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 | |
| 2009 | 19.8 | 26.5 | (6.7) | |
| Compounded Annual Gain – 1965-2009 | 20.3% | 9.3% | 11.0 | |
| Overall Gain – 1964-2009 | 434,057% | 5,430% | ||
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 gain in net worth during 2009 was \$21.8 billion, which increased the per-share book value of both our Class A and Class B stock by 19.8%. Over the last 45 years (that is, since present management took over) book value has grown from \$19 to \$84,487, a rate of 20.3% compounded annually.*
Berkshire's recent acquisition of Burlington Northern Santa Fe (BNSF) has added at least 65,000 shareholders to the 500,000 or so already on our books. It's important to Charlie Munger, my long-time partner, and me that all of our owners understand Berkshire's operations, goals, limitations and culture. In each annual report, consequently, we restate the economic principles that guide us. This year these principles appear on pages 89-94 and I urge all of you – but particularly our new shareholders – to read them. Berkshire has adhered to these principles for decades and will continue to do so long after I'm gone.
In this letter we will also review some of the basics of our business, hoping to provide both a freshman orientation session for our BNSF newcomers and a refresher course for Berkshire veterans.
How We Measure Ourselves
Our metrics for evaluating our managerial performance are displayed on the facing page. From the start, Charlie and I have believed in having a rational and unbending standard for measuring what we have – or have not – accomplished. That keeps us from the temptation of seeing where the arrow of performance lands and then painting the bull’s eye around it.
Selecting the S&P 500 as our bogey was an easy choice because our shareholders, at virtually no cost, can match its performance by holding an index fund. Why should they pay us for merely duplicating that result?
A more difficult decision for us was how to measure the progress of Berkshire versus the S&P. There are good arguments for simply using the change in our stock price. Over an extended period of time, in fact, that is the best test. But year-to-year market prices can be extraordinarily erratic. Even evaluations covering as long as a decade can be greatly distorted by foolishly high or low prices at the beginning or end of the measurement period. Steve Ballmer, of Microsoft, and Jeff Immelt, of GE, can tell you about that problem, suffering as they do from the nosebleed prices at which their stocks traded when they were handed the managerial baton.
The ideal standard for measuring our yearly progress would be the change in Berkshire's per-share intrinsic value. Alas, that value cannot be calculated with anything close to precision, so we instead use a crude proxy for it: per-share book value. Relying on this yardstick has its shortcomings, which we discuss on pages 92 and 93. Additionally, book value at most companies understates intrinsic value, and that is certainly the case at Berkshire. In aggregate, our businesses are worth considerably more than the values at which they are carried on our books. In our all-important insurance business, moreover, the difference is huge. Even so, Charlie and I believe that our book value – understated though it is – supplies the most useful tracking device for changes in intrinsic value. By this measurement, as the opening paragraph of this letter states, our book value since the start of fiscal 1965 has grown at a rate of $20.3\%$ compounded annually.
We should note that had we instead chosen market prices as our yardstick, Berkshire's results would look better, showing a gain since the start of fiscal 1965 of $22\%$ compounded annually. Surprisingly, this modest difference in annual compounding rate leads to an $801,516\%$ market-value gain for the entire 45-year period compared to the book-value gain of $434,057\%$ (shown on page 2). Our market gain is better because in 1965 Berkshire shares sold at an appropriate discount to the book value of its underearning textile assets, whereas today Berkshire shares regularly sell at a premium to the accounting values of its first-class businesses.
Summed up, the table on page 2 conveys three messages, two positive and one hugely negative. First, we have never had any five-year period beginning with 1965-69 and ending with 2005-09 – and there have been 41 of these – during which our gain in book value did not exceed the S&P's gain. Second, though we have lagged the S&P in some years that were positive for the market, we have consistently done better than the S&P in the eleven years during which it delivered negative results. In other words, our defense has been better than our offense, and that's likely to continue.
The big minus is that our performance advantage has shrunk dramatically as our size has grown, an unpleasant trend that is certain to continue. To be sure, Berkshire has many outstanding businesses and a cadre of truly great managers, operating within an unusual corporate culture that lets them maximize their talents. Charlie and I believe these factors will continue to produce better-than-average results over time. But huge sums forge their own anchor and our future advantage, if any, will be a small fraction of our historical edge.
What We Don't Do
Long ago, Charlie laid out his strongest ambition: “All I want to know is where I’m going to die, so I’ll never go there.” That bit of wisdom was inspired by Jacobi, the great Prussian mathematician, who counseled “Invert, always invert” as an aid to solving difficult problems. (I can report as well that this inversion approach works on a less lofty level: Sing a country song in reverse, and you will quickly recover your car, house and wife.)
Here are a few examples of how we apply Charlie's thinking at Berkshire:
- Charlie and I avoid businesses whose futures we can't evaluate, no matter how exciting their products may be. In the past, it required no brilliance for people to foresee the fabulous growth that awaited such industries as autos (in 1910), aircraft (in 1930) and television sets (in 1950). But the future then also included competitive dynamics that would decimate almost all of the companies entering those industries. Even the survivors tended to come away bleeding.
Just because Charlie and I can clearly see dramatic growth ahead for an industry does not mean we can judge what its profit margins and returns on capital will be as a host of competitors battle for supremacy. At Berkshire we will stick with businesses whose profit picture for decades to come seems reasonably predictable. Even then, we will make plenty of mistakes.
- We will never become dependent on the kindness of strangers. Too-big-to-fail is not a fallback position at Berkshire. Instead, we will always arrange our affairs so that any requirements for cash we may conceivably have will be dwarfed by our own liquidity. Moreover, that liquidity will be constantly refreshed by a gusher of earnings from our many and diverse businesses.
When the financial system went into cardiac arrest in September 2008, Berkshire was a supplier of liquidity and capital to the system, not a supplicant. At the very peak of the crisis, we poured \$15.5 billion into a business world that could otherwise look only to the federal government for help. Of that, \$9 billion went to bolster capital at three highly-regarded and previously-secure American businesses that needed – without delay – our tangible vote of confidence. The remaining \$6.5 billion satisfied our commitment to help fund the purchase of Wrigley, a deal that was completed without pause while, elsewhere, panic reigned.
We pay a steep price to maintain our premier financial strength. The \$20 billion-plus of cash-equivalent assets that we customarily hold is earning a pittance at present. But we sleep well.
- We tend to let our many subsidiaries operate on their own, without our supervising and monitoring them to any degree. That means we are sometimes late in spotting management problems and that both operating and capital decisions are occasionally made with which Charlie and I would have disagreed had we been consulted. Most of our managers, however, use the independence we grant them magnificently, rewarding our confidence by maintaining an owner-oriented attitude that is invaluable and too seldom found in huge organizations. We would rather suffer the visible costs of a few bad decisions than incur the many invisible costs that come from decisions made too slowly – or not at all – because of a stifling bureaucracy.
With our acquisition of BNSF, we now have about 257,000 employees and literally hundreds of different operating units. We hope to have many more of each. But we will never allow Berkshire to become some monolith that is overrun with committees, budget presentations and multiple layers of management. Instead, we plan to operate as a collection of separately-managed medium-sized and large businesses, most of whose decision-making occurs at the operating level. Charlie and I will limit ourselves to allocating capital, controlling enterprise risk, choosing managers and setting their compensation.
- We make no attempt to woo Wall Street. Investors who buy and sell based upon media or analyst commentary are not for us. Instead we want partners who join us at Berkshire because they wish to make a long-term investment in a business they themselves understand and because it's one that follows policies with which they concur. If Charlie and I were to go into a small venture with a few partners, we would seek individuals in sync with us, knowing that common goals and a shared destiny make for a happy business “marriage” between owners and managers. Scaling up to giant size doesn't change that truth.
To build a compatible shareholder population, we try to communicate with our owners directly and informatively. Our goal is to tell you what we would like to know if our positions were reversed. Additionally, we try to post our quarterly and annual financial information on the Internet early on weekends, thereby giving you and other investors plenty of time during a non-trading period to digest just what has happened at our multi-faceted enterprise. (Occasionally, SEC deadlines force a non-Friday disclosure.) These matters simply can't be adequately summarized in a few paragraphs, nor do they lend themselves to the kind of catchy headline that journalists sometimes seek.
Last year we saw, in one instance, how sound-bite reporting can go wrong. Among the 12,830 words in the annual letter was this sentence: “We are certain, for example, that the economy will be in shambles throughout 2009 – and probably well beyond – but that conclusion does not tell us whether the market will rise or fall.” Many news organizations reported – indeed, blared – the first part of the sentence while making no mention whatsoever of its ending. I regard this as terrible journalism: Misinformed readers or viewers may well have thought that Charlie and I were forecasting bad things for the stock market, though we had not only in that sentence, but also elsewhere, made it clear we weren’t predicting the market at all. Any investors who were misled by the sensationalists paid a big price: The Dow closed the day of the letter at 7,063 and finished the year at 10,428.
Given a few experiences we've had like that, you can understand why I prefer that our communications with you remain as direct and unabridged as possible.
* * * * * * * * * * * *
Let's move to the specifics of Berkshire's operations. We have four major operating sectors, each differing from the others in balance sheet and income account characteristics. Therefore, lumping them together, as is standard in financial statements, impedes analysis. So we'll present them as four separate businesses, which is how Charlie and I view them.
Insurance
Our property-casualty (P/C) insurance business has been the engine behind Berkshire's growth and will continue to be. It has worked wonders for us. We carry our P/C companies on our books at \$15.5 billion more than their net tangible assets, an amount lodged in our “Goodwill” account. These companies, however, are worth far more than their carrying value – and the following look at the economic model of the P/C industry will tell you why.
Insurers receive premiums upfront and pay claims later. In extreme cases, such as those arising from certain workers' compensation accidents, payments can stretch over decades. This collect-now, pay-later model leaves us holding large sums – money we call “float” – that will eventually go to others. Meanwhile, we get to invest this float for Berkshire’s benefit. Though individual policies and claims come and go, the amount of float we hold remains remarkably stable in relation to premium volume. Consequently, as our business grows, so does our float.
If premiums exceed the total of expenses and eventual losses, we register an underwriting profit that adds to the investment income produced from the float. This combination allows us to enjoy the use of free money – and, better yet, get paid for holding it. Alas, the hope of this happy result attracts intense competition, so vigorous in most years as to cause the P/C industry as a whole to operate at a significant underwriting loss. This loss, in effect, is what the industry pays to hold its float. Usually this cost is fairly low, but in some catastrophe-ridden years the cost from underwriting losses more than eats up the income derived from use of float.
In my perhaps biased view, Berkshire has the best large insurance operation in the world. And I will absolutely state that we have the best managers. Our float has grown from \$16 million in 1967, when we entered the business, to \$62 billion at the end of 2009. Moreover, we have now operated at an underwriting profit for seven consecutive years. I believe it likely that we will continue to underwrite profitably in most – though certainly not all – future years. If we do so, our float will be cost-free, much as if someone deposited \$62 billion with us that we could invest for our own benefit without the payment of interest.
Let me emphasize again that cost-free float is not a result to be expected for the P/C industry as a whole: In most years, premiums have been inadequate to cover claims plus expenses. Consequently, the industry's overall return on tangible equity has for many decades fallen far short of that achieved by the S&P 500. Outstanding economics exist at Berkshire only because we have some outstanding managers running some unusual businesses. Our insurance CEOs deserve your thanks, having added many billions of dollars to Berkshire's value. It's a pleasure for me to tell you about these all-stars.
* * * * * * * * * * * *
Let's start at GEICO, which is known to all of you because of its \$800 million annual advertising budget (close to twice that of the runner-up advertiser in the auto insurance field). GEICO is managed by Tony Nicely, who joined the company at 18. Now 66, Tony still tap-dances to the office every day, just as I do at 79. We both feel lucky to work at a business we love.
GEICO's customers have warm feelings toward the company as well. Here's proof: Since Berkshire acquired control of GEICO in 1996, its market share has increased from $2.5\%$ to $8.1\%$ , a gain reflecting the net addition of seven million policyholders. Perhaps they contacted us because they thought our gecko was cute, but they bought from us to save important money. (Maybe you can as well; call 1-800-847-7536 or go to www.GEICO.com.) And they've stayed with us because they like our service as well as our price.
Berkshire acquired GEICO in two stages. In 1976-80 we bought about one-third of the company's stock for \$47 million. Over the years, large repurchases by the company of its own shares caused our position to grow to about 50% without our having bought any more shares. Then, on January 2, 1996, we acquired the remaining 50% of GEICO for \$2.3 billion in cash, about 50 times the cost of our original purchase.
An old Wall Street joke gets close to our experience:
Customer: Thanks for putting me in XYZ stock at 5. I hear it's up to 18.
Broker: Yes, and that's just the beginning. In fact, the company is doing so well now, that it's an even better buy at 18 than it was when you made your purchase.
Customer: Damn, I knew I should have waited.
GEICO's growth may slow in 2010. U.S. vehicle registrations are actually down because of slumping auto sales. Moreover, high unemployment is causing a growing number of drivers to go uninsured. (That's illegal almost everywhere, but if you've lost your job and still want to drive . . .) Our “low-cost producer” status, however, is sure to give us significant gains in the future. In 1995, GEICO was the country's sixth largest auto insurer; now we are number three. The company's float has grown from \$2.7 billion to \$9.6 billion. Equally important, GEICO has operated at an underwriting profit in 13 of the 14 years Berkshire has owned it.
I became excited about GEICO in January 1951, when I first visited the company as a 20-year-old student. Thanks to Tony, I'm even more excited today.
* * * * * * * * * * * *
A hugely important event in Berkshire's history occurred on a Saturday in 1985. Ajit Jain came into our office in Omaha – and I immediately knew we had found a superstar. (He had been discovered by Mike Goldberg, now elevated to St. Mike.)
We immediately put Ajit in charge of National Indemnity's small and struggling reinsurance operation. Over the years, he has built this business into a one-of-a-kind giant in the insurance world.
Staffed today by only 30 people, Ajit's operation has set records for transaction size in several areas of insurance. Ajit writes billion-dollar limits – and then keeps every dime of the risk instead of laying it off with other insurers. Three years ago, he took over huge liabilities from Lloyds, allowing it to clean up its relationship with 27,972 participants (“names”) who had written problem-ridden policies that at one point threatened the survival of this 322-year-old institution. The premium for that single contract was \$7.1 billion. During 2009, he negotiated a life reinsurance contract that could produce \$50 billion of premium for us over the next 50 or so years.
Ajit's business is just the opposite of GEICO's. At that company, we have millions of small policies that largely renew year after year. Ajit writes relatively few policies, and the mix changes significantly from year to year. Throughout the world, he is known as the man to call when something both very large and unusual needs to be insured.
If Charlie, I and Ajit are ever in a sinking boat – and you can only save one of us – swim to Ajit.
* * * * * * * * * * * *
Our third insurance powerhouse is General Re. Some years back this operation was troubled; now it is a gleaming jewel in our insurance crown.
Under the leadership of Tad Montross, General Re had an outstanding underwriting year in 2009, while also delivering us unusually large amounts of float per dollar of premium volume. Alongside General Re's P/C business, Tad and his associates have developed a major life reinsurance operation that has grown increasingly valuable.
Last year General Re finally attained 100% ownership of Cologne Re, which since 1995 has been a key – though only partially-owned – part of our presence around the world. Tad and I will be visiting Cologne in September to thank its managers for their important contribution to Berkshire.
Finally, we own a group of smaller companies, most of them specializing in odd corners of the insurance world. In aggregate, their results have consistently been profitable and, as the table below shows, the float they provide us is substantial. Charlie and I treasure these companies and their managers.
Here is the record of all four segments of our property-casualty and life insurance businesses:
| Underwriting Profit | Yearend Float | |||
| Insurance Operations | 2009 | (in millions) | ||
| 2008 | 2009 | 2008 | ||
| General Re | $477 | $342 | $21,014 | $21,074 |
| BH Reinsurance | 349 | 1,324 | 26,223 | 24,221 |
| GEICO | 649 | 916 | 9,613 | 8,454 |
| Other Primary | 84 | 210 | 5,061 | 4,739 |
| $1,559 | $2,792 | $61,911 | $58,488 | |
* * * * * * * * * * * *
And now a painful confession: Last year your chairman closed the book on a very expensive business fiasco entirely of his own making.
For many years I had struggled to think of side products that we could offer our millions of loyal GEICO customers. Unfortunately, I finally succeeded, coming up with a brilliant insight that we should market our own credit card. I reasoned that GEICO policyholders were likely to be good credit risks and, assuming we offered an attractive card, would likely favor us with their business. We got business all right – but of the wrong type.
Our pre-tax losses from credit-card operations came to about \$6.3 million before I finally woke up. We then sold our \$98 million portfolio of troubled receivables for 55¢ on the dollar, losing an additional \$44 million.
GEICO's managers, it should be emphasized, were never enthusiastic about my idea. They warned me that instead of getting the cream of GEICO's customers we would get the — well, let's call it the non-cream. I subtly indicated that I was older and wiser.
I was just older.
Regulated Utility Business
Berkshire has an 89.5% 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 725,000 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 8% of the natural gas consumed in the U.S.
MidAmerican has two terrific managers, Dave Sokol and Greg Abel. In addition, my long-time friend, Walter Scott, along with his family, has a major ownership position in the company. Walter brings extraordinary business savvy to any operation. Ten years of working with Dave, Greg and Walter have reinforced my original belief: Berkshire couldn't have better partners. They are truly a dream team.
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. Though last year was again a terrible year for home sales, HomeServices earned a modest sum. It also acquired a firm in Chicago and will add other quality brokerage operations when they are available at sensible prices. A decade from now, HomeServices is likely to be much larger.
Here are some key figures on MidAmerican's operations:
| Earnings (in millions) | ||
| 2009 | 2008 | |
| U.K. utilities | $248 | $339 |
| Iowa utility | 285 | 425 |
| Western utilities | 788 | 703 |
| Pipelines | 457 | 595 |
| HomeServices | 43 | (45) |
| Other (net) | 25 | 186 |
| Operating earnings before corporate interest and taxes | 1,846 | 2,203 |
| Constellation Energy * | — | 1,092 |
| Interest, other than to Berkshire | (318) | (332) |
| Interest on Berkshire junior debt | (58) | (111) |
| Income tax | (313) | (1,002) |
| Net earnings | $1,157 | $1,850 |
| Earnings applicable to Berkshire ** | $1,071 | $1,704 |
| Debt owed to others | 19,579 | 19,145 |
| Debt owed to Berkshire | 353 | 1,087 |
*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 \$38 in 2009 and \$72 in 2008.
Our regulated electric utilities, offering monopoly service in most cases, operate in a symbiotic manner with the customers in their service areas, with those users depending on us to provide first-class service and invest for their future needs. Permitting and construction periods for generation and major transmission facilities stretch way out, so it is incumbent on us to be far-sighted. We, in turn, look to our utilities' regulators (acting on behalf of our customers) to allow us an appropriate return on the huge amounts of capital we must deploy to meet future needs. We shouldn't expect our regulators to live up to their end of the bargain unless we live up to ours.
Dave and Greg make sure we do just that. National research companies consistently rank our Iowa and Western utilities at or near the top of their industry. Similarly, among the 43 U.S. pipelines ranked by a firm named Mastio, our Kern River and Northern Natural properties tied for second place.
Moreover, we continue to pour huge sums of money into our operations so as to not only prepare for the future but also make these operations more environmentally friendly. Since we purchased MidAmerican ten years ago, it has never paid a dividend. We have instead used earnings to improve and expand our properties in each of the territories we serve. As one dramatic example, in the last three years our Iowa and Western utilities have earned \$2.5 billion, while in this same period spending \$3 billion on wind generation facilities.
MidAmerican has consistently kept its end of the bargain with society and, to society's credit, it has reciprocated: With few exceptions, our regulators have promptly allowed us to earn a fair return on the ever-increasing sums of capital we must invest. Going forward, we will do whatever it takes to serve our territories in the manner they expect. We believe that, in turn, we will be allowed the return we deserve on the funds we invest.
In earlier days, Charlie and I shunned capital-intensive businesses such as public utilities. Indeed, the best businesses by far for owners continue to be those that have high returns on capital and that require little incremental investment to grow. We are fortunate to own a number of such businesses, and we would love to buy more. Anticipating, however, that Berkshire will generate ever-increasing amounts of cash, we are today quite willing to enter businesses that regularly require large capital expenditures. We expect only that these businesses have reasonable expectations of earning decent returns on the incremental sums they invest. If our expectations are met – and we believe that they will be – Berkshire’s ever-growing collection of good to great businesses should produce above-average, though certainly not spectacular, returns in the decades ahead.
Our BNSF operation, it should be noted, has certain important economic characteristics that resemble those of our electric utilities. In both cases we provide fundamental services that are, and will remain, essential to the economic well-being of our customers, the communities we serve, and indeed the nation. Both will require heavy investment that greatly exceeds depreciation allowances for decades to come. Both must also plan far ahead to satisfy demand that is expected to outstrip the needs of the past. Finally, both require wise regulators who will provide certainty about allowable returns so that we can confidently make the huge investments required to maintain, replace and expand the plant.
We see a “social compact” existing between the public and our railroad business, just as is the case with our utilities. If either side shirks its obligations, both sides will inevitably suffer. Therefore, both parties to the compact should – and we believe will – understand the benefit of behaving in a way that encourages good behavior by the other. It is inconceivable that our country will realize anything close to its full economic potential without its possessing first-class electricity and railroad systems. We will do our part to see that they exist.
In the future, BNSF results will be included in this “regulated utility” section. Aside from the two businesses having similar underlying economic characteristics, both are logical users of substantial amounts of debt that is not guaranteed by Berkshire. Both will retain most of their earnings. Both will earn and invest large sums in good times or bad, though the railroad will display the greater cyclicality. Overall, we expect this regulated sector to deliver significantly increased earnings over time, albeit at the cost of our investing many tens – yes, tens – of billions of dollars of incremental equity capital.
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 12/31/09 (in millions)
| Assets | Liabilities and Equity Notes payable | $1,842 | |
| Cash and equivalents | $3,018 | ||
| Accounts and notes receivable | 5,066 | Other current liabilities | 7,414 |
| Inventory | 6,147 | Total current liabilities | 9,256 |
| Other current assets | 625 | ||
| Total current assets | 14,856 | ||
| Goodwill and other intangibles | 16,499 | Deferred taxes | 2,834 |
| Fixed assets | 15,374 | Term debt and other liabilities | 6,240 |
| Other assets | 2,070 | Equity | 30,469 |
| $48,799 | $48,799 |
Earnings Statement (in millions)
| 2009 | 2008 | 2007 | |
| Revenues | $61,665 | $66,099 | $59,100 |
| Operating expenses (including depreciation of $1,422 in 2009, $1,280 in 2008 and $955 in 2007) | 59,509 | 61,937 | 55,026 |
| Interest expense | 98 | 139 | 127 |
| Pre-tax earnings | 2,058* | 4,023* | 3,947* |
| Income taxes and minority interests | 945 | 1,740 | 1,594 |
| Net income | $1,113 | $2,283 | $2,353 |
*Does not include purchase-accounting adjustments.
Almost all of the many and widely-diverse operations in this sector suffered to one degree or another from 2009's severe recession. The major exception was McLane, our distributor of groceries, confections and non-food items to thousands of retail outlets, the largest by far Wal-Mart.
Grady Rosier led McLane to record pre-tax earnings of \$344 million, which even so amounted to only slightly more than one cent per dollar on its huge sales of \$31.2 billion. McLane employs a vast array of physical assets – practically all of which it owns – including 3,242 trailers, 2,309 tractors and 55 distribution centers with 15.2 million square feet of space. McLane’s prime asset, however, is Grady.
We had a number of companies at which profits improved even as sales contracted, always an exceptional managerial achievement. Here are the CEOs who made it happen:
| COMPANY | CEO |
| Benjamin Moore (paint) | Denis Abrams |
| Borsheims (jewelry retailing) | Susan Jacques |
| H. H. Brown (manufacturing and retailing of shoes) | Jim Issler |
| CTB (agricultural equipment) | Vic Mancinelli |
| Dairy Queen | John Gainor |
| Nebraska Furniture Mart (furniture retailing) | Ron and Irv Blumkin |
| Pampered Chef (direct sales of kitchen tools) | Marla Gottschalk |
| See’s (manufacturing and retailing of candy) | Brad Kinstler |
| Star Furniture (furniture retailing) | Bill Kimbrell |
Among the businesses we own that have major exposure to the depressed industrial sector, both Marmon and Iscar turned in relatively strong performances. Frank Ptak's Marmon delivered a $13.5\%$ pre-tax profit margin, a record high. Though the company's sales were down $27\%$ , Frank's cost-conscious management mitigated the decline in earnings.
Nothing stops Israel-based Iscar – not wars, recessions or competitors. The world’s two other leading suppliers of small cutting tools both had very difficult years, each operating at a loss throughout much of the year. Though Iscar’s results were down significantly from 2008, the company regularly reported profits, even while it was integrating and rationalizing Tungaloy, the large Japanese acquisition that we told you about last year. When manufacturing rebounds, Iscar will set new records. Its incredible managerial team of Eitan Wertheimer, Jacob Harpaz and Danny Goldman will see to that.
Every business we own that is connected to residential and commercial construction suffered severely in 2009. Combined pre-tax earnings of Shaw, Johns Manville, Acme Brick, and MiTek were \$227 million, an 82.5% decline from \$1.295 billion in 2006, when construction activity was booming. These businesses continue to bump along the bottom, though their competitive positions remain undented.
The major problem for Berkshire last year was NetJets, an aviation operation that offers fractional ownership of jets. Over the years, it has been enormously successful in establishing itself as the premier company in its industry, with the value of its fleet far exceeding that of its three major competitors combined. Overall, our dominance in the field remains unchallenged.
NetJets’ business operation, however, has been another story. In the eleven years that we have owned the company, it has recorded an aggregate pre-tax loss of \$157 million. Moreover, the company’s debt has soared from \$102 million at the time of purchase to \$1.9 billion in April of last year. Without Berkshire’s guarantee of this debt, NetJets would have been out of business. It’s clear that I failed you in letting NetJets descend into this condition. But, luckily, I have been bailed out.
Dave Sokol, the enormously talented builder and operator of MidAmerican Energy, became CEO of NetJets in August. His leadership has been transforming: Debt has already been reduced to \$1.4 billion, and, after suffering a staggering loss of \$711 million in 2009, the company is now solidly profitable.
Most important, none of the changes wrought by Dave have in any way undercut the top-of-the-line standards for safety and service that Rich Santulli, NetJets' previous CEO and the father of the fractional-ownership industry, insisted upon. Dave and I have the strongest possible personal interest in maintaining these standards because we and our families use NetJets for almost all of our flying, as do many of our directors and managers. None of us are assigned special planes nor crews. We receive exactly the same treatment as any other owner, meaning we pay the same prices as everyone else does when we are using our personal contracts. In short, we eat our own cooking. In the aviation business, no other testimonial means more.
Finance and Financial Products
Our largest operation in this sector is Clayton Homes, the country's leading producer of modular and manufactured homes. Clayton was not always number one: A decade ago the three leading manufacturers were Fleetwood, Champion and Oakwood, which together accounted for $44\%$ of the output of the industry. All have since gone bankrupt. Total industry output, meanwhile, has fallen from 382,000 units in 1999 to 60,000 units in 2009.
The industry is in shambles for two reasons, the first of which must be lived with if the U.S. economy is to recover. This reason concerns U.S. housing starts (including apartment units). In 2009, starts were 554,000, by far the lowest number in the 50 years for which we have data. Paradoxically, this is good news.
People thought it was good news a few years back when housing starts – the supply side of the picture – were running about two million annually. But household formations – the demand side – only amounted to about 1.2 million. After a few years of such imbalances, the country unsurprisingly ended up with far too many houses.
There were three ways to cure this overhang: (1) blow up a lot of houses, a tactic similar to the destruction of autos that occurred with the “cash-for-clunkers” program; (2) speed up household formations by, say, encouraging teenagers to cohabitate, a program not likely to suffer from a lack of volunteers or; (3) reduce new housing starts to a number far below the rate of household formations.
Our country has wisely selected the third option, which means that within a year or so residential housing problems should largely be behind us, the exceptions being only high-value houses and those in certain localities where overbuilding was particularly egregious. Prices will remain far below “bubble” levels, of course, but for every seller (or lender) hurt by this there will be a buyer who benefits. Indeed, many families that couldn’t afford to buy an appropriate home a few years ago now find it well within their means because the bubble burst.
The second reason that manufactured housing is troubled is specific to the industry: the punitive differential in mortgage rates between factory-built homes and site-built homes. Before you read further, let me underscore the obvious: Berkshire has a dog in this fight, and you should therefore assess the commentary that follows with special care. That warning made, however, let me explain why the rate differential causes problems for both large numbers of lower-income Americans and Clayton.
The residential mortgage market is shaped by government rules that are expressed by FHA, Freddie Mac and Fannie Mae. Their lending standards are all-powerful because the mortgages they insure can typically be securitized and turned into what, in effect, is an obligation of the U.S. government. Currently buyers of conventional site-built homes who qualify for these guarantees can obtain a 30-year loan at about $5 \frac{1}{4}\%$ . In addition, these are mortgages that have recently been purchased in massive amounts by the Federal Reserve, an action that also helped to keep rates at bargain-basement levels.
In contrast, very few factory-built homes qualify for agency-insured mortgages. Therefore, a meritorious buyer of a factory-built home must pay about 9% on his loan. For the all-cash buyer, Clayton's homes offer terrific value. If the buyer needs mortgage financing, however – and, of course, most buyers do – the difference in financing costs too often negates the attractive price of a factory-built home.
Last year I told you why our buyers – generally people with low incomes – performed so well as credit risks. Their attitude was all-important: They signed up to live in the home, not resell or refinance it. Consequently, our buyers usually took out loans with payments geared to their verified incomes (we weren't making “liar’s loans”) and looked forward to the day they could burn their mortgage. If they lost their jobs, had health problems or got divorced, we could of course expect defaults. But they seldom walked away simply because house values had fallen. Even today, though job-loss troubles have grown, Clayton’s delinquencies and defaults remain reasonable and will not cause us significant problems.
We have tried to qualify more of our customers' loans for treatment similar to those available on the site-built product. So far we have had only token success. Many families with modest incomes but responsible habits have therefore had to forego home ownership simply because the financing differential attached to the factory-built product makes monthly payments too expensive. If qualifications aren't broadened, so as to open low-cost financing to all who meet down-payment and income standards, the manufactured-home industry seems destined to struggle and dwindle.
Even under these conditions, I believe Clayton will operate profitably in coming years, though well below its potential. We couldn't have a better manager than CEO Kevin Clayton, who treats Berkshire's interests as if they were his own. Our product is first-class, inexpensive and constantly being improved. Moreover, we will continue to use Berkshire's credit to support Clayton's mortgage program, convinced as we are of its soundness. Even so, Berkshire can't borrow at a rate approaching that available to government agencies. This handicap will limit sales, hurting both Clayton and a multitude of worthy families who long for a low-cost home.
In the following table, Clayton's earnings are net of the company's payment to Berkshire for the use of its credit. Offsetting this cost to Clayton is an identical amount of income credited to Berkshire's finance operation and included in "Other Income." The cost and income amount was \$116 million in 2009 and \$92 million in 2008.
The table also illustrates how severely our furniture (CORT) and trailer (XTRA) leasing operations have been hit by the recession. Though their competitive positions remain as strong as ever, we have yet to see any bounce in these businesses.
| Pre-Tax Earnings (in millions) | ||
| 2009 | 2008 | |
| Net investment income | $278 | $330 |
| Life and annuity operation | 116 | 23 |
| Leasing operations | 14 | 87 |
| Manufactured-housing finance (Clayton) | 187 | 206 |
| Other income * | 186 | 141 |
| Income before investment and derivatives gains or losses | $781 | $787 |
*Includes \$116 million in 2009 and \$92 million in 2008 of fees that Berkshire charges Clayton for the use of Berkshire’s credit.
* * * * * * * * * * * *
At the end of 2009, we became a $50\%$ owner of Berkadia Commercial Mortgage (formerly known as Capmark), the country's third-largest servicer of commercial mortgages. In addition to servicing a \$235 billion portfolio, the company is an important originator of mortgages, having 25 offices spread around the country. Though commercial real estate will face major problems in the next few years, long-term opportunities for Berkadia are significant.
Our partner in this operation is Leucadia, run by Joe Steinberg and Ian Cumming, with whom we had a terrific experience some years back when Berkshire joined with them to purchase Finova, a troubled finance business. In resolving that situation, Joe and Ian did far more than their share of the work, an arrangement I always encourage. Naturally, I was delighted when they called me to partner again in the Capmark purchase.
Our first venture was also christened Berkadia. So let's call this one Son of Berkadia. Someday I'll be writing you about Grandson of Berkadia.
Investments
Below we show our common stock investments that at yearend had a market value of more than \$1 billion.
| Shares | Company | Percentage of Company Owned | 12/31/09 | |
| Cost * | Market | |||
| (in millions) | ||||
| 151,610,700 | American Express Company | 12.7 | $ 1,287 | $ 6,143 |
| 225,000,000 | BYD Company, Ltd. | 9.9 | 232 | 1,986 |
| 200,000,000 | The Coca-Cola Company | 8.6 | 1,299 | 11,400 |
| 37,711,330 | ConocoPhillips | 2.5 | 2,741 | 1,926 |
| 28,530,467 | Johnson & Johnson | 1.0 | 1,724 | 1,838 |
| 130,272,500 | Kraft Foods Inc. | 8.8 | 4,330 | 3,541 |
| 3,947,554 | POSCO | 5.2 | 768 | 2,092 |
| 83,128,411 | The Procter & Gamble Company | 2.9 | 533 | 5,040 |
| 25,108,967 | Sanofi-Aventis | 1.9 | 2,027 | 1,979 |
| 234,247,373 | Tesco plc | 3.0 | 1,367 | 1,620 |
| 76,633,426 | U.S. Bancorp | 4.0 | 2,371 | 1,725 |
| 39,037,142 | Wal-Mart Stores, Inc. | 1.0 | 1,893 | 2,087 |
| 334,235,585 | Wells Fargo & Company | 6.5 | 7,394 | 9,021 |
| Others | 6,680 | 8,636 | ||
| Total Common Stocks Carried at Market | $34,646 | $59,034 | ||
*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 own positions in non-traded securities of Dow Chemical, General Electric, Goldman Sachs, Swiss Re and Wrigley with an aggregate cost of \$21.1 billion and a carrying value of \$26.0 billion. We purchased these five positions in the last 18 months. Setting aside the significant equity potential they provide us, these holdings deliver us an aggregate of \$2.1 billion annually in dividends and interest. Finally, we owned 76,777,029 shares (22.5%) of BNSF at yearend, which we then carried at \$85.78 per share, but which have subsequently been melded into our purchase of the entire company.
In 2009, our largest sales were in ConocoPhillips, Moody's, Procter & Gamble and Johnson & Johnson (sales of the latter occurring after we had built our position earlier in the year). Charlie and I believe that all of these stocks will likely trade higher in the future. We made some sales early in 2009 to raise cash for our Dow and Swiss Repurchases and late in the year made other sales in anticipation of our BNSF purchase.
We told you last year that very unusual conditions then existed in the corporate and municipal bond markets and that these securities were ridiculously cheap relative to U.S. Treasuries. We backed this view with some purchases, but I should have done far more. Big opportunities come infrequently. When it's raining gold, reach for a bucket, not a thimble.
We entered 2008 with \$44.3 billion of cash-equivalents, and we have since retained operating earnings of \$17 billion. Nevertheless, at yearend 2009, our cash was down to \$30.6 billion (with \$8 billion earmarked for the BNSF acquisition). We’ve put a lot of money to work during the chaos of the last two years. It’s been an ideal period for investors: A climate of fear is their best friend. Those who invest only when commentators are upbeat end up paying a heavy price for meaningless reassurance. In the end, what counts in investing is what you pay for a business – through the purchase of a small piece of it in the stock market – and what that business earns in the succeeding decade or two.
* * * * * * * * * * * *
Last year I wrote extensively about our derivatives contracts, which were then the subject of both controversy and misunderstanding. For that discussion, please go to www.berkshirehathaway.com.
We have since changed only a few of our positions. Some credit contracts have run off. The terms of about 10% of our equity put contracts have also changed: Maturities have been shortened and strike prices materially reduced. In these modifications, no money changed hands.
A few points from last year's discussion are worth repeating:
(1) Though it's no sure thing, I expect our contracts in aggregate to deliver us a profit over their lifetime, even when investment income on the huge amount of float they provide us is excluded in the calculation. Our derivatives float – which is not included in the \$62 billion of insurance float I described earlier – was about \$6.3 billion at yearend.
(2) Only a handful of our contracts require us to post collateral under any circumstances. At last year's low point in the stock and credit markets, our posting requirement was \$1.7 billion, a small fraction of the derivatives-related float we held. When we do post collateral, let me add, the securities we put up continue to earn money for our account.
(3) Finally, you should expect large swings in the carrying value of these contracts, items that can affect our reported quarterly earnings in a huge way but that do not affect our cash or investment holdings. That thought certainly fit 2009's circumstances. Here are the pre-tax quarterly gains and losses from derivatives valuations that were part of our reported earnings last year:
| Quarter | $ Gain (Loss) in Billions |
| 1 | (1.517) |
| 2 | 2.357 |
| 3 | 1.732 |
| 4 | 1.052 |
As we’ve explained, these wild swings neither cheer nor bother Charlie and me. When we report to you, we will continue to separate out these figures (as we do realized investment gains and losses) so that you can more clearly view the earnings of our operating businesses. We are delighted that we hold the derivatives contracts that we do. To date we have significantly profited from the float they provide. We expect also to earn further investment income over the life of our contracts.
We have long invested in derivatives contracts that Charlie and I think are mispriced, just as we try to invest in mispriced stocks and bonds. Indeed, we first reported to you that we held such contracts in early 1998. The dangers that derivatives pose for both participants and society – dangers of which we’ve long warned, and that can be dynamite – arise when these contracts lead to leverage and/or counterparty risk that is extreme. At Berkshire nothing like that has occurred – nor will it.
It’s my job to keep Berkshire far away from such problems. Charlie and I believe that a CEO must not delegate risk control. It’s simply too important. At Berkshire, I both initiate and monitor every derivatives contract on our books, with the exception of operations-related contracts at a few of our subsidiaries, such as MidAmerican, and the minor runoff contracts at General Re. If Berkshire ever gets in trouble, it will be my fault. It will not be because of misjudgments made by a Risk Committee or Chief Risk Officer.
* * * * * * * * * * * *
In my view a board of directors of a huge financial institution is derelict if it does not insist that its CEO bear full responsibility for risk control. If he's incapable of handling that job, he should look for other employment. And if he fails at it – with the government thereupon required to step in with funds or guarantees – the financial consequences for him and his board should be severe.
It has not been shareholders who have botched the operations of some of our country's largest financial institutions. Yet they have borne the burden, with 90% or more of the value of their holdings wiped out in most cases of failure. Collectively, they have lost more than \$500 billion in just the four largest financial fiascos of the last two years. To say these owners have been “bailed-out” is to make a mockery of the term.
The CEOs and directors of the failed companies, however, have largely gone unscathed. Their fortunes may have been diminished by the disasters they oversaw, but they still live in grand style. It is the behavior of these CEOs and directors that needs to be changed: If their institutions and the country are harmed by their recklessness, they should pay a heavy price – one not reimbursable by the companies they’ve damaged nor by insurance. CEOs and, in many cases, directors have long benefitted from oversized financial carrots; some meaningful sticks now need to be part of their employment picture as well.
An Inconvenient Truth (Boardroom Overheating)
Our subsidiaries made a few small “bolt-on” acquisitions last year for cash, but our blockbuster deal with BNSF required us to issue about 95,000 Berkshire shares that amounted to 6.1% of those previously outstanding. Charlie and I enjoy issuing Berkshire stock about as much as we relish prepping for a colonoscopy.
The reason for our distaste is simple. If we wouldn't dream of selling Berkshire in its entirety at the current market price, why in the world should we “sell” a significant part of the company at that same inadequate price by issuing our stock in a merger?
In evaluating a stock-for-stock offer, shareholders of the target company quite understandably focus on the market price of the acquirer's shares that are to be given them. But they also expect the transaction to deliver them the intrinsic value of their own shares – the ones they are giving up. If shares of a prospective acquirer are selling below their intrinsic value, it's impossible for that buyer to make a sensible deal in an all-stock deal. You simply can't exchange an undervalued stock for a fully-valued one without hurting your shareholders.
Imagine, if you will, Company A and Company B, of equal size and both with businesses intrinsically worth \$100 per share. Both of their stocks, however, sell for \$80 per share. The CEO of A, long on confidence and short on smarts, offers 1 1/4 shares of A for each share of B, correctly telling his directors that B is worth \$100 per share. He will neglect to explain, though, that what he is giving will cost his shareholders \$125 in intrinsic value. If the directors are mathematically challenged as well, and a deal is therefore completed, the shareholders of B will end up owning 55.6% of A & B's combined assets and A's shareholders will own 44.4%. Not everyone at A, it should be noted, is a loser from this nonsensical transaction. Its CEO now runs a company twice as large as his original domain, in a world where size tends to correlate with both prestige and compensation.
If an acquirer's stock is overvalued, it's a different story: Using it as a currency works to the acquirer's advantage. That's why bubbles in various areas of the stock market have invariably led to serial issuances of stock by sly promoters. Going by the market value of their stock, they can afford to overpay because they are, in effect, using counterfeit money. Periodically, many air-for-assets acquisitions have taken place, the late 1960s having been a particularly obscene period for such chicanery. Indeed, certain large companies were built in this way. (No one involved, of course, ever publicly acknowledges the reality of what is going on, though there is plenty of private snickering.)
In our BNSF acquisition, the selling shareholders quite properly evaluated our offer at \$100 per share. The cost to us, however, was somewhat higher since 40% of the \$100 was delivered in our shares, which Charlie and I believed to be worth more than their market value. Fortunately, we had long owned a substantial amount of BNSF stock that we purchased in the market for cash. All told, therefore, only about 30% of our cost overall was paid with Berkshire shares.
In the end, Charlie and I decided that the disadvantage of paying 30% of the price through stock was offset by the opportunity the acquisition gave us to deploy \$22 billion of cash in a business we understood and liked for the long term. It has the additional virtue of being run by Matt Rose, whom we trust and admire. We also like the prospect of investing additional billions over the years at reasonable rates of return. But the final decision was a close one. If we had needed to use more stock to make the acquisition, it would in fact have made no sense. We would have then been giving up more than we were getting.
* * * * * * * * * * * *
I have been in dozens of board meetings in which acquisitions have been deliberated, often with the directors being instructed by high-priced investment bankers (are there any other kind?). Invariably, the bankers give the board a detailed assessment of the value of the company being purchased, with emphasis on why it is worth far more than its market price. In more than fifty years of board memberships, however, never have I heard the investment bankers (or management!) discuss the true value of what is being given. When a deal involved the issuance of the acquirer's stock, they simply used market value to measure the cost. They did this even though they would have argued that the acquirer's stock price was woefully inadequate – absolutely no indicator of its real value – had a takeover bid for the acquirer instead been the subject up for discussion.
When stock is the currency being contemplated in an acquisition and when directors are hearing from an advisor, it appears to me that there is only one way to get a rational and balanced discussion. Directors should hire a second advisor to make the case against the proposed acquisition, with its fee contingent on the deal not going through. Absent this drastic remedy, our recommendation in respect to the use of advisors remains: “Don’t ask the barber whether you need a haircut.”
* * * * * * * * * * * *
I can't resist telling you a true story from long ago. We owned stock in a large well-run bank that for decades had been statutorily prevented from acquisitions. Eventually, the law was changed and our bank immediately began looking for possible purchases. Its managers – fine people and able bankers – not unexpectedly began to behave like teenage boys who had just discovered girls.
They soon focused on a much smaller bank, also well-run and having similar financial characteristics in such areas as return on equity, interest margin, loan quality, etc. Our bank sold at a modest price (that's why we had bought into it), hovering near book value and possessing a very low price/earnings ratio. Alongside, though, the small-bank owner was being wooed by other large banks in the state and was holding out for a price close to three times book value. Moreover, he wanted stock, not cash.
Naturally, our fellows caved in and agreed to this value-destroying deal. “We need to show that we are in the hunt. Besides, it’s only a small deal,” they said, as if only major harm to shareholders would have been a legitimate reason for holding back. Charlie’s reaction at the time: “Are we supposed to applaud because the dog that fouls our lawn is a Chihuahua rather than a Saint Bernard?”
The seller of the smaller bank – no fool – then delivered one final demand in his negotiations. “After the merger,” he in effect said, perhaps using words that were phrased more diplomatically than these, “I’m going to be a large shareholder of your bank, and it will represent a huge portion of my net worth. You have to promise me, therefore, that you’ll never again do a deal this dumb.”
Yes, the merger went through. The owner of the small bank became richer, we became poorer, and the managers of the big bank – newly bigger – lived happily ever after.
The Annual Meeting
Our best guess is that 35,000 people attended the annual meeting last year (up from 12 – no zeros omitted – in 1981). With our shareholder population much expanded, we expect even more this year. Therefore, we will have to make a few changes in the usual routine. There will be no change, however, in our enthusiasm for having you attend. Charlie and I like to meet you, answer your questions and – best of all – have you buy lots of goods from our businesses.
The meeting this year will be held on Saturday, May 1 $^{st}$ . 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 3:30. After a short recess, Charlie and I will convene the annual meeting at 3:45. If you decide to leave during the day’s question periods, please do so while Charlie is talking. (Act fast; he can be terse.)
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 products from dozens of Berkshire subsidiaries. Last year, you did your part, and most locations racked up record sales. But you can do better. (A friendly warning: If I find sales are lagging, I get testy and lock the exits.)
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 51 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.
Be sure to visit the Bookworm. Among the more than 30 books and DVDs it will offer are two new books by my sons: Howard's Fragile, a volume filled with photos and commentary about lives of struggle around the globe and Peter's Life Is What You Make It. Completing the family trilogy will be the debut of my sister Doris's biography, a story focusing on her remarkable philanthropic activities. Also available will be Poor Charlie's Almanack, the story of my partner. This book is something of a publishing miracle – never advertised, yet year after year selling many thousands of copies from its Internet site. (Should you need to ship your book purchases, a nearby shipping service will be available.)
If you are a big spender – or, for that matter, merely a gawker – visit Elliott Aviation on the east side of the Omaha airport between noon and 5:00 p.m. on Saturday. There we will have a fleet of NetJets aircraft that will get your pulse racing.
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 $72^{\text{nd}}$ Street between Dodge and Pacific, we will again be having “Berkshire Weekend” discount pricing. To obtain the Berkshire discount, you must make your purchases between Thursday, April $29^{\text{th}}$ and Monday, May $3^{\text{rd}}$ 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 Berkyville BBQ 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, April 30 $^{th}$ . The second, the main gala, will be held on Sunday, May 2 $^{nd}$ , 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 26 $^{th}$ through Saturday, May 8 $^{th}$ . 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. Enter with rhinestones; leave with diamonds. My daughter tells me that the more you buy, the more you save (kids say the darnedest things).
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.
Our special treat for shareholders this year will be the return of my friend, Ariel Hsing, the country's top-ranked junior table tennis player (and a good bet to win at the Olympics some day). Now 14, Ariel came to the annual meeting four years ago and demolished all comers, including me. (You can witness my humiliating defeat on YouTube; just type in Ariel Hsing Berkshire.)
Naturally, I’ve been plotting a comeback and will take her on outside of Borsheims at 1:00 p.m. on Sunday. It will be a three-point match, and after I soften her up, all shareholders are invited to try their luck at similar three-point contests. Winners will be given a box of See’s candy. We will have equipment available, but bring your own paddle if you think it will help. (It won’t.)
Gorat's will again be open exclusively for Berkshire shareholders on Sunday, May $2^{\text{nd}}$ , and will be serving from 1 p.m. until 10 p.m. Last year, though, it was overwhelmed by demand. With many more diners expected this year, I've asked my friend, Donna Sheehan, at Piccolo's – another favorite restaurant of mine – to serve shareholders on Sunday as well. (Piccolo's giant root beer float is mandatory for any fan of fine dining.) I plan to eat at both restaurants: All of the weekend action makes me really hungry, and I have favorite dishes at each spot. Remember: To make a reservation at Gorat's, call 402-551-3733 on April $1^{\text{st}}$ (but not before) and at Piccolo's call 402-342-9038.
Regrettably, we will not be able to have a reception for international visitors this year. Our count grew to about 800 last year, and my simply signing one item per person took about $2 \frac{1}{2}$ hours. Since we expect even more international visitors this year, Charlie and I decided we must drop this function. But be assured, we welcome every international visitor who comes.
Last year we changed our method of determining what questions would be asked at the meeting and received many dozens of letters applauding the new arrangement. We will therefore again have the same three financial journalists lead the question-and-answer period, asking Charlie and me questions that shareholders have submitted to them by e-mail.
The journalists and their e-mail addresses are: Carol Loomis, of Fortune, who may be e-mailed 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. The journalists have told me your question has the best chance of being selected if you keep it concise and include no more than two questions in any e-mail you send them. (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.
We will again have a drawing at 8:15 on Saturday at each of 13 microphones for those shareholders wishing to ask questions themselves. At the meeting, I will alternate the questions asked by the journalists with those from the winning shareholders. We’ve added 30 minutes to the question time and will probably have time for about 30 questions from each group.
* * * * * * * * * * *
At 86 and 79, Charlie and I remain lucky beyond our dreams. We were born in America; had terrific parents who saw that we got good educations; have enjoyed wonderful families and great health; and came equipped with a “business” gene that allows us to prosper in a manner hugely disproportionate to that experienced by many people who contribute as much or more to our society’s well-being. Moreover, we have long had jobs that we love, in which we are helped in countless ways by talented and cheerful associates. Indeed, over the years, our work has become ever more fascinating; no wonder we tap-dance to work. If pushed, we would gladly pay substantial sums to have our jobs (but don’t tell the Comp Committee).
Nothing, however, is more fun for us than getting together with our shareholder-partners at Berkshire's annual meeting. So join us on May $1^{\text{st}}$ at the Qwest for our annual Woodstock for Capitalists. We'll see you there.
February 26, 2010
Warren E. Buffett
Chairman of the Board
P.S. Come by rail.
伯克希尔（Berkshire）业绩 vs. 标普500
| 年份 | 年百分比变化 | |||
| 伯克希尔每股账面价值变动（1） | 标普500含股息收益变动（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 | |
| 2009 | 19.8 | 26.5 | (6.7) | |
| 1965-2009年复合年增长率 | 20.3% | 9.3% | 11.0 | |
| 1964-2009年整体增长率 | 434,057% | 5,430% | ||
注：数据按日历年统计，以下除外：1965年和1966年，截止日为9月30日；1967年，为截止12月31日的15个月。
从1979年起，会计规则要求保险公司按市价计量其持有的权益证券，而此前的要求是按成本与市价孰低法。在本表中，伯克希尔截至1978年的业绩已按变更后的规则重述。除此之外，其他所有业绩均按最初报告的数字计算。
标普500的数据为税前，而伯克希尔的数据为税后。如果一家像伯克希尔这样的公司只是持有标普500指数并计提相应税款，那么在指数呈现正回报的年份，其业绩将落后于标普500；而在指数呈现负回报的年份，其业绩将优于标普500。多年累积下来，税收成本将导致总体落后幅度相当可观。
伯克希尔·哈撒韦公司
致伯克希尔·哈撒韦公司股东：
2009年我们的净资产增加了218亿美元，这使得我们A类股和B类股的每股账面价值增长了19.8%。过去45年（即现任管理层接管以来），账面价值从19美元增长至84,487美元，年复合增长率为20.3%。*
伯克希尔近期收购的伯灵顿北方圣塔菲（BNSF）为我们原本约50万的股东名册上至少增加了65,000名新股东。对我而言——以及我的长期合伙人查理·芒格（Charlie Munger）——重要的是，我们所有的所有者都理解伯克希尔的运营、目标、局限性和文化。因此，在每一份年报中，我们都重申指导我们的经济原则。今年这些原则出现在第89-94页，我敦促各位——尤其是我们的新股东——去阅读它们。伯克希尔几十年来一直恪守这些原则，在我离开后很久仍将继续如此。
在这封信中，我们还将回顾我们业务的一些基础知识，希望能为BNSF的新来者提供一次新生入学指导，也为伯克希尔的老手们提供一次进修课程。
我们如何衡量自己
我们评估管理业绩的指标显示在对面页上。从一开始，查理和我就坚信要有一个理性且不妥协的标准来衡量我们已经完成——或未完成——的事情。这使我们免于受到诱惑——先看业绩之箭落在何处，然后再围绕它画上靶心。
选择标普500作为我们的基准是一个轻松的决定，因为我们的股东几乎无需成本，通过持有指数基金即可复制其业绩。如果他们仅仅得到这样的结果，为什么还要向我们付费呢？
对我们来说更难的决定是如何衡量伯克希尔相对于标普500的进展。有人主张单纯使用我们股价的变动。事实上，长期来看这确实是最好的检验。但年与年之间的市场价格可能异常反复无常。即便是长达十年的评估，也可能因期间起点或终点的愚蠢高价或低价而严重失真。微软的史蒂夫·鲍尔默（Steve Ballmer）和通用电气的杰夫·伊梅尔特（Jeff Immelt）可以告诉你这个问题，他们接手管理接力棒时，自己公司的股票正以令人鼻血的股价交易。
衡量我们年度进展的理想标准，应是伯克希尔每股内在价值的变化。可惜，这一价值无法精确计算到任何程度，所以我们用了一个粗略的替代指标：每股账面价值。依赖这一标尺有其缺陷，我们在第92至93页做了讨论。此外，多数公司的账面价值低估了内在价值，伯克希尔的情况尤其如此。总体来看，我们企业的价值远高于账面上所记录的金额。在我们至关重要的保险业务中，这一差距更是巨大。即便如此，查理和我相信，我们的账面价值——尽管被低估——仍是为内在价值变化提供的最有用的追踪工具。按此衡量，正如本信开头所述，自1965财年起，我们的账面价值以年复合增长率 (20.3\%) 的速度增长。
需要指出的是，如果我们改用市场价格作为标尺，伯克希尔的表现会更好，自1965财年起年复合增长率为 (22\%)。令人惊讶的是，这一微小的年复合增长率差异，在整整45年间导致市场价值增长 (801,516\%)，而账面价值增长为 (434,057\%)（如第2页所示）。我们的市场表现更好，是因为1965年伯克希尔的股价相对于其低收益纺织资产的账面价值有适当折价，而如今伯克希尔的股价通常相对于其一流业务的会计价值有溢价。
总结起来，第2页的表格传达了三个信息，两个积极，一个极其消极。第一，从1965-69年起始到2005-09年结束的任何五年期——共有41个这样的区间——我们的账面价值增长从未低于标普500指数的增长。第二，尽管在有些市场上涨的年份我们落后于标普，但在标普下跌的11个年份里，我们始终表现得更好。换句话说，我们的防守优于进攻，而且这一趋势很可能会持续。
最大的负面因素是，随着我们的规模增长，我们的业绩优势已大幅缩小，这一令人不快的趋势肯定会继续下去。诚然，伯克希尔拥有众多优秀的企业和一批真正卓越的管理者，他们在一个独特的企业文化中运作，使他们的才能得以最大化。查理和我相信，随着时间的推移，这些因素将继续产生高于平均水平的业绩。但庞大的资金本身就构成了自己的锚，我们未来的优势，如果有的话，将只是我们历史优势的一小部分。
我们不做的事
很久以前，查理阐明了他最大的志向：“我只想知道我会死在哪里，这样我就永远不去那里。”这一智慧箴言受启发于伟大的普鲁士数学家雅可比，他建议“逆向，永远逆向思考”作为解决难题的辅助方法。（我也可以报告说，这种逆向思维方法在较低的层面上同样有效：把一首乡村歌曲倒着唱，你很快就能找回你的车子、房子和老婆。）
以下是我们如何在伯克希尔应用查理思维的几个例子：
-
查理和我避开那些我们无法评估未来的业务，无论它们的产品多么令人兴奋。过去，人们无需拥有什么才华就能预见汽车（1910年）、飞机（1930年）和电视机（1950年）等行业的辉煌增长。但当时这些行业的未来也包括了几乎会摧毁所有进入公司的竞争动态。即使是幸存者，也往往遍体鳞伤。
仅仅因为查理和我能清晰地看到某个行业未来将实现惊人的增长，并不意味着我们就能判断，当众多竞争对手争夺霸主地位时，该行业的利润率及资本回报率会是多少。在伯克希尔，我们会坚守那些未来几十年的盈利前景看起来相当可预测的企业。即便如此，我们也会犯下很多错误。 -
我们永远不会依赖陌生人的善意。'大而不倒'绝不是伯克希尔的退路。相反，我们始终会安排好自己的事务，让任何可能出现的现金需求，都远小于我们自身的流动性。此外，这种流动性还将由我们众多且多元的业务所喷涌的盈利不断补充。
2008年9月，当金融系统陷入心脏骤停时，伯克希尔是流动性和资本的供应方，而非乞求者。在危机的最高峰，我们向商业世界注入了155亿美元——彼时除了伯克希尔，它们只能指望联邦政府施以援手。其中，90亿美元用于支持三家备受尊敬、此前稳健的美国企业的资本——它们迫切需要我们的切实信心投票。剩余的65亿美元则兑现了我们资助收购箭牌公司的承诺，这笔交易在别处恐慌蔓延之际，未做片刻停顿便圆满完成。
为了维持我们顶级的财务实力，我们付出了高昂的代价。我们通常持有的超过200亿美元的现金等价物资产，目前收益微薄。但我们睡得踏实。
- 我们倾向于让众多子公司自行运作，不进行任何程度的监督和监控。这意味着，我们有时会晚发现管理问题，并且偶尔会做出一些如果查理和我被咨询本可能不同意的经营和资本决策。然而，我们的多数经理人都出色地运用了我们赋予的独立性，以所有者导向的态度回报了我们的信任——这种态度在大型组织中极其宝贵且罕见。我们宁愿承受少数错误决策带来的显性成本，也不愿忍受因令人窒息的官僚主义而导致决策过于缓慢——甚至根本无法做出——所带来的众多隐性成本。
在收购了BNSF之后，我们现在拥有约25.7万名员工以及实际上的数百个不同的运营单位。我们希望未来两者都有更多。但我们绝不会让伯克希尔变成一个被委员会、预算演示和多层管理层淹没的庞然大物。相反，我们计划以一组独立管理的中型和大型企业集合体来运营，其大多数决策发生在运营层面。查理和我的职责将仅限于配置资本、控制企业风险、挑选经理人并设定他们的薪酬。
- 我们无意讨好华尔街。那些依据媒体或分析师评论买卖股票的投资者，不适合我们。相反，我们希望加入伯克希尔的合伙人是出于这样的动机：他们希望投资于一家自己理解的业务，并长期持有，而且这家公司遵循着他们认同的政策。如果查理和我要和少数合伙人一起创办一家小企业，我们会寻找与我们步调一致的人，深知共同的目标和共同的命运能带来所有者和经理人之间幸福的商业'联姻'。规模扩大至巨无霸级别，也不会改变这一真理。
为了建立一个志同道合的股东群体，我们努力直接且详实地与股东沟通。我们的目标是：如果换位思考，我们会想知道什么，就告诉你们什么。此外，我们尽量在周末早期将季度和年度财务信息发布在互联网上，这样你们和其他投资者就能在非交易时段有充足时间，消化我们这家多元化企业发生的种种。（偶尔，SEC的截止日期会迫使我们不在周五披露。）这些事情无法用寥寥几段话充分概括，也不适合记者有时追求的那种耸动标题。
去年，我们有一次亲眼看到标题党报道如何出错。在年度致股东信的12,830个单词中，有这样一句：“例如，我们确信2009年全年——很可能更长时间——经济将一片混乱，但这个结论并不能告诉我们市场会涨还是会跌。”许多新闻机构报道了——甚至大肆渲染——这句话的前半部分，却对后半句只字不提。我认为这是糟糕的新闻：被误导的读者或观众很可能以为查理和我在预测股市的坏消息，尽管我们不仅在那一句里，还在其他地方明确表示，我们根本没有预测市场。任何被这些哗众取宠者误导的投资者都付出了高昂代价：道指在致股东信发布当天收于7,063点，年底收于10,428点。
经历过几次这样的事，你们就能理解为什么我更喜欢与你们的沟通尽可能直接、完整。
现在来看看伯克希尔运营的具体情况。我们有四个主要运营板块，每个板块在资产负债表和利润表特征上都各不相同。因此，像财务报表那样把它们合并在一起，会妨碍分析。所以我们将它们作为四个独立业务呈现，查理和我就是这么看待它们的。
保险
我们的财产/意外险业务一直是伯克希尔增长的引擎，未来也将继续如此。它为我们创造了奇迹。我们在账面上将财产/意外险公司的价值记为比其净有形资产高出155亿美元，这笔金额计入我们的“商誉”账户。然而，这些公司的价值远高于其账面价值——下面关于财产/意外险行业经济模式的介绍会告诉你原因。
保险公司先收取保费，后支付理赔。在极端情况下，比如某些工人赔偿事故引发的理赔，支付可能延续数十年。这种“先收后付”的模式让我们持有一大笔资金——我们称之为“浮存金”——这些资金最终会支付给他人。与此同时，我们可以用这笔浮存金为伯克希尔进行投资。虽然保单和理赔个案来来去去，但我们持有的浮存金总额相对于保费规模而言保持显著稳定。因此，随着业务增长，我们的浮存金也会增长。
如果保费超过费用和最终损失的总和，我们就实现了承保利润，这为浮存金产生的投资收益锦上添花。这种组合让我们得以享用免费的资金——而且更妙的是，我们持有这些资金还能获得报酬。唉，这种美好结果的希望引来了激烈的竞争，以至于在大多数年份，整个财产/意外险行业都承受着严重的承保亏损。实际上，这种亏损就是该行业为其持有的浮存金所支付的成本。通常这个成本相当低，但在某些灾害频发的年份，承保亏损的成本会超过浮存金带来的收益。
在我可能有些偏颇的视角看来，伯克希尔拥有全世界最优秀的保险业务。而我绝对敢说，我们拥有最出色的管理者。我们的浮存金从1967年我们刚入行时的1600万美元，增长到了2009年底的620亿美元。更值得一提的是，我们已连续七年实现承销盈利。我相信，未来大多数年份——虽说绝非所有年份——我们仍能保持承销盈利。如果做到这一点，我们的浮存金将实现零成本，这几乎就像有人把620亿美元存入我们这里，让我们可以自行投资使用，还不必支付利息。
请允许我再强调一下：零成本浮存金并非整个产险行业可以指望的结果——大多数年份里，保费收入不足以覆盖赔付加费用。因此，几十年来，整个行业的有形净资产收益率远低于标普500的收益水平。伯克希尔之所以能拥有出色的经济表现，只是因为我们拥有一些杰出的管理者在经营一些非凡的生意。我们的保险业务CEO们值得你们感谢，因为他们为伯克希尔的价值增添了数百亿美元。我很高兴能向各位介绍这些全明星阵容。
* * * * * * * * * * * *
先从GEICO说起吧。各位对它都很熟悉，因为它每年要花8亿美元做广告（几乎是车险领域第二大广告主的1倍）。GEICO由Tony Nicely管理，他18岁就加入了公司，如今66岁，但每天仍然像跳舞一样兴高采烈地来上班——就像我79岁时的状态一样。我们都觉得能在一家自己热爱的事业里工作，非常幸运。
GEICO的客户对这家公司也充满好感。证据如下：自1996年伯克希尔取得GEICO控股权以来，它的市场份额从2.5%增长到了8.1%，这意味着净增加了700万投保人。也许他们联系我们是觉得我们的壁虎可爱，但选择我们是为了省下实实在在的钱。（你或许也能省一笔——请拨打1-800-847-7536，或访问www.GEICO.com。）而且他们留了下来，既因为喜欢我们的服务，也因为喜欢我们的价格。
伯克希尔分两步收购了GEICO。1976年至1980年间，我们以4700万美元买下了该公司约三分之一的股票。后来多年里，GEICO大规模回购自家股票，使得我们的持股比例在没有额外增持的情况下自然上升到约50%。接着，在1996年1月2日，我们以23亿美元现金收购了GEICO剩下的50%股份，收购价大约是我们最初买入成本的50倍。
华尔街有个老笑话，跟我们的经历很接近：
客户：谢谢你当初5美元推荐我买XYZ股票，我听说它涨到18美元了。
经纪人：是的，这才刚刚开始。事实上，这家公司现在做得非常好，在18美元时买甚至比当初5美元时买更划算。
客户：该死，早知道我应该再等等。
2010年GEICO的增长可能会放缓。由于汽车销量下滑，美国机动车注册量实际上在下降。此外，高失业率导致越来越多的司机不买保险。（这几乎在所有地方都是违法的，但如果你丢了工作又想开车……）不过，我们“低成本生产者”的地位，必然会让公司在未来获得显著增长。1995年，GEICO是美国第六大汽车保险公司；如今，我们是第三大。该公司的浮存金从27亿美元增长到了96亿美元。同样重要的是，在伯克希尔拥有GEICO的14个年头里，有13年它实现了承销盈利。
1951年1月，当时20岁的我作为一名学生首次拜访GEICO公司，那时我就对它兴奋不已。感谢Tony，让我今天更加兴奋。
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伯克希尔历史上极为重要的一件事发生在1985年的一个星期六。Ajit Jain走进我们在奥马哈的办公室——我立刻意识到我们找到了一位超级巨星。（他是由Mike Goldberg发现的，如今Mike已升格为“圣迈克”了。）
我们立即让阿吉特负责国民赔偿公司那家规模不大、处境艰难的再保险业务。多年来，他把这项业务打造成了保险领域独一无二的巨擘。
如今，阿吉特的团队只有30人，却在多个保险领域创下了交易规模纪录。他签下数十亿美元的保单——然后自己承担每一分风险，而不是转嫁给其他保险公司。三年前，他从劳合社接手巨额负债，帮助后者清理了与27,972名成员（"名字"）的关系，这些成员签下了问题丛生的保单，曾一度威胁到这家拥有322年历史的机构的存续。仅那一份合同的保费就高达71亿美元。2009年，他谈判达成了一份人寿再保险合同，未来50年左右可能为我们带来500亿美元的保费收入。
阿吉特的业务与政府雇员保险公司截然相反。在政府雇员保险公司，我们有数百万份小保单，大部分年复一年续保。阿吉特签的保单数量相对较少，而且组合每年变化很大。在全球范围内，他是那种当有人需要为某件又大又罕见的事情投保时，第一个被想起的人。
如果查理、我和阿吉特同在一艘正在下沉的船里——而你只能救一个人——请游向阿吉特。
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我们的第三大保险主力是通用再保险。几年前这项业务问题重重；如今它已是我们保险王冠上的一颗璀璨明珠。
在泰德·蒙特罗斯的领导下，通用再保险在2009年取得了出色的承销业绩，同时每美元保费收入为我们贡献了异常大量的浮存金。除了通用再保险的财产/意外险业务，泰德和他的同事还开发了一项日益壮大的人寿再保险业务，其价值与日俱增。
去年，通用再保险终于完全拥有了科隆再保险，后者自1995年以来一直是我们全球业务版图的关键部分——尽管此前只是部分持股。泰德和我将于9月访问科隆，感谢那里的经理们为伯克希尔做出的重要贡献。
最后，我们拥有一批较小的公司，其中大部分专注于保险界的冷门角落。总体来看，它们的业绩持续盈利，而且如下表所示，它们提供的浮存金数量可观。查理和我珍视这些公司及其经理人。
以下是我们的财产/意外险和人寿保险所有四个板块的记录：
| 承保利润 | 年末浮存金 | |||
| 保险业务 | 2009 | （单位：百万美元） | ||
| 2008 | 2009 | 2008 | ||
| 通用再保险 | $477 | $342 | $21,014 | $21,074 |
| 伯克希尔·哈撒韦再保险 | 349 | 1,324 | 26,223 | 24,221 |
| 政府雇员保险公司 | 649 | 916 | 9,613 | 8,454 |
| 其他主要业务 | 84 | 210 | 5,061 | 4,739 |
| $1,559 | $2,792 | $61,911 | $58,488 | |
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现在要做一个痛苦的坦白：去年，你们的董事长为一场完全由自己造成的、代价高昂的商业惨败画上了句号。
多年来，我一直在绞尽脑汁思考，能为政府雇员保险公司数百万忠诚客户提供什么附加产品。不幸的是，我终于成功了——灵光一现，认为我们应该推出自己的信用卡。我的理由是，政府雇员保险公司的保单持有人信用风险可能较低，而且如果我们提供一张有吸引力的卡，他们可能更愿意把业务交给我们。我们确实拿到了业务——但都是错误的那种。
我们信用卡业务的税前亏损最终达到约630万美元，直到我终于幡然醒悟。随后，我们将价值9,800万美元的问题应收款组合以55美分兑1美元的价格出售，又额外损失了4,400万美元。
需要强调的是，GEICO的管理层从一开始就不看好我的主意。他们警告我，我们可能不是挖到GEICO客户里的精华，而是——好吧，就叫它糟粕吧。我当时旁敲侧击地暗示，我年纪更大，也更明智。
我只是年纪更大而已。
受监管的公用事业业务
伯克希尔持有中美能源控股（MidAmerican Energy Holdings）89.5%的权益，该公司旗下拥有多种公用事业运营业务。其中最大的包括：（1）约克郡电力（Yorkshire Electricity）和北方电力（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72.5万电力客户提供服务；（3）太平洋电力（Pacific Power）和落基山电力（Rocky Mountain Power），服务西部六个州约170万电力客户；（4）克恩河（Kern River）和北方天然气（Northern Natural）管道，输送美国约8%的天然气消费量。
中美能源有两位出色的管理者：Dave Sokol和Greg Abel。此外，我的老朋友Walter Scott及其家族持有该公司的主要股权。Walter为任何业务都带来了非凡的商业智慧。与Dave、Greg和Walter共事十年，强化了我最初的信念：伯克希尔找不到更好的合作伙伴了。他们真是一支梦幻团队。
说起来有些不搭调，中美能源还拥有美国第二大房地产经纪公司——美国家庭服务公司（HomeServices of America）。该公司通过21家本地品牌公司运营，拥有16,000名经纪人。尽管去年又是房屋销售惨淡的一年，HomeServices仍赚取了微薄的利润。它还在芝加哥收购了一家公司，并将在时机合适时以合理价格收购其他优质经纪业务。十年后，HomeServices很可能会变得规模更大。
以下是中美能源业务的一些关键数据：
| 盈利（单位：百万美元） | ||
| 2009年 | 2008年 | |
| 英国公用事业 | 248 | 339 |
| 爱荷华州公用事业 | 285 | 425 |
| 西部公用事业 | 788 | 703 |
| 管道 | 457 | 595 |
| HomeServices | 43 | (45) |
| 其他（净额） | 25 | 186 |
| 公司利息及税前营业利润 | 1,846 | 2,203 |
| 星座能源（Constellation Energy）* | — | 1,092 |
| 利息（不含对伯克希尔的利息） | (318) | (332) |
| 伯克希尔次级债务利息 | (58) | (111) |
| 所得税 | (313) | (1,002) |
| 净利润 | 1,157 | 1,850 |
| 适用于伯克希尔的盈利 ** | 1,071 | 1,704 |
| 欠他人的债务 | 19,579 | 19,145 |
| 欠伯克希尔的债务 | 353 | 1,087 |
*包含1.75亿美元的分手费以及我们投资获得的9.17亿美元利润。
**包含伯克希尔赚取的利息（扣除相关所得税后），2009年为3,800万美元，2008年为7,200万美元。
我们的受监管电力公用事业公司（在大多数情况下提供垄断服务）与所服务区域的客户形成一种共生关系——这些用户依赖我们提供一流服务，并为他们的未来需求进行投资。发电和主要输电设施的审批和建设周期非常漫长，因此我们有责任保持远见。相应地，我们期望公用事业监管机构（代表客户行事）允许我们从必须投入的巨额资本中获得合理回报，以满足未来需求。除非我们履行自己的承诺，否则不应指望监管机构也履行他们的承诺。
Dave 和 Greg 确保我们做到了这一点。全国性调研公司持续将我们的爱荷华州和西部公用事业公司评为行业第一或接近第一。同样，在 Mastio 公司评比的 43 家美国管道企业中，我们的 Kern River 和 Northern Natural 资产并列第二。
此外，我们持续向运营注入巨额资金，不仅为未来做准备，还让这些运营更加环保。自从十年前收购 MidAmerican（中美能源）以来，它从未派发过股息。相反，我们将利润用于改进和扩大我们在每个服务区域内的资产。举一个突出的例子：过去三年，我们的爱荷华州和西部公用事业公司盈利 25 亿美元，而同期在风力发电设施上投入了 30 亿美元。
MidAmerican 始终履行其与社会之间的承诺，而值得称赞的是，社会也给予了回报：除了极少数例外，我们的监管机构都及时允许我们从不断增加的必需投资资本中获得公平回报。展望未来，我们将尽一切努力以客户期望的方式服务我们的区域。我们相信，相应地，我们将从投入的资金中获得应得的回报。
在早期，我和查理回避了资本密集型业务，例如公用事业。确实，迄今为止对所有者来说最好的业务仍然是那些资本回报率高、且增长所需增量投资很少的业务。我们很幸运拥有不少这样的业务，也乐意收购更多。然而，考虑到伯克希尔未来将产生越来越多的现金，我们现在很愿意进入那些定期需要大量资本支出的行业。我们只要求这些业务对其投入的增量资金有合理预期，能够赚取可观回报。如果我们的预期得到满足——而且我们相信会的——那么伯克希尔不断增长的优秀到卓越业务组合，未来几十年应该会带来高于平均水平（虽然肯定算不上惊人）的回报。
值得一提的是，我们的 BNSF（北伯林顿铁路公司）业务具有某些与电力公用事业相似的重要经济特征。两者都提供基本服务，这些服务对于我们的客户、我们所服务的社区乃至整个国家的经济福祉，现在和未来都至关重要。两者未来几十年都需要大量投资，远超折旧备抵。两者还必须进行长远规划，以满足预计将超过过去需求的需求。最后，两者都需要明智的监管机构，对允许回报率提供确定性，这样我们才能放心地进行维护、更换和扩建厂房所需的大规模投资。
我们注意到，铁路业务与公用事业一样，公众与公司之间存在着一种“社会契约”。如果任何一方逃避责任，双方都将不可避免地遭受损失。因此，契约双方都应该——而且我们相信也会——理解这样的行为方式带来的好处：鼓励对方做出良好行为。没有一流的电力和铁路系统，这个国家就不可能实现接近于充分的经济潜力。我们将尽自己的一份力，确保这些系统的存在。
今后，BNSF的业绩将包含在“受监管公用事业”这一板块中。除了两项业务具有相似的底层经济特征外，它们都是大量债务的合理使用者，而这些债务不由伯克希尔担保。两者都将保留大部分收益。无论经济好坏，两者都会赚取并投入大量资金，尽管铁路业务会表现出更大的周期性。总体而言，我们预计这个受监管板块的盈利会随时间显著增长，尽管代价是我们投入了数十——没错，是数十——亿美元的增量股权资本。
制造、服务与零售业务
我们在伯克希尔的这一部分活动覆盖了各个领域。不过，我们先来看一下整个集团的简要资产负债表和利润表。
资产负债表 2009年12月31日（单位：百万美元）
| 资产 | 负债和权益 应付票据 | 1,842 | |
| 现金及现金等价物 | 3,018 | ||
| 应收账款及票据 | 5,066 | 其他流动负债 | 7,414 |
| 存货 | 6,147 | 流动负债合计 | 9,256 |
| 其他流动资产 | 625 | ||
| 流动资产合计 | 14,856 | ||
| 商誉及其他无形资产 | 16,499 | 递延所得税 | 2,834 |
| 固定资产 | 15,374 | 长期债务及其他负债 | 6,240 |
| 其他资产 | 2,070 | 权益 | 30,469 |
| 48,799 | 48,799 |
利润表（单位：百万美元）
| 2009 | 2008 | 2007 | |
| 营业收入 | 61,665 | 66,099 | 59,100 |
| 营业费用（包括折旧：2009年1,422、2008年1,280、2007年955） | 59,509 | 61,937 | 55,026 |
| 利息费用 | 98 | 139 | 127 |
| 税前利润 | 2,058* | 4,023* | 3,947* |
| 所得税及少数股东权益 | 945 | 1,740 | 1,594 |
| 净利润 | 1,113 | 2,283 | 2,353 |
*不包括并购会计调整。
该板块中众多且广泛多样的业务，几乎都不同程度地受到了2009年严重衰退的影响。主要的例外是McLane（麦克莱恩），我们的食品、糖果和非食品商品配送商，面向成千上万家零售店，其中最大的是Wal-Mart（沃尔玛）。
Grady Rosier带领McLane实现了创纪录的税前利润3.44亿美元，但这在其高达312亿美元的庞大销售额中，仅相当于每美元略多于1美分。McLane拥有大量实物资产——几乎全部自持——包括3,242辆拖车、2,309辆牵引车和55个配送中心，总面积达1,520万平方英尺。然而，McLane最重要的资产是Grady。
我们还有不少公司，即使销售额萎缩，利润却有所提升，这始终是一项杰出的管理成就。以下是实现这一点的CEO们：
| 公司 | CEO |
| Benjamin Moore（涂料） | Denis Abrams |
| Borsheims（珠宝零售） | Susan Jacques |
| H. H. Brown（鞋类制造与零售） | Jim Issler |
| CTB（农业设备） | Vic Mancinelli |
| Dairy Queen | John Gainor |
| Nebraska Furniture Mart（家具零售） | Ron and Irv Blumkin |
| Pampered Chef（厨房用具直销） | Marla Gottschalk |
| See's（糖果制造与零售） | Brad Kinstler |
| Star Furniture（家具零售） | Bill Kimbrell |
在我们持有的业务中，受工业萧条影响较大的两家——Marmon和Iscar——都交出了相对强劲的成绩单。Frank Ptak掌舵的Marmon实现了13.5%的税前利润率，创下历史新高。尽管公司销售额下降了27%，但Frank的精打细算控制住了盈利下滑的幅度。
总部在以色列的Iscar则无坚不摧——无论是战争、衰退还是竞争对手。全球另外两家小型切削工具主要供应商去年都过得相当艰难，全年大部分时间都在亏损。虽然Iscar的业绩较2008年大幅下滑，但公司持续报出盈利，甚至在整合和优化去年我们提过的日本大型收购对象Tungaloy期间也不例外。一旦制造业回暖，Iscar必将再创纪录。Eitan Wertheimer、Jacob Harpaz和Danny Goldman这支不可思议的管理团队会确保这一点。
2009年，我们旗下所有与住宅和商业建筑相关的业务都遭受重创。Shaw、Johns Manville、Acme Brick和MiTek的合计税前盈利为2.27亿美元，较2006年建筑活动繁荣时的12.95亿美元下降了82.5%。这些业务仍在底部挣扎，但它们的竞争地位毫发无损。
伯克希尔去年最大的麻烦是NetJets——一家提供公务机部分所有权（分时产权）的航空运营公司。多年来，它成功确立了行业领军地位，机队价值远超三大主要竞争对手的总和。总体而言，我们在该领域的霸主地位依然无人能撼。
然而，NetJets的经营业绩却是另一回事。在我们拥有这家公司的11年里，它累计录得1.57亿美元的税前亏损。更糟的是，公司债务从收购时的1.02亿美元飙升至去年4月的19亿美元。如果没有伯克希尔的担保，NetJets早已倒闭。显然，我让你们失望了，竟让NetJets落得这般田地。但幸运的是，有人救了我一命。
Dave Sokol——MidAmerican Energy那位才华横溢的建设者和经营者——于8月出任NetJets的CEO。他的领导力带来了变革：债务已降至14亿美元；在2009年遭遇7.11亿美元的惊人亏损后，公司现已稳稳盈利。
最重要的是，Dave所做的任何改变都没有损害NetJets前任CEO、分时产权行业之父Rich Santulli所坚持的安全与服务顶级标准。Dave和我本人对这些标准的维护有着最强烈的个人利益，因为我们和家人在几乎所有飞行中都使用NetJets，我们的许多董事和经理也是如此。我们没有被指派专机或专属机组。我们享受与其他任何所有者完全相同的待遇——这意味着当我们使用个人合同时，支付的价格与其他所有人一样。简言之，我们吃自己做的饭。在航空业，没有比这更有力的证词了。
金融与金融产品
在这个板块中，我们最大的业务是Clayton Homes（克莱顿家园），这家公司是美国模块化和预制房屋的领军企业。Clayton并非一直位居第一：十年前，业内三大制造商分别是Fleetwood（弗利特伍德）、Champion（冠军）和Oakwood（奥克伍德），它们合计占行业产量的44%。如今这三家均已破产。与此同时，行业总产量从1999年的38.2万套降至2009年的6万套。
这个行业陷入混乱有两大原因，其中第一条是美国经济复苏必须承受的。这条原因涉及美国住宅开工量（包括公寓单元）。2009年开工量为55.4万套，是我们有数据记录50年来的最低值。矛盾的是，这是好消息。
几年前，当住宅开工量（供给端）年均约200万套时，人们曾以为是好消息。但家庭组建量（需求端）每年仅约120万套。经过几年的失衡，美国房屋过多也就不足为奇了。
解决过剩有三种办法：(1) 炸掉大量房屋——类似于"旧车换现金"计划中销毁汽车的做法；(2) 加速家庭组建，比如鼓励青少年同居（这个方案不缺志愿者）；(3) 将新屋开工量降到远低于家庭组建率的水平。
美国明智地选择了第三项，这意味着大约一年之内，住宅问题基本就能成为过去——高端住宅和某些过度建设特别严重的地区除外。当然，房价仍会远低于"泡沫"水平，但每一个因此受损的卖家（或贷款人）背后，都会有一个受益的买家。事实上，几年前还买不起合适住房的许多家庭，如今因为泡沫破裂，反而觉得在自己的承受范围之内。
第二条原因是预制房屋行业特有的：工厂建造的房屋和现场建造的房屋在抵押贷款利率上存在惩罚性差异。在您继续阅读之前，请允许我强调一个显而易见的事实：伯克希尔在这场纷争中有切身利益，因此您应特别审慎地评估以下评论。这个提醒过后，请容我解释，为何利率差异会给大量低收入美国人以及Clayton带来问题。
住宅抵押贷款市场由FHA（联邦住房管理局）、Freddie Mac（房地美）和Fannie Mae（房利美）制定的政府规则所塑造。它们的贷款标准具有绝对影响力，因为它们承保的抵押贷款通常可以证券化，并实质上变成美国政府的债务。目前，符合担保资格的常规现场建房购房者，可以获得约5¼%的30年期贷款。此外，这些抵押贷款近期被美联储大量购买，这一行动也有助于将利率维持在极低水平。
相比之下，极少数工厂建造的房屋符合代理机构承保抵押贷款的条件。因此，一个信用良好的预制房屋购买者必须支付约9%的贷款利息。对于全现金购房者而言，Clayton的房屋物超所值。但如果买家需要抵押贷款——当然，大多数买家都需要——融资成本的差异往往抵消了工厂建造房屋的诱人价格。
去年我曾告诉各位，为什么我们的购房者——通常是低收入群体——作为借款人信用表现如此出色。关键在于他们的心态：他们签约买房是为了居住，而不是为了转售或再融资。因此，我们的购房者通常申请的贷款月供与其核实后的收入相匹配（我们从不发放"骗子贷款"），并期盼着能还清房贷的那一天。如果他们失业、生病或离婚，我们当然预计会出现违约。但他们很少仅仅因为房价下跌就选择断供。即使到今天，尽管失业问题日益严重，Clayton的逾期和违约率依然处于合理水平，不会给我们带来大麻烦。
我们曾努力让更多客户的贷款获得与现场建造房屋类似待遇的资格。但迄今为止，成效甚微。许多收入不高但习惯负责的家庭因此不得不放弃拥有住房的梦想，原因很简单：针对工厂建造房屋的融资利差，导致月供过于昂贵。如果贷款资格标准不放宽，让所有满足首付和收入条件的人都能获得低成本融资，那么预制房屋行业似乎注定要挣扎求存、日渐萎缩。
即便在这样的条件下，我相信Clayton在未来几年仍能盈利，尽管远未达到其潜力。我们不可能有比CEO Kevin Clayton更好的管理者了，他把伯克希尔的利益当作自己的利益来维护。我们的产品质量一流、价格低廉且不断改进。此外，我们将继续利用伯克希尔的信用来支持Clayton的抵押贷款项目，因为我们坚信其稳健性。即便如此，伯克希尔的借款利率也不可能接近政府机构所能获得的水平。这一劣势将限制销售，既伤害了Clayton，也伤害了众多渴望拥有低成本住房、值得帮助的家庭。
在下表中，Clayton的利润已扣除其向伯克希尔支付的使用信用的费用。这项成本在Clayton账上与伯克希尔财务部门收取的等额收入相互抵消，该收入计入"其他收入"。2009年和2008年，这项成本与收入的金额分别为1.16亿美元和9200万美元。
下表还显示了我们的家具租赁（CORT）和拖车租赁（XTRA）业务受到经济衰退的严重冲击。尽管它们的竞争地位一如既往地稳固，但我们尚未看到这些业务出现任何反弹。
| 税前利润（百万美元） | |
|---|---|
| 2009 | |
| 净投资收益 | $278 |
| 人寿与年金业务 | 116 |
| 租赁业务 | 14 |
| 预制房屋金融业务（Clayton） | 187 |
| 其他收入 * | 186 |
| 扣除投资及衍生品损益前利润 | $781 |
*包括2009年伯克希尔向Clayton收取的1.16亿美元和2008年的9200万美元，作为Clayton使用伯克希尔信用的费用。
2009年底，我们成为了Berkadia Commercial Mortgage（原名为Capmark）的50%股东。该公司是美国第三大商业抵押贷款服务商。除了管理着2350亿美元的贷款组合外，它还是一家重要的抵押贷款发起机构，在全美拥有25个办事处。尽管商业地产在未来几年将面临重大挑战，但Berkadia的长期机遇十分显著。
我们这次合作的伙伴是Leucadia，由Joe Steinberg和Ian Cumming掌舵。几年前伯克希尔曾与他们联手收购Finova（一家陷入困境的金融公司），那次合作非常愉快。在处理那一摊子事时，Joe和Ian承担了远超分内的工作——这种安排我一向鼓励。所以，当他们打电话来，想再次合伙收购Capmark时，我自然求之不得。
我们的第一次合资企业也叫Berkadia。那么，这次就管它叫"Berkadia二世"吧。说不定哪天我会再给你们写一封"Berkadia三世"的信。
投资
下表列出的是我们截至年末市值超过10亿美元的普通股投资。
*此为我们的实际买入价，也是我们的计税基础；美国通用会计准则下的"成本"因某些情况下的冲销或减值而有所不同。
此外，我们还持有道氏化学、通用电气、高盛、瑞士再保险和箭牌的非交易证券头寸，总成本211亿美元，账面价值260亿美元。这五笔投资都是在过去18个月内完成的。撇开它们提供的巨大股权潜力不谈，这些持仓每年合计能带来21亿美元的股息和利息。最后，年末我们持有BNSF 76,777,029股（22.5%），当时按每股85.78美元入账，但随后已并入我们对整个公司的收购。
2009年，我们卖出最多的股票是康菲石油、穆迪、宝洁和强生（后者是在年初建仓后卖出的）。Charlie和我相信，这些股票未来都可能涨得更高。我们年初卖出部分股票是为收购道氏化学和瑞士再保险筹集现金，年末则因预期收购BNSF而卖出其他股票。
去年我们告诉大家，当时公司债和市政债市场存在极不寻常的局面，这些证券相比美国国债便宜得离谱。我们按这个判断买了一些，但本应该买得更多。大机会不常来。天上掉金子的时候，应该用桶接，而不是用顶针。
2008年初，我们持有443亿美元的现金等价物，此后又保留了170亿美元的经营利润。然而，到2009年底，我们的现金降至306亿美元（其中80亿美元已预留用于收购BNSF（北伯林顿圣塔菲铁路公司））。在过去两年的混乱中，我们把大量资金投入了工作。对投资者来说，这是一段理想的时期：恐惧氛围是他们最好的朋友。那些只在评论员唱多时投资的人，最终会为毫无意义的安慰付出高昂代价。归根结底，投资的关键在于你为一家企业支付的价格——通过股市购买其一小部分股份——以及这家企业在未来一二十年里的盈利情况。
去年，我详细讨论过我们的衍生品合约，当时这些合约既引发争议也遭误解。如需查阅那次讨论，请访问www.berkshirehathaway.com。
此后，我们只对其中几个头寸做了调整。一些信用合约已经到期。大约10%的股票看跌期权合约的条款也有变动：到期日缩短，行权价格大幅下调。在这些修改中，没有涉及资金易手。
去年讨论中的几点值得重述：
（1）尽管不能保证，但我预期我们的合约在其整个存续期内总体上将为我们带来利润，即使将我们由此获得的巨额浮存金所产生的投资收益排除在计算之外。我们衍生品相关的浮存金——不包括我之前提到的620亿美元保险浮存金——在年末约为63亿美元。
（2）在任何情况下，我们只有少数合约需要提供抵押品。在去年股票和信用市场的最低点，我们的抵押要求是17亿美元，仅占我们所持衍生品相关浮存金的一小部分。需要补充的是，当我们提供抵押品时，我们交出的证券仍会继续为我们的账户赚取收益。
（3）最后，你们应该预期这些合约的账面价值会出现大幅波动——这些项目可能对我们的报告季度收益产生巨大影响，但不会影响我们的现金或投资持仓。这一想法完全符合2009年的情况。以下是去年衍生品估值带来的税前季度损益，这些损益是我们报告收益的一部分：
| 季度 | 收益（损失）金额（十亿美元） |
| 1 | (1.517) |
| 2 | 2.357 |
| 3 | 1.732 |
| 4 | 1.052 |
正如我们解释过的，这些剧烈的波动既不会让查理和我兴奋，也不会让我们烦恼。我们在向你们汇报时，将继续把这些数字单独列出（就像我们对已实现投资收益和损失的做法一样），以便你们能更清晰地看到我们经营业务的收益。我们很高兴持有目前这些衍生品合约。迄今为止，我们从它们提供的浮存金中获得了可观的利润。我们还预计在这些合约的存续期内将继续赚取更多的投资收益。
长期以来，我们一直投资于查理和我认为定价错误的衍生品合约，正如我们试图投资于定价错误的股票和债券一样。事实上，我们早在1998年初就首次向你们报告过我们持有此类合约。衍生品对参与者和整个社会构成的危险——我们早已警告过的危险，且可能如同炸药一般——来自于这些合约导致杠杆和/或交易对手风险达到极端程度时。在伯克希尔，从未发生——也绝不会发生——这样的事情。
让伯克希尔远离这类问题，那是我的职责。查理和我坚信，CEO绝不能把风险控制授权给别人。这事关重大，不容含糊。在伯克希尔，我亲自发起并监督账上的每一份衍生品合约——除了我们几家子公司（如MidAmerican）的与业务经营相关的合约，以及General Re的少量收尾合约。如果伯克希尔哪天惹上麻烦，那一定是我的错，绝不会是因为风险委员会或首席风险官的误判。
在我看来，如果一家大型金融机构的董事会不坚持让CEO承担风险控制的全部责任，那它就是失职的。如果他胜任不了这项任务，那就该去找别的工作。如果他搞砸了——以至于政府被迫拿资金或担保来介入——那么他本人及其董事会必须承担严重的财务后果。
搞砸我们国家一些最大金融机构运营的并不是股东。然而他们却承受了后果——在多数倒闭案例中，他们所持股份的价值被抹去了90%或更多。仅在过去两年最大的四起金融灾难中，他们就总计损失了超过5000亿美元。说这些所有者受到了“救助”，简直是对这个词的嘲弄。
然而，那些倒闭公司的CEO和董事们却大多毫发无损。他们亲手造成的灾难或许削弱了他们的财富，但他们依旧过着奢华的生活。需要改变的是这些CEO和董事们的行为：如果他们的鲁莽行为损害了其所在机构和国家，他们就应该付出沉重的代价——一笔既不能由他们损害的公司报销、也不能由保险赔付的代价。CEO们——在很多情况下还有董事们——长期以来一直受益于过大的财务胡萝卜；现在也需要在他们的雇佣关系中引入一些有分量的棍子。
一个令人不安的事实（董事会过热）
去年我们的子公司用现金做了几笔小的“补强型”收购，但我们与BNSF（北伯林顿铁路公司）的大交易要求我们发行约95,000股伯克希尔股票，相当于原有流通股的6.1%。查理和我喜欢发行伯克希尔股票的程度，大概跟我们喜欢为结肠镜检查做准备差不多。
我们厌恶的原因很简单。如果我们做梦都不会考虑在当前市价下卖掉整个伯克希尔，那凭什么要在并购中用发行股票的方式，以同样不充分的价格“卖掉”公司的一大部分呢？
在评估换股收购要约时，目标公司的股东理所当然会把注意力集中在收购方将要给他们的股票的市场价格上。但同时也期望这笔交易能带给他们自己所放弃股份的内在价值。如果潜在收购方的股票售价低于其内在价值，那么它就不可能通过全股票交易做成一笔明智的买卖。你绝不可能在不伤害自己股东的情况下，用一只被低估的股票去交换一只被充分定价的股票。
想象一下，有A公司和B公司，规模相当，两家企业的内在价值均为每股100美元。但两者股票均以每股80美元交易。A公司CEO信心爆棚但智商欠费，提出用1.25股A公司股票换取每股B公司股票，并正确地向董事解释B公司每股价值100美元。但他却忘了说明，他所付出的代价将使自己的股东损失125美元的内在价值。如果董事们数学也不好，这笔交易就此完成，那么B公司股东最终将拥有A和B合并资产的55.6%，而A公司股东只拥有44.4%。值得注意的是，在这场荒谬的交易中，并非A公司所有人都输家——其CEO如今掌管着一家规模是原来两倍的公司，而在当今世界，规模往往与声望和薪酬成正比。
如果收购方的股票被高估，情况则不同：用它作为货币对收购方有利。这就是为什么股票市场各个领域的泡沫总会导致狡猾的推销员连续发行股票。以其股票市值为依靠，他们可以负担得起超额支付，因为他们实际上是在使用假钞。时不时地，会出现许多“以空气换资产”式的收购，20世纪60年代末期尤其如此，这种诡计在当时尤为可耻。事实上，有些大公司就是这样建立起来的。（当然，参与其中的任何一方都不会公开承认正在发生的事实，尽管私下里嘲笑声不绝于耳。）
在我们收购BNSF的过程中，出售股票的股东正确地评估了我们的每股100美元报价。然而，我们的实际成本略高，因为100美元中的40%是以我们的股票支付的，而Charlie和我认为这些股票的价值高于其市场价格。幸运的是，我们长期持有大量用现金在市场上购得的BNSF股票。总体而言，我们总成本中只有约30%是用伯克希尔股票支付的。
最终，Charlie和我决定，以股票支付30%价格的不利之处，被这次收购给我们带来的机会所抵消——我们可以将220亿美元现金投入一个我们理解且长期看好的业务中。此外，该业务由我们信任和钦佩的Matt Rose管理，这又是一个好处。我们也喜欢在未来以合理的回报率追加数十亿美元投资的前景。但最后的决定是艰难的。如果我们需要更多股票来完成收购，那实际上毫无意义。我们付出的将超过我们得到的。
我参加过几十次讨论收购的董事会会议，通常董事们会听取高薪投资银行家（还有其他类型的吗？）的指示。这些银行家总是向董事会提供对被收购公司价值的详细评估，重点强调为何其价值远高于市场价格。然而，在我超过50年的董事会生涯中，我从未听到投资银行家（或管理层！）讨论所付出东西的真正价值。当交易涉及发行收购方股票时，他们仅仅用市场价格来衡量成本。即使他们曾主张收购方的股票价格被严重低估——绝对无法反映其真实价值——但如果收购方本身成为收购目标，他们也会这样做。
当考虑用股票作为收购货币，并且董事们正听取顾问意见时，在我看来，要获得理性且平衡的讨论只有一种方法：董事们应另聘一位顾问，专门论证反对拟议收购的理由，且其费用取决于交易不达成。没有这种激烈手段，我们关于使用顾问的建议仍然是：“别问理发师你需不需要理发。”
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我忍不住要跟你们讲一个很久以前的真实故事。我们曾持有一家大型、经营良好的银行股票，这家银行几十年来被法规禁止进行收购。后来，法律终于修改，我们的银行立刻开始寻找可能的收购目标。它的管理层——都是好人，也是能干的银行家——不出所料地开始像刚发现女孩子的青春期男孩一样行事。
他们很快盯上了一家规模小得多的银行，那家银行也经营良好，在净资产收益率、利差、贷款质量等方面具有类似的财务特征。我们的大银行股价低廉（这就是我们买入它的原因），在账面价值附近徘徊，市盈率很低。然而，那家小银行的老板正被州内其他大银行追求，他坚持要价接近账面价值的三倍。而且，他想要股票，不是现金。
自然，我们的人屈服了，同意了这个摧毁价值的交易。“我们需要展示我们也在参与竞购。再说，这只是一笔小交易，”他们说道，仿佛只有对股东造成重大损害才是阻止交易的正当理由。查理当时的反应是：“难道我们要为弄脏我们草坪的是吉娃娃而不是圣伯纳犬而鼓掌吗？”
那家小银行的卖方——可不是傻瓜——随后在谈判中提出了最后一项要求。“并购之后，”他实际上等于在说（也许用词比这更委婉），“我将成为你们银行的大股东，这将占我净资产的很大一部分。因此，你们必须向我保证，再也不做这么愚蠢的交易了。”
没错，并购完成了。小银行的老板变得更富，我们变得更穷，而大银行的管理层——规模更大之后——从此幸福地生活下去了。
年度股东大会
我们猜测去年有35,000人参加了股东大会（1981年时只有12人——没有漏掉零）。随着股东人数大幅增加，我们预计今年会更多。因此，我们必须在常规流程上做一些调整。不过，我们对你们前来参加的 enthusiasm 不会有任何变化。查理和我喜欢见到你们，回答你们的问题，而最棒的是——看到你们从我们的企业购买大量商品。
今年的股东大会将于5月1日（星期六）举行。和往常一样，Quest Center 的大门将于早上7点打开，新的伯克希尔电影将于8点30分播放。9点30分我们将直接进入问答环节（中场休息时在 Quest 的摊位吃午餐），一直持续到下午3点30分。短暂休息后，查理和我会在3点45分召开正式股东大会。如果你决定在当天的问答时段离开，请在查理讲话时走。（动作要快；他说话很简洁。）
当然，退场的最佳理由是购物。我们会帮助你们做到这一点——在会场旁边的194,300平方英尺的大厅里摆满来自几十家伯克希尔子公司的产品。去年，你们表现得很好，大多数摊位的销售额都创下了纪录。但你们还能做得更好。（善意警告：如果我发现有销售额落后，我会变得暴躁，并锁上出口。）
GEICO将设立展位，由来自全国各地的顶级顾问团队坐镇，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%）。在我们运营的51个司法管辖区中，有44个允许这项特殊优惠。（补充一点：如果您符合其他优惠条件，例如某些团体折扣，那么这个折扣不能叠加。）带上您现有保险的详细信息，来看看我们能否帮您省钱。我相信至少对你们中一半的人，我们能做到。
别忘了去书虫摊位。那里将展出30多种书籍和DVD，其中有两本新书出自我的儿子：霍华德的《脆弱》（Fragile），一本充满全球挣扎生活照片与评论的作品；以及彼得的《人生由你》（Life Is What You Make It）。完成家族三部曲的是我姐姐多丽丝的传记首秀，聚焦她非凡的慈善活动。此外还有《穷查理宝典》，讲述我的合伙人查理的生平。这本书堪称出版界的奇迹——从未做过广告，却年复一年地在网站上卖出成千上万册。（如果您需要邮寄购买的书籍，附近有快递服务。）
如果您是个大手笔花钱的人——或者说，就算您只是去开开眼——周六中午到下午5点，请来奥马哈机场东侧的埃利奥特航空（Elliott Aviation）。那里我们将展示一队NetJets（耐特杰）飞机，包您心跳加速。
随本报告附寄的股东委托材料中有一份附件，说明如何获取参加会议及其他活动所需的凭证。至于机票、酒店和租车预订，我们再次签约美国运通（800-799-6634）为您提供特别帮助。负责这些事务的Carol Pedersen每年都为我们做得非常出色，我在此向她致谢。酒店房间可能不好找，但和Carol合作，您一定能订到。
在内布拉斯加家具城（Nebraska Furniture Mart），位于道奇街与太平洋街之间的72街，占地77英亩，我们将再次推出“伯克希尔周末”折扣价格。要享受伯克希尔折扣，您必须在4月29日周四至5月3日周一（含首尾两天）期间购物，并出示您的会议凭证。这一时段的特价甚至适用于几个知名制造商的产品，它们通常有铁打不动的禁止折扣规定，但为了我们的股东周末精神，破例为您让利。我们感谢它们的合作。NFM营业时间：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5:30至8点，NFM将举办“伯克村烧烤派对”（Berkyville BBQ），欢迎所有人参加。
在波仙珠宝（Borsheims），我们将再次举办两场仅限股东的活动。第一场是4月30日周五晚上6点至10点的鸡尾酒会。第二场是主要庆典，于5月2日周日上午9点至下午4点举行。周六我们营业至下午6点。
整个周末波仙珠宝都会人潮涌动。因此，为了方便您，股东价格将从4月26日周一持续到5月8日周六。在此期间，请出示您的会议凭证或显示您是伯克希尔股东的券商对账单，以表明股东身份。带着人造钻石进门，戴着真钻石出门。我女儿告诉我，您买得越多，省得越多（孩子净说大实话）。
周日，在波仙珠宝外的商场里，美国国际象棋冠军帕特里克·沃尔夫（Patrick Wolff）将蒙上眼睛，接受所有挑战者——挑战者们可都睁着眼睛——每六人一组应战。附近，来自达拉斯的杰出魔术师诺曼·贝克（Norman Beck）将让围观者目瞪口呆。
今年我们为股东准备的特备节目是邀请我的朋友邢雅蕾（Ariel Hsing）回归——她是全美青少年乒乓球排名第一的选手（未来很可能是奥运奖牌得主）。如今14岁的她，四年前曾现身股东大会，打遍全场无敌手，包括我在内。（各位可以在YouTube上搜"Ariel Hsing Berkshire"，观赏我的惨败场面。）
当然，我一直憋着劲要复仇，周日下午1点在Borsheims珠宝店外再战。比赛采用三球制，等我先消耗她的体力后，欢迎所有股东也来挑战同样的三球赛。获胜者将获赠一盒喜诗糖果（See's candy）。我们会提供球拍，但如果您觉得用自己的球拍更顺手，也欢迎自带。（其实没用。）
5月2日（周日），Gorat's牛排馆将再次独家向伯克希尔股东开放，营业时间从下午1点到晚上10点。不过去年这家店被挤爆了。今年预计食客更多，我已拜托另一位挚爱餐厅Piccolo's的老板Donna Sheehan在周日也向股东开放营业。（喜欢美食的朋友一定要尝尝Piccolo's巨型漂浮沙士冰淇淋——这可是必点项目！）我两家都会去吃：周末的活动让我胃口大开，而且每家都有我的心头好。提醒您：Gorat's订餐请于4月1日（仅限当天）拨打402-551-3733；Piccolo's请拨打402-342-9038。
很遗憾，今年我们无法为国际来宾举办招待会。去年参与人数增至约800人，光是我逐个签名就花了两个半小时。今年预计国际来宾更多，查理和我只能取消这个环节。但请放心，我们欢迎每一位远道而来的国际股东。
去年我们改变了股东大会提问环节的选拔方式，收到几十封来信赞赏新安排。因此今年继续沿用：由三位财经记者主导问答环节，他们将从股东提交的邮件中筛选问题提问。
三位记者及其邮箱分别是：卡罗尔·卢米斯（Carol Loomis），《财富》杂志，cloomis@fortunemail.com；贝基·奎克（Becky Quick），CNBC，BerkeleyQuestions@cnbc.com；安德鲁·罗斯·索金（Andrew Ross Sorkin），《纽约时报》，arsorkin@nytimes.com。每位记者将从收到的提问中选择十二个左右他们认为最有趣、最重要的问题。记者们告诉我，提问言简意赅、每封邮件不超过两个问题，被选中的概率最大。（如果希望被选中时提及姓名，请在邮件中注明。）
查理和我在会前对任何问题都一无所知。我们知道记者们会挑一些刁钻的问题——这正是我们喜欢的。
周六上午8点15分，我们将在13个麦克风位置进行抽签，供希望亲自提问的股东参与。大会期间，我会交替安排记者的提问和中签股东的提问。问答环节已延长30分钟，预计每类问题各回答30个左右。
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86岁和79岁的查理和我依然幸运得超出想象。我们出生在美国；有出色的父母，让我们接受了良好的教育；拥有美满的家庭和健康的身体；还天生带着一根“商业”基因，让我们得以以远超许多对社会贡献同样甚至更多的人的方式致富。此外，我们长期从事着自己热爱的工作，而且有无数才华横溢、乐观开朗的同事从各方面给予帮助。事实上，这些年来我们的工作越来越有趣——难怪我们会跳着踢踏舞去上班。如果非要说，我们很乐意付一大笔钱来保住这份工作（但别让薪酬委员会知道）。
不过，对我们来说，没有什么比在伯克希尔年会上与各位股东合伙人相聚更有趣的事了。所以，5月1日来奎斯特中心参加我们的“资本家的伍德斯托克”吧。我们到时候见。
2010年2月26日
沃伦·E·巴菲特
董事会主席
附：坐火车来。