街和太平洋街之间的77英亩地块上），我们将再次推出"伯克希尔周末"折扣价。12年前我们在NFM首次推出这项特别活动，"周末"期间的销售额已从1997年的530万美元增长至2008年创纪录的3330万美元。在那个周末的周六，我们还创下了单日销售720万美元的纪录。随便问问哪个零售商，看他们对此销量作何感想。
要享受伯克希尔折扣，你必须在4月30日（周四）至5月4日（周一）之间（含首尾两天）购物，并出示参会凭证。这一期间的特别定价甚至适用于几家知名制造商的产品，这些厂家通常有严格的不打折规定，但本着我们股东周末的精神，他们为你破了例。我们感谢他们的合作。NFM的营业时间为周一至周六上午10点至晚上9点，周日上午10点至下午6点。今年周六下午5点30分至8点，NFM将举办一场西部烧烤，欢迎各位光临。
在波仙珠宝（Borsheims），我们将再次举办两场股东专属活动。第一场是5月1日（周五）下午6点至10点的鸡尾酒招待会。第二场是主庆典，定于5月3日（周日）上午9点至下午4点举行。周六我们将营业至下午6点。
整个周末波仙珠宝都会人潮涌动。为方便您，股东优惠价将从4月27日（周一）持续到5月9日（周六）。在此期间，请出示您的参会凭证或能证明您是伯克希尔股东的对账单，以享受股东待遇。
周日在波仙珠宝外的购物中心，盲棋高手、两届美国国际象棋冠军Patrick Wolff将蒙眼同时迎战六位（睁眼的）挑战者。旁边，来自达拉斯的神奇魔术师Norman Beck会让围观者目瞪口呆。此外，世界顶尖桥牌大师Bob Hamman和Sharon Osberg将在周日下午与我们的股东切磋牌技。
Gorat's餐厅将于5月3日（周日）再次只为伯克希尔股东开放，供应时间从下午1点到晚上10点。去年，仅能容纳240人的Gorat's在股东周日那天供应了975份晚餐。三天总计供应了2448份餐食，其中包括702份T骨牛排——这是识货老饕的首选主菜。拜托各位别点鹅肝酱，别让我难堪。记住：当天要去Gorat's必须提前预订。预订请在4月1日（且不要在此之前）拨打402-551-3733。
我们将在周六下午4点再次为来自北美以外的股东举办招待会。每年我们的年会都会吸引来自全球各地的许多人，查理和我想确保我们亲自问候那些远道而来的股东。去年我们很高兴见到了来自数十个国家的700多位股东。任何来自美国或加拿大以外的股东都将获得特别凭证和参加此次活动的说明。
今年我们将对年会提问环节的处理方式进行重要调整。近年来，我们只收到了寥寥无几直接涉及伯克希尔及其业务的问题。去年几乎一个都没有。因此我们需要将讨论引导回伯克希尔的业务上。
与此相关的一个问题是，当早上7点大门打开时，会有一阵疯狂冲刺，由那些希望首先在12个提问麦克风前排队的人带头。这从安全角度不可取，我们也不认为短跑能力应该成为谁有权提问的决定因素。（78岁的我已经得出结论，脚上功夫被荒谬地高估了。）同样，新程序是可取的。
第一个变化是，来自报纸、杂志和电视等媒体的几位财经记者将参与问答环节，向查理和我提出股东通过电子邮件提交的问题。记者及其电子邮件地址如下：Fortune杂志的Carol Loomis，邮箱cloomis@fortunemail.com；CNBC的Becky Quick，邮箱BerkshireQuestions@cnbc.com；以及《纽约时报》的Andrew Ross Sorkin，邮箱arsorkin@nytimes.com。从提交的问题中，每位记者将选出他们认为最有趣和最重要的十几个问题。（在您的电子邮件中，如果希望问题被选中时提及您的名字，请告知记者。）
查理和我对即将被问到的问题一无所知。我们知道记者们会挑一些尖锐的问题，这正是我们喜欢的。
第二个变化是，我们将在早上8点15分在每个麦克风处进行抽签，供那些希望自己提问的股东参加。在年会上，我将交替进行记者提问和中签股东的提问。因此至少一半的问题——由专家组从您提交的问题中选出——将确定与伯克希尔相关。同时我们也将继续从听众那里得到一些好的——也许是娱乐性的——问题。
因此，加入我们的资本主义者伍德斯托克吧，并告诉我们您喜欢新形式。查理和我期待着见到您。
2009年2月27日
沃伦·E·巴菲特
董事会主席