Year	Annual Percentage Change
	in Per-Share Book Value of Berkshire	in Per-Share Market Value of Berkshire	in S&P 500 with Dividends Included
1965	23.8	49.5	10.0
1966	20.3	(3.4)	(11.7)
1967	11.0	13.3	30.9
1968	19.0	77.8	11.0
1969	16.2	19.4	(8.4)
1970	12.0	(4.6)	3.9
1971	16.4	80.5	14.6
1972	21.7	8.1	18.9
1973	4.7	(2.5)	(14.8)
1974	5.5	(48.7)	(26.4)
1975	21.9	2.5	37.2
1976	59.3	129.3	23.6
1977	31.9	46.8	(7.4)
1978	24.0	14.5	6.4
1979	35.7	102.5	18.2
1980	19.3	32.8	32.3
1981	31.4	31.8	(5.0)
1982	40.0	38.4	21.4
1983	32.3	69.0	22.4
1984	13.6	(2.7)	6.1
1985	48.2	93.7	31.6
1986	26.1	14.2	18.6
1987	19.5	4.6	5.1
1988	20.1	59.3	16.6
1989	44.4	84.6	31.7
1990	7.4	(23.1)	(3.1)
1991	39.6	35.6	30.5
1992	20.3	29.8	7.6
1993	14.3	38.9	10.1
1994	13.9	25.0	1.3
1995	43.1	57.4	37.6
1996	31.8	6.2	23.0
1997	34.1	34.9	33.4
1998	48.3	52.2	28.6
1999	0.5	(19.9)	21.0
2000	6.5	26.6	(9.1)
2001	(6.2)	6.5	(11.9)
2002	10.0	(3.8)	(22.1)
2003	21.0	15.8	28.7
2004	10.5	4.3	10.9
2005	6.4	0.8	4.9
2006	18.4	24.1	15.8
2007	11.0	28.7	5.5
2008	(9.6)	(31.8)	(37.0)
2009	19.8	2.7	26.5
2010	13.0	21.4	15.1
2011	4.6	(4.7)	2.1
2012	14.4	16.8	16.0
2013	18.2	32.7	32.4
2014	8.3	27.0	13.7
2015	6.4	(12.5)	1.4
2016	10.7	23.4	12.0
Compounded Annual Gain – 1965-2016	19.0%	20.8%	9.7%
Overall Gain – 1964-2016	884,319%	1,972,595%	12,717%

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.:

Berkshire’s gain in net worth during 2016 was \$27.5 billion, which increased the per-share book value of both our Class A and Class B stock by 10.7%. Over the last 52 years (that is, since present management took over), per-share book value has grown from \$19 to \$172,108, a rate of 19% compounded annually.*

During the first half of those years, Berkshire's net worth was roughly equal to the number that really counts: the intrinsic value of the business. The similarity of the two figures existed then because most of our resources were deployed in marketable securities that were regularly revalued to their quoted prices (less the tax that would be incurred if they were to be sold). In Wall Street parlance, our balance sheet was then in very large part “marked to market.”

By the early 1990s, however, our focus was changing to the outright ownership of businesses, a shift that materially diminished the relevance of balance sheet figures. That disconnect occurred because the accounting rules (commonly referred to as “GAAP”) that apply to companies we control differ in important ways from those used to value marketable securities. Specifically, the accounting for businesses we own requires that the carrying value of “losers” be written down when their failures become apparent. “Winners,” conversely, are never revalued upwards.

We’ve experienced both outcomes: As is the case in marriage, business acquisitions often deliver surprises after the “I do’s.” I’ve made some dumb purchases, paying far too much for the economic goodwill of companies we acquired. That later led to goodwill write-offs and to consequent reductions in Berkshire’s book value. We’ve also had some winners among the businesses we’ve purchased – a few of the winners very big – but have not written those up by a penny.

We have no quarrel with the asymmetrical accounting that applies here. But, over time, it necessarily widens the gap between Berkshire's intrinsic value and its book value. Today, the large – and growing – unrecorded gains at our winners produce an intrinsic value for Berkshire's shares that far exceeds their book value. The overage is truly huge in our property/casualty insurance business and significant also in many other operations.

Over time, stock prices gravitate toward intrinsic value. That's what has happened at Berkshire, a fact explaining why the company's 52-year market-price gain – shown on the facing page – materially exceeds its book-value gain.

What We Hope to Accomplish

Charlie Munger, Berkshire's Vice Chairman and my partner, and I expect Berkshire's normalized earning power per share to increase every year. Actual earnings, of course, will sometimes decline because of periodic weakness in the U.S. economy. In addition, insurance mega-catastrophes or other industry-specific events may occasionally reduce earnings at Berkshire, even when most American businesses are doing well.

It’s our job, though, to over time deliver significant growth, bumpy or not. After all, as stewards of your capital, Berkshire directors have opted to retain all earnings. Indeed, in both 2015 and 2016 Berkshire ranked first among American businesses in the dollar volume of earnings retained, in each year reinvesting many billions of dollars more than did the runner-up. Those reinvested dollars must earn their keep.

Some years, the gains in underlying earning power we achieve will be minor; very occasionally, the cash register will ring loud. Charlie and I have no magic plan to add earnings except to dream big and to be prepared mentally and financially to act fast when opportunities present themselves. Every decade or so, dark clouds will fill the economic skies, and they will briefly rain gold. When downpours of that sort occur, it's imperative that we rush outdoors carrying washtubs, not teaspoons. And that we will do.

I earlier described our gradual shift from a company obtaining most of its gains from investment activities to one that grows in value by owning businesses. Launching that transition, we took baby steps – making small acquisitions whose impact on Berkshire’s profits was dwarfed by our gains from marketable securities. Despite that cautious approach, I made one particularly egregious error, acquiring Dexter Shoe for \$434 million in 1993. Dexter’s value promptly went to zero. The story gets worse: I used stock for the purchase, giving the sellers 25,203 shares of Berkshire that at yearend 2016 were worth more than \$6 billion.

That wreck was followed by three key happenings – two positive, one negative – that set us firmly on our present course. At the beginning of 1996, we acquired the half of GEICO we didn’t already own, a cash transaction that changed our holding from a portfolio investment into a wholly-owned operating business. GEICO, with its almost unlimited potential, quickly became the centerpiece around which we built what I believe is now the world’s premier property/casualty business.

Unfortunately, I followed the GEICO purchase by foolishly using Berkshire stock – a boatload of stock – to buy General Reinsurance in late 1998. After some early problems, General Re has become a fine insurance operation that we prize. It was, nevertheless, a terrible mistake on my part to issue 272,200 shares of Berkshire in buying General Re, an act that increased our outstanding shares by a whopping 21.8%. My error caused Berkshire shareholders to give far more than they received (a practice that – despite the Biblical endorsement – is far from blessed when you are buying businesses).

Early in 2000, I atoned for that folly by buying 76% (since grown to 90%) of MidAmerican Energy, a brilliantly-managed utility business that has delivered us many large opportunities to make profitable and socially-useful investments. The MidAmerican cash purchase – I was learning – firmly launched us on our present course of (1) continuing to build our insurance operation; (2) energetically acquiring large and diversified non-insurance businesses and (3) largely making our deals from internally-generated cash. (Today, I would rather prep for a colonoscopy than issue Berkshire shares.)

Our portfolio of bonds and stocks, de-emphasized though it is, has continued in the post-1998 period to grow and to deliver us hefty capital gains, interest, and dividends. Those portfolio earnings have provided us major help in financing the purchase of businesses. Though unconventional, Berkshire's two-pronged approach to capital allocation gives us a real edge.

Here's our financial record since 1999, when the redirection of our business began in earnest. During the 18-year period covered, Berkshire's outstanding shares grew by only $8.3\%$ , with most of the increase occurring when we purchased BNSF. That, I'm happy to say, was one issuance of stock that made good sense.

After-Tax Earnings (in billions of dollars)

Year	Operations (1)	Capital Gains (2)	Year	Operations (1)	Capital Gains (2)
1999	0.67	0.89	2008	9.64	(4.65)
2000	0.94	2.39	2009	7.57	0.49
2001	(0.13)	0.92	2010	11.09	1.87
2002	3.72	0.57	2011	10.78	(0.52)
2003	5.42	2.73	2012	12.60	2.23
2004	5.05	2.26	2013	15.14	4.34
2005	5.00	3.53	2014	16.55	3.32
2006	9.31	1.71	2015	17.36	6.73
2007	9.63	3.58	2016	17.57	6.50

(1) Including interest and dividends from investments, but excluding capital gains or losses.
(2) In very large part, this tabulation includes only realized capital gains or losses. Unrealized gains and losses are also included, however, when GAAP requires that treatment.

Our expectation is that investment gains will continue to be substantial – though totally random as to timing – and that these will supply significant funds for business purchases. Concurrently, Berkshire’s superb corps of operating CEOs will focus on increasing earnings at the individual businesses they manage, sometimes helping them to grow by making bolt-on acquisitions. By our avoiding the issuance of Berkshire stock, any improvement in earnings will translate into equivalent per-share gains.

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

Our efforts to materially increase the normalized earnings of Berkshire will be aided – as they have been throughout our managerial tenure – by America’s economic dynamism. One word sums up our country’s achievements: miraculous. From a standing start 240 years ago – a span of time less than triple my days on earth – Americans have combined human ingenuity, a market system, a tide of talented and ambitious immigrants, and the rule of law to deliver abundance beyond any dreams of our forefathers.

You need not be an economist to understand how well our system has worked. Just look around you. See the 75 million owner-occupied homes, the bountiful farmland, the 260 million vehicles, the hyper-productive factories, the great medical centers, the talent-filled universities, you name it – they all represent a net gain for Americans from the barren lands, primitive structures and meager output of 1776. Starting from scratch, America has amassed wealth totaling \$90 trillion.

It’s true, of course, that American owners of homes, autos and other assets have often borrowed heavily to finance their purchases. If an owner defaults, however, his or her asset does not disappear or lose its usefulness. Rather, ownership customarily passes to an American lending institution that then disposes of it to an American buyer. Our nation’s wealth remains intact. As Gertrude Stein put it, “Money is always there, but the pockets change.”

Above all, it's our market system – an economic traffic cop ably directing capital, brains and labor – that has created America's abundance. This system has also been the primary factor in allocating rewards. Governmental redirection, through federal, state and local taxation, has in addition determined the distribution of a significant portion of the bounty.

America has, for example, decided that those citizens in their productive years should help both the old and the young. Such forms of aid – sometimes enshrined as “entitlements” – are generally thought of as applying to the aged. But don’t forget that four million American babies are born each year with an entitlement to a public education. That societal commitment, largely financed at the local level, costs about \$150,000 per baby. The annual cost totals more than \$600 billion, which is about 3 ½% of GDP.

However our wealth may be divided, the mind-boggling amounts you see around you belong almost exclusively to Americans. Foreigners, of course, own or have claims on a modest portion of our wealth. Those holdings, however, are of little importance to our national balance sheet: Our citizens own assets abroad that are roughly comparable in value.

Early Americans, we should emphasize, were neither smarter nor more hard working than those people who toiled century after century before them. But those venturesome pioneers crafted a system that unleashed human potential, and their successors built upon it.

This economic creation will deliver increasing wealth to our progeny far into the future. Yes, the build-up of wealth will be interrupted for short periods from time to time. It will not, however, be stopped. I'll repeat what I've both said in the past and expect to say in future years: Babies born in America today are the luckiest crop in history.

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

America's economic achievements have led to staggering profits for stockholders. During the $20^{\text{th}}$ century the Dow-Jones Industrials advanced from 66 to 11,497, a $17,320\%$ capital gain that was materially boosted by steadily increasing dividends. The trend continues: By yearend 2016, the index had advanced a further $72\%$ , to 19,763.

American business – and consequently a basket of stocks – is virtually certain to be worth far more in the years ahead. Innovation, productivity gains, entrepreneurial spirit and an abundance of capital will see to that. Ever-present naysayers may prosper by marketing their gloomy forecasts. But heaven help them if they act on the nonsense they peddle.

Many companies, of course, will fall behind, and some will fail. Winnowing of that sort is a product of market dynamism. Moreover, the years ahead will occasionally deliver major market declines – even panics – that will affect virtually all stocks. No one can tell you when these traumas will occur – not me, not Charlie, not economists, not the media. Meg McConnell of the New York Fed aptly described the reality of panics: “We spend a lot of time looking for systemic risk; in truth, however, it tends to find us.”

During such scary periods, you should never forget two things: First, widespread fear is your friend as an investor, because it serves up bargain purchases. Second, personal fear is your enemy. It will also be unwarranted. Investors who avoid high and unnecessary costs and simply sit for an extended period with a collection of large, conservatively-financed American businesses will almost certainly do well.

As for Berkshire, our size precludes a brilliant result: Prospective returns fall as assets increase. Nonetheless, Berkshire's collection of good businesses, along with the company's impregnable financial strength and owner-oriented culture, should deliver decent results. We won't be satisfied with less.

Share Repurchases

In the investment world, discussions about share repurchases often become heated. But I’d suggest that participants in this debate take a deep breath: Assessing the desirability of repurchases isn’t that complicated.

From the standpoint of exiting shareholders, repurchases are always a plus. Though the day-to-day impact of these purchases is usually minuscule, it's always better for a seller to have an additional buyer in the market.

For continuing shareholders, however, repurchases only make sense if the shares are bought at a price below intrinsic value. When that rule is followed, the remaining shares experience an immediate gain in intrinsic value. Consider a simple analogy: If there are three equal partners in a business worth \$3,000 and one is bought out by the partnership for \$900, each of the remaining partners realizes an immediate gain of \$50. If the exiting partner is paid \$1,100, however, the continuing partners each suffer a loss of \$50. The same math applies with corporations and their shareholders. Ergo, the question of whether a repurchase action is value-enhancing or value-destroying for continuing shareholders is entirely purchase-price dependent.

It is puzzling, therefore, that corporate repurchase announcements almost never refer to a price above which repurchases will be eschewed. That certainly wouldn't be the case if a management was buying an outside business. There, price would always factor into a buy-or-pass decision.

When CEOs or boards are buying a small part of their own company, though, they all too often seem oblivious to price. Would they behave similarly if they were managing a private company with just a few owners and were evaluating the wisdom of buying out one of them? Of course not.

It is important to remember that there are two occasions in which repurchases should not take place, even if the company's shares are underpriced. One is when a business both needs all its available money to protect or expand its own operations and is also uncomfortable adding further debt. Here, the internal need for funds should take priority. This exception assumes, of course, that the business has a decent future awaiting it after the needed expenditures are made.

The second exception, less common, materializes when a business acquisition (or some other investment opportunity) offers far greater value than do the undervalued shares of the potential repurchaser. Long ago, Berkshire itself often had to choose between these alternatives. At our present size, the issue is far less likely to arise.

My suggestion: Before even discussing repurchases, a CEO and his or her Board should stand, join hands and in unison declare, “What is smart at one price is stupid at another.”

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

To recap Berkshire's own repurchase policy: I am authorized to buy large amounts of Berkshire shares at $120\%$ or less of book value because our Board has concluded that purchases at that level clearly bring an instant and material benefit to continuing shareholders. By our estimate, a $120\%$ -of-book price is a significant discount to Berkshire's intrinsic value, a spread that is appropriate because calculations of intrinsic value can't be precise.

The authorization given me does not mean that we will “prop” our stock’s price at the 120% ratio. If that level is reached, we will instead attempt to blend a desire to make meaningful purchases at a value-creating price with a related goal of not over-influencing the market.

To date, repurchasing our shares has proved hard to do. That may well be because we have been clear in describing our repurchase policy and thereby have signaled our view that Berkshire's intrinsic value is significantly higher than 120% of book value. If so, that's fine. Charlie and I prefer to see Berkshire shares sell in a fairly narrow range around intrinsic value, neither wishing them to sell at an unwarranted high price – it's no fun having owners who are disappointed with their purchases – nor one too low. Furthermore, our buying out “partners” at a discount is not a particularly gratifying way of making money. Still, market circumstances could create a situation in which repurchases would benefit both continuing and exiting shareholders. If so, we will be ready to act.

One final observation for this section: As the subject of repurchases has come to a boil, some people have come close to calling them un-American – characterizing them as corporate misdeeds that divert funds needed for productive endeavors. That simply isn’t the case: Both American corporations and private investors are today awash in funds looking to be sensibly deployed. I’m not aware of any enticing project that in recent years has died for lack of capital. (Call us if you have a candidate.)

Insurance

Let's now look at Berkshire's various businesses, starting with our most important sector, insurance. The property/casualty ("P/C") branch of that industry has been the engine that has propelled our growth since 1967, the year we acquired National Indemnity and its sister company, National Fire & Marine, for \$8.6 million. Today, National Indemnity is the largest property/casualty company in the world as measured by net worth.

One reason we were attracted to the P/C business was its financial characteristics: P/C insurers receive premiums upfront and pay claims later. In extreme cases, such as claims arising from exposure to asbestos, payments can stretch over many decades. This collect-now, pay-later model leaves P/C companies holding large sums – money we call “float” – that will eventually go to others. Meanwhile, insurers get to invest this float for their own benefit. Though individual policies and claims come and go, the amount of float an insurer holds usually remains fairly stable in relation to premium volume. Consequently, as our business grows, so does our float. And how it has grown, as the following table shows:

Year	Float (in millions)
1970	$ 39
1980	237
1990	1,632
2000	27,871
2010	65,832
2016	91,577

We recently wrote a huge policy that increased float to more than \$100 billion. Beyond that one-time boost, float at GEICO and several of our specialized operations is almost certain to grow at a good clip. National Indemnity's reinsurance division, however, is party to a number of large run-off contracts whose float is certain to drift downward.

We may in time experience a decline in float. If so, the decline will be very gradual – at the outside no more than 3% in any year. The nature of our insurance contracts is such that we can never be subject to immediate or near-term demands for sums that are of significance to our cash resources. This structure is by design and is a key component in the unequaled financial strength of our insurance companies. It will never be compromised.

If our premiums exceed the total of our expenses and eventual losses, our insurance operation registers an underwriting profit that adds to the investment income the float produces. When such a profit is earned, we enjoy the use of free money – and, better yet, get paid for holding it.

Unfortunately, the wish of all insurers to achieve this happy result creates intense competition, so vigorous indeed that it sometimes 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. Competitive dynamics almost guarantee that the insurance industry, despite the float income all its companies enjoy, will continue its dismal record of earning subnormal returns on tangible net worth as compared to other American businesses.

This outcome is made more certain by the dramatically lower interest rates that now exist throughout the world. The investment portfolios of almost all P/C companies – though not those of Berkshire – are heavily concentrated in bonds. As these high-yielding legacy investments mature and are replaced by bonds yielding a pittance, earnings from float will steadily fall. For that reason, and others as well, it’s a good bet that industry results over the next ten years will fall short of those recorded in the past decade, particularly in the case of companies that specialize in reinsurance.

Nevertheless, I very much like our own prospects. Berkshire's unrivaled financial strength allows us far more flexibility in investing than that generally available to P/C companies. The many alternatives available to us are always an advantage; occasionally, they offer us major opportunities. When others are constrained, our choices expand.

Moreover, our P/C companies have an excellent underwriting record. Berkshire has now operated at an underwriting profit for 14 consecutive years, our pre-tax gain for the period having totaled \$28 billion. That record is no accident: Disciplined risk evaluation is the daily focus of all of our insurance managers, who know that while float is valuable, its benefits can be drowned by poor underwriting results. All insurers give that message lip service. At Berkshire it is a religion, Old Testament style.

So how does our float affect intrinsic value? When Berkshire's book value is calculated, the full amount of our float is deducted as a liability, just as if we had to pay it out tomorrow and could not replenish it. But to think of float as a typical liability is a major mistake. It should instead be viewed as a revolving fund. Daily, we pay old claims and related expenses – a huge \$27 billion to more than six million claimants in 2016 – and that reduces float. Just as surely, we each day write new business that will soon generate its own claims, adding to float.

If our revolving float is both costless and long-enduring, which I believe it will be, the true value of this liability is dramatically less than the accounting liability. Owing \$1 that in effect will never leave the premises – because new business is almost certain to deliver a substitute – is worlds different from owing \$1 that will go out the door tomorrow and not be replaced. The two types of liabilities, however, are treated as equals under GAAP.

A partial offset to this overstated liability is a \$15.5 billion “goodwill” asset that we incurred in buying our insurance companies and that is included in our book-value figure. In very large part, this goodwill represents the price we paid for the float-generating capabilities of our insurance operations. The cost of the goodwill, however, has no bearing on its true value. For example, if an insurance company sustains large and prolonged underwriting losses, any goodwill asset carried on the books should be deemed valueless, whatever its original cost.

Fortunately, that does not describe Berkshire. Charlie and I believe the true economic value of our insurance goodwill – what we would happily pay for float of similar quality were we to purchase an insurance operation possessing it – to be far in excess of its historic carrying value. Indeed, almost the entire \$15.5 billion we carry for goodwill in our insurance business was already on our books in 2000 when float was \$28 billion. Yet we have subsequently increased our float by \$64 billion, a gain that in no way is reflected in our book value. This unrecorded asset is one reason – a huge reason – why we believe Berkshire’s intrinsic business value far exceeds its book value.

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

Berkshire's attractive insurance economics exist only because we have some terrific managers running disciplined operations that in most cases possess hard-to-replicate business models. Let me tell you about the major units.

First by float size is the Berkshire Hathaway Reinsurance Group, managed 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 important, brains in a manner unique in the insurance business. Yet he never exposes Berkshire to risks that are inappropriate in relation to our resources.

Indeed, Berkshire is far more conservative in avoiding risk than most large insurers. For example, if the insurance industry should experience a \$250 billion loss from some mega-catastrophe – a loss about triple anything it has ever experienced – Berkshire as a whole would likely record a large profit for the year. Our many streams of non-insurance earnings would see to that. Additionally, we would remain awash in cash and be eager to write business in an insurance market that might well be in disarray. Meanwhile, other major insurers and reinsurers would be swimming in red ink, if not facing insolvency.

When Ajit entered Berkshire's office on a Saturday in 1986, he did not have a day's experience in the insurance business. Nevertheless, Mike Goldberg, then our manager of insurance, handed him the keys to our small and struggling reinsurance business. With that move, Mike achieved sainthood: Since then, Ajit has created tens of billions of value for Berkshire shareholders. If there were ever to be another Ajit and you could swap me for him, don't hesitate. Make the trade!

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

We have another reinsurance powerhouse in General Re, managed until recently by Tad Montross. After 39 years at General Re, Tad retired in 2016. Tad was a class act in every way and we owe him a ton of thanks. Kara Raiguel, who has worked with Ajit for 16 years, is now CEO of General Re.

At bottom, a sound insurance operation needs to adhere to four disciplines. It must (1) understand all exposures that might cause a policy to incur losses; (2) conservatively assess the likelihood of any exposure actually causing a loss and the probable cost if it does; (3) set a premium that, on average, will deliver a profit after both prospective loss costs and operating expenses are covered; and (4) be willing to walk away if the appropriate premium can't be obtained.

Many insurers pass the first three tests and flunk the fourth. They simply can't turn their back on business that is being eagerly written by their competitors. That old line, “The other guy is doing it, so we must as well,” spells trouble in any business, but in none more so than insurance. Tad never listened to that nonsensical excuse for sloppy underwriting, and neither will Kara.

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

Finally, there is GEICO, the company that set my heart afire 66 years ago (and for which the flame still burns). GEICO is managed by Tony Nicely, who joined the company at 18 and completed 55 years of service in 2016.

Tony became CEO of GEICO in 1993, and since then the company has been flying. There is no better manager than Tony, who brings his combination of brilliance, dedication and soundness to the job. (The latter quality is essential to sustained success. As Charlie says, it's great to have a manager with a 160 IQ – unless he thinks it's 180.) Like Ajit, Tony has created tens of billions of value for Berkshire.

On my initial visit to GEICO in 1951, I was blown away by the huge cost advantage the company enjoyed over the giants of the industry. It was clear to me that GEICO would succeed because it deserved to succeed. The company's annual sales were then \$8 million; In 2016, GEICO did that much business every three hours of the year.

Auto insurance is a major expenditure for most families. Savings matter to them – and only a low-cost operation can deliver those. In fact, at least 40% of the people reading this letter can save money by insuring with GEICO. So stop reading – right now! – and go to geico.com or call 800-847-7536.

GEICO's low costs create a moat – an enduring one – that competitors are unable to cross. As a result, the company gobbles up market share year after year, ending 2016 with about $12\%$ of industry volume. That's up from $2.5\%$ in 1995, the year Berkshire acquired control of GEICO. Employment, meanwhile, grew from 8,575 to 36,085.

GEICO's growth accelerated dramatically during the second half of 2016. Loss costs throughout the auto-insurance industry had been increasing at an unexpected pace and some competitors lost their enthusiasm for taking on new customers. GEICO's reaction to the profit squeeze, however, was to accelerate its new-business efforts. We like to make hay while the sun sets, knowing that it will surely rise again.

GEICO continues on a roll as I send you this letter. When insurance prices increase, people shop more. And when they shop, GEICO wins.

Have you called yet? (800-847-7536 or go to geico.com)

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

In addition to our three major insurance operations, we own a collection of smaller companies that primarily write commercial coverages. In aggregate, these companies are a large, growing and valuable operation that consistently delivers an underwriting profit, usually one much superior to that reported by their competitors. Over the past 14 years, this group has earned \$4.7 billion from underwriting – about 13% of its premium volume – while increasing its float from \$943 million to \$11.6 billion.

Less than three years ago, we formed Berkshire Hathaway Specialty Insurance (“BHSI”), which is included in this grouping. Our first decision was to put Peter Eastwood in charge, a move that proved to be a home run: We expected significant losses in the early years while Peter built the personnel and infrastructure needed for a world-wide operation. Instead, he and his crew delivered significant underwriting profits throughout the start-up period. BHSI’s volume increased 40% in 2016, reaching \$1.3 billion. It’s clear to me that the company is destined to become one of the world’s leading P/C insurers.

Here's a recap of pre-tax underwriting earnings and float by division:

	Underwriting Profit		Yearend Float
	(in millions)
Insurance Operations	2016	2015	2016	2015
BH Reinsurance	$822	$421	$45,081	$44,108
General Re	190	132	17,699	18,560
GEICO	462	460	17,148	15,148
Other Primary	657	824	11,649	9,906
	$2,131	$1,837	$91,577	$87,722

Berkshire's great managers, premier financial strength and a range of business models protected by wide moats amount to something unique in the insurance world. This assemblage of strengths is a huge asset for Berkshire shareholders that time will only make more valuable.

Regulated, Capital-Intensive Businesses

Our BNSF railroad and Berkshire Hathaway Energy (“BHE”), our 90%-owned utility business, share important characteristics that distinguish them from Berkshire’s other activities. Consequently, we assign them their own section in this letter and split out their combined financial statistics in our GAAP balance sheet and income statement. These two very major companies accounted for 33% of Berkshire’s after-tax operating earnings last year.

A key characteristic of both companies is their huge investment in very long-lived, regulated assets, with these partially funded by large amounts of long-term debt that is not guaranteed by Berkshire. Our credit is in fact not needed because each company has earning power that even under terrible economic conditions would far exceed its interest requirements. Last year, for example, in a disappointing year for railroads, BNSF's interest coverage was more than 6:1. (Our definition of coverage is the ratio of earnings before interest and taxes to interest, not EBITDA/interest, a commonly-used measure we view as seriously flawed.)

At BHE, meanwhile, two factors ensure the company's ability to service its debt under all circumstances. The first is common to all utilities: recession-resistant earnings, which result from these companies offering an essential service for which demand is remarkably steady. The second is enjoyed by few other utilities: an ever-widening diversity of earnings streams, which shield BHE from being seriously harmed by any single regulatory body. These many sources of profit, supplemented by the inherent advantage of the company being owned by a strong parent, have allowed BHE and its utility subsidiaries to significantly lower their cost of debt. That economic fact benefits both us and our customers.

All told, BHE and BNSF invested \$8.9 billion in plant and equipment last year, a massive commitment to their segments of America's infrastructure. We relish making such investments as long as they promise reasonable returns – and, on that front, we put a large amount of trust in future regulation.

Our confidence is justified both by our past experience and by the knowledge that society will forever need huge investments in both transportation and energy. It is in the self-interest of governments to treat capital providers in a manner that will ensure the continued flow of funds to essential projects. It is concomitantly in our self-interest to conduct our operations in a way that earns the approval of our regulators and the people they represent.

Low prices are a powerful way to keep these constituencies happy. In Iowa, BHE's average retail rate is 7.1¢ per KWH. Alliant, the other major electric utility in the state, averages 9.9¢. Here are the comparable industry figures for adjacent states: Nebraska 9.0¢, Missouri 9.5¢, Illinois 9.2¢, Minnesota 10.0¢. The national average is 10.3¢. We have promised Iowans that our base rates will not increase until 2029 at the earliest. Our rock-bottom prices add up to real money for paycheck-strapped customers.

At BNSF, price comparisons between major railroads are far more difficult to make because of significant differences in both their mix of cargo and the average distance the load is carried. To supply a very crude measure, however, our revenue per ton-mile was 3¢ last year, while shipping costs for customers of the other four major U.S.-based railroads ranged from 4¢ to 5¢.

Both BHE and BNSF have been leaders in pursuing planet-friendly technology. In wind generation, no state comes close to rivaling Iowa, where last year the megawatt-hours we generated from wind equaled 55% of all megawatt-hours sold to our Iowa retail customers. New wind projects that are underway will take that figure to 89% by 2020.

Bargain-basement electric rates carry second-order benefits with them. Iowa has attracted large high-tech installations, both because of its low prices for electricity (which data centers use in huge quantities) and because most tech CEOs are enthusiastic about using renewable energy. When it comes to wind energy, Iowa is the Saudi Arabia of America.

BNSF, like other Class I railroads, uses only a single gallon of diesel fuel to move a ton of freight almost 500 miles. Those economics make railroads four times as fuel-efficient as trucks! Furthermore, railroads alleviate highway congestion – and the taxpayer-funded maintenance expenditures that come with heavier traffic – in a major way.

All told, BHE and BNSF own assets that are of major importance to our country as well as to shareholders of Berkshire. Here are the key financial figures for both:

BNSF	Earnings (in millions)
	2016	2015	2014
Revenues	$ 19,829	$ 21,967	$ 23,239
Operating expenses	13,144	14,264	16,237
Operating earnings before interest and taxes	6,685	7,703	7,002
Interest (net)	992	928	833
Income taxes	2,124	2,527	2,300
Net earnings	$ 3,569	$ 4,248	$ 3,869

Berkshire Hathaway Energy (90% owned)	Earnings (in millions)
	2016	2015	2014
U.K. utilities	$367	$460	$527
Iowa utility	392	292	270
Nevada utilities	559	586	549
PacifiCorp (primarily Oregon and Utah)	1,105	1,026	1,010
Gas pipelines (Northern Natural and Kern River)	413	401	379
Canadian transmission utility	147	170	16
Renewable projects	157	175	194
HomeServices	225	191	139
Other (net)	73	49	54
Operating earnings before corporate interest and taxes	3,438	3,350	3,138
Interest	465	499	427
Income taxes	431	481	616
Net earnings	$2,542	$2,370	$2,095
Earnings applicable to Berkshire	$2,287	$2,132	$1,882

HomeServices may appear out of place in the above table. But it came with our purchase of MidAmerican (now BHE) in 1999 – and we are lucky that it did.

HomeServices owns 38 realty companies with more than 29,000 agents who operate in 28 states. Last year it purchased four realtors, including Houlihan Lawrence, the leader in New York's Westchester County (in a transaction that closed shortly after yearend).

In real estate parlance, representing either a buyer or a seller is called a “side,” with the representation of both counting as two sides. Last year, our owned realtors participated in 244,000 sides, totaling \$86 billion in volume.

HomeServices also franchises many operations throughout the country that use our name. We like both aspects of the real estate business and expect to acquire many realtors and franchisees during the next decade.

Manufacturing, Service and Retailing Operations

Our manufacturing, service and retailing operations sell products ranging from lollipops to jet airplanes. Let's look, though, at a summary balance sheet and earnings statement for the entire group.

Balance Sheet 12/31/16 (in millions)

Assets		Liabilities and Equity
Cash and equivalents	$8,073	Notes payable	$2,054
Accounts and notes receivable	11,183	Other current liabilities	12,464
Inventory	15,727	Total current liabilities	14,518
Other current assets	1,039
Total current assets	36,022
		Deferred taxes	12,044
Goodwill and other intangibles	71,473	Term debt and other liabilities	10,943
Fixed assets	18,915	Non-controlling interests	579
Other assets	3,183	Berkshire equity	91,509
	$129,593		$129,593

Earnings Statement (in millions)

	2016	2015	2014
Revenues	$120,059	$107,825	$97,689
Operating expenses	111,383	100,607	90,788
Interest expense	214	103	109
Pre-tax earnings	8,462	7,115	6,792
Income taxes and non-controlling interests	2,831	2,432	2,324
Net earnings	$ 5,631	$ 4,683	$ 4,468

Included in this financial summary are 44 businesses that report directly to headquarters. But some of these companies, in turn, have many individual operations under their umbrella. For example, Marmon has 175 separate business units, serving widely disparate markets, and Berkshire Hathaway Automotive owns 83 dealerships, operating in nine states.

This collection of businesses is truly a motley crew. Some operations, measured by earnings on unleveraged net tangible assets, enjoy terrific returns that, in a couple of instances, exceed 100%. Most are solid businesses generating good returns in the area of 12% to 20%.

A few, however – these are serious blunders I made in my job of capital allocation – produce very poor returns. In most cases, I was wrong when I originally sized up the economic characteristics of these companies or the industries in which they operate, and we are now paying the price for my misjudgments. In a couple of instances, I stumbled in assessing either the fidelity or ability of incumbent managers or ones I later put in place. I will commit more errors; you can count on that. Fortunately, Charlie – never bashful – is around to say “no” to my worst ideas.

Viewed as a single entity, the companies in the manufacturing, service and retailing group are an excellent business. They employed an average of \$24 billion of net tangible assets during 2016 and, despite their holding large quantities of excess cash and carrying very little debt, earned 24% after-tax on that capital.

Of course, a business with terrific economics can be a bad investment if it is bought at too high a price. We have paid substantial premiums to net tangible assets for most of our businesses, a cost that is reflected in the large figure we show on our balance sheet for goodwill and other intangibles. Overall, however, we are getting a decent return on the capital we have deployed in this sector. Absent a recession, earnings from the group will likely grow in 2017, in part because Duracell and Precision Castparts (both bought in 2016) will for the first time contribute a full year's earnings to this group. Additionally, Duracell incurred significant transitional costs in 2016 that will not recur.

We have far too many companies in this group to comment on them individually. Moreover, their competitors – both current and potential – read this report. In a few of our businesses, we might be disadvantaged if outsiders knew our numbers. Therefore, in certain of our operations that are not of a size material to an evaluation of Berkshire, we only disclose what is required. You can nevertheless find a good bit of detail about many of our operations on pages 90 - 94. Be aware, though, that it’s the growth of the Berkshire forest that counts. It would be foolish to focus over-intently on any single tree.

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

For several years I have told you that the income and expense data shown in this section does not conform to GAAP. I have explained that this divergence occurs primarily because of GAAP-ordered rules regarding purchase-accounting adjustments that require the full amortization of certain intangibles over periods averaging about 19 years. In our opinion, most of those amortization “expenses” are not truly an economic cost. Our goal in diverging from GAAP in this section is to present the figures to you in a manner reflecting the way in which Charlie and I view and analyze them.

On page 54 we itemize \$15.4 billion of intangibles that are yet to be amortized by annual charges to earnings. (More intangibles to be amortized will be created as we make new acquisitions.) On that page, we show that the 2016 amortization charge to GAAP earnings was \$1.5 billion, up \$384 million from 2015. My judgment is that about 20% of the 2016 charge is a “real” cost.

Eventually amortization charges fully write off the related asset. When that happens – most often at the 15-year mark – the GAAP earnings we report will increase without any true improvement in the underlying economics of Berkshire’s business. (My gift to my successor.)

Now that I've described a GAAP expense that I believe to be overstated, let me move on to a less pleasant distortion produced by accounting rules. The subject this time is GAAP-prescribed depreciation charges, which are necessarily based on historical cost. Yet in certain cases, those charges materially understate true economic costs. Countless words were written about this phenomenon in the 1970s and early 1980s, when inflation was rampant. As inflation subsided – thanks to heroic actions by Paul Volcker – the inadequacy of depreciation charges became less of an issue. But the problem still prevails, big time, in the railroad industry, where current costs for many depreciable items far outstrip historical costs. The inevitable result is that reported earnings throughout the railroad industry are considerably higher than true economic earnings.

At BNSF, to get down to particulars, our GAAP depreciation charge last year was \$2.1 billion. But were we to spend that sum and no more annually, our railroad would soon deteriorate and become less competitive. The reality is that – simply to hold our own – we need to spend far more than the cost we show for depreciation. Moreover, a wide disparity will prevail for decades.

All that said, Charlie and I love our railroad, which was one of our better purchases.

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

Too many managements – and the number seems to grow every year – are looking for any means to report, and indeed feature, “adjusted earnings” that are higher than their company’s GAAP earnings. There are many ways for practitioners to perform this legerdemain. Two of their favorites are the omission of “restructuring costs” and “stock-based compensation” as expenses.

Charlie and I want managements, in their commentary, to describe unusual items – good or bad – that affect the GAAP numbers. After all, the reason we look at these numbers of the past is to make estimates of the future. But a management that regularly attempts to wave away very real costs by highlighting “adjusted per-share earnings” makes us nervous. That’s because bad behavior is contagious: CEOs who overtly look for ways to report high numbers tend to foster a culture in which subordinates strive to be “helpful” as well. Goals like that can lead, for example, to insurers underestimating their loss reserves, a practice that has destroyed many industry participants.

Charlie and I cringe when we hear analysts talk admiringly about managements who always “make the numbers.” In truth, business is too unpredictable for the numbers always to be met. Inevitably, surprises occur. When they do, a CEO whose focus is centered on Wall Street will be tempted to make up the numbers.

Let's get back to the two favorites of “don't-count-this” managers, starting with “restructuring.” Berkshire, I would say, has been restructuring from the first day we took over in 1965. Owning only a northern textile business then gave us no other choice. And today a fair amount of restructuring occurs every year at Berkshire. That's because there are always things that need to change in our hundreds of businesses. Last year, as I mentioned earlier, we spent significant sums getting Duracell in shape for the decades ahead.

We have never, however, singled out restructuring charges and told you to ignore them in estimating our normal earning power. If there were to be some truly major expenses in a single year, I would, of course, mention it in my commentary. Indeed, when there is a total rebasing of a business, such as occurred when Kraft and Heinz merged, it is imperative that for several years the huge one-time costs of rationalizing the combined operations be explained clearly to owners. That’s precisely what the CEO of Kraft Heinz has done, in a manner approved by the company’s directors (who include me). But, to tell owners year after year, “Don’t count this,” when management is simply making business adjustments that are necessary, is misleading. And too many analysts and journalists fall for this baloney.

To say “stock-based compensation” is not an expense is even more cavalier. CEOs who go down that road are, in effect, saying to shareholders, “If you pay me a bundle in options or restricted stock, don’t worry about its effect on earnings. I’ll ‘adjust’ it away.”

To explore this maneuver further, join me for a moment in a visit to a make-believe accounting laboratory whose sole mission is to juice Berkshire's reported earnings. Imaginative technicians await us, eager to show their stuff.

Listen carefully while I tell these enablers that stock-based compensation usually comprises at least $20\%$ of total compensation for the top three or four executives at most large companies. Pay attention, too, as I explain that Berkshire has several hundred such executives at its subsidiaries and pays them similar amounts, but uses only cash to do so. I further confess that, lacking imagination, I have counted all of these payments to Berkshire's executives as an expense.

My accounting minions suppress a giggle and immediately point out that 20% of what is paid these Berkshire managers is tantamount to “cash paid in lieu of stock-based compensation” and is therefore not a “true” expense. So – presto! – Berkshire, too, can have “adjusted” earnings.

Back to reality: If CEOs want to leave out stock-based compensation in reporting earnings, they should be required to affirm to their owners one of two propositions: why items of value used to pay employees are not a cost or why a payroll cost should be excluded when calculating earnings.

During the accounting nonsense that flourished during the 1960s, the story was told of a CEO who, as his company revved up to go public, asked prospective auditors, “What is two plus two?” The answer that won the assignment, of course, was, “What number do you have in mind?”

Finance and Financial Products

Our three leasing and rental operations are conducted by CORT (furniture), XTRA (semi-trailers), and Marmon (primarily tank cars but also freight cars, intermodal tank containers and cranes). Each is the leader in its field.

We also include Clayton Homes in this section. This company receives most of its revenue from the sale of manufactured homes, but derives the bulk of its earnings from its large mortgage portfolio. Last year, Clayton became America's largest home builder, delivering 42,075 units that accounted for $5\%$ of all new American homes. (In fairness, other large builders do far more dollar volume than Clayton because they sell site-built homes that command much higher prices.)

In 2015, Clayton branched out, purchasing its first site-builder. Two similar acquisitions followed in 2016, and more will come. Site-built houses are expected to amount to $3\%$ or so of Clayton's unit sales in 2017 and will likely deliver about $14\%$ of its dollar volume.

Even so, Clayton's focus will always be manufactured homes, which account for about $70\%$ of new American homes costing less than \$150,000. Clayton manufactures close to one-half of the total. That is a far cry from Clayton's position in 2003 when Berkshire purchased the company. It then ranked third in the industry in units sold and employed 6,731 people. Now, when its new acquisitions are included, the employee count is 14,677. And that number will increase in the future.

Clayton's earnings in recent years have materially benefited from extraordinarily low interest rates. The company's mortgage loans to home-buyers are at fixed-rates and for long terms (averaging 25 years at inception). But Clayton's own borrowings are short-term credits that re-price frequently. When rates plunge, Clayton's earnings from its portfolio greatly increase. We normally would shun that kind of lend-long, borrow-short approach, which can cause major problems for financial institutions. As a whole, however, Berkshire is always asset-sensitive, meaning that higher short-term rates will benefit our consolidated earnings, even as they hurt at Clayton.

Last year Clayton had to foreclose on 8,304 manufactured-housing mortgages, about $2.5\%$ of its total portfolio. Customer demographics help explain that percentage. Clayton's customers are usually lower-income families with mediocre credit scores; many are supported by jobs that will be at risk in any recession; many, similarly, have financial profiles that will be damaged by divorce or death to an extent that would not be typical for a high-income family. Those risks that our customers face are partly mitigated because almost all have a strong desire to own a home and because they enjoy reasonable monthly payments that average only \$587, including the cost of insurance and property taxes.

Clayton also has long had programs that help borrowers through difficulties. The two most popular are loan extensions and payment forgiveness. Last year about 11,000 borrowers received extensions, and 3,800 had \$3.4 million of scheduled payments permanently canceled by Clayton. The company does not earn interest or fees when these loss-mitigation moves are made. Our experience is that 93% of borrowers helped through these programs in the last two years now remain in their homes. Since we lose significant sums on foreclosures – losses last year totaled \$150 million – our assistance programs end up helping Clayton as well as its borrowers.

Clayton and Berkshire have been a wonderful partnership. Kevin Clayton came to us with a best-in-class management group and culture. Berkshire, in turn, provided unmatched staying power when the manufactured-home industry fell apart during the Great Recession. (As other lenders to the industry vanished, Clayton supplied credit not only to its own dealers but also to dealers who sold the products of its competitors.) At Berkshire, we never count on synergies when we acquire companies. Truly important ones, however, surfaced after our purchase of Clayton.

Marmon's railcar business experienced a major slowdown in demand last year, which will cause earnings to decline in 2017. Fleet utilization was $91\%$ in December, down from $97\%$ a year earlier, with the drop particularly severe at the large fleet we purchased from General Electric in 2015. Marmon's crane and container rentals have weakened as well.

Big swings in railcar demand have occurred in the past and they will continue. Nevertheless, we very much like this business and expect decent returns on equity capital over the years. Tank cars are Marmon's specialty. People often associate tank cars with the transportation of crude oil; in fact, they are essential to a great variety of shippers.

Over time, we expect to expand our railcar operation. Meanwhile, Marmon is making a number of bolt-on acquisitions whose results are included in the Manufacturing, Service and Retailing section.

Here's the pre-tax earnings recap for our finance-related companies:

	2016	2015	2014
	(in millions)
Berkadia (our 50% share)	$91	$74	$122
Clayton	744	706	558
CORT	60	55	49
Marmon – Containers and Cranes	126	192	238
Marmon – Railcars	654	546	442
XTRA	179	172	147
Net financial income*	276	341	283
	$2,130	$2,086	$1,839

* Excludes capital gains or losses

Investments

Below we list our fifteen common stock investments that at yearend had the largest market value. We exclude our Kraft Heinz holding because Berkshire is part of a control group and therefore must account for this investment on the “equity” method. The 325,442,152 shares Berkshire owns of Kraft Heinz are carried on our balance sheet at a GAAP figure of \$15.3 billion and had a yearend market value of \$28.4 billion. Our cost basis for the shares is \$9.8 billion.

Shares*	Company	Percentage of Company Owned	12/31/16
			Cost**	Market
			(in millions)
151,610,700	American Express Company	16.8	$ 1,287	$ 11,231
61,242,652	Apple Inc.	1.1	6,747	7,093
6,789,054	Charter Communications, Inc.	2.5	1,210	1,955
400,000,000	The Coca-Cola Company	9.3	1,299	16,584
54,934,718	Delta Airlines Inc.	7.5	2,299	2,702
11,390,582	The Goldman Sachs Group, Inc.	2.9	654	2,727
81,232,303	International Business Machines Corp.	8.5	13,815	13,484
24,669,778	Moody’s Corporation	12.9	248	2,326
74,587,892	Phillips 66	14.4	5,841	6,445
22,169,930	Sanofi	1.7	1,692	1,791
43,203,775	Southwest Airlines Co.	7.0	1,757	2,153
101,859,335	U.S. Bancorp	6.0	3,239	5,233
26,620,184	United Continental Holdings Inc.	8.4	1,477	1,940
43,387,980	USG Corp.	29.7	836	1,253
500,000,000	Wells Fargo & Company	10.0	12,730	27,555
	Others		10,697	17,560
	Total Common Stocks Carried at Market		$ 65,828	$ 122,032

* Excludes shares held by pension funds of Berkshire subsidiaries.
** This is our actual purchase price and also our tax basis; GAAP “cost” differs in a few cases because of write-downs that have been required under GAAP rules.

Some of the stocks in the table are the responsibility of either Todd Combs or Ted Weschler, who work with me in managing Berkshire's investments. Each, independently, manages more than \$10 billion; I usually learn about decisions they have made by looking at monthly trade sheets. Included in the \$21 billion that the two manage is about \$7.6 billion of pension trust assets of certain Berkshire subsidiaries. As noted, pension investments are not included in the preceding tabulation of Berkshire holdings.

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

Excluded from the table – but important – is our ownership of \$5 billion of preferred stock issued by Bank of America. This stock, which pays us \$300 million per year, also carries with it a valuable warrant allowing Berkshire to purchase 700 million common shares of Bank of America for \$5 billion at any time before September 2, 2021. At yearend, that privilege would have delivered us a profit of \$10.5 billion. If it wishes, Berkshire can use its preferred shares to satisfy the \$5 billion cost of exercising the warrant.

If the dividend rate on Bank of America common stock – now 30 cents annually – should rise above 44 cents before 2021, we would anticipate making a cashless exchange of our preferred into common. If the common dividend remains below 44 cents, it is highly probable that we will exercise the warrant immediately before it expires.

Many of our investees, including Bank of America, have been repurchasing shares, some quite aggressively. We very much like this behavior because we believe the repurchased shares have in most cases been underpriced. (Undervaluation, after all, is why we own these positions.) When a company grows and outstanding shares shrink, good things happen for shareholders.

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

It’s important for you to understand that 95% of the \$86 billion of “cash and equivalents” (which in my mind includes U.S. Treasury Bills) shown on our balance sheet are held by entities in the United States and, consequently, is not subject to any repatriation tax. Moreover, repatriation of the remaining funds would trigger only minor taxes because much of that money has been earned in countries that themselves impose meaningful corporate taxes. Those payments become an offset to U.S. tax when money is brought home.

These explanations are important because many cash-rich American companies hold a large portion of their funds in jurisdictions imposing very low taxes. Such companies hope – and may well be proved right – that the tax levied for bringing these funds to America will soon be materially reduced. In the meantime, these companies are limited as to how they can use that cash. In other words, off-shore cash is simply not worth as much as cash held at home.

Berkshire has a partial offset to the favorable geographical location of its cash, which is that much of it is held in our insurance subsidiaries. Though we have many alternatives for investing this cash, we do not have the unlimited choices that we would enjoy if the cash were held by the parent company, Berkshire. We do have an ability annually to distribute large amounts of cash from our insurers to the parent – though here, too, there are limits. Overall, cash held at our insurers is a very valuable asset, but one slightly less valuable to us than is cash held at the parent level.

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

Sometimes the comments of shareholders or media imply that we will own certain stocks “forever.” It is true that we own some stocks that I have no intention of selling for as far as the eye can see (and we’re talking 20/20 vision). But we have made no commitment that Berkshire will hold any of its marketable securities forever.

Confusion about this point may have resulted from a too-casual reading of Economic Principle 11 on pages 110 - 111, which has been included in our annual reports since 1983. That principle covers controlled businesses, not marketable securities. This year I've added a final sentence to #11 to ensure that our owners understand that we regard any marketable security as available for sale, however unlikely such a sale now seems.

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

Before we leave this investment section, a few educational words about dividends and taxes: Berkshire, like most corporations, nets considerably more from a dollar of dividends than it reaps from a dollar of capital gains. That will probably surprise those of our shareholders who are accustomed to thinking of capital gains as the route to tax-favored returns.

But here's the corporate math. Every \$1 of capital gains that a corporation realizes carries with it 35 cents of federal income tax (and often state income tax as well). The tax on dividends received from domestic corporations, however, is consistently lower, though rates vary depending on the status of the recipient.

For a non-insurance company – which describes Berkshire Hathaway, the parent – the federal tax rate is effectively 10½ cents per \$1 of dividends received. Furthermore, a non-insurance company that owns more than 20% of an investee owes taxes of only 7 cents per \$1 of dividends. That rate applies, for example, to the substantial dividends we receive from our 27% ownership of Kraft Heinz, all of it held by the parent company. (The rationale for the low corporate taxes on dividends is that the dividend-paying investee has already paid its own corporate tax on the earnings being distributed.)

Berkshire's insurance subsidiaries pay a tax rate on dividends that is somewhat higher than that applying to non-insurance companies, though the rate is still well below the $35\%$ hitting capital gains. Property/casualty companies owe about $14\%$ in taxes on most dividends they receive. Their tax rate falls, though, to about $11\%$ if they own more than $20\%$ of a U.S.-based investee.

And that's our tax lesson for today.

"The Bet" (or how your money finds its way to Wall Street)

In this section, you will encounter, early on, the story of an investment bet I made nine years ago and, next, some strong opinions I have about investing. As a starter, though, I want to briefly describe Long Bets, a unique establishment that played a role in the bet.

Long Bets was seeded by Amazon's Jeff Bezos and operates as a non-profit organization that administers just what you'd guess: long-term bets. To participate, “proposers” post a proposition at Longbets.org that will be proved right or wrong at a distant date. They then wait for a contrary-minded party to take the other side of the bet. When a “doubter” steps forward, each side names a charity that will be the beneficiary if its side wins; parks its wager with Long Bets; and posts a short essay defending its position on the Long Bets website. When the bet is concluded, Long Bets pays off the winning charity.

Here are examples of what you will find on Long Bets' very interesting site:

In 2002, entrepreneur Mitch Kapor asserted that “By 2029 no computer – or ‘machine intelligence’ – will have passed the Turing Test,” which deals with whether a computer can successfully impersonate a human being. Inventor Ray Kurzweil took the opposing view. Each backed up his opinion with \$10,000. I don’t know who will win this bet, but I will confidently wager that no computer will ever replicate Charlie.

That same year, Craig Mundie of Microsoft asserted that pilotless planes would routinely fly passengers by 2030, while Eric Schmidt of Google argued otherwise. The stakes were \$1,000 each. To ease any heartburn Eric might be experiencing from his outsized exposure, I recently offered to take a piece of his action. He promptly laid off \$500 with me. (I like his assumption that I'll be around in 2030 to contribute my payment, should we lose.)

Now, to my bet and its history. In Berkshire's 2005 annual report, I argued that active investment management by professionals – in aggregate – would over a period of years underperform the returns achieved by rank amateurs who simply sat still. I explained that the massive fees levied by a variety of “helpers” would leave their clients – again in aggregate – worse off than if the amateurs simply invested in an unmanaged low-cost index fund. (See pages 114 - 115 for a reprint of the argument as I originally stated it in the 2005 report.)

Subsequently, I publicly offered to wager \$500,000 that no investment pro could select a set of at least five hedge funds – wildly-popular and high-fee investing vehicles – that would over an extended period match the performance of an unmanaged S&P-500 index fund charging only token fees. I suggested a ten-year bet and named a low-cost Vanguard S&P fund as my contender. I then sat back and waited expectantly for a parade of fund managers – who could include their own fund as one of the five – to come forth and defend their occupation. After all, these managers urged others to bet billions on their abilities. Why should they fear putting a little of their own money on the line?

What followed was the sound of silence. Though there are thousands of professional investment managers who have amassed staggering fortunes by touting their stock-selecting prowess, only one man – Ted Seides – stepped up to my challenge. Ted was a co-manager of Protégé Partners, an asset manager that had raised money from limited partners to form a fund-of-funds – in other words, a fund that invests in multiple hedge funds.

I hadn't known Ted before our wager, but I like him and admire his willingness to put his money where his mouth was. He has been both straight-forward with me and meticulous in supplying all the data that both he and I have needed to monitor the bet.

For Protégé Partners' side of our ten-year bet, Ted picked five funds-of-funds whose results were to be averaged and compared against my Vanguard S&P index fund. The five he selected had invested their money in more than 100 hedge funds, which meant that the overall performance of the funds-of-funds would not be distorted by the good or poor results of a single manager.

Each fund-of-funds, of course, operated with a layer of fees that sat above the fees charged by the hedge funds in which it had invested. In this doubling-up arrangement, the larger fees were levied by the underlying hedge funds; each of the fund-of-funds imposed an additional fee for its presumed skills in selecting hedge-fund managers.

Here are the results for the first nine years of the bet – figures leaving no doubt that Girls Inc. of Omaha, the charitable beneficiary I designated to get any bet winnings I earned, will be the organization eagerly opening the mail next January.

Year	Fund of Funds A	Fund of Funds B	Fund of Funds C	Fund of Funds D	Fund of Funds E	S&P Index Fund
2008	-16.5%	-22.3%	-21.3%	-29.3%	-30.1%	-37.0%
2009	11.3%	14.5%	21.4%	16.5%	16.8%	26.6%
2010	5.9%	6.8%	13.3%	4.9%	11.9%	15.1%
2011	-6.3%	-1.3%	5.9%	-6.3%	-2.8%	2.1%
2012	3.4%	9.6%	5.7%	6.2%	9.1%	16.0%
2013	10.5%	15.2%	8.8%	14.2%	14.4%	32.3%
2014	4.7%	4.0%	18.9%	0.7%	-2.1%	13.6%
2015	1.6%	2.5%	5.4%	1.4%	-5.0%	1.4%
2016	-2.9%	1.7%	-1.4%	2.5%	4.4%	11.9%
Gain to Date	8.7%	28.3%	62.8%	2.9%	7.5%	85.4%

Footnote: Under my agreement with Protégé Partners, the names of these funds-of-funds have never been publicly disclosed. I, however, see their annual audits.

The compounded annual increase to date for the index fund is 7.1%, which is a return that could easily prove typical for the stock market over time. That's an important fact: A particularly weak nine years for the market over the lifetime of this bet would have probably helped the relative performance of the hedge funds, because many hold large “short” positions. Conversely, nine years of exceptionally high returns from stocks would have provided a tailwind for index funds.

Instead we operated in what I would call a “neutral” environment. In it, the five funds-of-funds delivered, through 2016, an average of only 2.2%, compounded annually. That means \$1 million invested in those funds would have gained \$220,000. The index fund would meanwhile have gained \$854,000.

Bear in mind that every one of the 100-plus managers of the underlying hedge funds had a huge financial incentive to do his or her best. Moreover, the five funds-of-funds managers that Ted selected were similarly incentivized to select the best hedge-fund managers possible because the five were entitled to performance fees based on the results of the underlying funds.

I'm certain that in almost all cases the managers at both levels were honest and intelligent people. But the results for their investors were dismal – really dismal. And, alas, the huge fixed fees charged by all of the funds and funds-of-funds involved – fees that were totally unwarranted by performance – were such that their managers were showered with compensation over the nine years that have passed. As Gordon Gekko might have put it: “Fees never sleep.”

The underlying hedge-fund managers in our bet received payments from their limited partners that likely averaged a bit under the prevailing hedge-fund standard of “2 and 20,” meaning a 2% annual fixed fee, payable even when losses are huge, and 20% of profits with no clawback (if good years were followed by bad ones). Under this lopsided arrangement, a hedge fund operator’s ability to simply pile up assets under management has made many of these managers extraordinarily rich, even as their investments have performed poorly.

Still, we're not through with fees. Remember, there were the fund-of-funds managers to be fed as well. These managers received an additional fixed amount that was usually set at 1% of assets. Then, despite the terrible overall record of the five funds-of-funds, some experienced a few good years and collected “performance” fees. Consequently, I estimate that over the nine-year period roughly 60% – gulp! – of all gains achieved by the five funds-of-funds were diverted to the two levels of managers. That was their misbegotten reward for accomplishing something far short of what their many hundreds of limited partners could have effortlessly – and with virtually no cost – achieved on their own.

In my opinion, the disappointing results for hedge-fund investors that this bet exposed are almost certain to recur in the future. I laid out my reasons for that belief in a statement that was posted on the Long Bets website when the bet commenced (and that is still posted there). Here is what I asserted:

Over a ten-year period commencing on January 1, 2008, and ending on December 31, 2017, the S&P 500 will outperform a portfolio of funds of hedge funds, when performance is measured on a basis net of fees, costs and expenses.

A lot of very smart people set out to do better than average in securities markets. Call them active investors.

Their opposites, passive investors, will by definition do about average. In aggregate their positions will more or less approximate those of an index fund. Therefore, the balance of the universe—the active investors—must do about average as well. However, these investors will incur far greater costs. So, on balance, their aggregate results after these costs will be worse than those of the passive investors.

Costs skyrocket when large annual fees, large performance fees, and active trading costs are all added to the active investor's equation. Funds of hedge funds accentuate this cost problem because their fees are superimposed on the large fees charged by the hedge funds in which the funds of funds are invested.

A number of smart people are involved in running hedge funds. But to a great extent their efforts are self-neutralizing, and their IQ will not overcome the costs they impose on investors. Investors, on average and over time, will do better with a low-cost index fund than with a group of funds of funds.

So that was my argument – and now let me put it into a simple equation. If Group A (active investors) and Group B (do-nothing investors) comprise the total investing universe, and B is destined to achieve average results before costs, so, too, must A. Whichever group has the lower costs will win. (The academic in me requires me to mention that there is a very minor point – not worth detailing – that slightly modifies this formulation.) And if Group A has exorbitant costs, its shortfall will be substantial.

There are, of course, some skilled individuals who are highly likely to out-perform the S&P over long stretches. In my lifetime, though, I've identified – early on – only ten or so professionals that I expected would accomplish this feat.

There are no doubt many hundreds of people – perhaps thousands – whom I have never met and whose abilities would equal those of the people I’ve identified. The job, after all, is not impossible. The problem simply is that the great majority of managers who attempt to over-perform will fail. The probability is also very high that the person soliciting your funds will not be the exception who does well. Bill Ruane – a truly wonderful human being and a man whom I identified 60 years ago as almost certain to deliver superior investment returns over the long haul – said it well: “In investment management, the progression is from the innovators to the imitators to the swarming incompetents.”

Further complicating the search for the rare high-fee manager who is worth his or her pay is the fact that some investment professionals, just as some amateurs, will be lucky over short periods. If 1,000 managers make a market prediction at the beginning of a year, it’s very likely that the calls of at least one will be correct for nine consecutive years. Of course, 1,000 monkeys would be just as likely to produce a seemingly all-wise prophet. But there would remain a difference: The lucky monkey would not find people standing in line to invest with him.

Finally, there are three connected realities that cause investing success to breed failure. First, a good record quickly attracts a torrent of money. Second, huge sums invariably act as an anchor on investment performance: What is easy with millions, struggles with billions (sob!). Third, most managers will nevertheless seek new money because of their personal equation – namely, the more funds they have under management, the more their fees.

These three points are hardly new ground for me: In January 1966, when I was managing \$44 million, I wrote my limited partners: “I feel substantially greater size is more likely to harm future results than to help them. This might not be true for my own personal results, but it is likely to be true for your results. Therefore, . . . I intend to admit no additional partners to BPL. I have notified Susie that if we have any more children, it is up to her to find some other partnership for them.”

The bottom line: When trillions of dollars are managed by Wall Streeters charging high fees, it will usually be the managers who reap outsized profits, not the clients. Both large and small investors should stick with low-cost index funds.

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

If a statue is ever erected to honor the person who has done the most for American investors, the hands-down choice should be Jack Bogle. For decades, Jack has urged investors to invest in ultra-low-cost index funds. In his crusade, he amassed only a tiny percentage of the wealth that has typically flowed to managers who have promised their investors large rewards while delivering them nothing – or, as in our bet, less than nothing – of added value.

In his early years, Jack was frequently mocked by the investment-management industry. Today, however, he has the satisfaction of knowing that he helped millions of investors realize far better returns on their savings than they otherwise would have earned. He is a hero to them and to me.

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

Over the years, I’ve often been asked for investment advice, and in the process of answering I’ve learned a good deal about human behavior. My regular recommendation has been a low-cost S&P 500 index fund. To their credit, my friends who possess only modest means have usually followed my suggestion.

I believe, however, that none of the mega-rich individuals, institutions or pension funds has followed that same advice when I’ve given it to them. Instead, these investors politely thank me for my thoughts and depart to listen to the siren song of a high-fee manager or, in the case of many institutions, to seek out another breed of hyper-helper called a consultant.

That professional, however, faces a problem. Can you imagine an investment consultant telling clients, year after year, to keep adding to an index fund replicating the S&P 500? That would be career suicide. Large fees flow to these hyper- helpers, however, if they recommend small managerial shifts every year or so. That advice is often delivered in esoteric gibberish that explains why fashionable investment “styles” or current economic trends make the shift appropriate.

The wealthy are accustomed to feeling that it is their lot in life to get the best food, schooling, entertainment, housing, plastic surgery, sports ticket, you name it. Their money, they feel, should buy them something superior compared to what the masses receive.

In many aspects of life, indeed, wealth does command top-grade products or services. For that reason, the financial “elites” – wealthy individuals, pension funds, college endowments and the like – have great trouble meekly signing up for a financial product or service that is available as well to people investing only a few thousand dollars. This reluctance of the rich normally prevails even though the product at issue is –on an expectancy basis – clearly the best choice. My calculation, admittedly very rough, is that the search by the elite for superior investment advice has caused it, in aggregate, to waste more than \$100 billion over the past decade. Figure it out: Even a 1% fee on a few trillion dollars adds up. Of course, not every investor who put money in hedge funds ten years ago lagged S&P returns. But I believe my calculation of the aggregate shortfall is conservative.

Much of the financial damage befell pension funds for public employees. Many of these funds are woefully underfunded, in part because they have suffered a double whammy: poor investment performance accompanied by huge fees. The resulting shortfalls in their assets will for decades have to be made up by local taxpayers.

Human behavior won't change. Wealthy individuals, pension funds, endowments and the like will continue to feel they deserve something “extra” in investment advice. Those advisors who cleverly play to this expectation will get very rich. This year the magic potion may be hedge funds, next year something else. The likely result from this parade of promises is predicted in an adage: “When a person with money meets a person with experience, the one with experience ends up with the money and the one with money leaves with experience.”

Long ago, a brother-in-law of mine, Homer Rogers, was a commission agent working in the Omaha stockyards. I asked him how he induced a farmer or rancher to hire him to handle the sale of their hogs or cattle to the buyers from the big four packers (Swift, Cudahy, Wilson and Armour). After all, hogs were hogs and the buyers were experts who knew to the penny how much any animal was worth. How then, I asked Homer, could any sales agent get a better result than any other?

Homer gave me a pitying look and said: “Warren, it’s not how you sell ‘em, it’s how you tell ‘em.” What worked in the stockyards continues to work in Wall Street.

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

And, finally, let me offer an olive branch to Wall Streeters, many of them good friends of mine. Berkshire loves to pay fees – even outrageous fees – to investment bankers who bring us acquisitions. Moreover, we have paid substantial sums for over-performance to our two in-house investment managers – and we hope to make even larger payments to them in the future.

To get biblical (Ephesians 3:18), I know the height and the depth and the length and the breadth of the energy flowing from that simple four-letter word – fees – when it is spoken to Wall Street. And when that energy delivers value to Berkshire, I will cheerfully write a big check.

The Annual Meeting

Last year we partnered with Yahoo to air the first-ever webcast of our annual meeting. Thanks to Andy Serwer and his Yahoo crew, the production was a success in all respects, registering 1.1 million unique visits in real-time viewing and 11.5 million more in replays (many of those, to be sure, called up by viewers interested in only certain segments of the webcast).

Berkshire's thank-you mail for initiating the webcast included many notes from three constituencies: the elderly who find travel difficult; the thrifty who find it expensive to travel to Omaha; and those who cannot attend a Saturday meeting for religious reasons.

The webcast cut attendance at last year's meeting to about 37,000 people (we can't get a precise count), which was down about $10\%$ . Nevertheless, both Berkshire's subsidiaries and Omaha hotels and restaurants racked up huge sales. Nebraska Furniture Mart's sales broke their 2015 record volume by $3\%$ , with the Omaha store recording one-week volume of \$45.5 million.

Our Berkshire exhibitors at CenturyLink were open from noon until 5 p.m. on Friday and drew a crowd of 12,000 bargain-hunting shareholders. We will repeat those Friday shopping hours this year on May 5 $^{th}$ . Bring money.

The annual meeting falls on May 6 $^{th}$ and will again be webcast by Yahoo, whose web address is https://finance.yahoo.com/brklivestream. The webcast will go live at 9 a.m. Central Daylight Time. Yahoo will interview directors, managers, stockholders and celebrities before the meeting and during the lunch break. Both those interviews and meeting will be translated simultaneously into Mandarin.

For those attending the meeting in person, the doors at the CenturyLink will open at 7:00 a.m. on Saturday to facilitate shopping prior to our shareholder movie, which begins at 8:30. The question-and-answer period will start at 9:30 and run until 3:30, with a one-hour lunch break at noon. Finally, at 3:45 we will begin the formal shareholder meeting. It will run an hour or so. That is somewhat longer than usual because three proxy items are to be presented by their proponents, who will be given a reasonable amount of time to state their case.

On Saturday morning, we will have our sixth International Newspaper Tossing Challenge. Our target will again be the porch of a Clayton Home, located precisely 35 feet from the throwing line. When I was a teenager – in my one brief flirtation with honest labor – I delivered about 500,000 papers. So I think I’m pretty good at this game. Challenge me! Humiliate me! Knock me down a peg! The papers will run 36 to 42 pages, and you must fold them yourself (no rubber bands allowed). The competition will begin about 7:45, and I’ll take on ten or so competitors selected a few minutes earlier by my assistant, Deb Bosanek.

Your venue for shopping will be the 194,300-square-foot hall that adjoins the meeting and in which products from dozens of our subsidiaries will be for sale. Say hello to the many Berkshire managers who will be captaining their exhibits. And be sure to view the terrific BNSF railroad layout that salutes all of our companies. Your children (and you!) will be enchanted with it.

Brooks, our running-shoe company, will again have a special commemorative shoe to offer at the meeting. After you purchase a pair, wear them on Sunday at our fourth annual “Berkshire 5K,” an 8 a.m. race starting at the CenturyLink. Full details for participating will be included in the Visitor’s Guide that will be sent to you with your meeting credentials. Entrants in the race will find themselves running alongside many of Berkshire’s managers, directors and associates. (Charlie and I, however, will sleep in; the fudge and peanut brittle we eat throughout the Saturday meeting takes its toll.) Participation in the 5K grows every year. Help us set another record.

A GEICO booth in the shopping area will be staffed by a number of the company's top counselors from around the country. At last year's meeting, we set a record for policy sales, up $21\%$ from 2015. I predict we will be up again this year.

So stop by for a quote. 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 discount, such as that available to certain groups.) Bring the details of your existing insurance and check out our price. We can save many of you real money. Spend the savings on other Berkshire products.

Be sure to visit the Bookworm. This Omaha-based retailer will carry about 35 books and DVDs, among them a couple of new titles. The best book I read last year was Shoe Dog, by Nike's Phil Knight. Phil is a very wise, intelligent and competitive fellow who is also a gifted storyteller. The Bookworm will have piles of Shoe Dog as well as several investment classics by Jack Bogle.

The Bookworm will once again offer our history of the highlights (and lowlights) of Berkshire's first 50 years. Non-attendees of the meeting can find the book on eBay. Just type in: Berkshire Hathaway Inc. Celebrating 50 years of a Profitable Partnership (2 $^{nd}$ Edition).

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 both the meeting and other events. Keep in mind that airlines have sometimes jacked up prices for the Berkshire weekend – though I must admit I have developed some tolerance, bordering on enthusiasm, for that practice now that Berkshire has made large investments in America’s four major carriers. Nevertheless, if you are coming from far away, compare the cost of flying to Kansas City vs. Omaha. The drive between the two cities is about $2^{1/2}$ hours, and it may be that Kansas City can save you significant money. The savings for a couple could run to 1,000 or more. Spend that money with us.

At Nebraska Furniture Mart, located on a 77-acre site on $72^{\text{nd}}$ Street between Dodge and Pacific, we will again be having “Berkshire Weekend” discount pricing. To obtain the Berkshire discount at NFM, you must make your purchases between Tuesday, May $2^{\text{nd}}$ and Monday, May $8^{\text{th}}$ inclusive, and must 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. During “Berkshire Weekend,” NFM will be open from 10 a.m. to 9 p.m. Monday through Friday, 10 a.m. to 9:30 p.m. on Saturday and 10 a.m. to 8 p.m. on Sunday. From 5:30 p.m. to 8 p.m. on Saturday, NFM is hosting a picnic to which you are all invited.

This year we have good news for shareholders in the Kansas City and Dallas metro markets who can't attend the meeting or perhaps prefer the webcast. From May $2^{nd}$ through May $8^{th}$ , shareholders who present meeting credentials or other evidence of their Berkshire ownership (such as brokerage statements) to their local NFM store will receive the same discounts enjoyed by those visiting the Omaha store.

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, May 5 $^{th}$ . The second, the main gala, will be held on Sunday, May 7 $^{th}$ , from 9 a.m. to 4 p.m. On Saturday, we will remain open until 6 p.m. Remember, the more you buy, the more you save (or so my daughter tells me when we visit the store).

We will have huge crowds at Borsheims throughout the weekend. For your convenience, therefore, shareholder prices will be available from Monday, May 1 $^{st}$ through Saturday, May 13 $^{th}$ . During that period, please identify yourself as a shareholder either by presenting your meeting credential or a brokerage statement showing you own our stock.

On Sunday, in the mall outside of Borsheims, Norman Beck, a remarkable magician and motivational speaker from Dallas, will bewilder onlookers. On the upper level, we will have Bob Hamman and Sharon Osberg, two of the world's top bridge experts, available to play with our shareholders on Sunday afternoon. If they suggest wagering on the game, change the subject. I will join them at some point and hope Ajit, Charlie and Bill Gates will do so also.

My friend, Ariel Hsing, will be in the mall as well on Sunday, taking on challengers at table tennis. I met Ariel when she was nine, and even then I was unable to score a point against her. Ariel represented the United States in the 2012 Olympics. Now, she's a senior at Princeton (after interning last summer at JPMorgan Chase). If you don't mind embarrassing yourself, test your skills against her, beginning at 1 p.m. Bill Gates did pretty well playing Ariel last year, so he may be ready to again challenge her. (My advice: Bet on Ariel.)

Gorat's will be open exclusively for Berkshire shareholders on Sunday, May $7^{\text{th}}$ , serving from 1 p.m. until 10 p.m. To make a reservation at Gorat's, call 402-551-3733 on April $3^{\text{rd}}$ (but not before). Show you are a sophisticated diner by ordering the T-bone with hash browns.

We will have the same three financial journalists lead the question-and-answer period at the meeting, asking Charlie and me questions that shareholders have submitted to them by e-mail. The journalists and their e-mail addresses are: Carol Loomis, the preeminent business journalist of her time, who may be e-mailed at loomisbrk@gmail.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 six he or she decides are the most interesting and important to shareholders. 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 e-mail you send them. (In your e-mail, let the journalist know if you would like your name mentioned if your question is asked.)

An accompanying set of questions will be asked by three analysts who follow Berkshire. This year the insurance specialist will be Jay Gelb of Barclays. Questions that deal with our non-insurance operations will come from Jonathan Brandt of Ruane, Cunniff & Goldfarb and Gregg Warren of Morningstar. Since what we will be conducting is a shareholders' meeting, our hope is that the analysts and journalists will ask questions that add to our owners' understanding and knowledge of their investment.

Neither Charlie nor I will get so much as a clue about the questions headed our way. Some will be tough, for sure, and that's the way we like it. Multi-part questions aren't allowed; we want to give as many questioners as possible a shot at us. Our goal is for you to leave the meeting knowing more about Berkshire than when you came and for you to have a good time while in Omaha.

All told, we expect at least 54 questions, which will allow for six from each analyst and journalist and for 18 from the audience. The questioners from the audience will be chosen by means of 11 drawings that will take place at 8:15 a.m. on the morning of the annual meeting. Each of the 11 microphones installed in the arena and main overflow room will host, so to speak, a drawing.

While I'm on the subject of our owners' gaining knowledge, let me remind you that Charlie and I believe all shareholders should simultaneously have access to new information that Berkshire releases and, if possible, should also have adequate time to digest and analyze it before any trading takes place. That's why we try to issue financial data late on Fridays or early on Saturdays and why our annual meeting is always held on a Saturday (a day that also eases traffic and parking problems).

We do not follow the common practice of talking one-on-one with large institutional investors or analysts, treating them instead as we do all other shareholders. There is no one more important to us than the shareholder of limited means who trusts us with a substantial portion of his or her savings. As I run the company day-to-day – and as I write this letter – that is the shareholder whose image is in my mind.

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

For good reason, I regularly extol the accomplishments of our operating managers. They are truly All-Stars who run their businesses as if they were the only asset owned by their families. I also believe the mindset of our managers to be as shareholder-oriented as can be found in the universe of large publicly-owned companies. Most of our managers have no financial need to work. The joy of hitting business “home runs” means as much to them as their paycheck.

Equally important, however, are the men and women who work with me at our corporate office. This team efficiently deals with a multitude of SEC and other regulatory requirements, files a 30,450-page Federal income tax return, oversees the filing of 3,580 state tax 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, fact-checks this letter – and the list goes on and on.

They handle all of these business tasks cheerfully and with unbelievable efficiency, making my life easy and pleasant. Their efforts go beyond activities strictly related to Berkshire: Last year, for example, they dealt with the 40 universities (selected from 200 applicants) who sent students to Omaha for a Q&A day with me. They also handle all kinds of requests that I receive, arrange my travel, and even get me hamburgers and French fries (smothered in Heinz ketchup, of course) for lunch. In addition, they cheerfully pitch in to help Carrie Sova – our talented ringmaster at the annual meeting – deliver an interesting and entertaining weekend for our shareholders. They are proud to work for Berkshire, and I am proud of them.

I'm a lucky guy, very fortunate in being surrounded by this excellent staff, a team of highly-talented operating managers and a boardroom of very wise and experienced directors. Come to Omaha – the cradle of capitalism – on May $6^{\text{th}}$ and meet the Berkshire Bunch. All of us look forward to seeing you.

February 25, 2017

Warren E. Buffett

Chairman of the Board

年份	年度百分比变化
	伯克希尔每股账面价值	伯克希尔每股市值	含股息标普500
1965	23.8	49.5	10.0
1966	20.3	(3.4)	(11.7)
1967	11.0	13.3	30.9
1968	19.0	77.8	11.0
1969	16.2	19.4	(8.4)
1970	12.0	(4.6)	3.9
1971	16.4	80.5	14.6
1972	21.7	8.1	18.9
1973	4.7	(2.5)	(14.8)
1974	5.5	(48.7)	(26.4)
1975	21.9	2.5	37.2
1976	59.3	129.3	23.6
1977	31.9	46.8	(7.4)
1978	24.0	14.5	6.4
1979	35.7	102.5	18.2
1980	19.3	32.8	32.3
1981	31.4	31.8	(5.0)
1982	40.0	38.4	21.4
1983	32.3	69.0	22.4
1984	13.6	(2.7)	6.1
1985	48.2	93.7	31.6
1986	26.1	14.2	18.6
1987	19.5	4.6	5.1
1988	20.1	59.3	16.6
1989	44.4	84.6	31.7
1990	7.4	(23.1)	(3.1)
1991	39.6	35.6	30.5
1992	20.3	29.8	7.6
1993	14.3	38.9	10.1
1994	13.9	25.0	1.3
1995	43.1	57.4	37.6
1996	31.8	6.2	23.0
1997	34.1	34.9	33.4
1998	48.3	52.2	28.6
1999	0.5	(19.9)	21.0
2000	6.5	26.6	(9.1)
2001	(6.2)	6.5	(11.9)
2002	10.0	(3.8)	(22.1)
2003	21.0	15.8	28.7
2004	10.5	4.3	10.9
2005	6.4	0.8	4.9
2006	18.4	24.1	15.8
2007	11.0	28.7	5.5
2008	(9.6)	(31.8)	(37.0)
2009	19.8	2.7	26.5
2010	13.0	21.4	15.1
2011	4.6	(4.7)	2.1
2012	14.4	16.8	16.0
2013	18.2	32.7	32.4
2014	8.3	27.0	13.7
2015	6.4	(12.5)	1.4
2016	10.7	23.4	12.0
1965-2016年复合年增长率	19.0%	20.8%	9.7%
1964-2016年整体增长率	884,319%	1,972,595%	12,717%
说明：数据按日历年度统计，例外情况如下：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个月期间。自1979年起，会计准则要求保险公司按市价而非成本与市价孰低法（此前的规定）评估其持有的权益证券。本表中，伯克希尔1978年以前的业绩已按新规重新列报。除此之外，所有业绩均按最初报告的数值计算。标普500指数为税前数据，而伯克希尔数据为税后数据。如果一家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，那么在该指数上涨的年份，其业绩会落后于标普500，而在该指数下跌的年份则会领先。多年下来，税收成本会导致累计落后幅度相当大。

伯克希尔·哈撒韦公司

致伯克希尔·哈撒韦公司股东：

伯克希尔2016年的净资产增值为275亿美元，使我们A类股和B类股的每股账面价值均增长10.7%。过去52年（即自现任管理层接手以来），每股账面价值从19美元增至172,108美元，年复合增长率为19%。*

在这段时期的前半段，伯克希尔的净资产大致等于真正重要的数字：企业的内在价值。两者当时之所以接近，是因为我们的大部分资源都配置在可流通证券上，这些证券定期按其报价（减去出售时应缴纳的税款）进行重估。用华尔街的说法，我们的资产负债表当时在很大程度上是“按市值计价”的。

然而，到20世纪90年代初，我们的重心转向直接拥有企业，这一转变大大降低了资产负债表数字的相关性。之所以出现脱节，是因为适用于我们控股公司的会计准则（通常称为“GAAP”）在重要方面与用于评估可流通证券的规则不同。具体而言，对我们所拥有的企业进行会计处理时，一旦“失败者”的亏损显现，其账面价值必须下调；而“成功者”则永远不会被上调重估。

我们两种情形都经历过：就像婚姻一样，企业收购在“我愿意”之后常常带来惊喜。我曾做过一些愚蠢的收购，为我们收购企业的经济商誉支付了过高的价格。这后来导致了商誉减记，进而减少了伯克希尔的账面价值。我们收购的企业中也有成功者——其中一些非常成功——但我们对这些企业没有增加一分钱的账面价值。

我们对这种不对称的会计处理没有异议。但随着时间的推移，它必然会使伯克希尔的内在价值与账面价值之间的差距扩大。如今，我们成功企业中大量且不断增长的未记录收益，使伯克希尔股票的内在价值远远超过其账面价值。在我们的财产/意外伤害保险业务中，这个超出的部分确实非常巨大，在许多其他业务中也很显著。

长期来看，股票价格会趋向于内在价值。这正是伯克希尔所发生的，这一事实解释了为什么公司52年的市值增长——见对面页——大大超过了其账面价值增长。

我们希望实现什么

查理·芒格，伯克希尔的副董事长兼我的合伙人，和我预期伯克希尔的每股正常化盈利能力每年都会增长。当然，实际盈利有时会因美国经济的周期性疲软而下降。此外，即使大多数美国企业表现良好，保险业的超级巨灾或其他特定行业事件也可能偶尔减少伯克希尔的盈利。
不过，我们的职责是随着时间的推移实现显著增长——无论过程是否颠簸。毕竟，作为你们资金的受托人，伯克希尔的董事们选择留存所有盈利。事实上，在2015年和2016年，伯克希尔的留存收益金额连续两年位居美国企业之首，每年再投资的数额比第二名多出数十亿美元。这些再投资的每一美元都必须赚回它的价值。

有些年份，我们基础盈利能力的增长微乎其微；偶尔，收银机会叮当作响。查理和我没有点石成金的魔法来增加盈利，除了大胆做梦，以及做好心理和财务上的准备，在机会出现时快速行动。每隔十年左右，经济天空就会乌云密布，短暂地下起黄金雨。当那种倾盆大雨降临时，我们务必冲出门去，端的是大盆而非小勺。而且，我们一定会这么做。

我此前描述了我们如何从一家主要靠投资活动获得收益的公司，逐步转变为通过持有企业来增长价值。启动这一转型时，我们迈出了孩童般的步伐——做一些小收购，其对伯克希尔利润的影响被我们有价证券的收益所盖过。尽管采取了这种谨慎的方式，我还是犯了一个特别严重的错误：1993年用4.34亿美元收购了Dexter鞋业。Dexter的价值迅速归零。更糟的是：我用股票支付这笔收购，给了卖方25,203股伯克希尔股票，这些股票在2016年底价值超过60亿美元。

那次惨败之后，发生了三件关键事件——两件正面，一件负面——将我们牢牢推上了目前的道路。1996年初，我们收购了GEICO剩余的一半股权，这是一笔现金交易，将我们的持股从一项投资组合变成了全资运营企业。GEICO潜力几乎无限，迅速成为我们构建我认为如今是全球顶级财产/意外险业务的核心。

不幸的是，在GEICO收购之后，我愚蠢地于1998年底用伯克希尔股票——大量股票——收购了通用再保险公司。在经历了一些早期问题后，通用再保险已成为我们珍视的优秀保险业务。尽管如此，我发行272,200股伯克希尔股票收购通用再保险是一个可怕的错误，这使得我们的已发行股份猛增了21.8%。我的错误导致伯克希尔股东付出的远多于得到的（这种做法——尽管有圣经背书——在收购企业时远非吉祥）。

2000年初，我通过对MidAmerican Energy进行现金收购来弥补这一愚蠢行为，收购了其76%的股份（后来增至90%）。MidAmerican是一家管理出色的公用事业企业，为我们带来了许多盈利且对社会有益的投资机会。这次现金收购——我学到了教训——将我们坚定地推上了目前的路线：(1) 继续建设我们的保险业务；(2) 积极收购大型且多元化的非保险企业；(3) 主要使用内部产生的现金进行交易。（今天，我宁愿去做肠镜检查，也不愿发行伯克希尔的股票。）

我们的债券和股票组合，虽然地位有所下降，但在1998年之后的时期继续增长，并为我们带来了可观的资本利得、利息和股息。这些组合收益为我们的企业收购提供了主要财务支持。尽管非常规，但伯克希尔这种双管齐下的资本配置方法给了我们真正的优势。

以下是我们自1999年（业务正式开始转向之时）以来的财务记录。在这18年间，伯克希尔的已发行股份仅增长了8.3%，其中大部分增长发生在收购BNSF时。那一次，我很高兴地说，是一次明智的股票发行。

税后收益（单位：十亿美元）

年份	经营收益 (1)	资本利得 (2)	年份	经营收益 (1)	资本利得 (2)
1999	0.67	0.89	2008	9.64	(4.65)
2000	0.94	2.39	2009	7.57	0.49
2001	(0.13)	0.92	2010	11.09	1.87
2002	3.72	0.57	2011	10.78	(0.52)
2003	5.42	2.73	2012	12.60	2.23
2004	5.05	2.26	2013	15.14	4.34
2005	5.00	3.53	2014	16.55	3.32
2006	9.31	1.71	2015	17.36	6.73
2007	9.63	3.58	2016	17.57	6.50

(1) 含投资的利息与股息，但不含资本利得或损失。
(2) 绝大部分仅包含已实现的资本利得或损失；但当美国通用会计准则要求时，未实现损益亦包含在内。

我们预期投资利得将持续可观——尽管时点上完全随机——并将为业务收购提供大量资金。与此同时，伯克希尔出色的运营CEO团队将专注于提升各自所管理企业的盈利，有时会通过补强型收购来助力增长。由于我们避免发行伯克希尔股票，盈利的任何提升都将转化为等额的每股收益增长。

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

我们大幅提升伯克希尔正常化盈利的努力，将得到美国经济活力的助推——正如我们管理生涯中一贯如此。用一个词概括我们国家的成就：奇迹。240年前从零起步——这段时间还不到我岁数的三倍——美国人凭借人类 ingenuity、市场体系、一波波才华横溢且雄心勃勃的移民浪潮，以及法治，创造了远超祖先梦想的富足。

你无需成为经济学家也能理解我们的体系运转得有多好。环顾四周即可。看看那7,500万套自有住房、丰饶的农田、2.6亿辆汽车、高产的工厂、杰出的医疗中心、人才济济的大学，凡是你能想到的——所有这一切，都是从1776年那片贫瘠土地、原始建筑和微薄产出中，为美国人民带来的净增益。从零开始，美国积累了总计90万亿美元的财富。

当然，美国的房主、车主和其他资产持有者常常大量借贷来购买资产。但如果借款人违约，其资产并不会消失或失去用途。相反，所有权通常会转移给一家美国贷款机构，然后后者将其处置给另一位美国买家。我们国家的财富依然完好无损。正如歌特鲁德·斯坦所说：“钱总在那里，只是口袋换了。”

最重要的是，我们的市场体系——一位高效引导资本、智力与劳动的经济交通警察——造就了美国的丰饶。这一体系也是分配回报的首要因素。而通过联邦、州和地方税收进行的政府再分配，则决定了其中很大一部分财富的分配方式。
美国已经决定，处于生产年龄的公民应当同时帮助老人和年轻人。这种形式的援助——有时被奉为“福利”——通常被认为适用于老年人。但别忘了，美国每年有400万婴儿出生，他们天生就享有接受公共教育的权利。这种社会承诺（主要由地方层面出资）每个婴儿花费约15万美元。每年的总成本超过6000亿美元，约占GDP的3.5%。

无论我们的财富如何分配，你周围那些令人瞠目结舌的财富几乎全部属于美国人。当然，外国人拥有或对我们的一部分财富拥有索取权。然而，这些持有对我们的国家资产负债表来说并不重要：我们的公民拥有的海外资产价值大致相当。

早期美国人，我们应当强调，并不比那些千百年来辛勤劳作的先辈们更聪明或更勤奋。但那些勇于冒险的先驱们开创了一个释放人类潜能的体系，而他们的后继者在此基础上不断建设。

这种经济创造将在未来很长一段时间内为我们的后代带来不断增长的财富。是的，财富的积累会不时被短期中断。但它不会停止。我将重复我过去说过、并且预计未来还会说的话：今天在美国出生的婴儿，是历史上最幸运的一茬人。

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美国的经济成就为股东带来了惊人的利润。在20世纪，道指从66点上涨到11,497点，资本利得达17,320%，再加上持续增长的股息，收益更加可观。这一趋势仍在继续：截至2016年底，该指数进一步上涨了72%，达到19,763点。

美国企业——以及一篮子股票——在未来几年内几乎肯定会价值更高。创新、生产率提高、企业家精神以及充裕的资本将确保这一点。永远存在的悲观论者或许可以通过兜售他们的悲观预测而获利。但如果他们按照自己兜售的胡言乱语行动，老天爷也帮不了他们。

当然，许多公司会落后，有些会失败。这种优胜劣汰是市场活力的产物。此外，未来几年偶尔会出现重大的市场下跌——甚至恐慌——这将影响几乎所有股票。没有人能告诉你这些创伤何时会发生——我、查理、经济学家、媒体都不行。纽约联储的Meg McConnell恰当地描述了恐慌的现实：“我们花很多时间寻找系统性风险；但事实上，它往往会找到我们。”

在这样的恐慌时期，你永远不应忘记两件事：第一，普遍的恐惧是你作为投资者的朋友，因为它带来了廉价买入的机会。第二，个人的恐惧是你的敌人。而且这种恐惧毫无根据。那些避免高昂和不必要成本、只是长期持有一批大型、财务状况稳健的美国企业的投资者，几乎肯定会表现良好。

至于伯克希尔，我们的规模阻碍了辉煌的结果：随着资产的增加，预期回报会下降。尽管如此，伯克希尔拥有的优质业务组合，加上公司坚不可摧的财务实力和以股东为导向的文化，应该会带来不错的回报。我们不满足于更差的结果。

股份回购

在投资界，关于股份回购的讨论常常变得激烈。但我建议这场辩论的参与者深呼吸一下：评估回购的可取性并不复杂。

从退出股东的角度来看，回购总是一件好事。虽然这些回购的日常影响通常微乎其微，但卖家在市场上多一个买家总是更好的。
对于继续持有的股东而言，回购只有在买入价低于内在价值时才有意义。遵循这一规则，剩余股份的内在价值会立即获得提升。举个简单的类比：假设一家价值3000美元的公司由三位合伙人平均持股，如果合伙企业以900美元买断其中一位合伙人，那么剩余两位合伙人每人立即实现50美元的收益。但如果退出者获得1100美元，继续持有的合伙人每人则亏损50美元。同样的道理也适用于公司及其股东。因此，回购行动对继续持有的股东究竟是提升价值还是摧毁价值，完全取决于买入价格。

令人费解的是，公司宣布回购计划时几乎从不提及一个高于该价格就不再回购的上限。如果管理层是在收购一家外部企业，情况绝不会如此——价格永远是决定买还是不买的关键因素。

然而，当CEO或董事会回购自家公司的一小部分股份时，他们似乎经常对价格视而不见。如果他们管理的是一家只有少数几位股东的私人公司，正在评估买断其中一位股东是否明智，他们也会这么干吗？当然不会。

务必记住，即使公司股价被低估，有两种情况也不应进行回购。其一是公司需要将所有可用资金用于保护或扩张自身业务，且不愿进一步增加债务。这时内部资金需求应优先考虑。当然，这一例外预设公司在完成必要支出后仍有良好的前景。

第二种例外较为少见，即当某项业务收购（或其他投资机会）提供的价值远高于回购自身被低估的股票时。很久以前，伯克希尔本身就经常需要在两者之间做出选择。以我们目前的规模，这种问题出现的可能性大大降低。

我的建议是：在讨论回购之前，CEO和董事会应该手拉手站起来，齐声宣布："一个价格上明智的事，在另一个价格上就是愚蠢的。"

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回顾伯克希尔自己的回购政策：我被授权在股价不超过账面价值120%的情况下大量买入伯克希尔股票，因为董事会认为，在此价格水平上的回购能立即为继续持有的股东带来实质性收益。据我们估算，120%账面价值的价格对伯克希尔的内在价值有显著折让，这一价差是合理的，因为内在价值的计算不可能精确。

这一授权并不意味着我们会在120%的比率上"托价"。如果达到这一水平，我们会努力将"以创造价值的价格进行有意义回购"的意愿与"不过度影响市场"的目标结合起来。

迄今为止，回购我们的股票一直难以实施。这很可能是因为我们清晰描述了回购政策，从而向市场传递了我们的观点——伯克希尔的内在价值远高于账面价值的120%。如果是这样，那很好。查理和我更希望伯克希尔的股价围绕内在价值在较窄的区间内波动，既不愿其以不合理的高价交易——让买入股票后失望的股东可不是什么有趣的事——也不愿其过低。此外，以折扣价买断"合伙人"并不是一种特别令人愉快的赚钱方式。然而，市场环境可能创造一种回购能让继续持有和退出股东都受益的局面。如果是这样，我们将随时准备行动。
本节的最后一点观察：随着回购话题愈演愈烈，有些人几乎要把回购说成是"非美国"行为——指责这是企业挪用本该用于生产性投资的资金，简直罪大恶极。事实绝非如此：如今，美国企业和私人投资者手中的资金多得泛滥，正四处寻找明智的投向。我没听说过近年来哪个诱人的项目是因为缺钱而夭折的。（如果有的话，不妨给我们打电话。）

保险

下面来看看伯克希尔的各项业务，先从我们最重要的板块——保险说起。该行业的财产/意外险（"P/C"）业务自1967年以来一直是推动我们增长的引擎。那一年，我们以860万美元收购了国民赔款公司及其姊妹公司国民火海保险公司。如今，按净资产衡量，国民赔款公司已是全球最大的财产/意外险公司。

我们被财产/意外险业务吸引的一个原因是它的财务特征：财产/意外险公司先收保费，后赔款。极端情况下，比如石棉暴露引发的索赔，支付可能拖上几十年。这种"先收钱、后付款"的模式让财产/意外险公司手握巨额资金——我们称之为"浮存金"——这些钱最终要赔给别人。但在此期间，保险公司可以用这笔浮存金为自己牟利。尽管具体保单和索赔进进出出，一家保险公司持有的浮存金金额通常与保费规模保持相当稳定的关系。因此，随着业务增长，我们的浮存金也在增长。下表显示了它的增长历程：

年份	浮存金（百万美元）
1970	39
1980	237
1990	1,632
2000	27,871
2010	65,832
2016	91,577

最近我们签了一笔大保单，浮存金因此超过了1000亿美元。除此之外，GEICO和我们几家专业业务子公司的浮存金几乎肯定会以不错的增速继续增长。不过，国民赔款公司的再保险部门参与了一些大规模"已关闭业务"合同，这些合同的浮存金必然会逐渐下降。

未来某一天，我们可能会经历浮存金的下滑。如果发生，下滑将非常缓慢——任何一年最多不超过3%。我们保险合同的性质决定了，我们永远不会面临立即或近期内要求支付巨款、从而对我们的现金资源造成重大压力的局面。这一结构是刻意设计的，也是我们保险公司无与伦比的财务实力的关键组成部分。它永远不会被削弱。

如果我们的保费收入超过费用与最终损失的总和，保险业务就会产生承保利润，这笔利润将为浮存金产生的投资收益锦上添花。赚到这种利润时，我们享受的是免费资金的使用权——而且，更妙的是，我们拿着钱还能收钱。

不幸的是，所有保险公司都渴望实现这一美好结果，这导致了激烈的竞争，其激烈程度有时甚至使整个财产/意外险行业出现巨额承保亏损。这种亏损，实际上就是整个行业为持有浮存金所付出的代价。竞争动态几乎可以保证，尽管保险公司都有浮存金收益，但相比其他美国企业，保险业在有形净资产上的回报仍将维持远低于正常水平的糟糕记录。
这一结果之所以更加确定，是因为全球利率已大幅下降。几乎所有财产/意外险公司的投资组合——伯克希尔除外——都高度集中于债券。随着这些高收益的遗留投资陆续到期，并被收益率微薄的债券所取代，浮存金带来的收益将持续下滑。基于这个原因以及其他因素，可以合理预测，未来十年行业的业绩将不及过去十年，尤其是那些专攻再保险的公司。

尽管如此，我仍非常看好我们自身的前景。伯克希尔无与伦比的财务实力使我们在投资方面拥有比一般财产/意外险公司大得多的灵活性。我们拥有的众多选择始终是优势；偶尔，这些选择还会为我们带来重大机遇。别人受困之时，正是我们选择扩大之际。

此外，我们的财产/意外险公司有着出色的承保记录。伯克希尔已连续14年实现承保盈利，期间税前利润累计达280亿美元。这一记录绝非偶然：严格的风险评估是所有保险经理日常工作的焦点，他们深知，浮存金固然宝贵，但其收益可能被糟糕的承保结果所吞噬。所有保险公司都口头强调这一点。但在伯克希尔，这已是一种信仰，旧约式的信仰。

那么，浮存金如何影响内在价值？在计算伯克希尔的账面价值时，我们浮存金的全部金额会被作为负债扣除，仿佛明天就必须悉数偿付且无法补充。但将浮存金视为普通负债是一个重大错误。它应被看作一个周转基金。每天，我们支付旧赔案及相关费用——2016年向超过600万理赔人支付了高达270亿美元——这会减少浮存金。同样确定的是，我们每天也在承揽新业务，这些业务很快就会产生自己的赔案，从而增加浮存金。

如果我们这个周转中的浮存金既零成本又能长久持续——我相信它会如此——那么这项负债的真实价值将远低于会计负债。欠下1美元，而这1美元实际上永远离不开公司（因为新业务几乎肯定会递来替代品），与欠下1美元但明天就必须付清且无法补充，两者天差地别。然而，在GAAP（美国通用会计准则）下，这两种负债被视为等同。

这一被高估的负债有一个部分抵消项：我们在收购保险公司时产生的155亿美元"商誉"资产，这笔资产已计入账面价值。在很大程度上，这项商誉代表我们为保险业务产生浮存金的能力所支付的价格。然而，商誉的成本与其真实价值并无关联。例如，如果一家保险公司遭受长期且巨额承保亏损，那么无论其原始成本如何，账面上的任何商誉资产都应被视为毫无价值。

幸运的是，这并非伯克希尔的写照。查理和我认为，我们保险商誉的真实经济价值——即如果我们收购一家具备类似质量浮存金的保险业务时愿意支付的价格——远高于其历史账面价值。事实上，我们保险业务中记录的几乎全部155亿美元商誉，早在2000年浮存金仅为280亿美元时就已出现在账面上。而此后，我们的浮存金已增加了640亿美元，这一增益完全没有反映在账面价值中。这项未入账的资产是我们认为伯克希尔的内在商业价值远超其账面价值的原因之一——一个重要的原因。

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伯克希尔的保险业务之所以具有吸引力，仅仅是因为我们拥有一批出色的管理者，他们经营者纪律严明的业务，其中多数拥有难以复制的商业模式。让我介绍一下各主要业务单元。
首先按浮存金规模排列的是伯克希尔·哈撒韦再保险集团，由 Ajit Jain 管理。Ajit 承保的是那些其他公司既没意愿也没资本承担的风险。他的业务运作集容量、速度、决断力以及——最重要的——智慧于一身，这在保险业中独树一帜。但他从不把伯克希尔暴露在与我们资源不相称的风险之下。

事实上，伯克希尔在规避风险方面比大多数大型保险公司保守得多。举例来说，如果保险业因某场超级巨灾遭受 2500 亿美元损失——这个数字约是史上最大损失的三倍——伯克希尔整体上当年仍可能录得可观利润。我们众多的非保险盈利来源能确保这一点。此外，我们还会拥有充裕的现金，并渴望在一个可能陷入混乱的保险市场中积极承保。与此同时，其他大型保险公司和再保险公司即便不面临破产，也会亏损累累。

1986 年的一个周六，当 Ajit 走进伯克希尔办公室时，他在保险业一天经验都没有。尽管如此，时任我们保险业务负责人的 Mike Goldberg 还是把当时我们那个不起眼且挣扎求生的再保险业务交给了他。Mike 这一举动堪称圣人级别的善举：从那时起，Ajit 为伯克希尔股东创造了数百亿美元的价值。如果世上再出现另一个 Ajit，并且你们可以用我去换他，千万别犹豫。换！

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我们还有另一家再保险巨头——通用再保险（General Re），由 Tad Montross 管理，他于 2016 年退休。在通用再保险服务 39 年后，Tad 于 2016 年退休。Tad 在各方面都堪称典范，我们对他感激不尽。曾在 Ajit 手下工作 16 年的 Kara Raiguel 现已出任通用再保险的 CEO。

归根结底，稳健的保险业务需要遵守四条纪律：必须（1）理解所有可能引发保单损失的风险敞口；（2）保守评估任何风险敞口实际造成损失的可能性以及可能产生的成本；（3）设定保费，使其在覆盖预期损失成本和经营费用后，平均能带来利润；（4）如果无法获得合理保费，愿意果断放弃。

许多保险公司通过了前三关，却在第四关上栽了跟头。它们就是无法拒绝被竞争对手争相承接的业务。那句老话——“别人都在做，所以我们也得做”——在任何行业都是祸根，但在保险业里尤为致命。Tad 从不听信这种为草率承销找借口的胡言乱语，Kara 也不会。

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最后是 GEICO，这家公司在 66 年前就让我心潮澎湃（至今热情不减）。GEICO 由 Tony Nicely 管理，他 18 岁加入公司，到 2016 年已服务满 55 年。

Tony 于 1993 年成为 GEICO 的 CEO，自那以后公司一路高飞。没有比 Tony 更好的经理人了，他将才华、敬业和稳健集于一身。（稳健是持续成功的关键。正如 Charlie 所说，有位智商 160 的经理人固然很棒——除非他认为自己有 180。）和 Ajit 一样，Tony 也为伯克希尔股东创造了数百亿美元的价值。

1951 年我第一次访问 GEICO 时，就被该公司相对于行业巨头所享有的巨大成本优势深深震撼。我清楚地意识到 GEICO 会成功，因为它理应成功。当时公司年销售额是 800 万美元；而 2016 年，GEICO 每年每三个小时就能做到这个数。

汽车保险是大多数家庭的一项主要开支。节省成本对他们很重要——而只有低成本运营才能做到这一点。事实上，阅读这封信的人中至少 40% 可以通过投保 GEICO 省钱。所以——别看了，就现在！——去 geico.com 或拨打 800-847-7536。
GEICO的低成本构建了一条护城河——一条持久的护城河——竞争对手无法逾越。因此，公司年复一年地蚕食市场份额，到2016年底，其行业保费占比约为12%。这一数字在1995年伯克希尔获得GEICO控股权时仅为2.5%。同期，员工人数从8,575人增长至36,085人。

GEICO的增长在2016年下半年显著加速。整个汽车保险行业的损失成本以出人意料的速度上升，一些竞争对手失去了承接新客户的热情。然而，GEICO对利润压力的反应是加快新业务拓展。我们喜欢在太阳落山时抓紧晒草，因为我们知道太阳一定会再次升起。

在我给您写这封信时，GEICO依然势头强劲。当保险价格上涨时，人们会更频繁地比价。而一旦他们比价，GEICO就会胜出。

您打电话了吗？（800-847-7536 或访问 geico.com）

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除了我们的三大保险业务，我们还拥有一批主要承销商业险的小型公司。总体而言，这些公司规模庞大、持续增长且价值可观，始终能实现承销利润，通常远超其竞争对手所披露的水平。过去14年里，这一群体从承销业务中赚取了47亿美元——约占其保费规模的13%——同时将浮存金从9.43亿美元增至116亿美元。

不到三年前，我们成立了伯克希尔·哈撒韦专业保险公司（“BHSI”），归入这一群体。我们的第一个决定是让Peter Eastwood负责，这一举动后来证明是一记本垒打：我们原本预计在早期阶段，当Peter为全球业务搭建人员和基础设施时，会出现重大亏损。然而，他和他的团队在整个初创期间都实现了可观的承销利润。2016年，BHSI的保费规模增长40%，达到13亿美元。我清楚地看到，这家公司注定将成为全球领先的财产/意外险公司之一。

以下是按业务板块划分的税前承销利润和浮存金汇总：

	承销利润		年末浮存金
	（单位：百万美元）
保险业务	2016	2015	2016	2015
BH再保险	$822	$421	$45,081	$44,108
通用再保险	190	132	$17,699	$18,560
GEICO	462	460	$17,148	$15,148
其他主要保险	657	824	$11,649	$9,906
	$2,131	$1,837	$91,577	$87,722

伯克希尔卓越的管理者、顶级的财务实力以及由宽护城河保护的一系列业务模式，共同构成了保险界独一无二的组合。这些优势的集合对伯克希尔的股东来说是一笔巨大的资产，并且随着时间的推移只会变得更加宝贵。

受监管的资本密集型业务

我们的BNSF铁路公司和伯克希尔·哈撒韦能源公司（“BHE”，我们持股90%的公用事业业务）具有重要的共同特征，使它们有别于伯克希尔的其他业务。因此，我们在本信中为它们单独设立一个章节，并在我们的GAAP资产负债表和利润表中单独列出它们的合并财务数据。去年，这两家非常重要的公司贡献了伯克希尔税后营业利润的33%。
这两家公司的关键特征在于，它们对寿命极长的监管资产进行了巨额投资，而这些投资部分由伯克希尔未担保的大额长期债务提供资金。实际上，我们的信用并非必要，因为每家公司都拥有盈利能力，即使在极其恶劣的经济条件下，也远超其利息支出需求。例如，去年在铁路行业表现不佳的情况下，BNSF的利息覆盖倍数超过6倍。（我们对覆盖倍数的定义是息税前利润与利息之比，而非EBITDA与利息之比——后者是常用的衡量指标，但我们认为存在严重缺陷。）

与此同时，在BHE，有两个因素确保了该公司在任何情况下都能偿还债务。第一个是所有公用事业公司的共性：抗衰退的收益，这源于这些公司提供的是需求极其稳定的基本服务。第二个是其他公用事业公司很少享有的优势：日益多元化的收益来源，这使BHE不会因任何单一监管机构而受到严重损害。这些多元化的利润来源，再加上公司由一家强大的母公司控股所带来的固有优势，使BHE及其公用事业子公司得以显著降低其债务成本。这一经济事实既有利于我们，也有利于我们的客户。

总的来说，BHE和BNSF去年在厂房和设备上投资了89亿美元，这是对美国基础设施领域的大规模投入。只要这些投资能带来合理的回报，我们就乐于进行这样的投资——而在这一点上，我们对未来的监管寄予厚望。

我们的信心既源于过去的经验，也源于一个认知：社会永远需要交通和能源领域的大规模投资。政府出于自身利益，应以确保关键项目持续获得资金的方式对待资本提供者。与此同时，我们也有自身的利益：以一种能赢得监管机构及其所代表的人民认可的方式开展运营。

低价格是让这些利益相关方满意的有力手段。在爱荷华州，BHE的平均零售电价为每千瓦时7.1美分。该州另一家主要电力公司Alliant的平均电价为9.9美分。以下是邻近各州的行业对比数据：内布拉斯加州9.0美分，密苏里州9.5美分，伊利诺伊州9.2美分，明尼苏达州10.0美分。全国平均电价为10.3美分。我们已向爱荷华州居民承诺，我们的基础电价最早在2029年之前不会上涨。对于收入紧张的客户来说，我们的超低电价意味着实实在在的省钱。

在BNSF，由于各家主要铁路公司的货物组合和平均运距存在显著差异，进行价格比较要困难得多。不过，提供一个粗略的衡量指标：去年我们的每吨英里收入为3美分，而美国其他四家主要铁路公司的客户运费介于4到5美分之间。

BHE和BNSF一直是环保技术的领导者。在风力发电方面，没有一个州能与爱荷华州匹敌。去年，我们来自风力发电的兆瓦时数占爱荷华州零售客户总售电量的55%。正在建设中的新风电项目到2020年将使这一比例达到89%。

超低电价带来了次级效益。爱荷华州吸引了大型高科技设施，这既是因为其电价低廉（数据中心用电量巨大），也是因为大多数科技CEO对使用可再生能源充满热情。在风电方面，爱荷华州就是美国的沙特阿拉伯。
BNSF与其他一级铁路公司一样，只需一加仑柴油就能将一吨货物运送近500英里。这样的经济效益，使得铁路的燃油效率是卡车的四倍！此外，铁路还能在很大程度上缓解公路拥堵——以及伴随交通量增加而由纳税人买单的公路维护支出。

总而言之，BHE和BNSF所拥有的资产，无论对我们国家还是对伯克希尔的股东来说，都至关重要。以下是两者的关键财务数据：

BNSF	收益（单位：百万美元）
	2016年	2015年	2014年
营业收入	$ 19,829	$ 21,967	$ 23,239
经营费用	13,144	14,264	16,237
息税前经营利润	6,685	7,703	7,002
利息（净额）	992	928	833
所得税	2,124	2,527	2,300
净利润	$ 3,569	$ 4,248	$ 3,869

伯克希尔·哈撒韦能源公司（持股90%）	收益（单位：百万美元）
	2016年	2015年	2014年
英国公用事业	$367	$460	$527
爱荷华州公用事业	392	292	270
内华达州公用事业	559	586	549
PacifiCorp（主要在俄勒冈州和犹他州）	1,105	1,026	1,010
天然气管道（Northern Natural和Kern River）	413	401	379
加拿大输电公用事业	147	170	16
可再生能源项目	157	175	194
HomeServices	225	191	139
其他（净额）	73	49	54
公司利息和税前经营利润	3,438	3,350	3,138
利息	465	499	427
所得税	431	481	616
净利润	$2,542	$2,370	$2,095
归属于伯克希尔的收益	$2,287	$2,132	$1,882

HomeServices出现在上表里，可能显得有点格格不入。但它是在1999年我们收购MidAmerican（现BHE）时一同带来的——我们很幸运它能跟着来。

HomeServices拥有38家房地产公司，超过29,000名经纪人，业务覆盖28个州。去年，它收购了四家房地产经纪公司，包括纽约威彻斯特县的领军企业Houlihan Lawrence（该交易于年底后不久完成）。

用房地产的行话来说，代表买方或卖方的交易方被称为"边"（side），同时代表买卖双方则算作两边。去年，我们旗下的房产公司参与了244,000次交易边，总交易额达860亿美元。

HomeServices还在全美特许经营了许多使用我们名称的业务。我们喜欢房地产这两个方面的业务，并预计在未来十年内收购许多房地产经纪公司和特许经营商。

制造业、服务业和零售业

我们的制造业、服务业和零售业务销售的产品，从棒棒糖到喷气式飞机，无所不有。不过，我们先来看看整个集团的简要资产负债表和利润表。

资产负债表（2016年12月31日，单位：百万美元）

资产		负债和权益
现金及等价物	$8,073	应付票据	$2,054
应收账款及票据	11,183	其他流动负债	12,464
存货	15,727	流动负债合计	14,518
其他流动资产	1,039
流动资产合计	36,022
		递延税款	12,044
商誉及其他无形资产	71,473	长期债务及其他负债	10,943
固定资产	18,915	非控制性权益	579
其他资产	3,183	伯克希尔权益	91,509
	$129,593		$129,593

损益表（单位：百万美元）

	2016	2015	2014
收入	$120,059	$107,825	$97,689
营业费用	111,383	100,607	90,788
利息费用	214	103	109
税前利润	8,462	7,115	6,792
所得税及非控制性权益	2,831	2,432	2,324
净利润	$ 5,631	$ 4,683	$ 4,468

这份财务摘要包含了44家直接向总部汇报的企业。但这其中一些公司旗下又有很多独立运营的子公司。例如，Marmon（马蒙集团）拥有175个独立的业务单元，服务着截然不同的市场；伯克希尔·哈撒韦汽车公司（Berkshire Hathaway Automotive）则拥有83家经销商，分布在九个州。

这份商业版图真的是五花八门。有些业务，按无杠杆净有形资产收益率衡量，回报率非常可观，有几个甚至超过了100%。大多数是稳健的业务，回报率在12%到20%之间。

不过也有少数业务——这些是我在资本配置工作中犯下的严重错误——回报率非常糟糕。在大多数情况下，我最初对这些公司或其所在行业的经济特征判断有误，现在我们正为我的误判付出代价。在个别案例中，我在评估在任管理层的忠诚或能力，或者我后续任命的经理人时失手了。我还会犯更多错误，这一点你大可放心。幸运的是，Charlie（查理）——他向来直言不讳——总在我提出最糟糕想法时说“不”。

将这些制造、服务和零售业的公司视为一个整体，它们是一盘出色的生意。2016年，它们平均使用了240亿美元的净有形资产，而且尽管持有大量多余现金且几乎没有负债，仍获得了24%的税后资本回报率。

当然，一家经济特性极好的企业，如果买入价格过高，也可能成为一笔糟糕的投资。我们为大多数业务支付了远高于净有形资产的溢价，这一成本体现在我们资产负债表上大额的商誉和其他无形资产项目中。不过总体而言，我们在该板块投入的资本获得了可观的回报。如果没有经济衰退，该板块2017年的盈利很可能会增长，部分原因是Duracell（金霸王）和Precision Castparts（精密铸件公司）（均于2016年收购）将首次为该板块贡献全年盈利。此外，金霸王在2016年发生了重大的过渡成本，这些成本未来不会重复发生。
我们旗下这类公司数量太多，无法逐一评述。况且，它们的竞争对手——无论是现有的还是潜在的——也会阅读这份报告。在我们部分业务中，如果外人知晓我们的数据，我们可能会处于不利地位。因此，对于那些规模不足以影响伯克希尔整体评估的运营业务，我们仅披露必要信息。不过，你仍然可以在第90-94页找到许多业务的详细情况。但请记住，伯克希尔这片森林的成长才是关键。过分聚焦于某棵单独的树木是愚蠢的。

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

多年来，我一直告诉你们，本节列示的收支数据并不符合美国通用会计准则（GAAP）。我已解释过，这种差异主要源于GAAP规定的购买会计调整规则，这些规则要求将某些无形资产在平均约19年的期间内全额摊销。在我们看来，这些摊销“费用”大部分并非真正的经济成本。在本节中偏离GAAP的目的，是以查理和我看待及分析这些数据的方式来呈现给你们。

在第54页，我们列出了尚未通过年度盈利费用摊销的154亿美元无形资产。（随着我们进行新的收购，还会有更多需要摊销的无形资产产生。）该页显示，2016年GAAP利润的摊销费用为15亿美元，较2015年增加3.84亿美元。我的判断是，2016年这笔费用中约有20%是“真实”成本。

最终，摊销费用会将相关资产全额冲销。当这种情况发生时——通常在第15年——我们报告的GAAP利润将会增加，而伯克希尔的业务基本经济状况并无任何真正改善。（这是我留给继任者的礼物。）

既然我已描述了一项我认为被高估的GAAP费用，接下来让我谈谈会计准则产生的另一个令人不快的扭曲。这次的主题是GAAP规定的折旧费用，它必然基于历史成本。然而在某些情况下，这些费用严重低估了真实的经济成本。20世纪70年代和80年代初，当通胀肆虐时，关于这一现象的文字汗牛充栋。随着通胀消退——这要归功于Paul Volcker的英勇行动——折旧费用不足的问题变得不那么突出。但这个问题仍然普遍存在，尤其是在铁路行业，许多可折旧资产当前成本远高于历史成本。不可避免的结果是，整个铁路行业报告的利润远高于真实的经济利润。

以BNSF为例，去年我们的GAAP折旧费用为21亿美元。但如果每年仅支出这一金额，我们的铁路很快就会恶化并失去竞争力。现实是——仅仅为了维持现状——我们就需要花费远超折旧费用的金额。而且，这种巨大差异将持续数十年。

尽管如此，查理和我热爱我们的铁路，它是我们较成功的收购之一。

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

太多管理层——而且这个数字似乎每年都在增长——在寻找各种手段来报告甚至凸显高于公司GAAP利润的“调整后利润”。实践者们有多种手法来施展这种障眼法。他们最喜欢的两招是省略“重组费用”和“股权激励”作为费用。
查理和我希望，管理层在评述中能够描述影响美国通用会计准则数字的非经常性项目——无论好坏。毕竟，我们回顾过去这些数字的原因，是为了对未来做出预估。但是，管理层如果经常通过强调“调整后每股收益”来试图抹去真实成本，会让我们感到不安。这是因为坏的行为具有传染性：那些公然寻求办法报告高数字的CEO往往会助长下属也努力“帮忙”的文化。这样的目标可能会导致，例如，保险公司低估其损失准备金，这种做法已经毁掉了行业内许多参与者。

当听到分析师钦佩地谈论那些总能“实现目标数字”的管理层时，查理和我都会感到尴尬。事实上，商业世界太难以预测，数字不可能总是被达成。不可避免，意外总会发生。当意外发生时，一个以华尔街为焦点的CEO就会忍不住去编造数字。

让我们回到“别算这个”式经理人最爱的两个手段，先从“重组”说起。我要说，伯克希尔从1965年我们接管的第一天起就一直在重组。那时我们只拥有一家北方的纺织企业，别无选择。如今，伯克希尔每年都会发生相当多的重组。这是因为我们数百家业务中总有一些事情需要改变。去年，正如我之前提到的，我们花了大量资金让Duracell（金霸王）为未来几十年做好准备。

然而，我们从来没有单独挑出重组费用，并告诉你在评估我们正常盈利能力时忽略它们。如果某一年真的出现某些重大支出，我当然会在我的评述中提到。事实上，当企业发生彻底调整时，比如Kraft（卡夫）与Heinz（亨氏）合并时，在接下来的几年里，必须向股东清晰解释整合业务合理化的巨大一次性成本。这正是卡夫亨氏（Kraft Heinz）的CEO所做的，并且获得了公司董事会（包括我在内）的批准。但是，如果管理层仅仅是在进行必要的业务调整，却年复一年地告诉股东“别算这个”，那就是误导。而太多分析师和记者都相信了这种胡扯。

说“股票薪酬”不是一项费用，则更加傲慢。走上这条路的CEO实际上是在对股东说：“如果你给我一大笔期权或限制性股票，不用担心它对收益的影响。我会把它‘调整’掉。”

为了进一步探讨这一手法，请跟我一起参观一个假想的会计实验室，其唯一使命就是美化伯克希尔的报告收益。富有想象力的技术人员正等着我们，急于展示他们的本事。

请仔细听，我告诉这些帮手们，在大多数大公司里，股票薪酬通常至少占前三或四位高管总薪酬的20%。还请留意，我解释说伯克希尔的子公司中有数百名这样的高管，向他们支付类似的金额，但只使用现金。我进一步承认，由于缺乏想象力，我把这些支付给伯克希尔高管的所有款项都计为费用。

我的会计手下强忍住笑，立即指出，支付给这些伯克希尔经理人的款项中的20%相当于“替代股票薪酬支付的现金”，因此并非“真正”的费用。所以——看！——伯克希尔也可以有“调整后”收益了。

回到现实：如果CEO想在报告收益时剔除股票薪酬，他们应该被要求向股东确认以下两个命题之一：为什么用于支付员工的有价值的项目不是一项成本，或者为什么在计算收益时应该排除一项薪酬成本。
在1960年代盛行的会计胡闹中，流传着这样一个故事：一家公司的CEO在准备上市之际，问候选审计师：“二加二等于几？”最终拿下这单的答案是：“您心里想的是多少？”

金融与金融产品

我们的三项租赁与运营业务由CORT（家具）、XTRA（半挂车）和Marmon（主要是罐车，也包括火车车厢、多式联运罐式集装箱和起重机）经营。每项业务都是各自领域的领头羊。

这个板块还包含Clayton Homes（克莱顿住宅）。这家公司的大部分收入来自预制房屋销售，但其大部分利润来自庞大的抵押贷款组合。去年，Clayton成为了美国最大的住宅建筑商，交付了42,075套房屋，占美国新建住宅的5%。（公平地说，其他大型建筑商的美元销售额远高于Clayton，因为它们出售的是现场建造的、价格高得多的房屋。）

2015年，Clayton开始拓展业务，收购了第一家现场施工住宅建筑商。2016年又进行了两笔类似的收购，未来还会有更多。预计2017年现场施工房屋将占Clayton销量的3%左右，并将贡献约14%的美元销售额。

即便如此，Clayton的重点始终是预制房屋，这类房屋占美国售价低于15万美元的新建住宅的约70%。Clayton几乎占其中一半的产量。这与2003年伯克希尔收购该公司时Clayton的地位相去甚远。当时它在行业销量中排名第三，员工数为6,731人。如今，加上新收购的业务，员工数量达到14,677人。而且这个数字未来还会增加。

近几年来，Clayton的收益因极低的利率而大幅受益。该公司向购房者发放的抵押贷款是固定利率、长期限（初始平均期限为25年）。但Clayton自身的借款是短期信贷，会频繁重新定价。当利率暴跌时，Clayton从其投资组合中获得的收益会大幅增加。我们通常回避这种借短贷长的做法，它会给金融机构带来大问题。然而，总体而言，伯克希尔始终是资产敏感型的——这意味着短期利率上升会使我们的合并利润受益，即使它会对Clayton造成损害。

去年，Clayton不得不对8,304笔预制房屋抵押贷款进行止赎，约占其贷款组合的2.5%。客户的人口统计特征有助于解释这一比例。Clayton的客户通常是信用评分较低的工薪家庭；许多人依赖的工作在经济衰退时会受到冲击；同样地，许多人遭遇离婚或丧偶时，财务状况会严重恶化，而高收入家庭通常不会如此。客户面临的这些风险在一定程度上得到了缓解，因为几乎所有客户都有强烈的拥有住房的愿望，并且他们承担着合理的月供，平均仅587美元，包括保险和房产税。

Clayton还有长期计划帮助借款人度过难关。最受欢迎的两种是贷款展期和减免还款。去年，约有11,000名借款人获得了展期，Clayton永久性地取消了3,800人的340万美元计划还款。在实施这些减轻损失的措施时，公司不赚取利息或费用。我们的经验是，在过去两年通过这些计划获得帮助的借款人中，93%的人现在仍住在自己的房子里。由于我们在止赎上损失惨重——去年止赎损失总计1.5亿美元——我们的援助计划最终既帮助了Clayton，也帮助了其借款人。
Clayton（克莱顿房屋）与伯克希尔·哈撒韦一直是一对绝佳的搭档。Kevin Clayton（凯文·克莱顿）带来的不仅是业内一流的管理团队，更是一种卓越的文化。而伯克希尔则提供了无与伦比的持久力——当活动房屋行业在大衰退期间分崩离析时，这种持久力发挥了关键作用（当其他行业贷款机构纷纷消失时，Clayton不仅向自家经销商提供信贷，还向销售竞争对手产品的经销商放贷）。在伯克希尔，我们收购公司时从不指望什么协同效应。但真正重要的协同效应，反而在我们收购Clayton之后浮现了出来。

去年，Marmon（玛蒙）的铁路车业务遭遇了严重的需求放缓，这将导致2017年盈利下滑。12月份的车队使用率为$91\%$，低于上年同期的$97\%$，其中我们在2015年从General Electric（通用电气）收购的大型车队降幅尤为严重。Marmon的起重机和集装箱租赁业务也有所疲软。

过去铁路车需求曾出现过大幅波动，未来也还会继续。不过，我们非常喜爱这项业务，并预期未来多年能获得可观的净资产收益率。罐车是Marmon的专长。人们常把罐车和原油运输联系在一起；但实际上，它对各类运输商都至关重要。

随着时间的推移，我们预计会扩大铁路车业务。与此同时，Marmon正在进行一系列补强收购，其业绩已纳入制造、服务和零售板块。

以下是我们的金融相关公司的税前盈利汇总：

	2016	2015	2014
	（单位：百万美元）
Berkadia（伯克迪亚）（我们占50%份额）	91	74	122
Clayton（克莱顿房屋）	744	706	558
CORT	60	55	49
Marmon – 集装箱与起重机	126	192	238
Marmon – 铁路车	654	546	442
XTRA	179	172	147
财务净收入*	276	341	283
	2,130美元	2,086美元	1,839美元

* 不包括资本利得或亏损

投资

下面我们列出截至年末市值最大的十五只普通股投资。我们排除了Kraft Heinz（卡夫亨氏）的持股，因为伯克希尔是控制集团的一员，因此必须按"权益"法核算这项投资。伯克希尔持有的325,442,152股卡夫亨氏股票，在我们资产负债表上按美国通用会计准则计值为153亿美元，年末市值为284亿美元。我们这些股票的成本基础是98亿美元。

持股数*	公司	持股比例	2016年12月31日
			成本**	市值
			（单位：百万美元）
151,610,700	American Express Company（美国运通）	16.8%	$1,287	$11,231
61,242,652	Apple Inc.（苹果公司）	1.1%	6,747	7,093
6,789,054	Charter Communications, Inc.（特许通讯公司）	2.5%	1,210	1,955
400,000,000	The Coca-Cola Company（可口可乐公司）	9.3%	1,299	16,584
54,934,718	Delta Airlines Inc.（达美航空）	7.5%	2,299	2,702
11,390,582	The Goldman Sachs Group, Inc.（高盛集团）	2.9%	654	2,727
81,232,303	International Business Machines Corp.（IBM）	8.5%	13,815	13,484
24,669,778	Moody’s Corporation（穆迪公司）	12.9%	248	2,326
74,587,892	Phillips 66（菲利普斯66）	14.4%	5,841	6,445
22,169,930	Sanofi（赛诺菲）	1.7%	1,692	1,791
43,203,775	Southwest Airlines Co.（西南航空）	7.0%	1,757	2,153
101,859,335	U.S. Bancorp（美国合众银行）	6.0%	3,239	5,233
26,620,184	United Continental Holdings Inc.（联合大陆控股）	8.4%	1,477	1,940
43,387,980	USG Corp.（USG公司）	29.7%	836	1,253
500,000,000	Wells Fargo & Company（富国银行）	10.0%	12,730	27,555
	其他		10,697	17,560
	按市值列示的普通股投资合计		$65,828	$122,032

* 不含伯克希尔子公司养老金计划持有的股份。
** 此为我们实际购买价格，亦是计税基础；美国通用会计准则下的“成本”在少数情况下因会计准则要求的减记而有所不同。

上表中的部分股票由Todd Combs或Ted Weschler负责，他们与我共同管理伯克希尔的投资。两人各自独立管理着超过100亿美元的资金；我通常是通过查看每月的交易报表来了解他们的决策。他们两人管理的210亿美元中，约有76亿美元是伯克希尔某些子公司的养老金信托资产。如前所述，养老金投资并未包含在上文伯克希尔持股明细表中。

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上表未列示但同样重要的是，我们持有美国银行发行的50亿美元优先股。该优先股每年向我们支付3亿美元股息，并附带一份有价值的认股权证：允许伯克希尔在2021年9月2日之前的任何时间，以50亿美元购买美国银行7亿股普通股。年末时，这一特权可为我们带来105亿美元的利润。如果伯克希尔愿意，可以使用其优先股来满足行使认股权证所需的50亿美元成本。

如果美国银行普通股的股息率（目前为每年30美分）在2021年之前升至44美分以上，我们预计将以免现金的方式将优先股转换为普通股。如果普通股股息仍低于44美分，我们极有可能在认股权证到期前立即行使。

我们投资的许多公司（包括美国银行）都在回购股份，有些还相当积极。我们非常喜欢这种行为，因为我们相信回购的股份在大多数情况下都被低估了。（毕竟，低估正是我们持有这些头寸的原因。）当一家公司增长且流通股减少时，好事就会降临到股东身上。

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您需要了解，我们资产负债表上显示的860亿美元"现金和等价物"（我认为其中包含美国国库券）中，95%由美国境内的实体持有，因此无需缴纳任何汇回税。此外，将剩余资金汇回只会产生少量税费，因为这些资金大多来自那些本身征收可观企业所得税的国家。当资金汇回美国时，这些已缴纳的税款可成为美国税收的抵减项。

这些解释之所以重要，是因为许多现金充裕的美国公司将大量资金存放在税率极低的司法管辖区。这些公司希望——而且很可能被证明是对的——将这些资金带回美国所需缴纳的税费很快会大幅降低。与此同时，这些公司使用这笔现金的方式也受到限制。换句话说，离岸现金的价值根本比不上在岸现金。

伯克希尔所持现金在地理位置上的有利分布有一个部分抵减因素：其中大量现金由我们的保险子公司持有。虽然我们投资这些现金有多种选择，但并不能像这些现金由母公司伯克希尔持有时那样拥有无限的选择。我们确实有能力每年将大量现金从保险公司分配给母公司——不过这里同样存在限制。总体而言，保险子公司持有的现金是非常宝贵的资产，但其对我们的价值略低于母公司层面持有的现金。

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有时股东或媒体的评论暗示我们会"永远"持有某些股票。的确，我们持有些股票，在可见的未来我无意出售（而且我们说的是20/20的视力）。但我们从未承诺伯克希尔会永远持有任何市场证券。

这种混淆可能源于对第110-111页上第11条经济原则的草率阅读，该原则自1983年起就被纳入我们的年报。那条原则涉及的是控制型企业，而非市场证券。今年我在第11条中增加了最后一句，以确保我们的股东明白：我们认为任何市场证券都可出售，无论现在出售的可能性看起来多么渺茫。

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在结束这个投资章节之前，再说几句关于股息和税收的教育性内容：与大多数公司一样，伯克希尔从1美元股息中获得的净收益远高于从1美元资本利得中获得的收益。这可能会让那些习惯将资本利得视为税收优惠回报途径的股东感到惊讶。

但公司的计算公式是这样的：公司实现的每1美元资本利得，都要缴纳35美分的联邦所得税（通常还要加上州所得税）。而国内公司所收取的股息，税率则始终较低，尽管具体税率因收款方身份不同而有所差异。

对于一家非保险公司——也就是母公司伯克希尔·哈撒韦——联邦税率实际为每1美元股息收入缴纳10.5美分。此外，持有被投资公司股份超过20%的非保险公司，每1美元股息只需缴纳7美分的税款。例如，我们通过母公司持有卡夫亨氏27%的股份，由此获得的大额股息就适用这一税率。（股息的企业税率较低的理由是：支付股息的被投资公司已经就其分配的收益缴纳了自身的公司所得税。）
伯克希尔的保险子公司为股息支付的税率略高于非保险公司，但仍远低于资本利得所适用的35%税率。财产/意外险公司对其收到的大多数股息需缴纳约14%的税。不过，如果它们持有一家美国被投资公司超过20%的股份，税率就会降到约11%。

这就是今天的税务小课堂。

“那场赌局”（或：你的钱是怎样流到华尔街的）

在这一节中，你一开始会看到我九年前发起的一场投资赌局的故事，接着是我对投资的一些强烈看法。不过，作为开篇，我想先简单介绍一下Long Bets——一个独特的机构，在这场赌局中扮演了角色。

Long Bets由亚马逊的Jeff Bezos资助，是一家非营利组织，专门经营——你猜对了——长期赌局。要参与，“提议者”在Longbets.org上发布一个命题，该命题将在遥远的未来被证明是对是错。然后他们等待持相反观点的人接下赌约。当“质疑者”站出来后，双方各自指定一家慈善机构作为获胜时的受益人；将赌注押在Long Bets处；并在Long Bets网站上发布一篇短文为自己的立场辩护。赌局结束时，Long Bets向获胜的慈善机构支付款项。

以下是在Long Bets非常有趣的网站上你可能会看到的几个例子：

2002年，企业家Mitch Kapor断言：“到2029年，没有计算机——或‘机器智能’——能通过图灵测试”（该测试涉及计算机能否成功模仿人类）。发明家Ray Kurzweil持相反观点。每人押了1万美元。我不知道谁会赢这场赌局，但我可以自信地打赌：没有计算机能复制Charlie。

同年，微软的Craig Mundie声称到2030年无人驾驶飞机将常规运载乘客，而谷歌的Eric Schmidt则持反对意见。每人押了1000美元。为了缓解Eric可能因巨额敞口而带来的焦虑，我最近提出从他那里接手一部分赌注。他迅速转给了我500美元。（我喜欢他的假设：如果赌输，到2030年我还活着，能掏钱付账。）

现在，来说说我的赌局及其历史。在伯克希尔2005年的年报中，我提出：主动管理的专业投资——整体而言——在长达数年的时间里，其表现将跑输那些只是坐着不动的业余投资者。我解释说，各种“帮手”收取的巨额费用，会让他们的客户——再次强调，整体而言——比业余投资者简单地买入一只不主动管理的、低成本的指数基金更糟糕。（见第114-115页，我重印了最初在2005年年报中阐述这一观点的原文。）

随后，我公开提出打赌50万美元：没有任何一位投资专业人士能选出一组至少5只对冲基金——这些是极其流行且高收费的投资工具——在长期内跑赢一只不主动管理、只收取象征性费用的标普500指数基金。我建议赌期十年，并指定一只低成本的先锋标普指数基金作为我的对手。然后我往后一靠，满心期待着一队基金经理——他们可以把自己的基金作为五只之一——站出来捍卫他们的职业。毕竟，这些经理人敦促别人拿数十亿美元押注他们的能力。他们为什么不敢拿自己的一点钱来赌一把呢？

接下来是一片沉默。尽管有成千上万的职业投资经理，靠着吹嘘自己的选股能力积攒了令人咋舌的财富，但只有一个人——Ted Seides——接下了我的挑战。Ted是Protégé Partners的联合管理人，这家资产管理公司从有限合伙人那里筹集资金，组建了一只“基金中的基金”——换句话说，是一只投资于多只对冲基金的基金。
在我们打赌之前，我并不认识Ted，但我喜欢他，也欣赏他愿意为自己的观点下注。他自始至终对我坦诚相待，并且一丝不苟地提供了我们双方监测赌局所需的所有数据。

在我们这场十年赌约中，Ted代表Protégé Partners挑选了五只对冲母基金，它们的业绩取平均值后，与我选择的先锋标普指数基金进行比较。他选出的这五只基金将资金投向了100多只对冲基金，这意味着对冲母基金的整体业绩不会因某一位基金经理的得失而失真。

当然，每只对冲母基金在底层对冲基金所收取的费用之上，还叠加了一层自身的管理费。在这种双重收费结构下，大头费用由底层对冲基金收取；而对冲母基金则因它们自诩的挑选对冲基金经理能力而额外收费。

以下是赌约前九年的结果——这些数字毫无疑问地表明，奥马哈女孩公司（Girls Inc. of Omaha，我指定的慈善受益人，将获得我赢得的赌注）将是明年一月最急切地打开邮件的那家机构。

年份	对冲母基金A	对冲母基金B	对冲母基金C	对冲母基金D	对冲母基金E	标普指数基金
2008	-16.5%	-22.3%	-21.3%	-29.3%	-30.1%	-37.0%
2009	11.3%	14.5%	21.4%	16.5%	16.8%	26.6%
2010	5.9%	6.8%	13.3%	4.9%	11.9%	15.1%
2011	-6.3%	-1.3%	5.9%	-6.3%	-2.8%	2.1%
2012	3.4%	9.6%	5.7%	6.2%	9.1%	16.0%
2013	10.5%	15.2%	8.8%	14.2%	14.4%	32.3%
2014	4.7%	4.0%	18.9%	0.7%	-2.1%	13.6%
2015	1.6%	2.5%	5.4%	1.4%	-5.0%	1.4%
2016	-2.9%	1.7%	-1.4%	2.5%	4.4%	11.9%
至今累计收益	8.7%	28.3%	62.8%	2.9%	7.5%	85.4%

注：根据我与Protégé Partners的协议，这些对冲母基金的名称从未公开披露。不过，我每年都能看到它们的审计报告。

到目前为止，指数基金的年复合增长率为7.1%，这个回报率很可能就是股票市场在长期内的典型表现。这是很重要的事实：赌约存续期内，如果市场遇到特别疲弱的九年，很可能反而有利于对冲基金的相对表现，因为许多对冲基金持有大量"空头头寸"。反之，如果九年中股市回报异常高，那就会为指数基金提供顺风。

实际上，我们经历了一个我称之为"中性"的环境。在这种环境下，截至2016年，五只对冲母基金的年复合平均收益率仅为2.2%。这意味着，如果在这五只基金中投入100万美元，将获得22万美元的收益；而指数基金的同期收益则为85.4万美元。

请记住，那100多位底层对冲基金经理中的每一位，都受到巨大的财务激励去拼尽全力。此外，Ted选出的五只对冲母基金管理人同样受到激励，去挑选尽可能好的对冲基金经理，因为他们有权根据底层基金的业绩收取业绩报酬。
我很确定，在几乎所有情况下，这两个层级的管理者都是诚实且聪明的人。但他们的投资者所得到的结果却是惨淡的——而且是真真切切的惨淡。然而，所有这些基金和基金中的基金所收取的巨额固定费用——这些费用与业绩完全不相称——在过去九年里，却让这些管理者们沐浴在丰厚的报酬之中。正如戈登·盖柯（Gordon Gekko）可能说过的那样：“费用永不眠。”

我们赌约中的那些对冲基金管理人从有限合伙人那里获得的报酬，平均起来大概略低于当时对冲基金行业通行的“2 and 20”标准——即每年2%的固定管理费（即使在巨额亏损时也要支付），外加20%的利润提成，且没有回拨机制（如果好年景之后跟着坏年景，之前提取的业绩报酬也不会退还）。在这种一边倒的安排下，只需要把管理资产规模堆上去，就能让许多对冲基金管理人变得极其富有，哪怕他们的投资业绩很差。

但我们还没说完费用的事。别忘了，还有那些基金中的基金的管理人要养活。这些管理者另外收取一笔固定费用，通常是资产规模的1%。此外，尽管那五只基金中的基金整体业绩糟糕透顶，但其中一些基金在少数几年里表现还不错，于是就收取了“业绩”报酬。结果，据我估算，在这九年期间，这五只基金中的基金所实现的全部收益中，大约有60%——哎呀！——被这两个层级的管理者抽走了。这就是他们那糟糕的报酬，因为他们所取得的成就，远远比不上那几百位有限合伙人本可以轻松实现——而且几乎零成本——的成果。

在我看来，这个赌约所揭示的对冲基金投资者令人失望的结果，几乎肯定会在未来重演。我在赌约开始时（至今仍在）发布在Long Bets网站上的声明中，已经阐述了这种看法的理由。以下是我当时的主张：

自2008年1月1日起至2017年12月31日止的十年期间，以扣除所有费用、成本和开支后的净收益衡量，标普500指数的表现将胜过一篮子对冲基金中的基金组合。

很多非常聪明的人试图在证券市场上取得超越平均水平的业绩。称他们为主动投资者。

与之相对的被动投资者，按定义将取得大致平均的业绩。他们的头寸总体上会或多或少地接近一只指数基金。因此，整个投资领域中的剩余部分——也就是主动投资者——整体上也只能取得大致平均的业绩。然而，这些主动投资者将承担高得多的成本。所以，总体而言，扣除这些成本后的合计结果，将不如被动投资者。

当高昂的年管理费、高昂的业绩报酬以及频繁交易的佣金成本全部叠加到主动投资者的方程式中时，成本便会暴涨。基金中的基金则进一步加剧了这种成本问题，因为它们自己收取的费用，是叠加在那些基金所投资的对冲基金已经收取的高额费用之上的。

有许多聪明人在运营对冲基金。但在很大程度上，他们的努力是相互抵消的，他们的智商无法克服他们强加给投资者的成本。平均而言，随着时间的推移，投资者投资一只低成本的指数基金，要比投资一组基金中的基金获得更好的回报。

这就是我的论点——现在让我把它用一个简单的方程式表达出来。如果A组（主动投资者）和B组（什么都不做的投资者）构成了整个投资群体，而B组注定在扣除成本之前取得平均业绩，那么A组也是如此。无论哪一组，成本更低的那一组就会赢。（我骨子里的学术基因迫使我补充一点：有一个非常细微的点——不值得详述——会稍微修正这个公式。）而如果A组承担了过高的成本，那么它的亏损就会相当显著。
当然，有一些技艺高超的人极有可能在长时间内跑赢标普500。不过在我一生中，我早年只识别出大约十位专业人士，预期他们能实现这一壮举。

无疑还有成百上千的人——也许成千上万——我从未谋面，他们的能力与我所识之人相当。毕竟，这工作并非不可能。问题仅仅是，大多数试图超越市场的经理人都会失败。向你募资的那个人很不可能成为表现优异的例外。比尔·鲁恩——一个真正了不起的人，也是我60年前就认定几乎必然能在长期内带来卓越投资收益的人——说得很好：“在投资管理中，发展轨迹是从创新者到模仿者，再到蜂拥而至的无能之辈。”

寻找那少数值得其高额费用的顶级经理人，另一重困难在于：一些投资专业人士，就像一些业余人士一样，会在短期内走运。如果年初有1000位经理做出市场预测，那么至少有一人的预测连续九年正确，这是非常有可能的。当然，1000只猴子同样可能产生一位看似全知的先知。但区别在于：这只幸运的猴子不会发现有人排队想投资给他。

最后，有三个相互关联的现实导致投资成功催生失败。第一，良好的业绩很快会吸引滚滚资金。第二，巨额资金总是像船锚一样拖累投资表现：数百万美元时轻而易举，数十亿美元时举步维艰（呜呼！）。第三，即便如此，大多数经理人仍会因个人利益考量而寻求新资金——也就是说，他们管理的资金越多，收取的费用就越高。

这三点对我而言并非新事：1966年1月，当我管理4400万美元时，我写信给我的有限合伙人：“我感觉规模大幅增加更可能损害未来业绩，而非有助于业绩。对我个人结果而言或许不成立，但对你们的结果很可能成立。因此……我打算不再接纳任何新合伙人加入BPL。我已通知苏西，如果我们再有孩子，让她自己为他们找别的合伙企业。”

归根结底：当数万亿美元由华尔街人士管理并收取高额费用时，通常是经理人收获超额利润，而非客户。大投资者和小投资者都应坚持低成本指数基金。

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如果有一天要竖立一尊雕像，纪念为美国投资者做出最大贡献的人，当之无愧的人选应是杰克·博格尔。几十年来，杰克一直敦促投资者投资于超低成本的指数基金。在他的这场征途中，他仅仅积累了通常流入那些向投资者承诺高回报却未带来任何增值（或像我们的赌约那样，带来负增值）的经理人手中的财富的极小一部分。

早年，杰克常被投资管理行业嘲笑。然而今天，他欣慰地知道，他帮助数百万投资者实现了远比原本所能获得的更丰厚的储蓄回报。他是他们的英雄，也是我的英雄。

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多年来，我常被问及投资建议，在回答的过程中，我对人类行为有了不少了解。我常规的建议是低成本标普500指数基金。值得称赞的是，我那些资产有限的朋友通常听从了我的建议。
但我相信，那些超级富豪个人、机构或养老金，在我给出同样建议时，没有一个人真正照做。相反，这些投资者礼貌地感谢我的想法，然后转身去听那些高收费基金经理的"海妖之歌"；对许多机构而言，他们还会去寻求另一种"超级助手"——咨询顾问。

然而，这类专业人士面临一个问题。你能想象一位投资顾问年复一年地告诉客户，继续加仓一只复制标普500的指数基金吗？那简直是职业自杀。可如果他们每隔一两年就建议做些微调，大笔费用就会流进这些"超级助手"的口袋。这类建议往往用晦涩难懂的行话包装，解释为什么时下流行的投资"风格"或当前经济趋势让调整变得合理。

富人们习惯了这样一种人生信条：他们理应得到最好的食物、教育、娱乐、住房、整容手术、演出门票——但凡你能想到的。他们觉得，自己的钱就该买到比普通大众更高级的东西。

在生活的许多方面，财富确实能换来顶级产品或服务。正因为如此，金融"精英"们——富有的个人、养老基金、大学捐赠基金等等——非常不情愿平心静气地签下一款连只投几千美元的人也能享用的金融产品或服务。这种富人的抵触心理通常占上风，即便眼下这个产品——从预期回报角度看——明显是最佳选择。我的估算——诚然非常粗略——是，精英们为寻求"更优"投资建议，过去十年合计多花了超过1000亿美元。算算看：哪怕只是1%的管理费，乘以几万亿美元，数目就很可观了。当然，并非所有十年前投资对冲基金的人都跑输了标普回报率。但我相信，我对整体亏损额的估算是保守的。

大部分金融损失落到了公共雇员养老基金头上。许多这类基金资金严重不足，部分原因在于它们遭受了双重打击：投资业绩糟糕，同时还要支付高额费用。由此造成的资产缺口，未来几十年必须由当地纳税人来填补。

人性不会改变。富有的个人、养老基金、捐赠基金等等，会继续觉得自己理应得到某种"额外"的投资建议。那些精于迎合这种预期的顾问，会变得非常富有。今年灵丹妙药可能是对冲基金，明年又换成别的。这类承诺轮番登场，其可能的结果可以用一句谚语预言："当有钱人遇到有经验的人，有经验的人最终拿到钱，有钱人带着经验离开。"

很久以前，我的一位连襟Homer Rogers在奥克兰牲畜围场做佣金代理。我问他，他是如何说服农场主或牧场主雇他来向四大肉类加工商（Swift、Cudahy、Wilson和Armour）的买家出售猪牛。毕竟，猪就是猪，买家都是专家，对每头牲畜值多少钱了如指掌。那么，我问Homer，怎么可能有销售代理比其他人拿到更好的价格呢？

Homer用怜悯的眼光看着我，说："沃伦，关键不是你'怎么卖'，而是你'怎么讲'。"在畜栏里行得通的把戏，在华尔街同样行得通。

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最后，让我向华尔街的朋友们——其中不少是我的好友——递上一根橄榄枝。伯克希尔乐于向带来收购项目投资银行家支付费用——哪怕是离谱的费用。此外，我们也因为业绩超预期向内部两位投资经理支付了可观的报酬——并且希望未来能给他们更多。
套用圣经的说法（以弗所书3:18），我知道当"费"这个简单的四字单词在华尔街说出口时，从中涌出的能量是何等的长阔高深。而当这股能量为伯克希尔·哈撒韦（Berkshire Hathaway）创造价值时，我会欣然开出一张大支票。

年度会议

去年，我们与雅虎（Yahoo）合作，首次对年度会议进行了网络直播。感谢Andy Serwer和他的雅虎团队，这次制作无论从哪个方面看都很成功，实时观看独立访问量达110万次，回放访问量达1150万次（当然，其中很多观众只对直播的某些片段感兴趣）。

伯克希尔（Berkshire）因启动网络直播而收到的感谢信中，有很多来自三类人群：出行不便的老年人、觉得来奥马哈旅行太贵的节俭派，以及因宗教原因无法参加周六会议的人。

去年的网络直播使现场参会人数减少到约37,000人（我们无法精确统计），下降了约10%。尽管如此，伯克希尔的子公司以及奥马哈的酒店和餐厅都创下了巨额销售额。内布拉斯加家具城（Nebraska Furniture Mart）的销售额比2015年纪录高出3%，奥马哈门店一周销售额达到4550万美元。

我们伯克希尔在CenturyLink的展销活动周五中午12点至下午5点开放，吸引了12,000名淘便宜货的股东。今年我们将再次在5月5日（周五）开放同样的购物时段。记得带钱来。

年度会议定于5月6日（周六）举行，届时将由雅虎再次进行网络直播，网址是https://finance.yahoo.com/brklivestream。直播将于美国中部夏令时间上午9点开始。雅虎将在会议前和午休期间采访董事、经理、股东和名人。这些采访和会议都将提供同步普通话翻译。

对于现场参会的股东，CenturyLink的大门将在周六早上7:00开放，以便在8:30开始的股东电影前购物。问答环节将于9:30开始，持续到下午3:30，中午有一小时午休。最后，下午3:45我们将开始正式的股东会议，大约持续一小时。这将比平时略长，因为有三项股东委托书议案将由提出者陈述，我们会给予他们合理时间说明理由。

周六早上，我们将举办第六届国际扔报纸挑战赛。我们的目标将再次是克莱顿房屋（Clayton Home）的门廊，距离投掷线恰好35英尺。我十几岁时——那是我与诚实劳动之间唯一一次短暂的调情——送过大约50万份报纸。所以我觉得自己还挺擅长这个。来挑战我吧！羞辱我吧！给我点颜色看看！报纸将有36到42页，你必须自己折叠（不允许用橡皮筋）。比赛大约在7:45开始，我将与十名左右由我的助理Deb Bosanek在几分钟前选出的对手比赛。

购物场地是相邻的194,300平方英尺的大厅，来自我们数十家子公司的产品将在此出售。向众多伯克希尔经理致意，他们将在各自展位坐镇。一定要去看看那个向所有旗下公司致敬的精彩BNSF铁路模型。你的孩子（还有你！）一定会着迷。
Brooks，我们的跑鞋公司，将在股东大会再次推出纪念款跑鞋。购买一双后，周日穿着它来参加我们的第四届“伯克希尔5公里”晨跑——上午8点从CenturyLink出发。参与详情将随参会凭证一起寄送给您的《参会指南》中写明。参赛者将有机会与众多伯克希尔的管理层、董事和同事并肩奔跑。（不过，查理和我可要睡个懒觉；周六整场大会上我们吃下的软糖和花生脆糖可够我们受的。）这项5公里跑的参与人数逐年增长。帮我们再创个纪录。

购物区的GEICO展位将有来自全国各地的多名顶级保险顾问坐镇。去年股东大会上，我们的保单销量创下纪录，较2015年增长21%。我预测今年还会再创新高。

所以，不妨过来报个价。多数情况下，GEICO能为您提供股东折扣（通常为8%）。在我们运营的51个司法管辖区中，有44个允许此项优惠。（补充一点：如果您符合其他折扣条件——例如某些团体的优惠——则此项折扣不可叠加。）带上您现有保险的详细资料，对比一下我们的价格。我们能为你们中的许多人省下真金白银。省下的钱，再买点伯克希尔的其他产品吧。

一定要光顾Bookworm。这家奥马哈本土零售商将带来大约35种书籍和DVD，其中包含几本新书。我去年读过的最好一本书是耐克（Nike）创始人Phil Knight的《鞋狗》（Shoe Dog）。Phil是一位极其智慧、聪明且富有竞争精神的人，同时也是讲故事的天才。Bookworm将备有大量《鞋狗》以及Jack Bogle的几本投资经典之作。

Bookworm还将再次推出伯克希尔前50年辉煌（与黯淡）时刻的历史记录。未参会的股东可以在eBay上找到这本书。只需搜索：Berkshire Hathaway Inc. Celebrating 50 years of a Profitable Partnership（第2版）。

随本报告附上的股东委托书材料中有一个附件，说明了如何获取参会凭证——您需要凭此凭证进入股东大会及其他活动。请记住，航空公司有时会在伯克希尔周末期间抬高票价——不过，我必须承认，既然伯克希尔已对美国四大航空公司进行了大笔投资，我对这种做法已经有些容忍了，甚至近乎热情。尽管如此，如果您从远方赶来，不妨比较一下飞到堪萨斯城与飞到奥马哈的费用。两城之间车程约2.5小时，堪萨斯城或许能让您省下不少钱。一对夫妇可能省下1000美元甚至更多。拿省下的钱到我们这儿来消费吧。

在内布拉斯加家具城（NFM）——位于72街与道奇街和太平洋街之间的77英亩地块——我们将再次推出“伯克希尔周末”折扣价。要在NFM享受伯克希尔折扣，您必须在5月2日（周二）至5月8日（周一）期间（含首尾两日）购物，并出示您的参会凭证。该期间的特别定价甚至适用于几家知名制造商的产品——这些制造商通常有铁律不允许打折，但本着我们股东周末的精神，为您破了例。我们感谢他们的合作。在“伯克希尔周末”期间，NFM营业时间为：周一至周五上午10点至晚上9点，周六上午10点至晚上9:30，周日上午10点至晚上8点。周六下午5:30至8:00，NFM将举办一场野餐会，欢迎大家参加。
今年我们要为堪萨斯城和达拉斯都会区无法亲临会场、或更愿意观看网络直播的股东带来好消息。从5月2日至5月8日，股东只要携带会议凭证或其他能证明其伯克希尔股东身份的资料（如券商对账单）到当地内布拉斯加家具城购物，就能享受与前往奥马哈门店相同的折扣。

波仙珠宝将再次举办两场股东专属活动。第一场是5月5日（周五）下午6点至9点的鸡尾酒招待会。第二场重头戏将于5月7日（周日）上午9点至下午4点举行。周六我们营业至下午6点。记住：买得越多，省得越多（至少我女儿每次陪我去店里时都这么跟我说）。

整个周末波仙珠宝都会人山人海。为了方便您，股东优惠价格将从5月1日（周一）持续到5月13日（周六）。在此期间，请出示您的会议凭证或显示您持有我们股票的券商对账单来证明股东身份。

周日，在波仙珠宝外的商场里，来自达拉斯的杰出魔术师兼励志演说家Norman Beck将让围观者目瞪口呆。楼上，我们将请来两位世界顶尖桥牌专家Bob Hamman和Sharon Osberg，周日下午他们可与我们的股东切磋牌技。如果他们提议赌点什么，请岔开话题。我稍后会加入他们，希望Ajit、Charlie和Bill Gates也能来。

我的朋友Ariel Hsing周日也会在商场里，迎战乒乓球挑战者。我认识Ariel时她才九岁，那时我就已经赢不了她一球了。Ariel代表美国参加了2012年奥运会。现在她已是普林斯顿大学四年级学生（去年暑假曾在摩根大通实习）。如果你不怕丢脸，下午1点起可以去跟她过过招。去年Bill Gates跟Ariel打得不错，所以他可能准备再挑战她一次。（我的建议：押Ariel赢。）

戈拉特牛排馆将于5月7日（周日）下午1点至晚10点专为伯克希尔股东开放。如需预订戈拉特，请于4月3日（当天及以后）拨打402-551-3733。点一份带薯饼的T骨牛排，就能证明您是懂行的食客。

今年我们仍将邀请三位财经记者主持股东大会问答环节，由他们向Charlie和我提问股东通过电子邮件提交的问题。这三位记者及其邮箱地址分别是：Carol Loomis——她那个年代最杰出的财经记者，邮箱loomisbrk@gmail.com；CNBC的Becky Quick，邮箱BerkshireQuestions@cnbc.com；以及《纽约时报》的Andrew Ross Sorkin，邮箱arsorkin@nytimes.com。

每名记者将从提交的问题中选出六个他们认为对股东最有趣、最重要的问题。记者们告诉我，如果您的问题简洁扼要、不要拖到最后才提交、与伯克希尔相关、并且每封邮件不超过两个问题，那么被选中的可能性最大。（在邮件中，如果您希望被提问时提及您的名字，请告知记者。）

另外，三位跟踪伯克希尔的分析师也会提出一组问题。今年的保险分析师是巴克莱的Jay Gelb。非保险业务的问题将由Ruane, Cunniff & Goldfarb的Jonathan Brandt和晨星的Gregg Warren负责提问。由于我们召开的是股东大会，我们希望分析师和记者提出的问题有助于我们的所有者加深对自身投资的理解和认识。
我和查理对即将到来的提问内容一无所知。有些问题会很棘手，这没问题，我们正喜欢这样。不允许提复合问题；我们想让尽可能多的提问者有机会向我们提问。我们的目标是，让你离开年会时对伯克希尔的了解比来的时候更多，并且在奥马哈过得愉快。

总的来说，我们预计至少会有54个问题，其中分析师和记者各提6个，现场观众提18个。观众提问者将通过11场抽签选出，抽签将在年会当天上午8点15分进行。安装在主会场和主要转播区的11个麦克风，每个都会有一场抽签。

趁着我还在说股东获取知识的事，让我提醒你，查理和我认为所有股东应该同时获得伯克希尔发布的新信息，而且如果可能的话，在交易发生前应该有足够的时间来消化和分析这些信息。这就是为什么我们尽量在周五晚些时候或周六早些时候发布财务数据，以及为什么我们的年会总是在周六举行（这一天也缓解了交通和停车问题）。

我们不遵循与大型机构投资者或分析师一对一交谈的常见做法，而是像对待所有其他股东一样对待他们。对我们来说，没有谁比那些信任我们、把大部分积蓄托付给我们的中小股东更重要。在我日常运营公司时——以及在我写这封信时——我心里想着的就是这位股东。

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我有充分的理由经常称赞我们的运营经理。他们真正是全明星阵容，经营自己的业务就好像这些业务是他们家族唯一的资产一样。我也相信，我们的经理们所秉持的股东导向心态，在整个大型上市公司中也是首屈一指的。我们大多数经理在经济上都不需要工作。打出商业“全垒打”的喜悦，对他们来说和薪水一样重要。

然而，同样重要的是与我一起在公司总部工作的男男女女。这支团队高效处理大量SEC（美国证券交易委员会）和其他监管要求，提交一份30,450页的联邦所得税申报表，监督3,580份州税申报表的提交，回复无数股东和媒体的询问，完成年报，筹备全国最大的年会，协调董事会活动，核实这封信的事实——清单之长难以列举。

他们以令人难以置信的效率愉快地处理所有这些商业事务，让我的生活轻松愉快。他们的努力超出了严格与伯克希尔相关的范畴：例如，去年他们接待了40所大学（从200所申请学校中遴选）的学生，这些学生来到奥马哈与我进行问答日。他们还处理我收到的各种请求，安排我的旅行，甚至为我买午餐的汉堡和薯条（当然要涂亨氏番茄酱）。此外，他们还欣然协助Carrie Sova——我们年会的才华横溢的总指挥——为我们的股东打造一个有趣又精彩的周末。他们为在伯克希尔工作而自豪，我也为他们感到骄傲。

我是个幸运的家伙，身边有如此出色的员工、一支才华横溢的运营管理团队和一群非常明智且经验丰富的董事，我非常幸运。来奥马哈——资本主义的摇篮——参加5月6日的年会，见见伯克希尔大家庭吧。我们都期待见到你。

2017年2月25日

沃伦·E·巴菲特

董事会主席