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)
2010		13.0	15.1	(2.1)
Compounded Annual Gain – 1965-2010		20.2%	9.4%	10.8
Overall Gain – 1964-2010		490,409%	6,262%

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.:

The per-share book value of both our Class A and Class B stock increased by 13% in 2010. Over the last 46 years (that is, since present management took over), book value has grown from \$19 to \$95,453, a rate of 20.2% compounded annually.*

The highlight of 2010 was our acquisition of Burlington Northern Santa Fe, a purchase that's working out even better than I expected. It now appears that owning this railroad will increase Berkshire's “normal” earning power by nearly 40% pre-tax and by well over 30% after-tax. Making this purchase increased our share count by 6% and used \$22 billion of cash. Since we’ve quickly replenished the cash, the economics of this transaction have turned out very well.

A “normal year,” of course, is not something that either Charlie Munger, Vice Chairman of Berkshire and my partner, or I can define with anything like precision. But for the purpose of estimating our current earning power, we are envisioning a year free of a mega-catastrophe in insurance and possessing a general business climate somewhat better than that of 2010 but weaker than that of 2005 or 2006. Using these assumptions, and several others that I will explain in the “Investment” section, I can estimate that the normal earning power of the assets we currently own is about \$17 billion pre-tax and \$12 billion after-tax, excluding any capital gains or losses. Every day Charlie and I think about how we can build on this base.

Both of us are enthusiastic about BNSF's future because railroads have major cost and environmental advantages over trucking, their main competitor. Last year BNSF moved each ton of freight it carried a record 500 miles on a single gallon of diesel fuel. That's three times more fuel-efficient than trucking is, which means our railroad owns an important advantage in operating costs. Concurrently, our country gains because of reduced greenhouse emissions and a much smaller need for imported oil. When traffic travels by rail, society benefits.

Over time, the movement of goods in the United States will increase, and BNSF should get its full share of the gain. The railroad will need to invest massively to bring about this growth, but no one is better situated than Berkshire to supply the funds required. However slow the economy, or chaotic the markets, our checks will clear.

Last year – in the face of widespread pessimism about our economy – we demonstrated our enthusiasm for capital investment at Berkshire by spending \$6 billion on property and equipment. Of this amount, \$5.4 billion – or 90% of the total – was spent in the United States. Certainly our businesses will expand abroad in the future, but an overwhelming part of their future investments will be at home. In 2011, we will set a new record for capital spending – \$8 billion – and spend all of the \$2 billion increase in the United States.

Money will always flow toward opportunity, and there is an abundance of that in America. Commentators today often talk of “great uncertainty.” But think back, for example, to December 6, 1941, October 18, 1987 and September 10, 2001. No matter how serene today may be, tomorrow is always uncertain.

Don't let that reality spook you. Throughout my lifetime, politicians and pundits have constantly moaned about terrifying problems facing America. Yet our citizens now live an astonishing six times better than when I was born. The prophets of doom have overlooked the all-important factor that is certain: Human potential is far from exhausted, and the American system for unleashing that potential – a system that has worked wonders for over two centuries despite frequent interruptions for recessions and even a Civil War – remains alive and effective.

We are not natively smarter than we were when our country was founded nor do we work harder. But look around you and see a world beyond the dreams of any colonial citizen. Now, as in 1776, 1861, 1932 and 1941, America's best days lie ahead.

Performance

Charlie and I believe that those entrusted with handling the funds of others should establish performance goals at the onset of their stewardship. Lacking such standards, managements are tempted to shoot the arrow of performance and then paint the bull's-eye around wherever it lands.

In Berkshire's case, we long ago told you that our job is to increase per-share intrinsic value at a rate greater than the increase (including dividends) of the S&P 500. In some years we succeed; in others we fail. But, if we are unable over time to reach that goal, we have done nothing for our investors, who by themselves could have realized an equal or better result by owning an index fund.

The challenge, of course, is the calculation of intrinsic value. Present that task to Charlie and me separately, and you will get two different answers. Precision just isn't possible.

To eliminate subjectivity, we therefore use an understated proxy for intrinsic-value – book value – when measuring our performance. To be sure, some of our businesses are worth far more than their carrying value on our books. (Later in this report, we’ll present a case study.) But since that premium seldom swings wildly from year to year, book value can serve as a reasonable device for tracking how we are doing.

The table on page 2 shows our 46-year record against the S&P, a performance quite good in the earlier years and now only satisfactory. The bountiful years, we want to emphasize, will never return. The huge sums of capital we currently manage eliminate any chance of exceptional performance. We will strive, however, for better-than-average results and feel it fair for you to hold us to that standard.

Yearly figures, it should be noted, are neither to be ignored nor viewed as all-important. The pace of the earth's movement around the sun is not synchronized with the time required for either investment ideas or operating decisions to bear fruit. At GEICO, for example, we enthusiastically spent \$900 million last year on advertising to obtain policyholders who deliver us no immediate profits. If we could spend twice that amount productively, we would happily do so though short-term results would be further penalized. Many large investments at our railroad and utility operations are also made with an eye to payoffs well down the road.

To provide you a longer-term perspective on performance, we present on the facing page the yearly figures from page 2 recast into a series of five-year periods. Overall, there are 42 of these periods, and they tell an interesting story. On a comparative basis, our best years ended in the early 1980s. The market's golden period, however, came in the 17 following years, with Berkshire achieving stellar absolute returns even as our relative advantage narrowed.

After 1999, the market stalled (or have you already noticed that?). Consequently, the satisfactory performance relative to the S&P that Berkshire has achieved since then has delivered only moderate absolute results.

Looking forward, we hope to average several points better than the S&P – though that result is, of course, far from a sure thing. If we succeed in that aim, we will almost certainly produce better relative results in bad years for the stock market and suffer poorer results in strong markets.

Berkshire's Corporate Performance vs. the S&P 500 by Five-Year Periods

Five-Year Period	Annual Percentage Change		Relative Results (1)-(2)
	in Per-Share Book Value of Berkshire (1)	in S&P 500 with Dividends Included (2)
1965-1969	17.2	5.0	12.2
1966-1970	14.7	3.9	10.8
1967-1971	13.9	9.2	4.7
1968-1972	16.8	7.5	9.3
1969-1973	17.7	2.0	15.7
1970-1974	15.0	(2.4)	17.4
1971-1975	13.9	3.2	10.7
1972-1976	20.8	4.9	15.9
1973-1977	23.4	(0.2)	23.6
1974-1978	24.4	4.3	20.1
1975-1979	30.1	14.7	15.4
1976-1980	33.4	13.9	19.5
1977-1981	29.0	8.1	20.9
1978-1982	29.9	14.1	15.8
1979-1983	31.6	17.3	14.3
1980-1984	27.0	14.8	12.2
1981-1985	32.6	14.6	18.0
1982-1986	31.5	19.8	11.7
1983-1987	27.4	16.4	11.0
1984-1988	25.0	15.2	9.8
1985-1989	31.1	20.3	10.8
1986-1990	22.9	13.1	9.8
1987-1991	25.4	15.3	10.1
1988-1992	25.6	15.8	9.8
1989-1993	24.4	14.5	9.9
1990-1994	18.6	8.7	9.9
1991-1995	25.6	16.5	9.1
1992-1996	24.2	15.2	9.0
1993-1997	26.9	20.2	6.7
1994-1998	33.7	24.0	9.7
1995-1999	30.4	28.5	1.9
1996-2000	22.9	18.3	4.6
1997-2001	14.8	10.7	4.1
1998-2002	10.4	(0.6)	11.0
1999-2003	6.0	(0.6)	6.6
2000-2004	8.0	(2.3)	10.3
2001-2005	8.0	0.6	7.4
2002-2006	13.1	6.2	6.9
2003-2007	13.3	12.8	0.5
2004-2008	6.9	(2.2)	9.1
2005-2009	8.6	0.4	8.2
2006-2010	10.0	2.3	7.7

Notes: The first two periods cover the five years beginning September 30 of the previous year. The third period covers 63 months beginning September 30, 1966 to December 31, 1971. All other periods involve calendar years.
The other notes on page 2 also apply to this table.

Intrinsic Value – Today and Tomorrow

Though Berkshire's intrinsic value cannot be precisely calculated, two of its three key pillars can be measured. Charlie and I rely heavily on these measurements when we make our own estimates of Berkshire's value.

The first component of value is our investments: stocks, bonds and cash equivalents. At yearend these totaled \$158 billion at market value.

Insurance float – money we temporarily hold in our insurance operations that does not belong to us – funds \$66 billion of our investments. This float is “free” as long as insurance underwriting breaks even, meaning that the premiums we receive equal the losses and expenses we incur. Of course, underwriting results are volatile, swinging erratically between profits and losses. Over our entire history, though, we’ve been significantly profitable, and I also expect us to average breakeven results or better in the future. If we do that, all of our investments – those funded both by float and by retained earnings – can be viewed as an element of value for Berkshire shareholders.

Berkshire's second component of value is earnings that come from sources other than investments and insurance underwriting. These earnings are delivered by our 68 non-insurance companies, itemized on page 106. In Berkshire's early years, we focused on the investment side. During the past two decades, however, we've increasingly emphasized the development of earnings from non-insurance businesses, a practice that will continue.

The following tables illustrate this shift. In the first table, we present per-share investments at decade intervals beginning in 1970, three years after we entered the insurance business. We exclude those investments applicable to minority interests.

Yearend	Per-Share Investments	Period	Compounded Annual Increase in Per-Share Investments
1970	$ 66
1980	754	1970-1980	27.5%
1990	7,798	1980-1990	26.3%
2000	50,229	1990-2000	20.5%
2010	94,730	2000-2010	6.6%

Though our compounded annual increase in per-share investments was a healthy 19.9% over the 40-year period, our rate of increase has slowed sharply as we have focused on using funds to buy operating businesses.

The payoff from this shift is shown in the following table, which illustrates how earnings of our non-insurance businesses have increased, again on a per-share basis and after applicable minority interests.

Year	Per-Share Pre-Tax Earnings	Period	Compounded Annual Increase in Per-Share Pre-Tax Earnings
1970	$ 2.87
1980	19.01	1970-1980	20.8%
1990	102.58	1980-1990	18.4%
2000	918.66	1990-2000	24.5%
2010	5,926.04	2000-2010	20.5%

For the forty years, our compounded annual gain in pre-tax, non-insurance earnings per share is 21.0%. During the same period, Berkshire's stock price increased at a rate of 22.1% annually. Over time, you can expect our stock price to move in rough tandem with Berkshire's investments and earnings. Market price and intrinsic value often follow very different paths – sometimes for extended periods – but eventually they meet.

There is a third, more subjective, element to an intrinsic value calculation that can be either positive or negative: the efficacy with which retained earnings will be deployed in the future. We, as well as many other businesses, are likely to retain earnings over the next decade that will equal, or even exceed, the capital we presently employ. Some companies will turn these retained dollars into fifty-cent pieces, others into two-dollar bills.

This “what-will-they-do-with-the-money” factor must always be evaluated along with the “what-do-we-have-now” calculation in order for us, or anybody, to arrive at a sensible estimate of a company’s intrinsic value. That’s because an outside investor stands by helplessly as management reinvests his share of the company’s earnings. If a CEO can be expected to do this job well, the reinvestment prospects add to the company’s current value; if the CEO’s talents or motives are suspect, today’s value must be discounted. The difference in outcome can be huge. A dollar of then-value in the hands of Sears Roebuck’s or Montgomery Ward’s CEOs in the late 1960s had a far different destiny than did a dollar entrusted to Sam Walton.

* * * * * * * * * * * *

Charlie and I hope that the per-share earnings of our non-insurance businesses continue to increase at a decent rate. But the job gets tougher as the numbers get larger. We will need both good performance from our current businesses and more major acquisitions. We're prepared. Our elephant gun has been reloaded, and my trigger finger is itchy.

Partially offsetting our anchor of size are several important advantages we have. First, we possess a cadre of truly skilled managers who have an unusual commitment to their own operations and to Berkshire. Many of our CEOs are independently wealthy and work only because they love what they do. They are volunteers, not mercenaries. Because no one can offer them a job they would enjoy more, they can't be lured away.

At Berkshire, managers can focus on running their businesses: They are not subjected to meetings at headquarters nor financing worries nor Wall Street harassment. They simply get a letter from me every two years (it's reproduced on pages 104-105) and call me when they wish. And their wishes do differ: There are managers to whom I have not talked in the last year, while there is one with whom I talk almost daily. Our trust is in people rather than process. A “hire well, manage little” code suits both them and me.

Berkshire's CEOs come in many forms. Some have MBAs; others never finished college. Some use budgets and are by-the-book types; others operate by the seat of their pants. Our team resembles a baseball squad composed of all-stars having vastly different batting styles. Changes in our line-up are seldom required.

Our second advantage relates to the allocation of the money our businesses earn. After meeting the needs of those businesses, we have very substantial sums left over. Most companies limit themselves to reinvesting funds within the industry in which they have been operating. That often restricts them, however, to a “universe” for capital allocation that is both tiny and quite inferior to what is available in the wider world. Competition for the few opportunities that are available tends to become fierce. The seller has the upper hand, as a girl might if she were the only female at a party attended by many boys. That lopsided situation would be great for the girl, but terrible for the boys.

At Berkshire we face no institutional restraints when we deploy capital. Charlie and I are limited only by our ability to understand the likely future of a possible acquisition. If we clear that hurdle – and frequently we can’t – we are then able to compare any one opportunity against a host of others.

When I took control of Berkshire in 1965, I didn't exploit this advantage. Berkshire was then only in textiles, where it had in the previous decade lost significant money. The dumbest thing I could have done was to pursue “opportunities” to improve and expand the existing textile operation – so for years that’s exactly what I did. And then, in a final burst of brilliance, I went out and bought another textile company. Aaaaaaargh! Eventually I came to my senses, heading first into insurance and then into other industries.

There is even a supplement to this world-is-our-oyster advantage: In addition to evaluating the attractions of one business against a host of others, we also measure businesses against opportunities available in marketable securities, a comparison most managements don't make. Often, businesses are priced ridiculously high against what can likely be earned from investments in stocks or bonds. At such moments, we buy securities and bide our time.

Our flexibility in respect to capital allocation has accounted for much of our progress to date. We have been able to take money we earn from, say, See's Candies or Business Wire (two of our best-run businesses, but also two offering limited reinvestment opportunities) and use it as part of the stake we needed to buy BNSF.

Our final advantage is the hard-to-duplicate culture that permeates Berkshire. And in businesses, culture counts.

To start with, the directors who represent you think and act like owners. They receive token compensation: no options, no restricted stock and, for that matter, virtually no cash. We do not provide them directors and officers liability insurance, a given at almost every other large public company. If they mess up with your money, they will lose their money as well. Leaving my holdings aside, directors and their families own Berkshire shares worth more than \$3 billion. Our directors, therefore, monitor Berkshire's actions and results with keen interest and an owner's eye. You and I are lucky to have them as stewards.

This same owner-orientation prevails among our managers. In many cases, these are people who have sought out Berkshire as an acquirer for a business that they and their families have long owned. They came to us with an owner's mindset, and we provide an environment that encourages them to retain it. Having managers who love their businesses is no small advantage.

Cultures self-propagate. Winston Churchill once said, “You shape your houses and then they shape you.” That wisdom applies to businesses as well. Bureaucratic procedures beget more bureaucracy, and imperial corporate palaces induce imperious behavior. (As one wag put it, “You know you’re no longer CEO when you get in the back seat of your car and it doesn’t move.”) At Berkshire’s “World Headquarters” our annual rent is \$270,212. Moreover, the home-office investment in furniture, art, Coke dispenser, lunch room, high-tech equipment – you name it – totals \$301,363. As long as Charlie and I treat your money as if it were our own, Berkshire’s managers are likely to be careful with it as well.

Our compensation programs, our annual meeting and even our annual reports are all designed with an eye to reinforcing the Berkshire culture, and making it one that will repel and expel managers of a different bent. This culture grows stronger every year, and it will remain intact long after Charlie and I have left the scene.

We will need all of the strengths I've just described to do reasonably well. Our managers will deliver; you can count on that. But whether Charlie and I can hold up our end in capital allocation depends in part on the competitive environment for acquisitions. You will get our best efforts.

GEICO

Now let me tell you a story that will help you understand how the intrinsic value of a business can far exceed its book value. Relating this tale also gives me a chance to relive some great memories.

Sixty years ago last month, GEICO entered my life, destined to shape it in a huge way. I was then a 20-year-old graduate student at Columbia, having elected to go there because my hero, Ben Graham, taught a once-a-week class at the school.

One day at the library, I checked out Ben's entry in Who's Who in America and found he was chairman of Government Employees Insurance Co. (now called GEICO). I knew nothing of insurance and had never heard of the company. The librarian, however, steered me to a large compendium of insurers and, after reading the page on GEICO, I decided to visit the company. The following Saturday, I boarded an early train for Washington.

Alas, when I arrived at the company's headquarters, the building was closed. I then rather frantically started pounding on a door, until finally a janitor appeared. I asked him if there was anyone in the office I could talk to, and he steered me to the only person around, Lorimer Davidson.

That was my lucky moment. During the next four hours, “Davy” gave me an education about both insurance and GEICO. It was the beginning of a wonderful friendship. Soon thereafter, I graduated from Columbia and became a stock salesman in Omaha. GEICO, of course, was my prime recommendation, which got me off to a great start with dozens of customers. GEICO also jump-started my net worth because, soon after meeting Davy, I made the stock 75% of my \$9,800 investment portfolio. (Even so, I felt over-diversified.)

Subsequently, Davy became CEO of GEICO, taking the company to undreamed-of heights before it got into trouble in the mid-1970s, a few years after his retirement. When that happened – with the stock falling by more than 95% – Berkshire bought about one-third of the company in the market, a position that over the years increased to 50% because of GEICO’s repurchases of its own shares. Berkshire’s cost for this half of the business was \$46 million. (Despite the size of our position, we exercised no control over operations.)

We then purchased the remaining 50% of GEICO at the beginning of 1996, which spurred Davy, at 95, to make a video tape saying how happy he was that his beloved GEICO would permanently reside with Berkshire. (He also playfully concluded with, “Next time, Warren, please make an appointment.”)

A lot has happened at GEICO during the last 60 years, but its core goal – saving Americans substantial money on their purchase of auto insurance – remains unchanged. (Try us at 1-800-847-7536 or www.GEICO.com.) In other words, get the policyholder’s business by deserving his business. Focusing on this objective, the company has grown to be America’s third-largest auto insurer, with a market share of 8.8%.

When Tony Nicely, GEICO's CEO, took over in 1993, that share was $2.0\%$ , a level at which it had been stuck for more than a decade. GEICO became a different company under Tony, finding a path to consistent growth while simultaneously maintaining underwriting discipline and keeping its costs low.

Let me quantify Tony's achievement. When, in 1996, we bought the $50\%$ of GEICO we didn't already own, it cost us about \$2.3 billion. That price implied a value of \$4.6 billion for $100\%$ . GEICO then had tangible net worth of \$1.9 billion.

The excess over tangible net worth of the implied value – \$2.7 billion – was what we estimated GEICO’s “goodwill” to be worth at that time. That goodwill represented the economic value of the policyholders who were then doing business with GEICO. In 1995, those customers had paid the company \$2.8 billion in premiums. Consequently, we were valuing GEICO’s customers at about 97% (2.7/2.8) of what they were annually paying the company. By industry standards, that was a very high price. But GEICO was no ordinary insurer: Because of the company’s low costs, its policyholders were consistently profitable and unusually loyal.

Today, premium volume is \$14.3 billion and growing. Yet we carry the goodwill of GEICO on our books at only \$1.4 billion, an amount that will remain unchanged no matter how much the value of GEICO increases. (Under accounting rules, you write down the carrying value of goodwill if its economic value decreases, but leave it unchanged if economic value increases.) Using the 97%-of-premium-volume yardstick we applied to our 1996 purchase, the real value today of GEICO's economic goodwill is about \$14 billion. And this value is likely to be much higher ten and twenty years from now. GEICO – off to a strong start in 2011 – is the gift that keeps giving.

One not-so-small footnote: Under Tony, GEICO has developed one of the country's largest personal-lines insurance agencies, which primarily sells homeowners policies to our GEICO auto insurance customers. In this business, we represent a number of insurers that are not affiliated with us. They take the risk; we simply sign up the customers. Last year we sold 769,898 new policies at this agency operation, up $34\%$ from the year before. The obvious way this activity aids us is that it produces commission revenue; equally important is the fact that it further strengthens our relationship with our policyholders, helping us retain them.

I owe an enormous debt to Tony and Davy (and, come to think of it, to that janitor as well).

* * * * * * * * * * * *

Now, let's examine the four major sectors of Berkshire. Each has vastly different balance sheet and income characteristics from the others. Lumping them together therefore impedes analysis. So we'll present them as four separate businesses, which is how Charlie and I view them.

We will look first at insurance, Berkshire's core operation and the engine that has propelled our expansion over the years.

Insurance

Property-casualty (“P/C”) 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. And how we have grown: Just take a look at the following table:

Yearend	Float(in $ millions)
1970	$ 39
1980	237
1990	1,632
2000	27,871
2010	65,832

If our premiums exceed the total of our expenses and eventual losses, we register an underwriting profit that adds to the investment income that our float produces. When such a profit occurs, we enjoy the use of free money – and, better yet, get paid for holding it. Alas, the wish of all insurers to achieve this happy result creates intense competition, so vigorous in most years that it causes 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. For example, State Farm, by far the country’s largest insurer and a well-managed company, has incurred an underwriting loss in seven of the last ten years. During that period, its aggregate underwriting loss was more than \$20 billion.

At Berkshire, we have now operated at an underwriting profit for eight consecutive years, our total underwriting gain for the period having been \$17 billion. I believe it likely that we will continue to underwrite profitably in most – though certainly not all – future years. If we accomplish that, our float will be better than cost-free. We will benefit just as we would if some party deposited \$66 billion with us, paid us a fee for holding its money and then let us invest its funds for our own benefit.

Let me emphasize again that cost-free float is not an outcome to be expected for the P/C industry as a whole: In most years, industry 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 the average return realized by American industry, a sorry performance almost certain to continue. Berkshire's outstanding economics exist only because we have some terrific managers running some unusual businesses. We've already told you about GEICO, but we have two other very large operations, and a bevy of smaller ones as well, each a star in its own way.

* * * * * * * * * * * *

First off is the Berkshire Hathaway Reinsurance Group, run by Ajit Jain. Ajit insures risks that no one else has the desire or the capital to take on. His operation combines capacity, speed, decisiveness and, most importantly, brains in a manner that is unique in the insurance business. Yet he never exposes Berkshire to risks that are inappropriate in relation to our resources. Indeed, we are far more conservative than most large insurers in that respect. In the past year, Ajit has significantly increased his life reinsurance operation, developing annual premium volume of about \$2 billion that will repeat for decades.

From a standing start in 1985, Ajit has created an insurance business with float of \$30 billion and significant underwriting profits, a feat that no CEO of any other insurer has come close to matching. By his accomplishments, he has added a great many billions of dollars to the value of Berkshire. Even kryptonite bounces off Ajit.

* * * * * * * * * * * *

We have another insurance powerhouse in General Re, managed by Tad Montross.

At bottom, a sound insurance operation requires four disciplines: (1) An understanding of all exposures that might cause a policy to incur losses; (2) A conservative evaluation of the likelihood of any exposure actually causing a loss and the probable cost if it does; (3) The setting of a premium that will deliver a profit, on average, after both prospective loss costs and operating expenses are covered; and (4) The willingness to walk away if the appropriate premium can't be obtained.

Many insurers pass the first three tests and flunk the fourth. The urgings of Wall Street, pressures from the agency force and brokers, or simply a refusal by a testosterone-driven CEO to accept shrinking volumes has led too many insurers to write business at inadequate prices. “The other guy is doing it so we must as well” spells trouble in any business, but none more so than insurance.

Tad has observed all four of the insurance commandments, and it shows in his results. General Re's huge float has been better than cost-free under his leadership, and we expect that, on average, it will continue to be.

* * * * * * * * * * * *

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	(in millions)
	2010	2009	2010	2009
General Re	$ 452	$ 477	$20,049	$21,014
BH Reinsurance	176	250	30,370	27,753
GEICO	1,117	649	10,272	9,613
Other Primary	268	84	5,141	5,061
	$2,013	$1,460	$65,832	$63,441

Among large insurance operations, Berkshire's impresses me as the best in the world.

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 12/31/10 (in millions)

Assets		Liabilities and Equity Notes payable	$1,805
Cash and equivalents	$2,673
Accounts and notes receivable	5,396	Other current liabilities	8,169
Inventory	7,101	Total current liabilities	9,974
Other current assets	550
Total current assets	15,720
Goodwill and other intangibles	16,976	Deferred taxes	3,001
Fixed assets	15,421	Term debt and other liabilities	6,621
Other assets	3,029	Equity	31,550
	$51,146		$51,146

Earnings Statement (in millions)

	2010	2009	2008
Revenues	$66,610	$61,665	$66,099
Operating expenses (including depreciation of $1,362 in 2010, $1,422 in 2009 and $1,280 in 2008)	62,225	59,509	61,937
Interest expense	111	98	139
Pre-tax earnings	4,274*	2,058*	4,023*
Income taxes and non-controlling interests	1,812	945	1,740
Net earnings	$2,462	$1,113	$2,283

*Does not include purchase-accounting adjustments.

This group of companies sells products ranging from lollipops to jet airplanes. Some of the businesses enjoy terrific economics, measured by earnings on unleveraged net tangible assets that run from 25% after-tax to more than 100%. Others produce good returns in the area of 12-20%. Unfortunately, a few have very poor returns, a result of some serious mistakes I have made in my job of capital allocation. These errors came about because I misjudged either the competitive strength of the business I was purchasing or the future economics of the industry in which it operated. I try to look out ten or twenty years when making an acquisition, but sometimes my eyesight has been poor.

Most of the companies in this section improved their earnings last year and four set records. Let's look first at the record-breakers.

- TTI, our electronic components distributor, had sales 21% above its previous high (recorded in 2008) and pre-tax earnings that topped its earlier record by 58%. Its sales gains spanned three continents, with North America at 16%, Europe at 26%, and Asia at 50%. The thousands of items TTI distributes are pedestrian, many selling for less than a dollar. The magic of TTI’s exceptional performance is created by Paul Andrews, its CEO, and his associates.

• Forest River, our RV and boat manufacturer, had record sales of nearly \$2 billion and record earnings as well. Forest River has 82 plants, and I have yet to visit one (or the home office, for that matter). There's no need; Pete Liegl, the company's CEO, runs a terrific operation. Come view his products at the annual meeting. Better yet, buy one.
• CTB, our farm-equipment company, again set an earnings record. I told you in the 2008 Annual Report about Vic Mancinelli, the company's CEO. He just keeps getting better. Berkshire paid \$140 million for CTB in 2002. It has since paid us dividends of \$160 million and eliminated \$40 million of debt. Last year it earned \$106 million pre-tax. Productivity gains have produced much of this increase. When we bought CTB, sales per employee were \$189,365; now they are \$405,878.
• Would you believe shoes? H. H. Brown, run by Jim Issler and best known for its Born brand, set a new record for sales and earnings (helped by its selling 1,110 pairs of shoes at our annual meeting). Jim has brilliantly adapted to major industry changes. His work, I should mention, is overseen by Frank Rooney, 89, a superb businessman and still a dangerous fellow with whom to have a bet on the golf course.

A huge story in this sector's year-to-year improvement occurred at NetJets. I can't overstate the breadth and importance of Dave Sokol's achievements at this company, the leading provider of fractional ownership of jet airplanes. NetJets has long been an operational success, owning a 2010 market share five times that of its nearest competitor. Our overwhelming leadership stems from a wonderful team of pilots, mechanics and service personnel. This crew again did its job in 2010, with customer satisfaction, as delineated in our regular surveys, hitting new highs.

Even though NetJets was consistently a runaway winner with customers, our financial results, since its acquisition in 1998, were a failure. In the 11 years through 2009, the company reported an aggregate pre-tax loss of \$157 million, a figure that was far understated since borrowing costs at NetJets were heavily subsidized by its free use of Berkshire's credit. Had NetJets been operating on a stand-alone basis, its loss over the years would have been several hundreds of millions greater.

We are now charging NetJets an appropriate fee for Berkshire’s guarantee. Despite this fee (which came to \$38 million in 2010), NetJets earned \$207 million pre-tax in 2010, a swing of \$918 million from 2009. Dave’s quick restructuring of management and the company’s rationalization of its purchasing and spending policies has ended the hemorrhaging of cash and turned what was Berkshire’s only major business problem into a solidly profitable operation.

Dave has meanwhile maintained NetJets' industry-leading reputation for safety and service. In many important ways, our training and operational standards are considerably stronger than those required by the FAA. Maintaining top-of-the-line standards is the right thing to do, but I also have a selfish reason for championing this policy. My family and I have flown more than 5,000 hours on NetJets (that's equal to being airborne 24 hours a day for seven months) and will fly thousands of hours more in the future. We receive no special treatment and have used a random mix of at least 100 planes and 300 crews. Whichever the plane or crew, we always know we are flying with the best-trained pilots in private aviation.

The largest earner in our manufacturing, service and retailing sector is Marmon, a collection of 130 businesses. We will soon increase our ownership in this company to 80% by carrying out our scheduled purchase of 17% of its stock from the Pritzker family. The cost will be about \$1.5 billion. We will then purchase the remaining Pritzker holdings in 2013 or 2014, whichever date is selected by the family. Frank Ptak runs Marmon wonderfully, and we look forward to 100% ownership.

Next to Marmon, the two largest earners in this sector are Iscar and McLane. Both had excellent years. In 2010, Grady Rosier's McLane entered the wine and spirits distribution business to supplement its \$32 billion operation as a distributor of food products, cigarettes, candy and sundries. In purchasing Empire Distributors, an operator in Georgia and North Carolina, we teamed up with David Kahn, the company's dynamic CEO. David is leading our efforts to expand geographically. By yearend he had already made his first acquisition, Horizon Wine and Spirits in Tennessee.

At Iscar, profits were up $159\%$ in 2010, and we may well surpass pre-recession levels in 2011. Sales are improving throughout the world, particularly in Asia. Credit Eitan Wertheimer, Jacob Harpaz and Danny Goldman for an exceptional performance, one far superior to that of Iscar's main competitors.

All that is good news. Our businesses related to home construction, however, continue to struggle. Johns Manville, MiTek, Shaw and Acme Brick have maintained their competitive positions, but their profits are far below the levels of a few years ago. Combined, these operations earned \$362 million pre-tax in 2010 compared to \$1.3 billion in 2006, and their employment has fallen by about 9,400.

A housing recovery will probably begin within a year or so. In any event, it is certain to occur at some point. Consequently: (1) At MiTek, we have made, or committed to, five bolt-on acquisitions during the past eleven months; (2) At Acme, we just recently acquired the leading manufacturer of brick in Alabama for \$50 million; (3) Johns Manville is building a \$55 million roofing membrane plant in Ohio, to be completed next year; and (4) Shaw will spend \$200 million in 2011 on plant and equipment, all of it situated in America. These businesses entered the recession strong and will exit it stronger. At Berkshire, our time horizon is forever.

Regulated, Capital-Intensive Businesses

We have two very large businesses, BNSF and MidAmerican Energy, with important common characteristics that distinguish them from our many others. Consequently, we give them their own sector in this letter and split out their financial statistics in our GAAP balance sheet and income statement.

A key characteristic of both companies is the huge investment they have in very long-lived, regulated assets, with these funded by large amounts of long-term debt that is not guaranteed by Berkshire. Our credit is not needed: Both businesses have earning power that, even under very adverse business conditions, amply covers their interest requirements. For example, in recessionary 2010 with BNSF's car loadings far off peak levels, the company's interest coverage was 6:1.

Both companies are heavily regulated, and both will have a never-ending need to make major investments in plant and equipment. Both also need to provide efficient, customer-satisfying service to earn the respect of their communities and regulators. In return, both need to be assured that they will be allowed to earn reasonable earnings on future capital investments.

Earlier I explained just how important railroads are to our country's future. Rail moves $42\%$ of America's inter-city freight, measured by ton-miles, and BNSF moves more than any other railroad – about $28\%$ of the industry total. A little math will tell you that more than $11\%$ of all inter-city ton-miles of freight in the U.S. is transported by BNSF. Given the shift of population to the West, our share may well inch higher.

All of this adds up to a huge responsibility. We are a major and essential part of the American economy's circulatory system, obliged to constantly maintain and improve our 23,000 miles of track along with its ancillary bridges, tunnels, engines and cars. In carrying out this job, we must anticipate society's needs, not merely react to them. Fulfilling our societal obligation, we will regularly spend far more than our depreciation, with this excess amounting to \$2 billion in 2011. I'm confident we will earn appropriate returns on our huge incremental investments. Wise regulation and wise investment are two sides of the same coin.

At MidAmerican, we participate in a similar “social compact.” We are expected to put up ever-increasing sums to satisfy the future needs of our customers. If we meanwhile operate reliably and efficiently, we know that we will obtain a fair return on these investments.

MidAmerican supplies 2.4 million customers in the U.S. with electricity, operating as the largest supplier in Iowa, Wyoming and Utah and as an important provider in other states as well. Our pipelines transport $8\%$ of the country's natural gas. Obviously, many millions of Americans depend on us every day.

MidAmerican has delivered outstanding results for both its owners (Berkshire's interest is $89.8\%$ ) and its customers. Shortly after MidAmerican purchased Northern Natural Gas pipeline in 2002, that company's performance as a pipeline was rated dead last, 43 out of 43, by the leading authority in the field. In the most recent report published, Northern Natural was ranked second. The top spot was held by our other pipeline, Kern River.

In its electric business, MidAmerican has a comparable record. Iowa rates have not increased since we purchased our operation there in 1999. During the same period, the other major electric utility in the state has raised prices more than 70% and now has rates far above ours. In certain metropolitan areas in which the two utilities operate side by side, electric bills of our customers run far below those of their neighbors. I am told that comparable houses sell at higher prices in these cities if they are located in our service area.

MidAmerican will have 2,909 megawatts of wind generation in operation by the end of 2011, more than any other regulated electric utility in the country. The total amount that MidAmerican has invested or committed to wind is a staggering \$5.4 billion. We can make this sort of investment because MidAmerican retains all of its earnings, unlike other utilities that generally pay out most of what they earn.

As you can tell by now, I am proud of what has been accomplished for our society by Matt Rose at BNSF and by David Sokol and Greg Abel at MidAmerican. I am also both proud and grateful for what they have accomplished for Berkshire shareholders. Below are the relevant figures:

MidAmerican	Earnings (in millions)
	2010	2009
U.K. utilities	$333	$248
Iowa utility	279	285
Western utilities	783	788
Pipelines	378	457
HomeServices	42	43
Other (net)	47	25
Operating earnings before corporate interest and taxes	1,862	1,846
Interest, other than to Berkshire	(323)	(318)
Interest on Berkshire junior debt	(30)	(58)
Income tax	(271)	(313)
Net earnings	$1,238	$1,157
Earnings applicable to Berkshire*	$1,131	$1,071

*Includes interest earned by Berkshire (net of related income taxes) of \$19 in 2010 and \$38 in 2009.

BNSF

(Historical accounting through 2/12/10; purchase accounting subsequently)	(in millions)
	2010	2009
Revenues	$16,850	$14,016
Operating earnings	4,495	3,254
Interest (Net)	507	613
Pre-Tax earnings	3,988	2,641
Net earnings	2,459	1,721

Finance and Financial Products

This, our smallest sector, includes two rental companies, XTRA (trailers) and CORT (furniture), and Clayton Homes, the country's leading producer and financer of manufactured homes.

Both of our leasing businesses improved their performances last year, albeit from a very low base. XTRA increased the utilization of its equipment from 63% in 2009 to 75% in 2010, thereby raising pre-tax earnings to \$35 million from \$17 million in 2009. CORT experienced a pickup in business as the year progressed and also significantly tightened its operations. The combination increased its pre-tax results from a loss of \$3 million in 2009 to \$18 million of profit in 2010.

At Clayton, we produced 23,343 homes, $47\%$ of the industry's total of 50,046. Contrast this to the peak year of 1998, when 372,843 homes were manufactured. (We then had an industry share of $8\%$ .) Sales would have been terrible last year under any circumstances, but the financing problems I commented upon in the 2009 report continue to exacerbate the distress. To explain: Home-financing policies of our government, expressed through the loans found acceptable by FHA, Freddie Mac and Fannie Mae, favor site-built homes and work to negate the price advantage that manufactured homes offer.

We finance more manufactured-home buyers than any other company. Our experience, therefore, should be instructive to those parties preparing to overhaul our country's home-loan practices. Let's take a look.

Clayton owns 200,804 mortgages that it originated. (It also has some mortgage portfolios that it purchased.) At the origination of these contracts, the average FICO score of our borrowers was 648, and 47% were 640 or below. Your banker will tell you that people with such scores are generally regarded as questionable credits.

Nevertheless, our portfolio has performed well during conditions of stress. Here's our loss experience during the last five years for originated loans:

Year	Net Losses as a Percentage of Average Loans
2006	1.53%
2007	1.27%
2008	1.17%
2009	1.86%
2010	1.72%

Our borrowers get in trouble when they lose their jobs, have health problems, get divorced, etc. The recession has hit them hard. But they want to stay in their homes, and generally they borrowed sensible amounts in relation to their income. In addition, we were keeping the originated mortgages for our own account, which means we were not securitizing or otherwise reselling them. If we were stupid in our lending, we were going to pay the price. That concentrates the mind.

If home buyers throughout the country had behaved like our buyers, America would not have had the crisis that it did. Our approach was simply to get a meaningful down-payment and gear fixed monthly payments to a sensible percentage of income. This policy kept Clayton solvent and also kept buyers in their homes.

Home ownership makes sense for most Americans, particularly at today's lower prices and bargain interest rates. All things considered, the third best investment I ever made was the purchase of my home, though I would have made far more money had I instead rented and used the purchase money to buy stocks. (The two best investments were wedding rings.) For the \$31,500 I paid for our house, my family and I gained 52 years of terrific memories with more to come.

But a house can be a nightmare if the buyer's eyes are bigger than his wallet and if a lender – often protected by a government guarantee – facilitates his fantasy. Our country's social goal should not be to put families into the house of their dreams, but rather to put them into a house they can afford.

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	12/31/10
			Cost *	Market
			(in millions)
151,610,700	American Express Company	12.6	$ 1,287	$ 6,507
225,000,000	BYD Company, Ltd.	9.9	232	1,182
200,000,000	The Coca-Cola Company	8.6	1,299	13,154
29,109,637	ConocoPhillips	2.0	2,028	1,982
45,022,563	Johnson & Johnson	1.6	2,749	2,785
97,214,584	Kraft Foods Inc.	5.6	3,207	3,063
19,259,600	Munich Re	10.5	2,896	2,924
3,947,555	POSCO	4.6	768	1,706
72,391,036	The Procter & Gamble Company	2.6	464	4,657
25,848,838	Sanofi-Aventis	2.0	2,060	1,656
242,163,773	Tesco plc	3.0	1,414	1,608
78,060,769	U.S. Bancorp	4.1	2,401	2,105
39,037,142	Wal-Mart Stores, Inc.	1.1	1,893	2,105
358,936,125	Wells Fargo & Company	6.8	8,015	11,123
	Others		3,020	4,956
	Total Common Stocks Carried at Market		$33,733	$61,513

*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 our reported earnings we reflect only the dividends our portfolio companies pay us. Our share of the undistributed earnings of these investees, however, was more than \$2 billion last year. These retained earnings are important. In our experience – and, for that matter, in the experience of investors over the past century – undistributed earnings have been either matched or exceeded by market gains, albeit in a highly irregular manner. (Indeed, sometimes the correlation goes in reverse. As one investor said in 2009: “This is worse than divorce. I’ve lost half my net worth – and I still have my wife.”) In the future, we expect our market gains to eventually at least equal the earnings our investees retain.

* * * * * * * * * * * *

In our earlier estimate of Berkshire's normal earning power, we made three adjustments that relate to future investment income (but did not include anything for the undistributed earnings factor I have just described).

The first adjustment was decidedly negative. Last year, we discussed five large fixed-income investments that have been contributing substantial sums to our reported earnings. One of these – our Swiss Re note – was redeemed in the early days of 2011, and two others – our Goldman Sachs and General Electric preferred stocks – are likely to be gone by yearend. General Electric is entitled to call our preferred in October and has stated its intention to do so. Goldman Sachs has the right to call our preferred on 30 days notice, but has been held back by the Federal Reserve (bless it!), which unfortunately will likely give Goldman the green light before long.

All three of the companies redeeming must pay us a premium to do so – in aggregate about \$1.4 billion – but all of the redemptions are nevertheless unwelcome. After they occur, our earning power will be significantly reduced. That’s the bad news.

There are two probable offsets. At yearend we held \$38 billion of cash equivalents that have been earning a pittance throughout 2010. At some point, however, better rates will return. They will add at least \$500 million – and perhaps much more – to our investment income. That sort of increase in money-market yields is unlikely to come soon. It is appropriate, nevertheless, for us to include improved rates in an estimate of “normal” earning power. Even before higher rates come about, furthermore, we could get lucky and find an opportunity to use some of our cash hoard at decent returns. That day can’t come too soon for me: To update Aesop, a girl in a convertible is worth five in the phone book.

In addition, dividends on our current common stock holdings will almost certainly increase. The largest gain is likely to come at Wells Fargo. The Federal Reserve, our friend in respect to Goldman Sachs, has frozen dividend levels at major banks, whether strong or weak, during the last two years. Wells Fargo, though consistently prospering throughout the worst of the recession and currently enjoying enormous financial strength and earning power, has therefore been forced to maintain an artificially low payout. (We don't fault the Fed: For various reasons, an across-the-board freeze made sense during the crisis and its immediate aftermath.)

At some point, probably soon, the Fed's restrictions will cease. Wells Fargo can then reinstate the rational dividend policy that its owners deserve. At that time, we would expect our annual dividends from just this one security to increase by several hundreds of millions of dollars annually.

Other companies we hold are likely to increase their dividends as well. Coca-Cola paid us \$88 million in 1995, the year after we finished purchasing the stock. Every year since, Coke has increased its dividend. In 2011, we will almost certainly receive \$376 million from Coke, up \$24 million from last year. Within ten years, I would expect that \$376 million to double. By the end of that period, I wouldn't be surprised to see our share of Coke's annual earnings exceed 100% of what we paid for the investment. Time is the friend of the wonderful business.

Overall, I believe our “normal” investment income will at least equal what we realized in 2010, though the redemptions I described will cut our take in 2011 and perhaps 2012 as well.

* * * * * * * * * * * *

Last summer, Lou Simpson told me he wished to retire. Since Lou was a mere 74 – an age Charlie and I regard as appropriate only for trainees at Berkshire – his call was a surprise.

Lou joined GEICO as its investment manager in 1979, and his service to that company has been invaluable. In the 2004 Annual Report, I detailed his record with equities, and I have omitted updates only because his performance made mine look bad. Who needs that?

Lou has never been one to advertise his talents. But I will: Simply put, Lou is one of the investment greats. We will miss him.

* * * * * * * * * * * *

Four years ago, I told you that we needed to add one or more younger investment managers to carry on when Charlie, Lou and I weren't around. At that time we had multiple outstanding candidates immediately available for my CEO job (as we do now), but we did not have backup in the investment area.

It's easy to identify many investment managers with great recent records. But past results, though important, do not suffice when prospective performance is being judged. How the record has been achieved is crucial, as is the manager's understanding of – and sensitivity to – risk (which in no way should be measured by beta, the choice of too many academics). In respect to the risk criterion, we were looking for someone with a hard-to-evaluate skill: the ability to anticipate the effects of economic scenarios not previously observed. Finally, we wanted someone who would regard working for Berkshire as far more than a job.

When Charlie and I met Todd Combs, we knew he fit our requirements. Todd, as was the case with Lou, will be paid a salary plus a contingent payment based on his performance relative to the S&P. We have arrangements in place for deferrals and carryforwards that will prevent see-saw performance being met by undeserved payments. The hedge-fund world has witnessed some terrible behavior by general partners who have received huge payouts on the upside and who then, when bad results occurred, have walked away rich, with their limited partners losing back their earlier gains. Sometimes these same general partners thereafter quickly started another fund so that they could immediately participate in future profits without having to overcome their past losses. Investors who put money with such managers should be labeled patsies, not partners.

As long as I am CEO, I will continue to manage the great majority of Berkshire's holdings, both bonds and equities. Todd initially will manage funds in the range of one to three billion dollars, an amount he can reset annually. His focus will be equities but he is not restricted to that form of investment. (Fund consultants like to require style boxes such as “long-short,” “macro,” “international equities.” At Berkshire our only style box is “smart.”)

Over time, we may add one or two investment managers if we find the right individuals. Should we do that, we will probably have $80\%$ of each manager's performance compensation be dependent on his or her own portfolio and $20\%$ on that of the other manager(s). We want a compensation system that pays off big for individual success but that also fosters cooperation, not competition.

When Charlie and I are no longer around, our investment manager(s) will have responsibility for the entire portfolio in a manner then set by the CEO and Board of Directors. Because good investors bring a useful perspective to the purchase of businesses, we would expect them to be consulted – but not to have a vote – on the wisdom of possible acquisitions. In the end, of course, the Board will make the call on any major acquisition.

One footnote: When we issued a press release about Todd's joining us, a number of commentators pointed out that he was “little-known” and expressed puzzlement that we didn’t seek a “big-name.” I wonder how many of them would have known of Lou in 1979, Ajit in 1985, or, for that matter, Charlie in 1959. Our goal was to find a 2-year-old Secretariat, not a 10-year-old Seabiscuit. (Whoops – that may not be the smartest metaphor for an 80-year-old CEO to use.)

Derivatives

Two years ago, in the 2008 Annual Report, I told you that Berkshire was a party to 251 derivatives contracts (other than those used for operations at our subsidiaries, such as MidAmerican, and the few left over at Gen Re). Today, the comparable number is 203, a figure reflecting both a few additions to our portfolio and the unwinding or expiration of some contracts.

Our continuing positions, all of which I am personally responsible for, fall largely into two categories. We view both categories as engaging us in insurance-like activities in which we receive premiums for assuming risks that others wish to shed. Indeed, the thought processes we employ in these derivatives transactions are identical to those we use in our insurance business. You should also understand that we get paid up-front when we enter into the contracts and therefore run no counterparty risk. That's important.

Our first category of derivatives consists of a number of contracts, written in 2004-2008, that required payments by us if there were bond defaults by companies included in certain high-yield indices. With minor exceptions, we were exposed to these risks for five years, with each contract covering 100 companies.

In aggregate, we received premiums of \$3.4 billion for these contracts. When I originally told you in our 2007 Annual Report about them, I said that I expected the contracts would deliver us an “underwriting profit,” meaning that our losses would be less than the premiums we received. In addition, I said we would benefit from the use of float.

Subsequently, as you know too well, we encountered both a financial panic and a severe recession. A number of the companies in the high-yield indices failed, which required us to pay losses of \$2.5 billion. Today, however, our exposure is largely behind us because most of our higher-risk contracts have expired. Consequently, it appears almost certain that we will earn an underwriting profit as we originally anticipated. In addition, we have had the use of interest-free float that averaged about \$2 billion over the life of the contracts. In short, we charged the right premium, and that protected us when business conditions turned terrible three years ago.

Our other large derivatives position – whose contracts go by the name of “equity puts” – involves insurance we wrote for parties wishing to protect themselves against a possible decline in equity prices in the U.S., U.K., Europe and Japan. These contracts are tied to various equity indices, such as the S&P 500 in the U.S. and the FTSE 100 in the U.K. In the 2004-2008 period, we received \$4.8 billion of premiums for 47 of these contracts, most of which ran for 15 years. On these contracts, only the price of the indices on the termination date counts: No payments can be required before then.

As a first step in updating you about these contracts, I can report that late in 2010, at the instigation of our counterparty, we unwound eight contracts, all of them due between 2021 and 2028. We had originally received \$647 million in premiums for these contracts, and the unwinding required us to pay \$425 million. Consequently, we realized a gain of \$222 million and also had the interest-free and unrestricted use of that \$647 million for about three years.

Those 2010 transactions left us with 39 equity put contracts remaining on our books at yearend. On these, at their initiation, we received premiums of \$4.2 billion.

The future of these contracts is, of course, uncertain. But here is one perspective on them. If the prices of the relevant indices are the same at the contract expiration dates as these prices were on December 31, 2010 – and foreign exchange rates are unchanged – we would owe \$3.8 billion on expirations occurring from 2018 to 2026. You can call this amount “settlement value.”

On our yearend balance sheet, however, we carry the liability for those remaining equity puts at \$6.7 billion. In other words, if the prices of the relevant indices remain unchanged from that date, we will record a \$2.9 billion gain in the years to come, that being the difference between the liability figure of \$6.7 billion and the settlement value of \$3.8 billion. I believe that equity prices will very likely increase and that our liability will fall significantly between now and settlement date. If so, our gain from this point will be even greater. But that, of course, is far from a sure thing.

What is sure is that we will have the use of our remaining “float” of \$4.2 billion for an average of about 10 more years. (Neither this float nor that arising from the high-yield contracts is included in the insurance float figure of \$66 billion.) Since money is fungible, think of a portion of these funds as contributing to the purchase of BNSF.

As I have told you before, almost all of our derivatives contracts are free of any obligation to post collateral – a fact that cut the premiums we could otherwise have charged. But that fact also left us feeling comfortable during the financial crisis, allowing us in those days to commit to some advantageous purchases. Foregoing some additional derivatives premiums proved to be well worth it.

On Reporting and Misreporting: The Numbers That Count and Those That Don't

Earlier in this letter, I pointed out some numbers that Charlie and I find useful in valuing Berkshire and measuring its progress.

Let's focus here on a number we omitted, but which many in the media feature above all others: net income. Important though that number may be at most companies, it is almost always meaningless at Berkshire. Regardless of how our businesses might be doing, Charlie and I could – quite legally – cause net income in any given period to be almost any number we would like.

We have that flexibility because realized gains or losses on investments go into the net income figure, whereas unrealized gains (and, in most cases, losses) are excluded. For example, imagine that Berkshire had a \$10 billion increase in unrealized gains in a given year and concurrently had \$1 billion of realized losses. Our net income – which would count only the loss – would be reported as less than our operating income. If we had meanwhile realized gains in the previous year, headlines might proclaim that our earnings were down X% when in reality our business might be much improved.

If we really thought net income important, we could regularly feed realized gains into it simply because we have a huge amount of unrealized gains upon which to draw. Rest assured, though, that Charlie and I have never sold a security because of the effect a sale would have on the net income we were soon to report. We both have a deep disgust for “game playing” with numbers, a practice that was rampant throughout corporate America in the 1990s and still persists, though it occurs less frequently and less blatantly than it used to.

Operating earnings, despite having some shortcomings, are in general a reasonable guide as to how our businesses are doing. Ignore our net income figure, however. Regulations require that we report it to you. But if you find reporters focusing on it, that will speak more to their performance than ours.

Both realized and unrealized gains and losses are fully reflected in the calculation of our book value. Pay attention to the changes in that metric and to the course of our operating earnings, and you will be on the right track.

* * * * * * * * * * * *

As a p.s., I can't resist pointing out just how capricious reported net income can be. Had our equity puts had a termination date of June 30, 2010, we would have been required to pay \$6.4 billion to our counterparties at that date. Security prices then generally rose in the next quarter, a move that brought the corresponding figure down to \$5.8 billion on September 30th. Yet the Black-Scholes formula that we use in valuing these contracts required us to increase our balance-sheet liability during this period from \$8.9 billion to \$9.6 billion, a change that, after the effect of tax accruals, reduced our net income for the quarter by \$455 million.

Both Charlie and I believe that Black-Scholes produces wildly inappropriate values when applied to long-dated options. We set out one absurd example in these pages two years ago. More tangibly, we put our money where our mouth was by entering into our equity put contracts. By doing so, we implicitly asserted that the Black-Scholes calculations used by our counterparties or their customers were faulty.

We continue, nevertheless, to use that formula in presenting our financial statements. Black-Scholes is the accepted standard for option valuation – almost all leading business schools teach it – and we would be accused of shoddy accounting if we deviated from it. Moreover, we would present our auditors with an insurmountable problem were we to do that: They have clients who are our counterparties and who use Black-Scholes values for the same contracts we hold. It would be impossible for our auditors to attest to the accuracy of both their values and ours were the two far apart.

Part of the appeal of Black-Scholes to auditors and regulators is that it produces a precise number. Charlie and I can't supply one of those. We believe the true liability of our contracts to be far lower than that calculated by Black-Scholes, but we can't come up with an exact figure – anymore than we can come up with a precise value for GEICO, BNSF, or for Berkshire Hathaway itself. Our inability to pinpoint a number doesn't bother us: We would rather be approximately right than precisely wrong.

John Kenneth Galbraith once slyly observed that economists were most economical with ideas: They made the ones learned in graduate school last a lifetime. University finance departments often behave similarly. Witness the tenacity with which almost all clung to the theory of efficient markets throughout the 1970s and 1980s, dismissively calling powerful facts that refuted it “anomalies.” (I always love explanations of that kind: The Flat Earth Society probably views a ship’s circling of the globe as an annoying, but inconsequential, anomaly.)

Academics' current practice of teaching Black-Scholes as revealed truth needs re-examination. For that matter, so does the academic's inclination to dwell on the valuation of options. You can be highly successful as an investor without having the slightest ability to value an option. What students should be learning is how to value a business. That's what investing is all about.

Life and Debt

The fundamental principle of auto racing is that to finish first, you must first finish. That dictum is equally applicable to business and guides our every action at Berkshire.

Unquestionably, some people have become very rich through the use of borrowed money. However, that's also been a way to get very poor. When leverage works, it magnifies your gains. Your spouse thinks you're clever, and your neighbors get envious. But leverage is addictive. Once having profited from its wonders, very few people retreat to more conservative practices. And as we all learned in third grade – and some relearned in 2008 – any series of positive numbers, however impressive the numbers may be, evaporates when multiplied by a single zero. History tells us that leverage all too often produces zeroes, even when it is employed by very smart people.

Leverage, of course, can be lethal to businesses as well. Companies with large debts often assume that these obligations can be refinanced as they mature. That assumption is usually valid. Occasionally, though, either because of company-specific problems or a worldwide shortage of credit, maturities must actually be met by payment. For that, only cash will do the job.

Borrowers then learn that credit is like oxygen. When either is abundant, its presence goes unnoticed. When either is missing, that's all that is noticed. Even a short absence of credit can bring a company to its knees. In September 2008, in fact, its overnight disappearance in many sectors of the economy came dangerously close to bringing our entire country to its knees.

Charlie and I have no interest in any activity that could pose the slightest threat to Berkshire's well-being. (With our having a combined age of 167, starting over is not on our bucket list.) We are forever conscious of the fact that you, our partners, have entrusted us with what in many cases is a major portion of your savings. In addition, important philanthropy is dependent on our prudence. Finally, many disabled victims of accidents caused by our insureds are counting on us to deliver sums payable decades from now. It would be irresponsible for us to risk what all these constituencies need just to pursue a few points of extra return.

A little personal history may partially explain our extreme aversion to financial adventurism. I didn't meet Charlie until he was 35, though he grew up within 100 yards of where I have lived for 52 years and also attended the same inner-city public high school in Omaha from which my father, wife, children and two grandchildren graduated. Charlie and I did, however, both work as young boys at my grandfather's grocery store, though our periods of employment were separated by about five years. My grandfather's name was Ernest, and perhaps no man was more aptly named. No one worked for Ernest, even as a stock boy, without being shaped by the experience.

On the facing page you can read a letter sent in 1939 by Ernest to his youngest son, my Uncle Fred. Similar letters went to his other four children. I still have the letter sent to my Aunt Alice, which I found – along with \$1,000 of cash – when, as executor of her estate, I opened her safe deposit box in 1970.

Ernest never went to business school – he never in fact finished high school – but he understood the importance of liquidity as a condition for assured survival. At Berkshire, we have taken his \$1,000 solution a bit further and have pledged that we will hold at least \$10 billion of cash, excluding that held at our regulated utility and railroad businesses. Because of that commitment, we customarily keep at least \$20 billion on hand so that we can both withstand unprecedented insurance losses (our largest to date having been about \$3 billion from Katrina, the insurance industry’s most expensive catastrophe) and quickly seize acquisition or investment opportunities, even during times of financial turmoil.

Dear Fred & Catherine:

Over a period of a good many years I have known a great many people who at some time or another have suffered in various ways simply because they did not have ready cash. I have known people who have had to sacrifice some of their holdings in order to have money that was necessary at that time.

For a good many years your grandfather kept a certain amount of money where he could put his hands on it in very short notice.

For a number of years I have made it a point to keep a reserve, should some occasion come up where I would need money quickly, without disturbing the money that I have in my business. There have been a couple occasions when I found it very convenient to go to this fund.

Thus, I feel that everyone should have a reserve. I hope it never happens to you, but the chances are that some day you will need money, and need it badly, and with this thought in view, I started a fund by placing \$200.00 in an envelope, with your name on it, when you were married. Each year I added something to it, until there is now \$1000.00 in the fund.

Ten years have elapsed since you were married, and this fund is now completed.

It is my wish that you place this envelope in your safety deposit box, and keep it for the purpose that it was created for. Should the time come when you need part, I would suggest that you use as little as possible, and replace it as soon as possible.

You might feel that this should be invested and bring you an income. Forget it -- the mental satisfaction of having \$1000.00 laid away where you can put your hands on it, is worth more than what interest it might bring, especially if you have the investment in something that you could not realize on quickly.

If in after years you feel this has been a good idea, you might repeat it with your own children.

For your information, I might mention that there has never been a Buffett who ever left a very large estate, but there has never been one that did not leave something. They never spent all they made, but always saved part of what they made, and it has all worked out pretty well.

This letter is being written at the expiration of ten years after you were married.

text_image

Econer Kluypet "Had"

We keep our cash largely in U.S. Treasury bills and avoid other short-term securities yielding a few more basis points, a policy we adhered to long before the frailties of commercial paper and money market funds became apparent in September 2008. We agree with investment writer Ray DeVoe's observation, “More money has been lost reaching for yield than at the point of a gun.” At Berkshire, we don’t rely on bank lines, and we don’t enter into contracts that could require postings of collateral except for amounts that are tiny in relation to our liquid assets.

Furthermore, not a dime of cash has left Berkshire for dividends or share repurchases during the past 40 years. Instead, we have retained all of our earnings to strengthen our business, a reinforcement now running about \$1 billion per month. Our net worth has thus increased from \$48 million to \$157 billion during those four decades and our intrinsic value has grown far more. No other American corporation has come close to building up its financial strength in this unrelenting way.

By being so cautious in respect to leverage, we penalize our returns by a minor amount. Having loads of liquidity, though, lets us sleep well. Moreover, during the episodes of financial chaos that occasionally erupt in our economy, we will be equipped both financially and emotionally to play offense while others scramble for survival. That's what allowed us to invest \$15.6 billion in 25 days of panic following the Lehman bankruptcy in 2008.

The Annual Meeting

The annual meeting will be held on Saturday, April 30 $^{th}$ . Carrie Kizer from our home office will be the ringmaster, and her theme this year is Planes, Trains and Automobiles. This gives NetJets, BNSF and BYD a chance to show off.

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. In a nine-hour period, we sold 1,053 pairs of Justin boots, 12,416 pounds of See's candy, 8,000 Dairy Queen Blizzards® and 8,800 Quikut knives (that's 16 knives per minute). But you can do better. Remember: Anyone who says money can't buy happiness simply hasn't learned where to shop.

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 half of you, I believe we can.

Be sure to visit the Bookworm. It will carry more than 60 books and DVDs, including the Chinese language edition of Poor Charlie's Almanack, the ever-popular book about my partner. So what if you can't read Chinese? Just buy a copy and carry it around; it will make you look urbane and erudite. Should you need to ship your book purchases, a shipping service will be available nearby.

If you are a big spender – or 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. Come by bus; leave by private jet.

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.

Airlines have often jacked up prices – sometimes dramatically so – for the Berkshire weekend. If you are coming from far away, compare the cost of flying to Kansas City versus Omaha. The drive is about $2\frac{1}{2}$ hours and it may be that you can save significant money, particularly if you had planned to rent a car in Omaha.

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. Last year the store did \$33.3 million of business during its annual meeting sale, a volume that – as far as I know – exceeds the one-week total of any retail store anyplace. To obtain the Berkshire discount, you must make your purchases between Tuesday, April $26^{\text{th}}$ and Monday, May $2^{\text{nd}}$ 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 picnic 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 9 p.m. on Friday, April $29^{\text{th}}$ . The second, the main gala, will be held on Sunday, May $1^{\text{st}}$ , from 9 a.m. to 4 p.m. On Saturday, we will be open until 6 p.m. On Sunday, around 1 p.m., I will be at Borsheims with a smile and a shoeshine, selling jewelry just as I sold men's shirts at J.C. Penney's 63 years ago. I've told Susan Jacques, Borsheims' CEO, that I'm still a hotshot salesman. But I see doubt in her eyes. So cut loose and buy something from me for your wife or sweetheart (presumably the same person). Make me look good.

We will have huge crowds at Borsheims throughout the weekend. For your convenience, therefore, shareholder prices will be available from Monday, April 25 $^{th}$ through Saturday, May 7 $^{th}$ . During that period, please identify yourself as a shareholder by presenting your meeting credentials or a brokerage statement that shows you are a Berkshire shareholder.

On Sunday, in the mall outside of Borsheims, a blindfolded Patrick Wolff, twice U.S. chess champion, will take on all comers – who will have their eyes wide open – in groups of six. Nearby, Norman Beck, a remarkable magician from Dallas, will bewilder onlookers. Additionally, we will have Bob Hamman and Sharon Osberg, two of the world’s top bridge experts, available to play bridge with our shareholders on Sunday afternoon.

Gorat's and Piccolo's will again be open exclusively for Berkshire shareholders on Sunday, May $1^{\text{st}}$ . Both will be serving until 10 p.m., with Gorat's opening at 1 p.m. and Piccolo's opening at 4 p.m. These restaurants are my favorites and – still being a growing boy – I will eat at both of them on Sunday evening. 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.

We will 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 emailed at cloomis@fortunemail.com; Becky Quick, of CNBC, at BerkshireQuestions@cnbc.com, and Andrew Ross Sorkin, of The New York Times, at arsorkin@nytimes.com.

From the questions submitted, each journalist will choose the dozen or so he or she decides are the most interesting and important. The journalists have told me your question has the best chance of being selected if you keep it concise, avoid sending it in at the last moment, make it Berkshire-related and include no more than two questions in any email you send them. (In your email, 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 a.m. 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 hope to answer at least 60 questions. From our standpoint, the more the better. Our goal, which we pursue both through these annual letters and by our meeting discussions, is to give you a better understanding of the business that you own.

* * * * * * * * * * * *

For good reason, I regularly extol the accomplishments of our operating managers. Equally important, however, are the 20 men and women who work with me at our corporate office (all on one floor, which is the way we intend to keep it!).

This group efficiently deals with a multitude of SEC and other regulatory requirements, files a 14,097-page Federal income tax return along with state and foreign returns, responds to countless shareholder and media inquiries, gets out the annual report, prepares for the country's largest annual meeting, coordinates the Board's activities – and the list goes on and on.

They handle all of these business tasks cheerfully and with unbelievable efficiency, making my life easy and joyful. Their efforts go beyond activities strictly related to Berkshire: They deal with 48 universities (selected from 200 applicants) who will send students to Omaha this school year for a day with me and also handle all kinds of requests that I receive, arrange my travel, and even get me hamburgers for lunch. No CEO has it better.

This home office crew has my deepest thanks and deserves yours as well. Come to our Woodstock for Capitalism on April 30 $^{th}$ and tell them so.

February 26, 2011

Warren E. Buffett

Chairman of the Board

Memo

To: Berkshire Hathaway Managers (“The All-Stars”)

cc: Berkshire Directors

From: Warren E. Buffett

Date: July 26, 2010

This is my biennial letter to reemphasize Berkshire's top priority and to get your help on succession planning (yours, not mine!).

The priority is that all of us continue to zealously guard Berkshire's reputation. We can't be perfect but we can try to be. As I've said in these memos for more than 25 years: "We can afford to lose money – even a lot of money. But we can't afford to lose reputation – even a shred of reputation." We must continue to measure every act against not only what is legal but also what we would be happy to have written about on the front page of a national newspaper in an article written by an unfriendly but intelligent reporter.

Sometimes your associates will say “Everybody else is doing it.” This rationale is almost always a bad one if it is the main justification for a business action. It is totally unacceptable when evaluating a moral decision. Whenever somebody offers that phrase as a rationale, in effect they are saying that they can’t come up with a good reason. If anyone gives this explanation, tell them to try using it with a reporter or a judge and see how far it gets them.

If you see anything whose propriety or legality causes you to hesitate, be sure to give me a call. However, it’s very likely that if a given course of action evokes such hesitation, it’s too close to the line and should be abandoned. There’s plenty of money to be made in the center of the court. If it’s questionable whether some action is close to the line, just assume it is outside and forget it.

As a corollary, let me know promptly if there's any significant bad news. I can handle bad news but I don't like to deal with it after it has festered for awhile. A reluctance to face up immediately to bad news is what turned a problem at Salomon from one that could have easily been disposed of into one that almost caused the demise of a firm with 8,000 employees.

Somebody is doing something today at Berkshire that you and I would be unhappy about if we knew of it. That's inevitable: We now employ more than 250,000 people and the chances of that number getting through the day without any bad behavior occurring is nil. But we can have a huge effect in minimizing such activities by jumping on anything immediately when there is the slightest odor of impropriety. Your attitude on such matters, expressed by behavior as well as words, will be the most important factor in how the culture of your business develops. Culture, more than rule books, determines how an organization behaves.

In other respects, talk to me about what is going on as little or as much as you wish. Each of you does a first-class job of running your operation with your own individual style and you don't need me to help. The only items you need to clear with me are any changes in post-retirement benefits and any unusually large capital expenditures or acquisitions.

* * * * * * * * * * * *

I need your help in respect to the question of succession. I’m not looking for any of you to retire and I hope you all live to 100. (In Charlie’s case, 110.) But just in case you don’t, please send me a letter (at home if you wish) giving your recommendation as who should take over tomorrow if you should become incapacitated overnight. These letters will be seen by no one but me unless I’m no longer CEO, in which case my successor will need the information. Please summarize the strengths and weaknesses of your primary candidate as well as any possible alternates you may wish to include. Most of you have participated in this exercise in the past and others have offered your ideas verbally. However, it’s important to me to get a periodic update, and now that we have added so many businesses, I need to have your thoughts in writing rather than trying to carry them around in my memory. Of course, there are a few operations that are run by two or more of you – such as the Blumkins, the Merschmans, the pair at Applied Underwriters, etc. – and in these cases, just forget about this item. Your note can be short, informal, handwritten, etc. Just mark it “Personal for Warren.”

Thanks for your help on all of this. And thanks for the way you run your businesses. You make my job easy.

WEB/db

P.S. Another minor request: Please turn down all proposals for me to speak, make contributions, intercede with the Gates Foundation, etc. Sometimes these requests for you to act as intermediary will be accompanied by “It can’t hurt to ask.” It will be easier for both of us if you just say “no.” As an added favor, don’t suggest that they instead write or call me. Multiply 76 businesses by the periodic “I think he’ll be interested in this one” and you can understand why it is better to say no firmly and immediately.

伯克希尔公司业绩与标普500对比

年份		年度百分比变化
		伯克希尔每股账面价值(1)	标普500含股息(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)
2010		13.0	15.1	(2.1)
复合年增长率 – 1965-2010		20.2%	9.4%	10.8
整体增长率 – 1964-2010		490,409%	6,262%

注：数据基于日历年，以下年份除外：1965年和1966年为截至9月30日的年度；1967年为截至12月31日的15个月。
从1979年开始，会计准则要求保险公司按市价而非成本与市价孰低法（此前的要求）来核算其持有的权益证券。本表中，伯克希尔1978年以前的结果已按新规则重述。其他方面的结果则沿用最初报告的数字计算。

标普500的数据是税前数据，而伯克希尔的数据是税后数据。如果像伯克希尔这样的公司只是简单持有标普500并计提相应税款，那么在标普500指数正回报的年份，其业绩会落后于标普500；在指数负回报的年份，则会超越标普500。长年累月下来，税负成本会导致累计落后幅度相当可观。

伯克希尔·哈撒韦公司

致伯克希尔·哈撒韦公司股东：

2010年，我们的A类股和B类股每股账面价值均增长了13%。过去46年（即现任管理层接手以来），账面价值从19美元增至95,453美元，年复合增长率为20.2%。*

2010年的亮点是我们收购了伯灵顿北方圣塔菲铁路公司（Burlington Northern Santa Fe），这笔收购的表现比我想象的还要好。现在看来，拥有这条铁路将使伯克希尔的“正常”盈利能力在税前提高近40%，税后提高超过30%。这笔收购使我们的股票数量增加了6%，并动用了220亿美元现金。由于我们迅速补充了现金，这笔交易的经济效益非常理想。

当然，“正常年份”是Charlie Munger（伯克希尔副主席、我的合伙人）和我都无法精确界定的东西。但为了估算我们当前的盈利能力，我们假设这一年保险业务没有发生超级巨灾，整体商业环境略好于2010年，但弱于2005年或2006年。基于这些假设，以及我在“投资”部分将要解释的其他几个假设，我可以估算出我们当前拥有的资产的正常盈利能力约为税前170亿美元、税后120亿美元（不包括任何资本利得或损失）。Charlie和我每天都在思考如何在此基础之上继续构建。

我们两人都对BNSF的未来充满热情，因为铁路相比其主要竞争对手卡车运输具有巨大的成本优势和环保优势。去年，BNSF每消耗一加仑柴油，就能将每吨货物运输创纪录的500英里。这比卡车运输的燃油效率高出三倍，意味着我们的铁路在运营成本上拥有重要优势。同时，我们的国家也因温室气体减排和进口石油需求大幅减少而受益。当货物通过铁路运输时，整个社会都受益。

随着时间的推移，美国境内的货物运输量将会增长，BNSF应能获得其应有的份额。铁路需要进行大规模投资才能实现这一增长，但没有人比伯克希尔更善于提供所需资金。无论经济多么低迷，市场多么混乱，我们的支票随时都能兑现。

去年——在人们对我国经济普遍悲观的情况下——我们通过投入60亿美元于不动产和设备，展示了我们在伯克希尔进行资本投资的热情。其中54亿美元（占总量的90%）投在了美国境内。当然，我们的业务未来会在海外扩张，但其未来投资的绝大部分仍将留在国内。2011年，我们将创下资本开支的新纪录——80亿美元——并且新增的20亿美元将全部投在美国。
资金总会流向机会，而美国机会丰富。如今的评论员常谈论“巨大的不确定性”。但请回想一下，例如1941年12月6日、1987年10月18日和2001年9月10日。无论今天多么平静，明天总是充满不确定性。

别让这个现实吓到你。我一生中，政客和权威人士不断哀叹美国面临的可怕问题。然而，如今美国民众的生活水平比我出生时令人惊讶地提高了六倍。末日预言者忽略了一个至关重要的确定因素：人类潜力远未耗尽，而释放这种潜力的美国体系——尽管期间频繁被经济衰退甚至内战打断，却已在两个多世纪里创造奇迹——依然充满活力且行之有效。

我们并不比建国时天生更聪明，工作也不更努力。但环顾四周，你会看到一个超出任何殖民地居民梦想的世界。如今，正如1776年、1861年、1932年和1941年那样，美国最美好的日子还在前面。

业绩表现

查理和我认为，受托管理他人资金的人，应在履职之初就设定业绩目标。缺乏这样的标准，管理层就容易先射出业绩之箭，然后在箭落之处画上靶心。

就伯克希尔而言，我们很久以前就告诉过你们，我们的工作是以超过标普500涨幅（含股息）的速度提高每股内在价值。有些年份我们成功了，有些年份则失败了。但如果我们长期无法达到这个目标，那我们就辜负了投资者——他们自己通过持有指数基金本可以取得同样甚至更好的结果。

当然，挑战在于计算内在价值。如果把这项任务分别交给查理和我，你会得到两个不同的答案。精确是不可能的。

为了消除主观性，我们在衡量业绩时使用一个保守的内在价值替代指标——账面价值。诚然，我们有些业务的价值远高于账面上的账面价值。（本报告后面我们会提供一个案例研究。）但由于这笔溢价很少在年度间大幅波动，账面价值可以作为一个合理的追踪工具来衡量我们的表现。

第2页的表格显示了我们46年来对标普500的记录，早年业绩相当出色，如今仅差强人意。我们要强调，丰收年景永远不会再来了。我们目前管理的巨额资本消除了取得非凡业绩的任何可能性。然而，我们会努力争取高于平均水平的业绩，并认为你们以此标准要求我们是公平的。

应该指出，年度数据既不应被忽视，也不应被视为至关重要。地球绕太阳公转的速度，与投资理念或运营决策产生成果所需的时间并不同步。例如，在GEICO，我们去年热情地花费了9亿美元用于广告，以获取那些不会立即带来利润的保单持有人。如果我们能富有成效地花两倍的钱，我们也很乐意这么做，尽管短期业绩会进一步受损。我们在铁路和公用事业运营中的许多大额投资，也是着眼于遥远的未来回报。

为了让你们从更长远的视角看待业绩，我们在对面一页展示了将第2页的年度数据重排为一系列五年期数据。总共有42个这样的五年期，它们讲述了一个有趣的故事。从相对角度来看，我们最好的年份在20世纪80年代初就结束了。然而，市场的黄金时期出现在随后的17年里，伯克希尔的绝对回报率极其出色，尽管我们的相对优势有所缩小。
1999年之后，市场停滞了（或许您已经注意到了？）。因此，自那以来伯克希尔相对标普500的表现虽然令人满意，但带来的绝对回报只能算中等。

展望未来，我们希望平均每年能比标普500高出几个百分点——当然，这绝非板上钉钉的事。如果我们的目标达成，那么在股市表现不佳的年份，我们几乎必然有更好的相对业绩；而在市场强劲的年份，我们的相对业绩则会逊色。

伯克希尔与标普500按五年期的企业业绩对比

五年期	年度百分比变化		相对业绩 (1)-(2)
	伯克希尔每股账面价值 (1)	标普500含股息 (2)
1965-1969	17.2	5.0	12.2
1966-1970	14.7	3.9	10.8
1967-1971	13.9	9.2	4.7
1968-1972	16.8	7.5	9.3
1969-1973	17.7	2.0	15.7
1970-1974	15.0	(2.4)	17.4
1971-1975	13.9	3.2	10.7
1972-1976	20.8	4.9	15.9
1973-1977	23.4	(0.2)	23.6
1974-1978	24.4	4.3	20.1
1975-1979	30.1	14.7	15.4
1976-1980	33.4	13.9	19.5
1977-1981	29.0	8.1	20.9
1978-1982	29.9	14.1	15.8
1979-1983	31.6	17.3	14.3
1980-1984	27.0	14.8	12.2
1981-1985	32.6	14.6	18.0
1982-1986	31.5	19.8	11.7
1983-1987	27.4	16.4	11.0
1984-1988	25.0	15.2	9.8
1985-1989	31.1	20.3	10.8
1986-1990	22.9	13.1	9.8
1987-1991	25.4	15.3	10.1
1988-1992	25.6	15.8	9.8
1989-1993	24.4	14.5	9.9
1990-1994	18.6	8.7	9.9
1991-1995	25.6	16.5	9.1
1992-1996	24.2	15.2	9.0
1993-1997	26.9	20.2	6.7
1994-1998	33.7	24.0	9.7
1995-1999	30.4	28.5	1.9
1996-2000	22.9	18.3	4.6
1997-2001	14.8	10.7	4.1
1998-2002	10.4	(0.6)	11.0
1999-2003	6.0	(0.6)	6.6
2000-2004	8.0	(2.3)	10.3
2001-2005	8.0	0.6	7.4
2002-2006	13.1	6.2	6.9
2003-2007	13.3	12.8	0.5
2004-2008	6.9	(2.2)	9.1
2005-2009	8.6	0.4	8.2
2006-2010	10.0	2.3	7.7

注：前两个五年期涵盖自上年9月30日开始的五年。第三个五年期涵盖从1966年9月30日至1971年12月31日的63个月。其他所有五年期均为日历年。第2页的其他注释也适用于此表。

内在价值——今天与明天

虽然伯克希尔的内在价值无法精确计算，但其三大关键支柱中有两项是可以衡量的。查理和我在自行估算伯克希尔价值时，很大程度上依赖这些衡量指标。

价值的第一部分是我们的投资：股票、债券及现金等价物。年末按市价计算，这些投资总计1,580亿美元。

保险浮存金——我们暂时持有但不属于我们的保险业务资金——为其中660亿美元的投资提供了资金。只要保险承销业务收支平衡——即我们收到的保费等于发生的损失和费用——这笔浮存金就是“免费”的。当然，承销业绩起伏不定，时盈时亏，飘忽不定。但纵观我们的整个历史，我们总体保持了可观的盈利，且我预期未来我们平均也能做到盈亏平衡或更好。如果做到这一点，那么我们的所有投资——无论是由浮存金还是留存收益提供资金——都可以被视为伯克希尔股东价值的一部分。

伯克希尔价值的第二部分，是来自投资和保险承销以外渠道的收益。这些收益由我们68家非保险子公司贡献，详见第106页。在伯克希尔早期，我们专注于投资领域。然而在过去二十年里，我们越来越强调发展非保险业务的收益，这一做法还将继续。

下表显示了这一转变。第一个表格列示了自1970年（我们进入保险业务三年后）起每十年的每股投资额。我们排除了归属于少数股东权益的投资。

年末	每股投资额	期间	每股投资额年复合增长率
1970	$ 66
1980	754	1970-1980	27.5%
1990	7,798	1980-1990	26.3%
2000	50,229	1990-2000	20.5%
2010	94,730	2000-2010	6.6%

尽管过去40年间，我们的每股投资额年复合增长率达到了健康的19.9%，但随着我们专注于将资金用于收购运营企业，增长率已明显放缓。

这一转变的回报体现在下表中，该表展示了我们非保险业务的收益如何增长——同样以每股为基础，并扣除了适用的少数股东权益。

年份	每股税前收益	期间	每股税前收益年复合增长率
1970	$ 2.87
1980	19.01	1970-1980	20.8%
1990	102.58	1980-1990	18.4%
2000	918.66	1990-2000	24.5%
2010	5,926.04	2000-2010	20.5%

在40年间，我们的非保险业务每股税前收益年复合增长率为21.0%。同期，伯克希尔的股价以每年22.1%的速度上涨。长期来看，你可以预期我们的股价会与伯克希尔的投资和收益大致同步运动。市场价格与内在价值常常沿着非常不同的路径发展——有时甚至会持续很长时间——但最终它们会相遇。

内在价值的计算还有第三个更主观的因素，它可以是正面的也可以是负面的：留存收益在未来被运用的效率。我们以及许多其他企业，很可能在未来十年内留存与目前所用资本相等甚至更多的收益。有些公司会把留存的每一美元变成50美分，而另一些则能变成2美元。
这个"他们将怎么用这笔钱"的因素，必须与"我们现在有什么"的计算一同评估，我们（或者任何人）才能对公司内在价值做出合理估算。因为外部投资者只能眼睁睁看着管理层把自己那份公司收益拿去再投资。如果预计CEO能干好这份差事，再投资前景就会为公司当前价值加分；如果CEO的能力或动机可疑，当前价值就必须打折。结果差异可以天差地别。20世纪60年代末，西尔斯·罗巴克（Sears Roebuck）或蒙哥马利·沃德（Montgomery Ward）CEO手里的一美元现值，与交给萨姆·沃尔顿（Sam Walton）的一美元命运截然不同。

* * * * * * * * * * * *

查理和我希望非保险业务的每股收益能继续保持合理增长。但随着基数变大，难度也在增加。我们既需要现有业务表现良好，也需要更多大型收购。我们准备好了。猎象枪已经重新装弹，我的食指也发痒了。

规模这个锚给我们带来的部分拖累，被我们几项重要优势抵消了。首先，我们拥有一批真正优秀的经理人，他们对自身业务和伯克希尔都有非同寻常的投入。我们许多CEO已经财务独立，他们工作只是因为热爱。他们是志愿者，而不是雇佣兵。因为没人能给他们提供更享受的工作，所以他们挖不走。

在伯克希尔，经理人可以专注于经营业务：他们不用参加总部会议，不用操心融资，也不用受华尔街骚扰。他们每两年收到我的一封信（全文见第104-105页），随时可以给我打电话。每个人的习惯不同：有些经理人我去年一整年都没联系过，而有一位我几乎每天通话。我们信任的是人，而不是流程。"聘对人，少管理"的原则适合他们，也适合我。

伯克希尔的CEO形形色色。有的有MBA学历，有的大学都没毕业。有的用预算、按部就班；有的凭直觉行事。我们的团队就像一支由击球风格迥异的全明星球员组成的棒球队。阵容很少需要变动。

我们的第二个优势在于如何分配业务赚到的钱。满足这些业务自身需求后，我们还有非常可观的剩余资金。大多数公司只能在自己所属行业内部进行再投资，但这往往严重限制了资本分配的"宇宙"——既小，又远不如外部世界可以找到的机会。为数不多的机会竞争激烈，卖方占据上风，就像一场有很多男孩参加的派对上只有一位女孩一样。这种不平衡对女孩是天堂，对男孩则是地狱。

在伯克希尔，我们配置资本时没有体制上的限制。查理和我的唯一限制是，我们能否理解一项可能收购的未来前景。跨过这道门槛（虽然常常跨不过去）之后，我们就可以把一个机会与其他众多机会进行比较。

1965年我接管伯克希尔时，并没有利用这一优势。当时伯克希尔只做纺织业务，而此前十年亏损惨重。我能做的最蠢的事就是追求"机会"来改进和扩大现有纺织业务——所以有好几年我恰恰就是这么干的。然后，在一次最后的灵光闪现中，我又买下了另一家纺织公司。啊啊啊啊啊！最终我清醒过来，先进了保险业，然后又进入了其他行业。
还有一点补充，讲的是我们"世界尽在掌握"这一优势：除了在众多生意之间比较吸引力之外，我们还会把生意与有价证券的投资机会做对比，而大多数管理层是不会做这种比较的。很多时候，企业的定价高得离谱，远高于投资股票或债券可能获得的收益。这时，我们就买入证券，耐心等待时机。

我们在资本配置上的灵活性，是迄今取得进展的重要原因。比如，我们可以把从时思糖果（See's Candies）或商业信息公司（Business Wire）赚来的钱——这两家是运营最好的企业，但再投资机会有限——用作收购北伯林顿铁路公司（BNSF）所需的部分资金。

我们的最后一个优势，是渗透在伯克希尔内部、难以复制的文化。在商业中，文化至关重要。

首先，代表你们的董事们像所有者一样思考和行动。他们只领取象征性报酬：没有期权，没有限制性股票，实际上也几乎没有现金。我们不为他们购买董事及高管责任险——这在几乎所有其他大型上市公司都是标配。如果他们拿你的钱搞砸了，他们自己的钱也会跟着亏损。不算我自己的持股，董事及其家族持有的伯克希尔股票价值超过30亿美元。因此，我们的董事以所有者的眼光、带着浓厚的兴趣，监督着伯克希尔的行动和业绩。你我有幸能有他们做管家。

同样的所有者导向也贯穿于我们的经理人中。很多情况下，这些人是主动找到伯克希尔，希望我们收购他们和家族长期拥有的企业。他们带着所有者的心态而来，而我们提供的环境鼓励他们保持这种心态。拥有热爱自己事业的经理人，绝非微不足道的优势。

文化会自我繁衍。温斯顿·丘吉尔曾说过："你先塑造房子，然后房子塑造你。"这句话同样适用于企业。官僚程序滋生更多官僚，帝王般的公司殿堂催生颐指气使的行为。（有位幽默人士说过："当你坐进汽车后座，车子却不动时，你就知道自己不再是CEO了。"）在伯克希尔的"世界总部"，我们的年租金是27万零212美元。此外，总部的家具、艺术品、可乐机、午餐室、高科技设备——你能想到的一切——总投资为30万零1363美元。只要查理和我把你的钱当成自己的钱来对待，伯克希尔的经理人很可能也会谨慎对待。

我们的薪酬计划、年度股东大会，甚至年度报告，都旨在强化伯克希尔文化，使之能够排斥和驱逐那些心术不正的经理人。这种文化每年都在增强，在查理和我离开舞台很久之后，它仍将完好无损。

要取得还算不错的成绩，我们需要我刚才提到的所有优势。我们的经理人会交出满意的答卷，你们可以放心。但查理和我在资本配置方面能否尽到本分，部分取决于收购的竞争环境。你们将得到我们最大的努力。

GEICO

现在，让我给你们讲一个故事，帮助你们理解为什么一家企业的内在价值可以远远超过其账面价值。讲这个故事也让我有机会重温一些美好的回忆。

六十年前的上个月，GEICO走进了我的生活，注定要以巨大的方式塑造我的命运。那时我才20岁，是哥伦比亚大学的研究生。之所以选择去那里，是因为我的英雄本·格雷厄姆（Ben Graham）每周在学校上一节课。
一天在图书馆，我翻看了《美国名人录》中本（Ben）的词条，发现他是政府雇员保险公司（Government Employees Insurance Co.，现称GEICO）的董事长。我对保险一无所知，也从没听说过这家公司。不过，图书管理员指引我找到一本厚厚的保险业汇编，读完GEICO那一页后，我决定去拜访这家公司。接下来的周六，我搭上早班火车前往华盛顿。

唉，等我到了公司总部，大楼关着门。我有点慌神，开始拼命敲门，直到一个看门人出现。我问他办公室里有没有人能让我聊聊，他带我找到了当时唯一在场的人——Lorimer Davidson。

那是我走运的时刻。接下来的四个小时里，"戴维"（Davy）给我上了一课，让我了解了保险和GEICO。一段美好的友谊由此开始。不久之后，我从哥伦比亚大学毕业，回到奥马哈成了一名股票销售员。GEICO自然成了我首推的股票，让我一出道就收获了几十位客户。GEICO也直接提升了我个人的净资产——见过戴维后不久，我把这只股票买到了我9,800美元投资组合的75%。（即便如此，我还是觉得自己过于分散了。）

后来，戴维成了GEICO的CEO，带领公司达到了做梦都想不到的高度，直到他退休几年后的70年代中期，公司陷入了麻烦。就在那时——股价暴跌超过95%——伯克希尔在市场上买入了大约三分之一的股份，随后多年，由于GEICO回购自己的股票，我们的持股增加到50%。伯克希尔买下这一半业务的成本是4,600万美元。（尽管持仓比例这么大，但我们没有对经营施加任何控制。）

随后，我们在1996年初买下了GEICO剩余的50%股份。这促使95岁高龄的戴维录了一段视频，说他心爱的GEICO将永久落户伯克希尔，他有多高兴。（他还开玩笑地总结道："沃伦，下次请预约。"）

过去60年里，GEICO经历了很多，但其核心目标——让美国人在购买汽车保险时省下大笔钱——始终未变。（试试拨打1-800-847-7536或访问www.GEICO.com。）换句话说，靠值得拥有保单持有人的业务，来赢得他们的生意。聚焦于这个目标，GEICO已成长为美国第三大汽车保险公司，市场份额为8.8%。

1993年Tony Nicely接任GEICO的CEO时，市场份额是2.0%，这个水平已经停滞了十多年。GEICO在Tony手下脱胎换骨，找到了一条持续增长之路，同时维持承销纪律并保持低成本。

让我量化一下Tony的成就。1996年，当我们买下那50%尚未拥有的GEICO股份时，花费了约23亿美元。这个价格意味着整个公司价值46亿美元。当时GEICO的有形净资产为19亿美元。

价格超出有形净资产的部分——27亿美元——是我们当时估算的GEICO"商誉"价值。这部分商誉代表着当时在GEICO投保的保单持有人的经济价值。1995年，这些客户向公司支付了28亿美元的保费。因此，我们给GEICO客户的估值大约是客户每年向公司缴付额的97%（27亿/28亿）。按行业标准，这个价格非常高。但GEICO绝非普通保险公司：由于公司成本低廉，其保单持有人持续盈利且异常忠诚。
如今，我们的保费规模已达143亿美元，且仍在增长。然而，GEICO在我们账面上的商誉仅为14亿美元——无论GEICO的价值如何提升，这一数字都将保持不变（根据会计准则，经济商誉减值时必须调减账面价值，但升值时则无需调整）。若沿用1996年收购时采用的"保费规模97%"估值标尺，GEICO当前经济商誉的实际价值约为140亿美元。而十年、二十年后，这一价值很可能远高于此。GEICO——2011年已取得强劲开局——真可谓一份持续馈赠的厚礼。

一个不容忽视的注脚：在Tony的带领下，GEICO已发展成为全美最大的个人险代理机构之一，主要向我们GEICO车险客户销售房屋保单。这项业务中，我们代理多家非关联保险公司。它们承担风险，我们仅负责签约客户。去年该代理机构售出769,898份新保单，同比增长34%。这项业务带来的好处显而易见：既产生佣金收入，更重要的是进一步巩固了我们与保单持有人的关系，有助于留住客户。

我对Tony和Davy（对了，还有那位清洁工）深怀感激。

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接下来，让我们审视伯克希尔的四大业务板块。每个板块的资产负债表与利润表特征都截然不同。若将其混为一谈，只会阻碍分析。因此，我们将它们视为四项独立业务——这也是Charlie和我看待它们的方式。

首先来看保险——伯克希尔的核心业务，也是多年来推动我们扩张的引擎。

保险

财产险（"P/C"）公司先收取保费，后支付理赔款。极端情况下（如某些工伤事故），理赔可能延续数十年。这种"先收钱后付款"的模式让我们持有大量资金——我们称之为"浮存金"——这些钱最终会流向他人。与此同时，我们可以用这笔浮存金为伯克希尔投资获益。尽管单个保单和理赔案来来去去，我们持有的浮存金总量与保费规模相比始终保持着惊人的稳定性。因此，随着业务增长，浮存金也在增长。我们增长得有多快？请看下表：

年份（年底）	浮存金（百万美元）
1970	$39
1980	237
1990	1,632
2000	27,871
2010	65,832

若我们的保费收入超过费用与最终理赔款之和，便产生承保利润，这笔利润会叠加在浮存金产生的投资收益之上。当承保盈利时，我们相当于免费使用资金——更妙的是，持有这些资金还能获得报酬。可惜的是，所有保险公司都渴望实现这一美好结果，由此引发了激烈竞争，多数年份竞争之惨烈足以让整个财产险行业承受巨额承保亏损。这种亏损，本质上就是行业为持有浮存金所付出的代价。以全美最大的保险公司、经营有道的State Farm为例：过去十年间，它有七年承保亏损，期间累计承保亏损超过200亿美元。
在伯克希尔，我们目前已连续八年实现承保盈利，期间承保利润总额达到170亿美元。我相信，在未来的大多数年份（尽管并非全部），我们很可能将继续实现承保盈利。如果做到这一点，我们的浮存金将比免费还划算。我们得到的益处，就如同有人将660亿美元存入我们这里，支付我们一笔保管费，然后让我们用这笔资金为自己投资。

让我再次强调，对于整个财产意外险行业来说，免费浮存金并非可预期的结果：在大多数年份，行业的保费收入都不足以覆盖赔偿金和费用。因此，几十年来，该行业的有形净资产收益率远低于美国工业的平均回报，这种糟糕的表现几乎肯定会持续下去。伯克希尔之所以能拥有卓越的经济效益，只是因为我们拥有一位出色的管理者，经营着一些不同寻常的业务。我们已经向你们介绍过GEICO，但我们还有另外两家规模很大的公司，以及一批规模较小的公司，每家在各自领域都是明星。

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首先是伯克希尔·哈撒韦再保险集团，由Ajit Jain管理。Ajit承保那些其他公司既无意愿也无资本承担的风险。他的运作将能力、速度、决断力，以及最重要的智慧，以保险业界独一无二的方式结合在一起。然而，他从不将伯克希尔暴露在与我们资源不匹配的风险之下。事实上，在这方面，我们比大多数大型保险公司保守得多。过去一年，Ajit大幅扩展了其人寿再保险业务，每年约20亿美元的保费收入将持续数十年。

自1985年白手起家以来，Ajit打造了一个拥有300亿美元浮存金且承保利润可观的保险业务，其成就没有其他任何一家保险公司的CEO能望其项背。凭借这些成就，他为伯克希尔的价值增加了数百亿美元。连氪石（超人克星）在Ajit面前都弹不回来。

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我们还有另一家保险巨头——通用再保险公司，由Tad Montross管理。

从根本上说，一个稳健的保险业务需要遵循四条纪律：(1) 了解所有可能导致保单产生损失的敞口；(2) 保守评估任何敞口实际导致损失的可能性以及发生损失后可能的成本；(3) 设定一个能在平均情况下，在覆盖预期损失成本和运营费用后产生利润的保费；(4) 如果无法获得合适的保费，愿意放弃这笔业务。

许多保险公司通过了前三项测试，却在第四项上栽了跟头。华尔街的压力、代理机构和经纪人的催促，或者仅仅是受雄性荷尔蒙驱使的CEO不愿接受业务规模萎缩，导致太多保险公司以不充分的费率承保。“别人都这么做，所以我们也必须这么做”在任何行业都会带来麻烦，但保险业尤甚。

Tad遵守了全部四条保险戒律，他的业绩也说明了这一点。在他的领导下，通用再保险公司庞大的浮存金比免费还划算，我们预计，平均而言，这种情况将持续下去。

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最后，我们拥有一批规模较小的公司，其中大部分专攻保险领域的冷门角落。总的来说，它们的业绩一直保持盈利，而且如下表所示，它们为我们提供的浮存金相当可观。查理和我珍视这些公司及其管理者。

以下是我们的财产意外险和人寿保险四大板块的记录：

	承销利润		年末浮存金
保险业务	（单位：百万美元）
	2010年	2009年	2010年	2009年
通用再保险	$452	$477	$20,049	$21,014
伯克希尔再保险	176	250	30,370	27,753
GEICO	1,117	649	10,272	9,613
其他主要保险	268	84	5,141	5,061
	$2,013	$1,460	$65,832	$63,441

在大型保险业务中，伯克希尔在我看来是世界最佳。

制造、服务和零售业务

我们在伯克希尔这一部分的活动覆盖了各个领域。不过，让我们先看看整个集团的简要资产负债表和利润表。

资产负债表 2010年12月31日（单位：百万美元）

资产		负债与股东权益 应付票据	$1,805
现金及等价物	$2,673
应收款项及票据	5,396	其他流动负债	8,169
存货	7,101	流动负债合计	9,974
其他流动资产	550
流动资产合计	15,720
商誉及其他无形资产	16,976	递延所得税	3,001
固定资产	15,421	长期债务及其他负债	6,621
其他资产	3,029	股东权益	31,550
	$51,146		$51,146

利润表（单位：百万美元）

	2010年	2009年	2008年
收入	$66,610	$61,665	$66,099
营业费用（包括折旧：2010年$1,362，2009年$1,422，2008年$1,280）	62,225	59,509	61,937
利息费用	111	98	139
税前利润	4,274*	2,058*	4,023*
所得税及非控制性权益	1,812	945	1,740
净利润	$2,462	$1,113	$2,283

*不含购买会计调整。

这一组公司销售的产品从棒棒糖到喷气式飞机，应有尽有。其中一些业务拥有极好的经济特征，按无杠杆有形净资产计算，税后回报率在25%到超过100%之间。其他一些业务则提供12-20%的不错回报。不幸的是，少数几家回报率很低，这源于我在资本配置工作上的几个严重错误。这些错误的发生，是因为我误判了所购企业的竞争优势，或者误判了其所处行业的未来经济前景。我尝试在收购时放眼未来十年或二十年，但有时我看走了眼。

该板块中多数公司去年利润有所改善，其中四家创下新高。我们先看看这些纪录创造者。

• TTI，我们的电子元件分销商，销售额比此前最高纪录（2008年）高出21%，税前利润更是比之前的纪录高出58%。其销售额增长遍及三大洲：北美16%，欧洲26%，亚洲50%。TTI分销的数千种产品平淡无奇，许多售价不到一美元。TTI卓越表现的魔力，来自其CEO Paul Andrews及其同事。
• Forest River（森林河），我们的房车和船舶制造公司，销售额创下近20亿美元的纪录，利润也创新高。Forest River拥有82家工厂，我至今没去过其中任何一家（甚至连总部也没去过）。没必要去；公司CEO Pete Liegl把业务经营得红红火火。欢迎在年会上来看看他们的产品。最好买一辆。
• CTB（CTB），我们的农业设备公司，再次创下利润纪录。我在2008年年报中提过公司CEO Vic Mancinelli。他一直在进步。伯克希尔2002年以1.4亿美元收购CTB，此后它向我们支付了1.6亿美元股息，还偿还了4000万美元债务。去年税前利润1.06亿美元。生产率的提高是增长的主要推手。收购时，CTB人均销售额为189,365美元；现在已达到405,878美元。
• 鞋子，你信吗？H. H. Brown（H.H.布朗），由Jim Issler运营，以Born品牌最为知名，销售和利润均创纪录（年会上卖出了1,110双鞋帮了大忙）。Jim出色地适应了行业的重大变化。我得提一下，他的工作由89岁的Frank Rooney监督，他是一位卓越的商人，在高尔夫球场上跟他打赌可不是闹着玩的。

这一板块年度改善中一个重大故事出现在NetJets（耐特杰）。无论怎么强调Dave Sokol在这家公司（喷气式飞机分时所有权领域的领军者）所取得成就的广度和重要性都不为过。NetJets长期在运营上非常成功，2010年市场份额是第二名竞争对手的五倍。我们压倒性的领先地位源于一支由飞行员、机械师和服务人员组成的出色团队。这支队伍在2010年再次出色完成任务，定期调查显示客户满意度创下新高。

尽管NetJets在客户心目中一直是遥遥领先的赢家，但自1998年收购以来，我们的财务结果却是失败的。截至2009年的11年间，该公司累计税前亏损1.57亿美元，这一数字还远远被低估，因为NetJets的借款成本因免费使用伯克希尔的信用而得到了大量补贴。如果NetJets是独立运营，这些年来的亏损会再多出几亿美元。

我们现在对NetJets使用伯克希尔的担保收取适当费用。尽管有这笔费用（2010年为3800万美元），NetJets在2010年实现了税前利润2.07亿美元，相比2009年扭转了9.18亿美元。Dave迅速重组管理层并优化采购和支出政策，止住了现金流失，将伯克希尔原本唯一的主要业务问题变成了一个稳健盈利的运营实体。

同时，Dave保持了NetJets在安全和服务方面的行业领先声誉。在许多重要方面，我们的培训和运营标准远高于FAA（美国联邦航空管理局）的要求。保持一流标准是正确的做法，但我支持这一政策也有私心。我和家人乘坐NetJets飞行已超过5000小时（相当于连续七个月每天24小时在空中），未来还会再飞数千小时。我们没有受到任何特殊待遇，乘坐过至少100架飞机和300个机组人员的随机组合。无论哪架飞机或哪个机组，我们始终知道，我们乘坐的是私人航空领域训练最顶尖的飞行员驾驶的飞机。

我们制造、服务和零售板块中利润最高的公司是Marmon（马蒙），它由130家企业组成。我们很快将按计划从Pritzker家族手中购买其17%的股份，将持股比例提升至80%。成本约为15亿美元。然后我们将在2013年或2014年（由Pritzker家族选择日期）购买其剩余股份。Frank Ptak把Marmon管理得非常出色，我们期待实现100%控股。
接下来是马蒙，该行业利润第二高的是伊斯卡和麦克莱恩。两家公司都表现优异。2010年，格雷迪·罗西尔的麦克莱恩进军葡萄酒和烈酒分销业务，以补充其320亿美元的食品、香烟、糖果和杂货分销业务。在收购佐治亚州和北卡罗来纳州的运营商帝国分销商时，我们与该公司的首席执行官大卫·卡恩合作，他充满活力。大卫正领导我们进行地理扩张。到年底，他已经完成了第一次收购——田纳西州的霍瑞兹葡萄酒与烈酒公司。

伊斯卡2010年的利润增长了159%，我们很可能会在2011年超过经济衰退前的水平。全球销售额都在增长，尤其是在亚洲。这将归功于埃坦·韦特海默、雅各布·哈帕兹和丹尼·戈德曼的卓越表现，远超伊斯卡主要竞争对手。

这些都是好消息。然而，我们与住宅建筑相关的业务仍在挣扎。约翰斯·曼维尔、米泰克、肖氏和阿克米砖业保持了竞争力，但其利润远低于几年前的水平。这些业务在2010年的税前利润合计为3.62亿美元，而2006年为13亿美元，员工人数减少了约9,400人。

住房复苏可能在一两年内开始。无论如何，它迟早会发生。因此：(1) 在米泰克，过去十一个月内我们已完成或承诺了五次补强型收购；(2) 在阿克米，我们最近以5000万美元收购了阿拉巴马州领先的砖制造商；(3) 约翰斯·曼维尔正在俄亥俄州建造一座5500万美元的屋顶防水卷材工厂，将于明年完工；(4) 肖氏将在2011年花费2亿美元用于厂房和设备，所有这些都位于美国。这些企业在进入衰退时实力雄厚，退出时会更加强大。在伯克希尔，我们的时间视野是永远。

受监管的资本密集型业务

我们有两家非常大的企业——BNSF和中部美国能源，它们具有重要的共同特征，与我们的其他许多业务截然不同。因此，在这封信中我们给它们单独设立一个板块，并在我们的美国通用会计准则资产负债表和利润表中分解了它们的财务数据。

这两家公司的一个关键特征是它们对长期受监管资产的巨额投资，这些资产由大量长期债务融资，且伯克希尔不提供担保。我们的信用并非必需：这两家企业的盈利能力，即使在非常不利的商业环境下，也足以覆盖其利息需求。例如，在2010年衰退期，BNSF的车辆装载量远低于峰值水平，该公司的利息覆盖倍数为6:1。

两家公司都受到严格监管，并且都面临着永无止境的对厂房和设备进行重大投资的需求。两者还需要提供高效、令客户满意的服务，以赢得社区和监管机构的尊重。作为回报，两者都需要得到保证，即它们将被允许在未来资本投资上获得合理的收益。

之前我解释了铁路对美国未来的重要性。按吨英里计算，铁路运输了美国42%的城市间货运量，而BNSF的运量超过任何其他铁路——约占行业总量的28%。简单计算一下你就会知道，美国超过11%的城市间货运吨英里是由BNSF运输的。考虑到人口向西迁移，我们的份额很可能还会小幅上升。
这一切加起来是一份巨大的责任。我们是美国经济循环系统中一个主要且不可或缺的部分，有义务持续维护和改善我们23,000英里长的铁路，以及附属的桥梁、隧道、机车和车厢。在执行这项工作时，我们必须预见社会的需求，而不仅仅是做出反应。履行我们的社会责任，我们将持续投入远超折旧额的资金，2011年这部分超额支出达到20亿美元。我相信，我们这些大规模增量投资将获得合理回报。明智的监管与明智的投资，是同一枚硬币的两面。

在MidAmerican（中美能源），我们也参与了一项类似的“社会契约”。人们期望我们投入越来越多的资金，以满足客户未来的需求。只要我们同时可靠且高效地运营，我们就知道这些投资将获得公平的回报。

MidAmerican（中美能源）为美国240万客户供应电力，是爱荷华州、怀俄明州和犹他州最大的供应商，也是其他州的重要供应商。我们的管道运输了全美8%的天然气。显然，每天有数百万美国人依赖我们。

MidAmerican（中美能源）为它的所有者（伯克希尔持股89.8%）和客户都带来了卓越的成果。2002年MidAmerican收购北方天然气管道（Northern Natural Gas pipeline）后不久，该管道公司在该领域权威机构的评级中排名垫底——43家中的第43名。而在最近发布的报告中，北方天然气管道的排名上升至第二。排名第一的是我们的另一条管道——克恩河（Kern River）。

在电力业务方面，MidAmerican（中美能源）同样成绩斐然。自1999年我们收购爱荷华州的业务以来，该州的电价从未上涨。同期，该州另一家主要电力公司的价格上涨了超过70%，其电价远高于我们。在一些两家电力公司并肩运营的大都市地区，我们客户的电费远低于他们的邻居。我听说，在这些城市，如果房屋位于我们的服务区域，同类房屋的售价会更高。

到2011年底，MidAmerican（中美能源）将有2,909兆瓦的风电装机投入运营，超过美国任何其他受监管的电力公司。MidAmerican已投资或承诺投资于风电的总金额高达54亿美元。我们能够进行此类投资，是因为MidAmerican保留了所有盈利，而其他公用事业公司通常将大部分盈利分配出去。

到目前为止，想必你们已经明白，我为Matt Rose在BNSF（伯灵顿北圣塔菲）以及David Sokol和Greg Abel在MidAmerican（中美能源）为我们的社会所取得的成就感到自豪。我也同样为他们为伯克希尔股东所取得的成就感到自豪和感激。以下是相关数据：

MidAmerican（中美能源）	盈利（单位：百万美元）
	2010年	2009年
英国公用事业	$333	$248
爱荷华州公用事业	279	285
西部公用事业	783	788
管道	378	457
置业服务（HomeServices）	42	43
其他（净额）	47	25
公司利息和税前经营利润	1,862	1,846
利息（不包括伯克希尔）	(323)	(318)
伯克希尔次级债务利息	(30)	(58)
所得税	(271)	(313)
净利润	$1,238	$1,157
伯克希尔应占盈利*	$1,131	$1,071

*包含伯克希尔赚取的利息（扣除相关所得税后），2010年为1900万美元，2009年为3800万美元。

（历史会计至2010年2月12日；此后采用购买会计）	（单位：百万美元）
	2010年	2009年
收入	$16,850	$14,016
经营利润	4,495	3,254
利息（净额）	507	613
税前收益	3,988	2,641
净利润	2,459	1,721

金融与金融产品

这是我们最小的板块，包括两家租赁公司——XTRA（拖车）和CORT（家具）——以及Clayton Homes，全美领先的活动房生产和融资公司。

我们的两家租赁业务去年业绩都有所改善，尽管基数很低。XTRA将其设备利用率从2009年的63%提高到2010年的75%，从而将税前收益从2009年的1,700万美元提高到3,500万美元。CORT的业务随着年度推移有所回升，同时其运营也大幅收紧。这些因素共同将其税前业绩从2009年的亏损300万美元提升至2010年的盈利1,800万美元。

在Clayton，我们生产了23,343套活动房，占全行业总产量50,046套的47%。相比之下，1998年巅峰时期全行业生产了372,843套活动房。（当时我们的行业份额为8%。）去年在任何情况下销售都会很糟糕，但我在2009年报告中提到的融资问题继续加剧了这一困境。具体来说：我国政府的住房融资政策（通过FHA、房利美和房地美认可的可接受贷款体现）偏袒现场建造房屋，并削弱了活动房的价格优势。

我们为更多活动房买家提供融资，超过其他任何公司。因此，我们的经验对于那些准备全面改革我国住房贷款实践的人来说，应该具有启发意义。让我们来看看。

Clayton持有其发起的200,804笔抵押贷款。（它也有一些购买的抵押贷款组合。）在这些合同发起时，我们借款人的平均FICO得分为648，其中47%在640或以下。你的银行家会告诉你，这样的分数通常被视为信用可疑。

尽管如此，我们的贷款组合在压力环境下表现良好。以下是过去五年我们发起贷款的不良率：

年份	净损失占平均贷款百分比
2006	1.53%
2007	1.27%
2008	1.17%
2009	1.86%
2010	1.72%

我们的借款人遇到麻烦的原因包括失业、健康问题、离婚等。经济衰退对他们打击很大。但他们想留在自己的房子里，而且通常他们借入的金额相对于收入是合理的。此外，我们将发起的抵押贷款保留在自己的账户上，这意味着我们没有将其证券化或另行转售。如果我们的贷款很愚蠢，我们就会付出代价。这让人集中精神。

如果全国的购房者都像我们的买家一样行事，美国就不会经历它所遭遇的危机。我们的方法很简单：收取一笔有意义的首付，并将固定的月供调整到收入的合理比例。这一政策既让Clayton保持偿付能力，也让买家留在了自己的房子里。

对于大多数美国人来说，拥有住房是合理的，尤其是在今天房价较低、利率实惠的条件下。综合考虑，我第三好的投资是购买自己的房子，尽管如果我当时租房并把购房资金用来买股票，我会赚得多得多。（最好的两项投资是结婚戒指。）对于我花31,500美元买的房子，我和家人已经享受了52年美好的回忆，还有更多回忆将随之而来。
但是，如果购房者眼高手低，而放贷者——往往受到政府担保的保护——助长了他的幻想，那么房子就可能成为一场噩梦。我们国家的社会目标不应该是让家庭住进梦想中的房子，而应该是让他们住进自己负担得起的房子。

投资

下表列示了截至年底市值超过10亿美元的普通股投资。

股份数	公司	持股比例	2010年12月31日
			成本*	市值
			（单位：百万美元）
151,610,700	American Express Company	12.6%	$1,287	$6,507
225,000,000	BYD Company, Ltd.	9.9%	232	1,182
200,000,000	The Coca-Cola Company	8.6%	1,299	13,154
29,109,637	ConocoPhillips	2.0%	2,028	1,982
45,022,563	Johnson & Johnson	1.6%	2,749	2,785
97,214,584	Kraft Foods Inc.	5.6%	3,207	3,063
19,259,600	Munich Re	10.5%	2,896	2,924
3,947,555	POSCO	4.6%	768	1,706
72,391,036	The Procter & Gamble Company	2.6%	464	4,657
25,848,838	Sanofi-Aventis	2.0%	2,060	1,656
242,163,773	Tesco plc	3.0%	1,414	1,608
78,060,769	U.S. Bancorp	4.1%	2,401	2,105
39,037,142	Wal-Mart Stores, Inc.	1.1%	1,893	2,105
358,936,125	Wells Fargo & Company	6.8%	8,015	11,123
	其他		3,020	4,956
	按市值计价的普通股合计		$33,733	$61,513

*这是我们实际买入价，也是计税基础；美国通用会计准则下的“成本”在少数情况下因计提减值或增值而有所不同。

在我们报告的收益中，只反映了被投资公司支付给我们的股息。但去年我们享有的这些被投资公司未分配利润份额超过20亿美元。这些留存收益很重要。根据我们的经验——而且就过去一个世纪的投资者经验而言——未分配利润最终要么被市场涨幅所匹配，要么被超越，尽管方式极不规律。（事实上，有时相关性还会反向。正如一位投资者在2009年所说：“这比离婚还惨。我的净资产损失了一半——而我还得留着老婆。”）未来，我们预计市场涨幅最终至少会等于被投资公司留存的利润。

* * * * * * * * * * * *

在我们此前对伯克希尔正常盈利能力所做的估算中，我们做了三项与未来投资收益相关的调整（但并未包含我刚才描述的未分配利润因素）。

第一项调整无疑是负面的。去年，我们讨论过五笔大型固定收益投资，它们曾为我们的报告收益贡献了大量资金。其中一笔——我们的瑞士再保险票据——已于2011年初被赎回，另外两笔——高盛和通用电气的优先股——很可能在年底前消失。通用电气有权在10月赎回我们的优先股，并已声明有此打算。高盛有权在提前30天通知后赎回，但一直被美联储（感谢它！）拖着，不幸的是美联储很可能很快就会给高盛开绿灯。
这三家赎回方都必须为此向我们支付溢价——合计约14亿美元——但所有这些赎回仍然不受欢迎。它们发生后，我们的盈利能力将显著下降。这是坏消息。

有两个可能的抵消因素。年末我们持有380亿美元的现金等价物，在整个2010年这些资金只赚取微薄收益。但到某个时点，更好的利率将会回归。这至少会为我们的投资收益增加5亿美元——甚至可能更多。货币市场收益率这样的提升短期内不太可能出现。尽管如此，我们在估算"正常"盈利能力时，还是应该将更高的利率纳入考虑。此外，即使在利率回升之前，我们也有可能走运，找到机会以合理回报运用部分现金储备。那一天对我来说来得越快越好：更新一下伊索寓言——一辆敞篷车里的姑娘，胜过电话簿上的五个。

此外，我们当前普通股持股的股息几乎肯定会增加。最大的增幅很可能来自富国银行。美联储——我们在高盛事宜上的朋友——在过去两年里冻结了主要银行的股息水平，无论强弱。富国银行尽管在整个衰退最严重时期持续繁荣，并且目前拥有巨大的财务实力和盈利能力，却被迫维持人为的低分红。（我们不责怪美联储：由于各种原因，危机期间及危机后的短时间内，全面冻结是合理的。）

某个时点——可能很快——美联储的限制将会解除。富国银行届时就能恢复其所有者应得的理性股息政策。到那时，我们预计仅这一只证券每年的股息就会增加数亿美元。

我们持有的其他公司也可能会增加股息。可口可乐在1995年向我们支付了8800万美元，那是在我们完成购买其股票的第二年。此后每年，可口可乐都在提高股息。2011年，我们几乎肯定会从可口可乐获得3.76亿美元，比去年增加2400万美元。十年内，我预计这3.76亿美元会翻倍。到那时，我一点也不会惊讶于我们在可口可乐年利润中的份额，超过我们当初为这项投资支付的总额。时间是好公司的朋友。

总体而言，我相信我们的"正常"投资收益至少会等于2010年的水平，尽管我描述的赎回会减少2011年甚至2012年的收入。

* * * * * * * * * * * *

去年夏天，卢·辛普森告诉我他想退休。由于卢才74岁——在查理和我看来，这个年龄只适合做伯克希尔的实习生——他的请辞让我们很意外。

卢于1979年加入GEICO担任投资经理，他对公司的贡献无可估量。在2004年的年报中，我详细记录了他管理股票的成绩，之后没有再更新，只是因为他的业绩让我的显得太难看了。谁需要那个？

卢从不炫耀自己的才华。但我要说：简而言之，卢是一位投资巨匠。我们会想念他。

* * * * * * * * * * * *

四年前，我告诉过你们，我们需要增加一位或更多年轻投资经理，以便在查理、卢和我离开后继任。当时我们有多位出色的候选人可以立即接任我的CEO职位（现在也有），但在投资领域我们没有后备人选。
识别出许多近期业绩出色的投资经理很容易。但过去的业绩固然重要，在评判未来表现时却还不够。业绩是如何取得的至关重要，同时还要看经理对风险的理解与敏感度（绝不应以β系数来衡量，而β系数却是太多学者所选择的指标）。就风险标准而言，我们在寻找一种难以评估的能力：即预见尚未出现过的经济情景影响的能力。最后，我们想要一位将替伯克希尔工作视为远不止一份差事的人。

当查理和我见到Todd Combs时，我们就知道他符合我们的要求。和Lou一样，Todd的薪酬将由固定工资加上基于其相对标普500表现的浮动报酬构成。我们安排了递延和结转机制，防止业绩像跷跷板一样上下波动时，出现不当的高额报酬。在对冲基金界，一些普通合伙人的行为非常恶劣——他们在业绩好时拿走巨额报酬，而一旦业绩不佳，他们已富得流油，拍拍屁股走人，留下有限合伙人把先前的收益亏光。有时这些相同的普通合伙人很快就又成立新基金，以便能立即分享未来的利润，而无需弥补过去的损失。把资金交给这类经理的投资者，应该被称作"冤大头"，而不是合伙人。

只要我还在担任CEO，就会继续管理伯克希尔的大部分持仓，包括债券和股票。Todd最初将管理10亿到30亿美元的资金，这个金额他可以每年重新设定。他的重点将是股票，但不局限于这类投资。（基金顾问喜欢要求这样的分类框，例如"多空策略""宏观策略""国际股票"。在伯克希尔，我们唯一的分类框是"聪明"。）

随着时间的推移，如果我们找到合适的人选，可能会再增加一两位投资经理。如果那样做，我们可能会让每位经理的绩效报酬80%取决于他自己的投资组合，另外20%取决于其他经理的表现。我们希望有一套薪酬体系，既能对个人成功给予丰厚回报，又能促进合作而非竞争。

当查理和我都不在了，我们的投资经理将按照CEO和董事会当时设定的方式负责整个投资组合。由于优秀投资者在收购企业时能带来有用的视角，我们期望在可能的收购决策上征求他们的意见——但不会给予投票权。当然，最终任何重大收购都要由董事会拍板。

附注：当我们发布Todd加入的新闻稿时，不少评论员指出他"名不见经传"，并对我们没有找一位"大牌人物"表示困惑。我不知道他们中有多少人知道1979年的Lou、1985年的Ajit，或者1959年的Charlie。我们的目标是找到一匹两岁的"秘书处"（Secretariat，美国传奇赛马，两岁即展现惊人天赋），而不是一匹十岁的"海饼干"（Seabiscuit，美国著名赛马，大器晚成，十岁仍为冠军）。（哎呀——对一个八十岁的CEO来说，这可能不是最聪明的比喻。）

衍生品

两年前，在2008年年报中，我告诉过你们，伯克希尔参与了251份衍生品合约（不包括我们子公司如MidAmerican运营所用的合约，以及Gen Re剩下的少数合约）。如今，这个数字是203份，这一数字既反映了我们投资组合中少量新增合约，也反映了一些合约的解除或到期。
我们目前持有的头寸——全部由我个人负责——主要分为两类。在两类业务中，我们做的都是类似保险的生意：收取保费，承担别人想甩掉的风险。事实上，我们在这些衍生品交易中运用的思考过程，与我们的保险业务完全相同。你还需要明白，我们在签订合同时就提前收取了款项，因此不承担任何交易对手方风险。这一点很重要。

我们的第一类衍生品，包含一批2004至2008年间签订的合约，内容涉及某些高收益指数中公司债券的违约。一旦这些公司违约，我们就需要赔付。除了极少数例外，这些风险暴露期均为五年，每份合约覆盖100家公司。

总计而言，我们为这些合约收取了34亿美元的保费。最初在2007年年报中向各位介绍时，我曾预计这些合约将为我们带来"承销利润"——即我们的赔付额会低于收取的保费。此外，我还提到我们将受益于浮存金的使用。

后来的情况，你我都心知肚明，我们遭遇了金融恐慌和严重衰退。高收益指数中有多家公司违约，导致我们赔付了25亿美元。不过，如今大部分风险已过去，因为我们那些风险较高的合约大多已到期。因此，几乎可以肯定，我们将像最初预期的那样实现承销利润。此外，在合约存续期内，我们平均享有了约20亿美元的无息浮存金。简而言之，我们收取的保费定价合理，正是这一点在三年前经营环境极度恶化时保护了我们。

我们的另一大类衍生品头寸——这类合约被称为"股权看跌期权"（equity puts）——涉及我们为希望防范美国、英国、欧洲和日本股市下跌风险的交易对手提供的保险。这些合约挂钩各种股票指数，例如美国的标普500指数和英国的富时100指数。2004至2008年间，我们为47份这样的合约收取了48亿美元保费，其中大部分期限为15年。这些合约只有在到期日才根据指数价格结算：在此之前无需支付任何款项。

首先向各位更新这些合约的情况：我可以汇报，2010年末，应交易对手方要求，我们解除了八份合约，这些合约的到期日介于2021年至2028年之间。我们最初为这些合约收取了6.47亿美元保费，解除合约时支付了4.25亿美元。因此，我们实现了2.22亿美元的收益，并且在约三年时间里无偿且无限制地使用了那6.47亿美元。

经过2010年的这些交易，年末我们账上还剩39份股权看跌期权合约。这些合约在签订时，我们收取了42亿美元保费。

这些合约的未来当然充满不确定性。但我们可以提供一个视角：如果相关指数在合约到期日的价格与2010年12月31日相同，且汇率不变，那么对于2018年至2026年间到期的合约，我们将需要支付38亿美元。你可以将这个金额称为"结算价值"。
在年终资产负债表中，我们仍将剩余股权看跌期权的负债列为67亿美元。换句话说，如果相关股指自当日起保持不变，我们未来将录得29亿美元的收益——即67亿美元负债与38亿美元结算价值之间的差额。我相信股价很可能会上涨，我们的负债将在现在到结算日之间大幅下降。若果真如此，我们从此获得的收益还会更大。但这当然远非板上钉钉。

可以肯定的是，我们将能使用剩余的42亿美元“浮存金”平均约十年时间。（这笔浮存金以及高收益合约产生的浮存金均未计入660亿美元的保险浮存金中。）由于资金具有可互换性，不妨将其中一部分资金视为用于收购BNSF（北伯林顿铁路公司）。

正如我之前告诉你们的，我们的衍生品合约几乎全部免于任何抵押义务——这降低了我们原本可以收取的保费。但这也让我们在金融危机期间感到安心，使我们在那些日子里能够做出一些有利的购买。放弃一些额外的衍生品保费被证明是值得的。

关于报告与误报：哪些数字重要，哪些不重要

在本信的前面，我指出了Charlie和我认为对评估伯克希尔及其进展有用的一些数字。

这里我们来关注一个我们忽略的数字，但许多媒体却将其置于首位：净利润。尽管这个数字对大多数公司可能很重要，但在伯克希尔几乎总是毫无意义。无论我们的业务表现如何，Charlie和我都可以——完全合法地——使任何给定期间的净利润变成我们想要的几乎任何数字。

我们之所以有这种灵活性，是因为投资已实现损益计入净利润，而未实现损益（在大多数情况下）则不计入。例如，假设伯克希尔在某一年有100亿美元的未实现收益增加，同时有10亿美元的已实现亏损。我们的净利润——只计入亏损——将报告为低于经营利润。如果我们前一年同时实现了收益，标题可能会宣称我们的收益下降了X%，而实际上我们的业务可能已大为改善。

如果我们真的认为净利润重要，我们可以定期将已实现收益注入其中，仅仅因为我们有大量的未实现收益可供提取。但请放心，Charlie和我从未因为出售证券对即将报告的净利润产生影响而出售证券。我们对“数字游戏”深恶痛绝，这种做法在20世纪90年代席卷美国企业界，至今仍然存在，尽管不如从前频繁和明目张胆。

经营利润尽管有一些缺点，但通常可以合理指导我们的业务表现。然而，请忽略我们的净利润数字。法规要求我们向你报告。但如果你发现记者关注它，那更多反映的是他们的表现，而非我们的。

已实现和未实现的损益完全反映在我们的账面价值计算中。关注这个指标的变化以及我们经营利润的走势，你就走在正确的轨道上。

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附注：我忍不住要指出报告净利润有多么反复无常。如果我们的股权看跌期权在2010年6月30日到期，那天我们得向交易对手支付64亿美元。随后一个季度证券价格普遍上涨，到9月30日该数字降至58亿美元。然而，我们用布莱克-舒尔斯模型对这些合同进行估值，该模型要求我们在同一时期将资产负债表负债从89亿美元增加到96亿美元——这一变化在计提税款后，使该季度净利润减少了4.55亿美元。

查理和我都认为，布莱克-舒尔斯模型用于长期期权时会产生极为不合理的价值。两年前我们就在本报告中举过一个荒谬的例子。更实际的是，我们通过签订股权看跌期权来践行自己的信念——我们以此暗示，交易对手或其客户使用的布莱克-舒尔斯计算是错误的。

尽管如此，我们在财务报表中仍然使用该模型。布莱克-舒尔斯是期权估值的公认标准——几乎所有顶尖商学院都教它——如果我们偏离该标准，就会被指责会计处理不严谨。此外，如果我们那样做，会给审计师带来无法克服的问题：他们的客户中有我们的交易对手，这些客户对相同的合同使用布莱克-舒尔斯估值。如果我们的数值与他们的数值相差甚远，审计师不可能同时证明两者准确。

布莱克-舒尔斯之所以受到审计师和监管机构青睐，部分原因在于它能给出一个精确的数字。查理和我给不出这种精确数字。我们认为这些合同的真实负债远低于布莱克-舒尔斯计算出的数值，但我们无法给出确切数字——就像我们无法给出GEICO（政府雇员保险公司）、BNSF（北伯林顿铁路公司）或Berkshire Hathaway（伯克希尔·哈撒韦）本身的精确价值一样。无法精确量化并不困扰我们：我们宁愿大致正确，也不要精确错误。

John Kenneth Galbraith曾狡黠地指出，经济学家在思想上最为节俭：他们在研究生院学到的那一套能用一辈子。大学金融系往往也类似。看看几乎所有人如何在1970年代和1980年代死守有效市场理论，把反驳该理论的有力事实轻蔑地称为"异常"。（我向来喜欢这种解释：地平说协会大概会把轮船环球航行视为一个烦人但无关紧要的"异常"。）

学术界目前将布莱克-舒尔斯当作绝对真理来教的做法需要重新审视。同样，学术界热衷于讨论期权估值也需要反思。作为投资者，即使完全不懂期权估值，也可能取得巨大成功。学生应该学习的是如何评估一家企业。那才是投资的全部意义。

生活与债务

赛车的基本原则是：想第一完赛，先要完赛。这一格言同样适用于商业，并指导我们在Berkshire的每一个行动。

毫无疑问，有些人通过借钱变得非常富有。然而，这也是变得非常贫穷的途径。杠杆起作用时，它会放大你的收益。你的配偶觉得你聪明，邻居羡慕不已。但杠杆会让人上瘾。一旦从它的神奇中获益，很少有人会退回到更保守的做法。而且，正如我们三年级就学到的——有些人在2008年重新学到——任何一串正数，无论数字多么惊人，乘以零都会化为乌有。历史告诉我们，杠杆太容易产生零，即使是非常聪明的人使用它也是如此。
当然，以下是严格遵循您要求的专业翻译：

杠杆对企业也同样是致命的。背负巨额债务的公司，往往假设这些债务到期时能够顺利再融资。这个假设通常是成立的。但有时，无论是由于公司自身的问题，还是全球性的信贷紧缩，债务到期时只能靠真金白银来偿还。那时，唯有现金才能解决问题。

借款人这时才会明白，信贷就像氧气。当两者充盈时，你丝毫感受不到它们的存在。一旦缺失，你满脑子想的就只剩下它们。即使只是短暂的信贷缺失，也能让一家公司轰然倒下。事实上，在2008年9月，信贷在许多经济领域的隔夜消失，就曾危险地让我们整个国家濒临崩溃。

查理和我对任何可能对伯克希尔构成一丝一毫威胁的活动都毫无兴趣。（考虑到我们俩加起来已有167岁，重头再来这件事可没被列入我们的遗愿清单。）我们时刻铭记着，您，我们的合伙人，将积蓄——在许多情况下是你们的毕生积蓄——托付给了我们。此外，重要的慈善事业也依赖于我们的审慎。最后，许多因我们投保人造成的事故而致残的无辜受害者，也正指望着我们兑现数十年后到期的赔付。仅仅为了多追求几个百分点的额外回报，就冒着辜负所有这些利益相关者的风险，对我们来说是不负责任的。

我个人的一点经历或许能部分解释我们为何对金融冒险深恶痛绝。我直到查理35岁才认识他，尽管他是在我住了52年的地方方圆100码（约91米）内长大的，并且和我父亲、妻子、孩子以及两个孙子孙女一样，都毕业于奥马哈同一所市中心的公立高中。不过，我和查理小时候都曾在我祖父的杂货店里打过工，虽然我们两人的工作时段相隔了大约五年。我的祖父名叫欧内斯特，也许没有人比他更名副其实了。在欧内斯特手下干活，哪怕是当个理货员，他的作风都会让你终生难忘。

在下一页，您可以看到我祖父欧内斯特在1939年写给他小儿子——我的叔叔弗雷德——的一封信。类似的信也寄给了他的其他四个孩子。我至今还保存着寄给我姑姑爱丽丝的那封信。1970年，当我作为她遗产的执行人打开她的保险箱时，我在里面发现了这封信，还有1000美元现金。

欧内斯特从未上过商学院——实际上他连高中都没毕业——但他深谙流动性是确保生存的根本条件。在伯克希尔，我们把他那一千美元的解决方案又往前推进了一步，并承诺我们将至少持有100亿美元的现金，这还不包括我们在受监管的公用事业和铁路业务中所持有的现金。因为有这个承诺，我们通常会保持至少200亿美元的现金在手，这样我们既能抵御前所未见的保险赔付（迄今为止我们最大的一笔赔付是卡特里娜飓风造成的约30亿美元，这是保险业史上代价最惨重的巨灾事件之一），又能迅速抓住收购或投资机会，哪怕是在金融动荡时期也不例外。

亲爱的弗雷德与凯瑟琳：

多年以来，我认识了许多人，他们或多或少都曾因没有手头现金而吃过苦头。我曾见过一些人，为了得到当时急需的钱，不得不变卖他们的一些资产。

你们的祖父多年来一直会留出一笔钱，放在他能随时拿到的地方。

多年来，我也一直坚持储备一笔应急基金，以备不时之需，而不必动用在生意上的资金。而且，有好几次，这笔基金都派上了大用场。
因此，我认为每个人都应该有一笔储备金。我希望你永远不会遇到这种情况，但你将来某天很可能会急需用钱。出于这种考虑，在你结婚时，我把200美元装进一个信封，写上你的名字，以此设立了一笔基金。此后每年我都往里添点钱，如今这笔基金已有1000美元。

你结婚已十年，这笔基金现在也完成了。

我希望你把这只信封放进你的保险箱，为当初设立它的目的而保存。如果你需要用到其中的一部分，我建议你尽可能少用，并且尽快补回去。

你或许会觉得这笔钱该拿去投资，赚些收益。忘掉这个念头——手头上有1000美元随时可取的安心感，比它能带来的利息更有价值，尤其当你投资的东西无法快速变现时。

如果多年后你觉得这是个好主意，你也可以对自己的孩子如法炮制。

供你参考，我可以提一下：巴菲特家族从未有人留下过巨额遗产，但也从未有人什么都没留下。他们从不会花光赚到的每一分钱，而是总会存下一部分，结果都还不错。

这封信写于你结婚十年期满之时。

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Econer Kluypet "Had"

我们主要将现金放在美国国库券中，避免其他收益高出几个基点的短期证券。早在2008年9月商业票据和货币市场基金的脆弱性暴露之前，我们就一直坚持这一政策。我们赞同投资作家Ray DeVoe的观察：“在追逐收益过程中损失的钱，比在枪口下损失的还要多。”在伯克希尔，我们不依赖银行授信额度，也不签订可能需要我们提供抵押品的合同，除非金额相对于我们的流动资产而言微乎其微。

此外，过去40年间，伯克希尔没有花过一分钱用于分红或股份回购。相反，我们将所有盈利留存以强化业务，如今每月的强化规模约为10亿美元。在这40年里，我们的净资产从4800万美元增长到1570亿美元，内在价值增长得更多。没有哪家美国公司能以如此坚持不懈的方式建立其财务实力。

在杠杆方面如此谨慎，确实让我们的回报略微受损。但拥有大量流动性，让我们能安然入睡。此外，在经济偶尔爆发的金融混乱时期，当其他人仓皇求生时，我们在财务和情绪上都做好了进攻的准备。正因如此，在2008年雷曼破产后的25天恐慌中，我们得以投资156亿美元。

年度会议

年度会议将于4月30日星期六举行。来自总部办公室的Carrie Kizer将担任主持人，她今年的主题是“飞机、火车和汽车”。这让NetJets、BNSF和比亚迪有机会大显身手。

和往年一样，Qwest中心早上7点开门，8:30播放一部新的伯克希尔影片。9:30我们直接进入问答环节（期间在Qwest的摊位用午餐休息），一直持续到下午3:30。短暂休息后，查理和我在3:45召开年度会议。如果你决定在当天的问答环节离开，请在查理讲话时走。（动作要快；他说话言简意赅。）
退出股东会的最佳理由当然是去购物。我们将助你一臂之力——会场旁的194,300平方英尺大厅里摆满了数十家伯克希尔子公司的产品。去年你们表现不俗，大多数摊位都创下了销售纪录。在短短九个小时内，我们卖出了1053双Justin靴子、12416磅See's糖果、8000杯冰雪皇后暴风雪冰淇淋（Dairy Queen Blizzards®）和8800把Quikut刀具（相当于每分钟16把）。但你们还能做得更好。记住：谁要是说钱买不到幸福，那他只是没找对地方购物。

GEICO将设立一个展位，由来自全国各地的顶级顾问坐镇，随时为你提供车险报价。大多数情况下，GEICO都能给你股东折扣（通常为8%）。在我们经营的51个司法管辖区中，有44个允许这一优惠。（补充一点：如果你已有资格享受其他折扣，比如某些团体的优惠，则这一折扣不可叠加。）带上你现有保险的详细信息，看看我们能不能帮你省钱。我相信至少一半的股东都能省下一笔。

一定要去书虫书店（Bookworm）看看。那里将展出超过60种图书和DVD，包括中文版的《穷查理宝典》（Poor Charlie's Almanack）——那本关于我搭档的畅销书。看不懂中文又怎样？买一本拿在手里，你看起来就文雅博学了。如果你需要寄送购买的书籍，附近有快递服务。

如果你是个大买主——或者只是来凑热闹——周六中午到下午5点之间，别忘了去奥马哈机场东侧的Elliott Aviation。那里将停着一队NetJets飞机，包你心跳加速。坐公交车来，坐私人飞机走。

随年报附上的股东委托书附件会告诉你如何获取参会及其他活动所需的证件。至于机票、酒店和租车，我们再次请美国运通（American Express，800-799-6634）为你提供专属服务。负责这些事务的Carol Pedersen每年都干得很出色，我在此向她致谢。酒店房间可能不好订，但跟Carol配合好，你总能订到。

航空公司经常在伯克希尔周末期间大幅提价——有时涨得离谱。如果你从远方来，不妨比较一下飞往堪萨斯城和奥马哈的费用。从堪萨斯城开车到奥马哈大约两个半小时，也许能省下不少钱，特别是如果你本来打算在奥马哈租车的话。

在内布拉斯加家具城（Nebraska Furniture Mart）——位于Dodge街和Pacific街之间的第72街，占地77英亩——我们将再次推出"伯克希尔周末"折扣价。去年，这家店在股东会期间的销售额达到3330万美元，据我所知，这超过了任何一家零售店在任何地方的单周销售纪录。想享受伯克希尔折扣，你必须在4月26日（周二）到5月2日（周一）期间购物（含首尾两天），并出示你的参会证件。这一时期的折扣价甚至适用于几家知名制造商的产品——这些厂家通常有铁规禁止打折，但为了我们的股东周末，他们破例为你提供了优惠。我们感谢他们的配合。NFM周一至周六营业时间为上午10点到晚上9点，周日为上午10点到下午6点。今年周六下午5:30到8:00，NFM将举办一场野餐，欢迎所有人参加。
在波仙珠宝，我们今年还将举办两场股东专场活动。第一场是鸡尾酒招待会，时间在4月29日（星期五）下午6点至9点。第二场是主庆典，于5月1日（星期日）上午9点至下午4点举行。星期六，我们营业到下午6点。星期日下午1点左右，我会在波仙珠宝，面带微笑，皮鞋锃亮，卖珠宝——就像63年前我在J.C. Penney卖男士衬衫一样。我告诉波仙的CEO Susan Jacques，我仍然是个顶级销售。但我从她眼里看到了怀疑。所以，放开手脚吧，从我这里买点东西送给你的妻子或心上人（多半是同一人）。让我露露脸。

整个周末，波仙珠宝都会人潮涌动。因此，为了方便股东，从4月25日（星期一）到5月7日（星期六），股东均可享受专享价。在此期间，请出示会议证件或显示您是伯克希尔股东的券商对账单，以表明股东身份。

星期天，在波仙珠宝外的商场里，曾两次获得美国国际象棋冠军的Patrick Wolff将蒙眼下棋，迎战所有挑战者——挑战者眼睛可都睁着——六人一组。旁边，来自达拉斯的杰出魔术师Norman Beck将让围观者目瞪口呆。此外，我们还有两位世界顶尖桥牌高手Bob Hamman和Sharon Osberg，他们会在周日下午来和股东们打桥牌。

Gorat's和Piccolo's餐厅在5月1日（星期日）将再次只为伯克希尔股东开放。两家店都营业到晚上10点，Gorat's下午1点开门，Piccolo's下午4点开门。这两家餐厅都是我的最爱——而且我还是个正在长身体的小伙子——周日晚我会两家都吃。记住：在Gorat's订位请于4月1日（请勿提前）致电402-551-3733，在Piccolo's请致电402-342-9038。

今年仍将由同三位财经记者主持问答环节，他们会向查理和我提问股东通过电子邮件提交的问题。三位记者及其电邮地址是：《财富》杂志的Carol Loomis（cloomis@fortunemail.com）、CNBC的Becky Quick（BerkshireQuestions@cnbc.com）和《纽约时报》的Andrew Ross Sorkin（arsorkin@nytimes.com）。

每位记者将从收到的提问中选出他们自己认为最有趣、最重要的十来个问题。记者们告诉我，如果你问题简洁、避免最后一刻才提交、与伯克希尔相关、且每封邮件不超过两个问题，那么被选中的几率最大。（如果你希望在被选中时提及你的名字，请在邮件中告知记者。）

查理和我对即将被问的问题一无所知。我们知道记者们会挑一些难缠的问题，这正是我们喜欢的。

星期六上午8点15分，我们将在13个麦克风处再次抽签，让那些希望亲自提问的股东参与。会议期间，我会交替回答记者的问题和中签股东的问题。我们希望至少回答60个问题。对我们来说，多多益善。我们的目标——无论是通过年度信函还是会议讨论——就是让你更好地了解你所拥有的这家企业。

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我有充分的理由经常赞扬我们旗下经理人们的成就。但同样重要的是与我一起在公司总部办公的20位同事（我们都在同一层楼——而且我们不打算改变这一点！）。
这群人高效地处理着堆积如山的SEC及其他监管要求，提交14,097页的联邦所得税申报表以及各州和国外的申报表，回应数不清的股东和媒体咨询，发布年报，筹备全国规模最大的股东大会，协调董事会各项活动——清单还远不止这些。

他们愉快、高效地处理着所有这些工作，让我的生活轻松又愉快。他们的付出已远远超出与伯克希尔直接相关的业务范畴：他们要对接48所大学（从200个申请者中选出），这些学校本学年将派学生来奥马哈与我共度一天；还要处理我收到的各种请求，安排我的出行，甚至帮我买午餐汉堡。没有哪位CEO比我更幸运了。

这个总部团队我深表感谢，也值得各位股东感谢。请于4月30日来到我们的"资本主义伍德斯托克音乐节"，当面告诉他们。

2011年2月26日

沃伦·E·巴菲特

董事会主席

备忘录

致：伯克希尔·哈撒韦经理人（"全明星队"）

抄送：伯克希尔董事

自：沃伦·E·巴菲特

日期：2010年7月26日

这是我每两年一次的信函，旨在重申伯克希尔的首要任务，并请各位在继任规划（是你们的规划，不是我的！）上帮我一把。

首要任务是：我们所有人都要继续热忱地捍卫伯克希尔的声誉。我们无法做到完美，但我们可以努力追求完美。正如我在这些备忘录中说了25年以上的话："我们可以承受亏损——甚至大额亏损。但我们无法承受声誉受损——哪怕一丝一毫的声誉。"我们必须以这样的标准衡量每一个行为：不仅要看是否合法，还要看是否愿意让一位不友善但聪明的记者把它刊登在全国性报纸的头版。

有时你的同事会说"别人都这么干"。如果这是商业行为的主要理由，那几乎从来都不是好理由；在评估道德决定时，这更是完全不可接受的。每当有人抛出这个说法作为理由时，实际上等于承认他们想不出什么好理由。如果有人这样解释，告诉他们拿这个说法去应付记者或法官试试，看能走多远。

如果你看到任何让你在正当性或合法性上产生犹豫的事情，一定要给我打电话。不过，很可能如果一个行动方案引发这样的犹豫，那它就已经太接近底线了，应该放弃。球场中央有的是赚钱的机会。如果某个行动是否接近底线令你心存疑虑，就直接认定它越线了，放弃它。

作为必然推论，如果出现任何重大坏消息，请立即让我知道。我能处理坏消息，但我不喜欢它在拖延一段时间之后才来处理。不立即面对坏消息，正是所罗门公司的一个本可轻易解决的问题，最终演变成差点让一家拥有8,000名员工的公司崩溃。

今天在伯克希尔，一定有人在做一些事情，如果我和你知道了一定会不高兴。这无法避免：我们现在雇佣了超过25万人，这么多人一天之内没有任何不当行为发生的概率几乎为零。但是，只要出现哪怕一丝不当行为的迹象，我们立即扑上去处理，就能对最大限度减少此类活动产生巨大影响。你们在这种事情上的态度——通过言行表达出来的态度——将是你们各自业务文化如何发展的最重要因素。决定一个组织如何行事的是文化，而不是规则手册。
在其他方面，你们希望跟我聊多少运营情况都可以，全凭你们自己定。你们每个人都在用自己的风格出色地经营着业务，不需要我来帮忙。唯一需要跟我确认的事项是：退休后福利的任何变动，以及任何异常大规模的资本支出或收购。

* * * * * * * * * * * *

关于接班人问题，我需要你们的帮助。我不是想让你们任何人退休，而且我希望你们都活到100岁（如果是查理，那就110岁）。但万一你们没活到，请给我写封信（寄到家里也行），告诉我如果你们某天突然无法履职，谁应该明天就接替你们。这些信除了我以外不会有任何人看到——除非我不再担任CEO，那时我的继任者才需要这些信息。请总结一下你们首选候选人的优缺点，以及你们可能想纳入的其他备选人。你们大多数人过去都参与过这个练习，也有人口头提过想法。但对我来说，定期更新很重要，而且现在我们增加了这么多企业，我需要把你们的想法写下来，而不是光靠脑子记。当然，有些业务是由你们两三个人共同管理的——比如Blumkins一家、Merschmans一家、Applied Underwriters的那对搭档等——这种情况下，就不用管这一项了。你的便条可以简短、不拘形式、手写等等，只要标上“沃伦亲启”就行。

感谢你们在这方面的一切帮助。也感谢你们经营业务的方式。你们让我的工作变得轻松。

WEB/db

又及：还有一个小要求：请替我回绝所有让我演讲、捐款、向盖茨基金会说情之类的请求。有时这些请托会附带一句“问问又不吃亏”。你们直接说“不”，对我们双方都更容易。帮个忙：也别建议对方写信或打电话给我。76家企业，每家隔三差五来一句“我觉得这个他应该有兴趣”，你就会明白为什么最好马上坚定地说“不”。