ENGLISH
BERKSHIRE HATHAWAY INC.
To the Shareholders of Berkshire Hathaway Inc.:
Again, we must lead off with a few words about accounting.
Since our last annual report, the accounting profession has
decided that equity securities owned by insurance companies must
be carried on the balance sheet at market value. We previously
have carried such equity securities at the lower of aggregate
cost or aggregate market value. Because we have large unrealized
gains in our insurance equity holdings, the result of this new
policy is to increase substantially both the 1978 and 1979
yearend net worth, even after the appropriate liability is
established for taxes on capital gains that would be payable
should equities be sold at such market valuations.
As you know, Blue Chip Stamps, our 60% owned subsidiary, is
fully consolidated in Berkshire Hathaway’s financial statements.
However, Blue Chip still is required to carry its equity
investments at the lower of aggregate cost or aggregate market
value, just as Berkshire Hathaway’s insurance subsidiaries did
prior to this year. Should the same equities be purchased at an
identical price by an insurance subsidiary of Berkshire Hathaway
and by Blue Chip Stamps, present accounting principles often
would require that they end up carried on our consolidated
balance sheet at two different values. (That should keep you on
your toes.) Market values of Blue Chip Stamps’ equity holdings
are given in footnote 3 on page 18.
1979 Operating Results
We continue to feel that the ratio of operating earnings
(before securities gains or losses) to shareholders’ equity with
all securities valued at cost is the most appropriate way to
measure any single year’s operating performance.
Measuring such results against shareholders’ equity with
securities valued at market could significantly distort the
operating performance percentage because of wide year-to-year
market value changes in the net worth figure that serves as the
denominator. For example, a large decline in securities values
could result in a very low “market value” net worth that, in
turn, could cause mediocre operating earnings to look
unrealistically good. Alternatively, the more successful that
equity investments have been, the larger the net worth base
becomes and the poorer the operating performance figure appears.
Therefore, we will continue to report operating performance
measured against beginning net worth, with securities valued at
cost.
On this basis, we had a reasonably good operating
performance in 1979 - but not quite as good as that of 1978 -
with operating earnings amounting to 18.6% of beginning net
worth. Earnings per share, of course, increased somewhat (about
20%) but we regard this as an improper figure upon which to
focus. We had substantially more capital to work with in 1979
than in 1978, and our performance in utilizing that capital fell
short of the earlier year, even though per-share earnings rose.
“Earnings per share” will rise constantly on a dormant savings
account or on a U.S. Savings Bond bearing a fixed rate of return
simply because “earnings” (the stated interest rate) are
continuously plowed back and added to the capital base. Thus,
even a “stopped clock” can look like a growth stock if the
dividend payout ratio is low.
The primary test of managerial economic performance is the
achievement of a high earnings rate on equity capital employed
(without undue leverage, accounting gimmickry, etc.) and not the
achievement of consistent gains in earnings per share. In our
view, many businesses would be better understood by their
shareholder owners, as well as the general public, if managements
and financial analysts modified the primary emphasis they place
upon earnings per share, and upon yearly changes in that figure.
Long Term Results
In measuring long term economic performance - in contrast to
yearly performance - we believe it is appropriate to recognize
fully any realized capital gains or losses as well as
extraordinary items, and also to utilize financial statements
presenting equity securities at market value. Such capital gains
or losses, either realized or unrealized, are fully as important
to shareholders over a period of years as earnings realized in a
more routine manner through operations; it is just that their
impact is often extremely capricious in the short run, a
characteristic that makes them inappropriate as an indicator of
single year managerial performance.
The book value per share of Berkshire Hathaway on September
30, 1964 (the fiscal yearend prior to the time that your present
management assumed responsibility) was $19.46 per share. At
yearend 1979, book value with equity holdings carried at market
value was $335.85 per share. The gain in book value comes to
20.5% compounded annually. This figure, of course, is far higher
than any average of our yearly operating earnings calculations,
and reflects the importance of capital appreciation of insurance
equity investments in determining the overall results for our
shareholders. It probably also is fair to say that the quoted
book value in 1964 somewhat overstated the intrinsic value of the
enterprise, since the assets owned at that time on either a going
concern basis or a liquidating value basis were not worth 100
cents on the dollar. (The liabilities were solid, however.)
We have achieved this result while utilizing a low amount of
leverage (both financial leverage measured by debt to equity, and
operating leverage measured by premium volume to capital funds of
our insurance business), and also without significant issuance or
repurchase of shares. Basically, we have worked with the capital
with which we started. From our textile base we, or our Blue
Chip and Wesco subsidiaries, have acquired total ownership of
thirteen businesses through negotiated purchases from private
owners for cash, and have started six others. (It’s worth a
mention that those who have sold to us have, almost without
exception, treated us with exceptional honor and fairness, both
at the time of sale and subsequently.)
But before we drown in a sea of self-congratulation, a
further - and crucial - observation must be made. A few years
ago, a business whose per-share net worth compounded at 20%
annually would have guaranteed its owners a highly successful
real investment return. Now such an outcome seems less certain.
For the inflation rate, coupled with individual tax rates, will
be the ultimate determinant as to whether our internal operating
performance produces successful investment results - i.e., a
reasonable gain in purchasing power from funds committed - for
you as shareholders.
Just as the original 3% savings bond, a 5% passbook savings
account or an 8% U.S. Treasury Note have, in turn, been
transformed by inflation into financial instruments that chew up,
rather than enhance, purchasing power over their investment
lives, a business earning 20% on capital can produce a negative
real return for its owners under inflationary conditions not much
more severe than presently prevail.
If we should continue to achieve a 20% compounded gain - not
an easy or certain result by any means - and this gain is
translated into a corresponding increase in the market value of
Berkshire Hathaway stock as it has been over the last fifteen
years, your after-tax purchasing power gain is likely to be very
close to zero at a 14% inflation rate. Most of the remaining six
percentage points will go for income tax any time you wish to
convert your twenty percentage points of nominal annual gain into
cash.
That combination - the inflation rate plus the percentage of
capital that must be paid by the owner to transfer into his own
pocket the annual earnings achieved by the business (i.e.,
ordinary income tax on dividends and capital gains tax on
retained earnings) - can be thought of as an “investor’s misery
index”. When this index exceeds the rate of return earned on
equity by the business, the investor’s purchasing power (real
capital) shrinks even though he consumes nothing at all. We have
no corporate solution to this problem; high inflation rates will
not help us earn higher rates of return on equity.
One friendly but sharp-eyed commentator on Berkshire has
pointed out that our book value at the end of 1964 would have
bought about one-half ounce of gold and, fifteen years later,
after we have plowed back all earnings along with much blood,
sweat and tears, the book value produced will buy about the same
half ounce. A similar comparison could be drawn with Middle
Eastern oil. The rub has been that government has been
exceptionally able in printing money and creating promises, but
is unable to print gold or create oil.
We intend to continue to do as well as we can in managing
the internal affairs of the business. But you should understand
that external conditions affecting the stability of currency may
very well be the most important factor in determining whether
there are any real rewards from your investment in Berkshire
Hathaway.
Sources of Earnings
We again present a table showing the sources of Berkshire’s
earnings. As explained last year, Berkshire owns about 60% of
Blue Chip Stamps which, in turn, owns 80% of Wesco Financial
Corporation. The table shows both aggregate earnings of the
various business entities, as well as Berkshire’s share. All of
the significant capital gains or losses attributable to any of
the business entities are aggregated in the realized securities
gain figure at the bottom of the table, and are not included in
operating earnings.
Net Earnings
Earnings Before Income Taxes After Tax
-------------------------------------- ------------------
Total Berkshire Share Berkshire Share
------------------ ------------------ ------------------
(in thousands of dollars) 1979 1978 1979 1978 1979 1978
-------- -------- -------- -------- -------- --------
Total - all entities ......... $68,632 $66,180 $56,427 $54,350 $42,817 $39,242
======== ======== ======== ======== ======== ========
Earnings from Operations:
Insurance Group:
Underwriting ............ $ 3,742 $ 3,001 $ 3,741 $ 3,000 $ 2,214 $ 1,560
Net Investment Income ... 24,224 19,705 24,216 19,691 20,106 16,400
Berkshire-Waumbec textiles 1,723 2,916 1,723 2,916 848 1,342
Associated Retail
Stores, Inc. ........... 2,775 2,757 2,775 2,757 1,280 1,176
See’s Candies ............. 12,785 12,482 7,598 7,013 3,448 3,049
Buffalo Evening News ...... (4,617) (2,913) (2,744) (1,637) (1,333) (738)
Blue Chip Stamps - Parent 2,397 2,133 1,425 1,198 1,624 1,382
Illinois National Bank and
Trust Company .......... 5,747 4,822 5,614 4,710 5,027 4,262
Wesco Financial
Corporation - Parent ... 2,413 1,771 1,098 777 937 665
Mutual Savings and Loan
Association ............ 10,447 10,556 4,751 4,638 3,261 3,042
Precision Steel ........... 3,254 -- 1,480 -- 723 --
Interest on Debt .......... (8,248) (5,566) (5,860) (4,546) (2,900) (2,349)
Other ..................... 1,342 720 996 438 753 261
-------- -------- -------- -------- -------- --------
Total Earnings from
Operations .......... $57,984 $52,384 $46,813 $40,955 $35,988 $30,052
Realized Securities Gain 10,648 13,796 9,614 13,395 6,829 9,190
-------- -------- -------- -------- -------- --------
Total Earnings ......... $68,632 $66,180 $56,427 $54,350 $42,817 $39,242
======== ======== ======== ======== ======== ========
Blue Chip and Wesco are public companies with reporting
requirements of their own. On pages 37-43 of this report, we
have reproduced the narrative reports of the principal executives
of both companies, in which they describe 1979 operations. Some
of the numbers they mention in their reports are not precisely
identical to those in the above table because of accounting and
tax complexities. (The Yanomamo Indians employ only three
numbers: one, two, and more than two. Maybe their time will
come.) However, the commentary in those reports should be helpful
to you in understanding the underlying economic characteristics
and future prospects of the important businesses that they
manage.
A copy of the full annual report of either company will be
mailed to any shareholder of Berkshire upon request to Mr.
Robert H. Bird for Blue Chip Stamps, 5801 South Eastern Avenue,
Los Angeles, California 90040, or to Mrs. Bette Deckard for Wesco
Financial Corporation, 315 East Colorado Boulevard, Pasadena,
California 91109.
Textiles and Retailing
The relative significance of these two areas has diminished
somewhat over the years as our insurance business has grown
dramatically in size and earnings. Ben Rosner, at Associated
Retail Stores, continues to pull rabbits out of the hat - big
rabbits from a small hat. Year after year, he produces very
large earnings relative to capital employed - realized in cash
and not in increased receivables and inventories as in many other
retail businesses - in a segment of the market with little growth
and unexciting demographics. Ben is now 76 and, like our other
“up-and-comers”, Gene Abegg, 82, at Illinois National and Louis
Vincenti, 74, at Wesco, regularly achieves more each year.
Our textile business also continues to produce some cash,
but at a low rate compared to capital employed. This is not a
reflection on the managers, but rather on the industry in which
they operate. In some businesses - a network TV station, for
example - it is virtually impossible to avoid earning
extraordinary returns on tangible capital employed in the
business. And assets in such businesses sell at equally
extraordinary prices, one thousand cents or more on the dollar, a
valuation reflecting the splendid, almost unavoidable, economic
results obtainable. Despite a fancy price tag, the “easy”
business may be the better route to go.
We can speak from experience, having tried the other route.
Your Chairman made the decision a few years ago to purchase
Waumbec Mills in Manchester, New Hampshire, thereby expanding our
textile commitment. By any statistical test, the purchase price
was an extraordinary bargain; we bought well below the working
capital of the business and, in effect, got very substantial
amounts of machinery and real estate for less than nothing. But
the purchase was a mistake. While we labored mightily, new
problems arose as fast as old problems were tamed.
Both our operating and investment experience cause us to
conclude that “turnarounds” seldom turn, and that the same
energies and talent are much better employed in a good business
purchased at a fair price than in a poor business purchased at a
bargain price. Although a mistake, the Waumbec acquisition has
not been a disaster. Certain portions of the operation are
proving to be valuable additions to our decorator line (our
strongest franchise) at New Bedford, and it’s possible that we
may be able to run profitably on a considerably reduced scale at
Manchester. However, our original rationale did not prove out.
Insurance Underwriting
We predicted last year that the combined underwriting ratio
(see definition on page 36) for the insurance industry would
“move up at least a few points, perhaps enough to throw the
industry as a whole into an underwriting loss position”. That is
just about the way it worked out. The industry underwriting
ratio rose in 1979 over three points, from roughly 97.4% to
100.7%. We also said that we thought our underwriting performance
relative to the industry would improve somewhat in 1979 and,
again, things worked out as expected. Our own underwriting ratio
actually decreased from 98.2% to 97.1%. Our forecast for 1980 is
similar in one respect; again we feel that the industry’s
performance will worsen by at least another few points. However,
this year we have no reason to think that our performance
relative to the industry will further improve. (Don’t worry - we
won’t hold back to try to validate that forecast.)
Really extraordinary results were turned in by the portion
of National Indemnity Company’s insurance operation run by Phil
Liesche. Aided by Roland Miller in Underwriting and Bill Lyons
in Claims, this section of the business produced an underwriting
profit of $8.4 million on about $82 million of earned premiums.
Only a very few companies in the entire industry produced a
result comparable to this.
You will notice that earned premiums in this segment were
down somewhat from those of 1978. We hear a great many insurance
managers talk about being willing to reduce volume in order to
underwrite profitably, but we find that very few actually do so.
Phil Liesche is an exception: if business makes sense, he writes
it; if it doesn’t, he rejects it. It is our policy not to lay
off people because of the large fluctuations in work load
produced by such voluntary volume changes. We would rather have
some slack in the organization from time to time than keep
everyone terribly busy writing business on which we are going to
lose money. Jack Ringwalt, the founder of National Indemnity
Company, instilled this underwriting discipline at the inception
of the company, and Phil Liesche never has wavered in maintaining
it. We believe such strong-mindedness is as rare as it is sound
- and absolutely essential to the running of a first-class
casualty insurance operation.
John Seward continues to make solid progress at Home and
Automobile Insurance Company, in large part by significantly
expanding the marketing scope of that company in general
liability lines. These lines can be dynamite, but the record to
date is excellent and, in John McGowan and Paul Springman, we
have two cautious liability managers extending our capabilities.
Our reinsurance division, led by George Young, continues to
give us reasonably satisfactory overall results after allowing
for investment income, but underwriting performance remains
unsatisfactory. We think the reinsurance business is a very
tough business that is likely to get much tougher. In fact, the
influx of capital into the business and the resulting softer
price levels for continually increasing exposures may well
produce disastrous results for many entrants (of which they may
be blissfully unaware until they are in over their heads; much
reinsurance business involves an exceptionally “long tail”, a
characteristic that allows catastrophic current loss experience
to fester undetected for many years). It will be hard for us to
be a whole lot smarter than the crowd and thus our reinsurance
activity may decline substantially during the projected prolonged
period of extraordinary competition.
The Homestate operation was disappointing in 1979.
Excellent results again were turned in by George Billings at
Texas United Insurance Company, winner of the annual award for
the low loss ratio among Homestate companies, and Floyd Taylor at
Kansas Fire and Casualty Company. But several of the other
operations, particularly Cornhusker Casualty Company, our first
and largest Homestate operation and historically a winner, had
poor underwriting results which were accentuated by data
processing, administrative and personnel problems. We have made
some major mistakes in reorganizing our data processing
activities, and those mistakes will not be cured immediately or
without cost. However, John Ringwalt has thrown himself into the
task of getting things straightened out and we have confidence
that he, aided by several strong people who recently have been
brought aboard, will succeed.
Our performance in Worker’s Compensation was far, far better
than we had any right to expect at the beginning of 1979. We had
a very favorable climate in California for the achievement of
good results but, beyond this, Milt Thornton at Cypress Insurance
Company and Frank DeNardo at National Indemnity’s California
Worker’s Compensation operation both performed in a simply
outstanding manner. We have admitted - and with good reason -
some mistakes on the acquisition front, but the Cypress purchase
has turned out to be an absolute gem. Milt Thornton, like Phil
Liesche, follows the policy of sticking with business that he
understands and wants, without giving consideration to the impact
on volume. As a result, he has an outstanding book of business
and an exceptionally well functioning group of employees. Frank
DeNardo has straightened out the mess he inherited in Los Angeles
in a manner far beyond our expectations, producing savings
measured in seven figures. He now can begin to build on a sound
base.
At yearend we entered the specialized area of surety
reinsurance under the management of Chet Noble. At least
initially, this operation will be relatively small since our
policy will be to seek client companies who appreciate the need
for a long term “partnership” relationship with their reinsurers.
We are pleased by the quality of the insurers we have attracted,
and hope to add several more of the best primary writers as our
financial strength and stability become better known in the
surety field.
The conventional wisdom is that insurance underwriting
overall will be poor in 1980, but that rates will start to firm
in a year or so, leading to a turn in the cycle some time in
1981. We disagree with this view. Present interest rates
encourage the obtaining of business at underwriting loss levels
formerly regarded as totally unacceptable. Managers decry the
folly of underwriting at a loss to obtain investment income, but
we believe that many will. Thus we expect that competition will
create a new threshold of tolerance for underwriting losses, and
that combined ratios will average higher in the future than in
the past.
To some extent, the day of reckoning has been postponed
because of marked reduction in the frequency of auto accidents -
probably brought on in major part by changes in driving habits
induced by higher gas prices. In our opinion, if the habits
hadn’t changed, auto insurance rates would have been very little
higher and underwriting results would have been much worse. This
dosage of serendipity won’t last indefinitely.
Our forecast is for an average combined ratio for the
industry in the 105 area over the next five years. While we have
a high degree of confidence that certain of our operations will
do considerably better than average, it will be a challenge to us
to operate below the industry figure. You can get a lot of
surprises in insurance.
Nevertheless, we believe that insurance can be a very good
business. It tends to magnify, to an unusual degree, human
managerial talent - or the lack of it. We have a number of
managers whose talent is both proven and growing. (And, in
addition, we have a very large indirect interest in two truly
outstanding management groups through our investments in SAFECO
and GEICO.) Thus we expect to do well in insurance over a period
of years. However, the business has the potential for really
terrible results in a single specific year. If accident
frequency should turn around quickly in the auto field, we, along
with others, are likely to experience such a year.
Insurance Investments
In recent years we have written at length in this section
about our insurance equity investments. In 1979 they continued
to perform well, largely because the underlying companies in
which we have invested, in practically all cases, turned in
outstanding performances. Retained earnings applicable to our
insurance equity investments, not reported in our financial
statements, continue to mount annually and, in aggregate, now
come to a very substantial number. We have faith that the
managements of these companies will utilize those retained
earnings effectively and will translate a dollar retained by them
into a dollar or more of subsequent market value for us. In
part, our unrealized gains reflect this process.
Below we show the equity investments which had a yearend
market value of over $5 million:
No. of Sh. Company Cost Market
---------- ------- ---------- ----------
(000s omitted)
289,700 Affiliated Publications, Inc. ........... $ 2,821 $ 8,800
112,545 Amerada Hess ............................ 2,861 5,487
246,450 American Broadcasting Companies, Inc. ... 6,082 9,673
5,730,114 GEICO Corp. (Common Stock) .............. 28,288 68,045
328,700 General Foods, Inc. ..................... 11,437 11,053
1,007,500 Handy & Harman .......................... 21,825 38,537
711,180 Interpublic Group of Companies, Inc. .... 4,531 23,736
1,211,834 Kaiser Aluminum & Chemical Corp. ........ 20,629 23,328
282,500 Media General, Inc. ..................... 4,545 7,345
391,400 Ogilvy & Mather International ........... 3,709 7,828
953,750 SAFECO Corporation ...................... 23,867 35,527
1,868,000 The Washington Post Company ............. 10,628 39,241
771,900 F. W. Woolworth Company ................. 15,515 19,394
---------- ----------
Total ................................... $156,738 $297,994
All Other Holdings ...................... 28,675 38,686
---------- ----------
Total Equities .......................... $185,413 $336,680
========== ==========
We currently believe that equity markets in 1980 are likely
to evolve in a manner that will result in an underperformance by
our portfolio for the first time in recent years. We very much
like the companies in which we have major investments, and plan
no changes to try to attune ourselves to the markets of a
specific year.
Since we have covered our philosophy regarding equities
extensively in recent annual reports, a more extended discussion
of bond investments may be appropriate for this one, particularly
in light of what has happened since yearend. An extraordinary
amount of money has been lost by the insurance industry in the
bond area - notwithstanding the accounting convention that allows
insurance companies to carry their bond investments at amortized
cost, regardless of impaired market value. Actually, that very
accounting convention may have contributed in a major way to the
losses; had management been forced to recognize market values,
its attention might have been focused much earlier on the dangers
of a very long-term bond contract.
Ironically, many insurance companies have decided that a
one-year auto policy is inappropriate during a time of inflation,
and six-month policies have been brought in as replacements.
“How,” say many of the insurance managers, “can we be expected to
look forward twelve months and estimate such imponderables as
hospital costs, auto parts prices, etc.?” But, having decided
that one year is too long a period for which to set a fixed price
for insurance in an inflationary world, they then have turned
around, taken the proceeds from the sale of that six-month
policy, and sold the money at a fixed price for thirty or forty
years.
The very long-term bond contract has been the last major
fixed price contract of extended duration still regularly
initiated in an inflation-ridden world. The buyer of money to be
used between 1980 and 2020 has been able to obtain a firm price
now for each year of its use while the buyer of auto insurance,
medical services, newsprint, office space - or just about any
other product or service - would be greeted with laughter if he
were to request a firm price now to apply through 1985. For in
virtually all other areas of commerce, parties to long-term
contracts now either index prices in some manner, or insist on
the right to review the situation every year or so.
A cultural lag has prevailed in the bond area. The buyers
(borrowers) and middlemen (underwriters) of money hardly could be
expected to raise the question of whether it all made sense, and
the sellers (lenders) slept through an economic and contractual
revolution.
For the last few years our insurance companies have not been
a net purchaser of any straight long-term bonds (those without
conversion rights or other attributes offering profit
possibilities). There have been some purchases in the straight
bond area, of course, but they have been offset by sales or
maturities. Even prior to this period, we never would buy thirty
or forty-year bonds; instead we tried to concentrate in the
straight bond area on shorter issues with sinking funds and on
issues that seemed relatively undervalued because of bond market
inefficiencies.
However, the mild degree of caution that we exercised was an
improper response to the world unfolding about us. You do not
adequately protect yourself by being half awake while others are
sleeping. It was a mistake to buy fifteen-year bonds, and yet we
did; we made an even more serious mistake in not selling them (at
losses, if necessary) when our present views began to
crystallize. (Naturally, those views are much clearer and
definite in retrospect; it would be fair for you to ask why we
weren’t writing about this subject last year.)
Of course, we must hold significant amounts of bonds or
other fixed dollar obligations in conjunction with our insurance
operations. In the last several years our net fixed dollar
commitments have been limited to the purchase of convertible
bonds. We believe that the conversion options obtained, in
effect, give that portion of the bond portfolio a far shorter
average life than implied by the maturity terms of the issues
(i.e., at an appropriate time of our choosing, we can terminate
the bond contract by conversion into stock).
This bond policy has given us significantly lower unrealized
losses than those experienced by the great majority of property
and casualty insurance companies. We also have been helped by
our strong preference for equities in recent years that has kept
our overall bond segment relatively low. Nevertheless, we are
taking our lumps in bonds and feel that, in a sense, our mistakes
should be viewed less charitably than the mistakes of those who
went about their business unmindful of the developing problems.
Harking back to our textile experience, we should have
realized the futility of trying to be very clever (via sinking
funds and other special type issues) in an area where the tide
was running heavily against us.
We have severe doubts as to whether a very long-term fixed-
interest bond, denominated in dollars, remains an appropriate
business contract in a world where the value of dollars seems
almost certain to shrink by the day. Those dollars, as well as
paper creations of other governments, simply may have too many
structural weaknesses to appropriately serve as a unit of long
term commercial reference. If so, really long bonds may turn out
to be obsolete instruments and insurers who have bought those
maturities of 2010 or 2020 could have major and continuing
problems on their hands. We, likewise, will be unhappy with our
fifteen-year bonds and will annually pay a price in terms of
earning power that reflects that mistake.
Some of our convertible bonds appear exceptionally
attractive to us, and have the same sort of earnings retention
factor (applicable to the stock into which they may be converted)
that prevails in our conventional equity portfolio. We expect to
make money in these bonds (we already have, in a few cases) and
have hopes that our profits in this area may offset losses in
straight bonds.
And, of course, there is the possibility that our present
analysis is much too negative. The chances for very low rates of
inflation are not nil. Inflation is man-made; perhaps it can be
man-mastered. The threat which alarms us may also alarm
legislators and other powerful groups, prompting some appropriate
response.
Furthermore, present interest rates incorporate much higher
inflation projections than those of a year or two ago. Such
rates may prove adequate or more than adequate to protect bond
buyers. We even may miss large profits from a major rebound in
bond prices. However, our unwillingness to fix a price now for a
pound of See’s candy or a yard of Berkshire cloth to be delivered
in 2010 or 2020 makes us equally unwilling to buy bonds which set
a price on money now for use in those years. Overall, we opt for
Polonius (slightly restated): “Neither a short-term borrower nor
a long-term lender be.”
Banking
This will be the last year that we can report on the
Illinois National Bank and Trust Company as a subsidiary of
Berkshire Hathaway. Therefore, it is particularly pleasant to
report that, under Gene Abegg’s and Pete Jeffrey’s management,
the bank broke all previous records and earned approximately 2.3%
on average assets last year, a level again over three times that
achieved by the average major bank, and more than double that of
banks regarded as outstanding. The record is simply
extraordinary, and the shareholders of Berkshire Hathaway owe a
standing ovation to Gene Abegg for the performance this year and
every year since our purchase in 1969.
As you know, the Bank Holding Company Act of 1969 requires
that we divest the bank by December 31, 1980. For some years we
have expected to comply by effecting a spin-off during 1980.
However, the Federal Reserve Board has taken the firm position
that if the bank is spun off, no officer or director of Berkshire
Hathaway can be an officer or director of the spun-off bank or
bank holding company, even in a case such as ours in which one
individual would own over 40% of both companies.
Under these conditions, we are investigating the possible
sale of between 80% and 100% of the stock of the bank. We will
be most choosy about any purchaser, and our selection will not be
based solely on price. The bank and its management have treated
us exceptionally well and, if we have to sell, we want to be sure
that they are treated equally as well. A spin-off still is a
possibility if a fair price along with a proper purchaser cannot
be obtained by early fall.
However, you should be aware that we do not expect to be
able to fully, or even in very large part, replace the earning
power represented by the bank from the proceeds of the sale of
the bank. You simply can’t buy high quality businesses at the
sort of price/earnings multiple likely to prevail on our bank
sale.
Financial Reporting
During 1979, NASDAQ trading was initiated in the stock of
Berkshire Hathaway This means that the stock now is quoted on the
Over-the-Counter page of the Wall Street journal under
“Additional OTC Quotes”. Prior to such listing, the Wall Street
journal and the Dow-Jones news ticker would not report our
earnings, even though such earnings were one hundred or more
times the level of some companies whose reports they regularly
picked up.
Now, however, the Dow-Jones news ticker reports our
quarterly earnings promptly after we release them and, in
addition, both the ticker and the Wall Street journal report our
annual earnings. This solves a dissemination problem that had
bothered us.
In some ways, our shareholder group is a rather unusual one,
and this affects our manner of reporting to you. For example, at
the end of each year about 98% of the shares outstanding are held
by people who also were shareholders at the beginning of the
year. Therefore, in our annual report we build upon what we have
told you in previous years instead of restating a lot of
material. You get more useful information this way, and we don’t
get bored.
Furthermore, perhaps 90% of our shares are owned by
investors for whom Berkshire is their largest security holding,
very often far and away the largest. Many of these owners are
willing to spend a significant amount of time with the annual
report, and we attempt to provide them with the same information
we would find useful if the roles were reversed.
In contrast, we include no narrative with our quarterly
reports. Our owners and managers both have very long time-
horizons in regard to this business, and it is difficult to say
anything new or meaningful each quarter about events of long-term
significance.
But when you do receive a communication from us, it will
come from the fellow you are paying to run the business. Your
Chairman has a firm belief that owners are entitled to hear
directly from the CEO as to what is going on and how he evaluates
the business, currently and prospectively. You would demand that
in a private company; you should expect no less in a public
company. A once-a-year report of stewardship should not be
turned over to a staff specialist or public relations consultant
who is unlikely to be in a position to talk frankly on a manager-
to-owner basis.
We feel that you, as owners, are entitled to the same sort
of reporting by your manager as we feel is owed to us at
Berkshire Hathaway by managers of our business units. Obviously,
the degree of detail must be different, particularly where
information would be useful to a business competitor or the like.
But the general scope, balance, and level of candor should be
similar. We don’t expect a public relations document when our
operating managers tell us what is going on, and we don’t feel
you should receive such a document.
In large part, companies obtain the shareholder constituency
that they seek and deserve. If they focus their thinking and
communications on short-term results or short-term stock market
consequences they will, in large part, attract shareholders who
focus on the same factors. And if they are cynical in their
treatment of investors, eventually that cynicism is highly likely
to be returned by the investment community.
Phil Fisher, a respected investor and author, once likened
the policies of the corporation in attracting shareholders to
those of a restaurant attracting potential customers. A
restaurant could seek a given clientele - patrons of fast foods,
elegant dining, Oriental food, etc. - and eventually obtain an
appropriate group of devotees. If the job were expertly done,
that clientele, pleased with the service, menu, and price level
offered, would return consistently. But the restaurant could not
change its character constantly and end up with a happy and
stable clientele. If the business vacillated between French
cuisine and take-out chicken, the result would be a revolving
door of confused and dissatisfied customers.
So it is with corporations and the shareholder constituency
they seek. You can’t be all things to all men, simultaneously
seeking different owners whose primary interests run from high
current yield to long-term capital growth to stock market
pyrotechnics, etc.
The reasoning of managements that seek large trading
activity in their shares puzzles us. In effect, such managements
are saying that they want a good many of the existing clientele
continually to desert them in favor of new ones - because you
can’t add lots of new owners (with new expectations) without
losing lots of former owners.
We much prefer owners who like our service and menu and who
return year after year. It would be hard to find a better group
to sit in the Berkshire Hathaway shareholder “seats” than those
already occupying them. So we hope to continue to have a very
low turnover among our owners, reflecting a constituency that
understands our operation, approves of our policies, and shares
our expectations. And we hope to deliver on those expectations.
Prospects
Last year we said that we expected operating earnings in
dollars to improve but return on equity to decrease. This turned
out to be correct. Our forecast for 1980 is the same. If we are
wrong, it will be on the downside. In other words, we are
virtually certain that our operating earnings expressed as a
percentage of the new equity base of approximately $236 million,
valuing securities at cost, will decline from the 18.6% attained
in 1979. There is also a fair chance that operating earnings in
aggregate dollars will fall short of 1979; the outcome depends
partly upon the date of disposition of the bank, partly upon the
degree of slippage in insurance underwriting profitability, and
partly upon the severity of earnings problems in the savings and
loan industry.
We continue to feel very good about our insurance equity
investments. Over a period of years, we expect to develop very
large and growing amounts of underlying earning power
attributable to our fractional ownership of these companies. In
most cases they are splendid businesses, splendidly managed,
purchased at highly attractive prices.
Your company is run on the principle of centralization of
financial decisions at the top (the very top, it might be added),
and rather extreme delegation of operating authority to a number
of key managers at the individual company or business unit level.
We could just field a basketball team with our corporate
headquarters group (which utilizes only about 1500 square feet of
space).
This approach produces an occasional major mistake that
might have been eliminated or minimized through closer operating
controls. But it also eliminates large layers of costs and
dramatically speeds decision-making. Because everyone has a
great deal to do, a very great deal gets done. Most important of
all, it enables us to attract and retain some extraordinarily
talented individuals - people who simply can’t be hired in the
normal course of events - who find working for Berkshire to be
almost identical to running their own show.
We have placed much trust in them - and their achievements
have far exceeded that trust.
Warren E. Buffett, Chairman
March 3, 1980
中文译文
伯克希尔·哈撒韦公司
致伯克希尔·哈撒韦股份有限公司股东：
老规矩，开头还得先说几句会计方面的事。自我们上一份年报以来，会计界已决定，保险公司持有的权益证券必须在资产负债表上按市值列示。此前，我们一直按总成本与总市值的较低者来列示这类权益证券。由于我们的保险持仓中有大量未实现收益，这项新政策的结果是，即使已经为按此市价出售权益证券所需缴纳的资本利得税计提了相应负债，1978年和1979年底的净资产仍会大幅增加。
如你们所知，蓝筹印花公司（我们持股60%的子公司）已完全合并到伯克希尔·哈撒韦的财务报表中。然而，蓝筹印花公司仍必须按其权益投资的总成本与总市值的较低者来列示，就像今年之前伯克希尔·哈撒韦的保险子公司所做的那样。如果伯克希尔·哈撒韦的一家保险子公司和蓝筹印花公司以相同价格购买了相同的权益证券，根据现行会计准则，它们常常会被要求以两种不同的价值列示在我们的合并资产负债表上。（这应该能让您保持警惕。）蓝筹印花公司权益持仓的市值在第18页的脚注3中给出。
1979年经营业绩
我们仍然认为，将所有证券按成本估值时，经营利润（不计证券收益或损失）与股东权益的比率，是衡量任何单一年度经营业绩的最恰当方法。
如果以证券按市值计价的股东权益来衡量此类业绩，由于作为分母的净资产价值每年因市值大幅波动，可能会严重扭曲经营业绩百分比。例如，证券价值大幅下跌可能导致按"市值"计算的净资产非常低，这反过来又可能使平庸的经营业绩看起来好得离谱。反过来，权益投资越成功，净资产基数就越大，经营业绩数字反而显得越差。因此，我们将继续报告以证券按成本估值的期初净资产衡量的经营业绩。
基于此，我们在1979年取得了相当不错的经营业绩——但略逊于1978年——经营利润占期初净资产的18.6%。当然，每股收益有所增长（约20%），但我们认为这不是一个应该关注的恰当数字。1979年我们可运用的资本比1978年多得多，而我们在运用这些资本方面的表现却不如上一年，尽管每股收益有所上升。"每股收益"在休眠的储蓄账户或固定利率的美国储蓄债券上会不断上升，仅仅是因为"收益"（标明的利率）不断被再投入并添加到资本基础中。因此，只要股息支付率低，即使是"停摆的钟表"也能看起来像成长股。
衡量管理层经济表现的主要标准，是运用股权的资本实现了高收益率（没有过度的杠杆、会计把戏等），而不是实现每股收益的持续增长。我们认为，如果管理层和财务分析师改变他们对每股收益以及该数字年度变化的过分强调，许多企业将被其股东所有者以及普通公众更好地理解。
长期业绩
在衡量长期经济表现（与年度表现相对）时，我们认为应充分确认任何已实现的资本利得或损失以及非经常性项目，并使用以市值列示权益证券的财务报表。这些资本利得或损失，无论是已实现还是未实现，对股东而言，在多年时间里与通过运营以更常规方式实现的收益同等重要；只是它们的短期影响往往极其反复无常，这一特性使其不适合作为单一年度管理层表现的指标。
1964年9月30日（现任管理层接手前的那个财年末），伯克希尔·哈撒韦的每股账面价值为19.46美元。到了1979年底，按权益持仓市值计算的每股账面价值为335.85美元。账面价值的年复合增长率达到20.5%。当然，这个数字远高于我们年度经营利润计算的任何平均值，反映了保险权益投资的资本增值在决定股东整体业绩方面的重要性。或许也可以公平地说，1964年的账面价值在某种程度上高估了企业的内在价值，因为当时拥有的资产，无论按持续经营基础还是清算价值基础，其价值都不到面值的100美分。（不过负债是实实在在的。）
我们在运用低杠杆（无论是用债务与股本之比衡量的财务杠杆，还是用保费收入与保险业务资本金之比衡量的经营杠杆）的情况下实现了这一结果，并且没有大量发行或回购股票。基本上，我们使用的是最初拥有的资本。从我们的纺织业务基础出发，我们（或我们的蓝筹印花公司和韦斯科金融公司子公司）通过从私人所有者处现金协商收购，已经拥有了十三家企业的全部所有权，并创办了另外六家。（值得一提的是，那些卖给我们的人，几乎无一例外，在出售时及之后都给予了我们非凡的尊重和公平。）
但在我们淹没在自我庆贺的海洋之前，必须提出一个进一步且至关重要的观察。几年前，一家每股净资产年复合增长20%的企业，几乎可以保证其所有者获得非常成功的实际投资回报。现在，这样的结果似乎不那么确定了。因为通货膨胀率加上个人税率，将最终决定我们内部的经营业绩是否能为您——作为股东——带来成功的投资结果，即投入资金购买力的合理增长。
就像最初的3%储蓄债券、5%的存折储蓄账户或8%的美国国库券，它们依次被通货膨胀转变为在其投资期内消耗而非增强购买力的金融工具一样，一个资本收益率为20%的企业，在比当前程度稍高的通货膨胀条件下，也可能为其所有者产生负的实际回报。
如果我们继续实现20%的复合增长（这绝非易事或确定的结果），并且这种增长转化为伯克希尔·哈撒韦股票市场价值的相应增长（就像过去十五年那样），那么在14%的通货膨胀率下，您的税后购买力增长很可能接近于零。每当您想将每年20%的名义收益变现时，剩余的大约六个百分点中的大部分将用于缴纳所得税。
这种组合——通货膨胀率加上所有者必须支付才能将企业实现的年度收益转入自己口袋的资本百分比（即股息上的普通所得税和留存收益上的资本利得税）——可以被看作是一个"投资者痛苦指数"。当这个指数超过企业股本回报率时，投资者的购买力（实际资本）就会缩水，即使他什么都不消费。我们对此没有公司层面的解决方案；高通胀率不会帮助我们获得更高的股本回报率。
一位友好但眼光敏锐的伯克希尔评论者指出，我们在1964年底的账面价值大约可以买到半盎司黄金，十五年后，在我们倾注了所有收益以及大量的血、汗和泪水之后，所产生的账面价值大约还能买到同样的半盎司。类似的比较也可以在中东石油上得出。问题在于，政府在印钞票和创造承诺方面能力非凡，但无法印出黄金或创造石油。
我们打算继续尽力管理好公司的内部事务。但您应该明白，影响货币稳定性的外部条件，很可能就是决定您对伯克希尔·哈撒韦的投资是否有任何实际回报的最重要因素。
收益来源
我们再次列出一张表格，显示伯克希尔收益的来源。如去年所述，伯克希尔拥有蓝筹印花公司约60%的股份，而蓝筹印花公司又拥有韦斯科金融公司80%的股份。该表格显示了各个业务实体的总收益以及伯克希尔所占的份额。所有归属于任何业务实体的重大资本利得或损失，都汇总在表格底部的已实现证券收益数字中，不计入经营利润。
净利润
税前利润 税后
-------------------------------------- ------------------
总计 伯克希尔份额 伯克希尔份额
------------------ ------------------ ------------------
（单位：千美元） 1979 1978 1979 1978 1979 1978
-------- -------- -------- -------- -------- --------
所有实体合计 ............... $68,632 $66,180 $56,427 $54,350 $42,817 $39,242
======== ======== ======== ======== ======== ========
经营利润：
保险集团：
承销 ................... $ 3,742 $ 3,001 $ 3,741 $ 3,000 $ 2,214 $ 1,560
净投资收益 ............. 24,224 19,705 24,216 19,691 20,106 16,400
伯克希尔-沃姆贝克纺织 .... 1,723 2,916 1,723 2,916 848 1,342
联合零售商店公司 ......... 2,775 2,757 2,775 2,757 1,280 1,176
喜诗糖果 ................. 12,785 12,482 7,598 7,013 3,448 3,049
布法罗晚报 ............... (4,617) (2,913) (2,744) (1,637) (1,333) (738)
蓝筹印花公司-母公司 ...... 2,397 2,133 1,425 1,198 1,624 1,382
伊利诺伊国家银行与信托公司 5,747 4,822 5,614 4,710 5,027 4,262
韦斯科金融公司-母公司 ..... 2,413 1,771 1,098 777 937 665
互助储蓄与贷款协会 ....... 10,447 10,556 4,751 4,638 3,261 3,042
精密钢铁公司 ............. 3,254 -- 1,480 -- 723 --
债务利息 ................. (8,248) (5,566) (5,860) (4,546) (2,900) (2,349)
其他 ..................... 1,342 720 996 438 753 261
-------- -------- -------- -------- -------- --------
经营利润合计 ........... $57,984 $52,384 $46,813 $40,955 $35,988 $30,052
已实现证券收益 ......... 10,648 13,796 9,614 13,395 6,829 9,190
-------- -------- -------- -------- -------- --------
利润合计 ............... $68,632 $66,180 $56,427 $54,350 $42,817 $39,242
======== ======== ======== ======== ======== ========
蓝筹印花公司和韦斯科公司是上市公司，有自己的报告要求。在本报告第37至43页，我们转载了这两家公司主要高管的叙述性报告，其中描述了1979年的运营情况。由于会计和税务的复杂性，他们在报告中提到的一些数字与上表中的数字并非完全一致。（亚诺玛米印第安人只使用三个数字：一、二、以及大于二。也许他们的时代会到来。）不过，这些报告中的评论应有助于您了解他们所管理的重要业务的潜在经济特征和未来前景。
任一公司的完整年度报告副本，可应伯克希尔股东的要求邮寄给：蓝筹印花公司的Robert H. Bird先生，地址：5801 South Eastern Avenue, Los Angeles, California 90040；或韦斯科金融公司的Bette Deckard夫人，地址：315 East Colorado Boulevard, Pasadena, California 91109。
纺织与零售业
随着我们的保险业务在规模和收益上的大幅增长，这两个领域的相对重要性近年来有所下降。联合零售商店的本·罗斯纳仍在不断从帽子里变出兔子——从小帽子里变出大兔子。年复一年，他在一个增长缓慢且人口结构平淡的市场板块中，创造了与所用资本相比非常巨大的收益——并且是以现金形式实现，而不是像许多其他零售企业那样体现在应收账款和库存的增加上。本现年76岁，就像我们其他一些"后起之秀"一样——伊利诺伊国家银行的吉恩·阿贝格（82岁）和韦斯科公司的路易斯·文森蒂（74岁）——每年都有更多的成就。
我们的纺织业务也仍在产生一些现金，但与所用资本相比，收益率很低。这并非管理者的过错，而是他们所处行业的问题。在某些行业——例如网络电视台——几乎不可能避免地在所用有形资本上获得非凡回报。而这类企业的资产也以同样非凡的价格出售，每股可能达到1000美分或更多，这种估值反映了可获得的美妙且几乎不可避免的经济成果。尽管价格标签诱人，但"容易"的生意可能是更好的选择。
我们可以从经验出发谈这一点，因为我们尝试过另一条路。几年前，你们的主席决定购买新罕布什尔州曼彻斯特的沃姆贝克纺织厂，从而扩大了我们在纺织业的投入。从任何统计检验来看，收购价格都极低；我们的购买价远低于该企业的营运资本，实际上，几乎以零成本获得了大量的机器和房地产。但这次购买是个错误。尽管我们奋力拼搏，但老问题刚被驯服，新问题就接踵而至。
我们的经营和投资经验都使我们得出结论："扭亏为盈"很少能真正扭转局面，而同样的精力和才智，投入到以合理价格购买的好生意上，远比投入到以低价购买的差生意上要有效得多。虽然是个错误，但收购沃姆贝克并非灾难。事实证明，该运营的某些部分对我们新贝德福德的装饰面料系列（我们最强的特许经营权）是有价值的补充，而且我们有可能在曼彻斯特以大幅缩减的规模实现盈利运营。然而，我们最初的逻辑并未得到验证。
保险承销
去年我们曾预测，保险业的综合成本率（定义见第36页）将"上升至少几个百分点，也许足以使整个行业陷入承保亏损的局面"。结果果然如此。1979年行业综合成本率上升了超过三个百分点，从大约97.4%升至100.7%。我们还说过，我们认为1979年我们的承保业绩相对于行业会有所改善，结果同样符合预期。我们自己的综合成本率实际上从98.2%下降到了97.1%。我们对1980年的预测在一个方面是相似的；我们再次认为行业的业绩将至少再恶化几个百分点。然而，今年我们没有理由认为我们相对于行业的业绩会进一步改善。（别担心——我们不会为了验证这一预测而有所保留。）
国民赔偿公司由菲尔·利舍负责的保险业务部分，取得了真正非凡的业绩。在承保部的罗兰·米勒和理赔部的比尔·莱昂斯的协助下，该业务部门在约8200万美元的已赚保费基础上产生了840万美元的承保利润。整个行业中，能做到如此业绩的公司屈指可数。
您会注意到，该板块的已赚保费比1978年略有下降。我们听到许多保险经理谈论愿意为了盈利承保而减少业务量，但我们发现很少有人真正这样做。菲尔·利舍是个例外：如果一笔业务合理，他就承保；如果不合理，他就拒绝。我们的政策是不因为这种自愿的业务量变化导致的工作负荷大幅波动而裁员。我们宁愿组织偶尔有些闲散，也不愿让每个人都忙得不可开交地承保那些我们会亏损的业务。杰克·林沃特，国民赔偿公司的创始人，在公司创立之初就灌输这种承销纪律，而菲尔·利舍从未动摇过坚守这一纪律。我们认为这种坚定的态度既罕见又正确——并且对于运营一流的意外险业务是绝对必要的。
约翰·西沃德在家庭与汽车保险公司继续取得扎实进展，很大程度上是通过大幅扩展该公司在一般责任险领域的市场范围。这些险种可能像炸药一样危险，但迄今为止的记录是优秀的，并且我们有约翰·麦高恩和保罗·斯普林曼这两位谨慎的责任险经理在扩展我们的能力。
由乔治·杨领导再保险部门，在考虑投资收益后，整体业绩还算令人满意，但承保业绩仍不理想。我们认为再保险业务是一个非常艰难的行业，并且可能会变得更加艰难。事实上，资本涌入该行业，以及针对不断增加的风险敞口导致价格水平持续走软，很可能给许多新进入者带来灾难性后果（他们可能浑然不觉，直到深陷其中；许多再保险业务涉及异常"长尾"的特性，使得灾难性的当期损失经验可以潜伏多年而不被发现）。要变得比大众聪明得多对我们来说很难，因此，在预计将持续的异常激烈竞争期间，我们的再保险活动可能会大幅减少。
1979年，本州业务令人失望。德克萨斯联合保险公司（在同业公司中赢得年度低赔付率奖）的乔治·比林斯和堪萨斯火灾与意外险公司的弗洛伊德·泰勒再次取得了优异业绩。但其他几项业务，特别是康休斯克意外险公司——我们的第一家也是最大的本州业务公司，历史上的赢家——承保业绩不佳，而数据处理、行政和人事问题又加剧了这种情况。我们在重组数据处理活动方面犯了一些重大错误，而这些错误不会立即或在没有代价的情况下得到纠正。然而，约翰·林沃特已全身心投入到理顺局面的任务中，我们相信，他在几位最近加入的得力干将的协助下，将会取得成功。
我们在劳工补偿险方面的表现，远远超出了我们在1979年初有理由期望的水平。我们在加利福尼亚州拥有非常有利的环境来取得良好业绩，但除此之外，塞普拉斯保险公司的米尔顿·桑顿和国民赔偿公司加州劳工补偿险业务的弗兰克·迪纳尔多，两人的表现都堪称卓越。我们承认——并且有充分理由——在收购方面犯过一些错误，但收购塞普拉斯简直是捡到了宝。米尔顿·桑顿，如同菲尔·利舍一样，遵循着坚守他了解和想要的业务的政策，而不考虑对业务量的影响。结果，他拥有了一笔出色的业务组合和一群运作异常高效的员工。弗兰克·迪纳尔多以远超我们预期的方式理顺了他在洛杉矶接手的那堆烂摊子，节省了七位数的开支。他现在可以在一个坚实的基础上开始建设了。
年底，我们进入了保证再保险这个专业领域，由切特·诺布尔负责管理。至少初期，这项业务将相对较小，因为我们的政策是寻找那些认识到与其再保险公司建立长期"合作伙伴"关系重要性的客户公司。我们对我们所吸引的保险公司质量感到满意，并希望随着我们在保证保险领域的财务实力和稳定性被更好地了解，能够再增加几家最优秀的一线承保公司。
传统观点认为，1980年保险承保总体上会很糟糕，但费率会在一年左右开始企稳，从而在1981年某个时候导致周期出现转折。我们不同意这种看法。当前的利率鼓励人们以过去被认为完全不可接受的承保亏损水平来获取业务。经理们谴责为了获得投资收益而以亏损承保的愚蠢行为，但我们相信很多人会这么做。因此，我们预计竞争将创造一个新的承保亏损容忍门槛，并且未来的平均综合成本率将高于过去。
在某种程度上，清算日被推迟了，因为汽车事故发生率显著降低——这很可能主要是由于油价上涨导致的驾驶习惯改变。依我们看，如果驾驶习惯没有改变，汽车保险费率就会提高不了多少，而承保结果会更糟。这种意外之喜不会永远持续下去。
我们的预测是，未来五年行业平均综合成本率将在105左右。尽管我们高度确信我们某些业务的业绩会大大好于平均水平，但要让我们在行业数字以下运营仍将是一个挑战。保险业可能出现很多意外。
尽管如此，我们相信保险可以是一个非常棒的行业。它以一种不同寻常的程度放大了人的管理才能——或者管理才能的匮乏。我们有许多管理者的才能已经得到证实并且还在不断成长。（此外，通过我们对SAFECO和GEICO的投资，我们在两个真正杰出的管理团队中拥有非常大的间接利益。）因此，我们预计在几年内，我们在保险业会做得很好。然而，这项业务有可能在某个特定年份出现真正糟糕的结果。如果汽车领域的事故发生率突然逆转，我们和其他公司都有可能经历这样的一年。
保险投资
近年来，我们在这一部分对保险权益投资进行了大量论述。1979年，这些投资表现继续良好，很大程度上是因为我们投资的标的公司，几乎在所有情况下，都取得了出色的业绩。我们保险权益投资应占的留存收益（未在我们的财务报表中报告）每年都在增加，现在总额已非常可观。我们相信这些公司的管理层会有效利用那些留存收益，并将他们留存的每一美元转化为我们随后一美元或更多的市值。我们的未实现收益在某种程度上也反映了这一过程。
以下是我们年底市值超过500万美元的权益投资：
股数 公司 成本 市值
---------- ------- ---------- ----------
（千美元省略）
289,700 联合出版公司 ........................... $ 2,821 $ 8,800
112,545 阿美拉达赫斯公司 ....................... 2,861 5,487
246,450 美国广播公司 ........................... 6,082 9,673
5,730,114 GEICO公司（普通股） .................... 28,288 68,045
328,700 通用食品公司 ........................... 11,437 11,053
1,007,500 Handy & Harman ......................... 21,825 38,537
711,180 埃培智集团公司 ......................... 4,531 23,736
1,211,834 凯撒铝业与化学公司 ..................... 20,629 23,328
282,500 媒体通用公司 ........................... 4,545 7,345
391,400 奥美国际公司 ........................... 3,709 7,828
953,750 SAFECO公司 ............................. 23,867 35,527
1,868,000 华盛顿邮报公司 ......................... 10,628 39,241
771,900 F.W. 伍尔沃斯公司 ...................... 15,515 19,394
---------- ----------
合计 .................................. $156,738 $297,994
所有其他持仓 ........................... 28,675 38,686
---------- ----------
权益总额 .............................. $185,413 $336,680
========== ==========
我们目前认为，1980年的股票市场可能会以一种导致我们的投资组合近年来首次表现不佳的方式发展。我们非常喜欢我们持有重大投资的这些公司，并且不打算为了适应特定年份的市场而进行任何变动。
由于我们在近几年的年报中已经广泛讨论了关于权益投资的投资理念，本年度报告或许更适合更深入地讨论债券投资，特别是考虑到年底以来发生的情况。保险业在债券领域损失了巨额资金——尽管会计准则允许保险公司按摊销成本列示其债券投资，而不考虑受损的市场价值。事实上，正是这种会计惯例可能在很大程度上导致了损失；如果管理层被迫认识到市场价值，他们的注意力可能会更早地集中在非常长期债券合同的风险上。
具有讽刺意味的是，许多保险公司认为，在通货膨胀时期，一年期的汽车保单不合适，并且已经改用六个月的保单。"怎么能指望我们展望十二个月，"许多保险经理说，"来估计诸如医院费用、汽车零部件价格等难以预测的因素呢？"但是，在决定一年时间太长，不适合在一个通货膨胀的世界里为保险设定固定价格之后，他们转身就拿销售六个月保单得来的收益，并以固定价格在未来三十或四十年里把钱卖掉。
非常长期的债券合同，是在一个饱受通胀困扰的世界里，仍然定期签署的最后一种主要的长期固定价格合同。购买2020年间使用的资金的人，能够现在为其使用的每一年获得一个固定价格，而购买汽车保险、医疗服务、新闻纸、办公空间——或几乎任何其他产品或服务——的人，如果他要求现在就确定一个固定价格并一直适用到1985年，只会招来嘲笑。因为在几乎所有其他商业领域，长期合同的当事方现在要么以某种方式对价格进行指数化，要么坚持每年左右审查一次情况的权利。
债券领域一直存在着一种文化滞后。资金的买方（借款人）和中间人（承销商）不太可能主动提出这一切是否合理的问题，而卖方（贷款人）则在经济和合同革命中沉睡。
过去几年，我们的保险公司没有作为任何直接长期债券（即没有转换权或其他提供盈利可能性的属性的债券）的净买家。当然，在直接债券领域也有一些购买，但这些已被出售或到期所抵消。即使在此之前，我们也从不购买三十或四十年的债券；相反，我们试图在直接债券领域集中于带有偿债基金的较短期限债券，以及那些因债券市场效率低下而显得相对低估的债券。
然而，我们所行使的这种轻微程度的谨慎，是对我们周围正在展开的世界的一种不当反应。当别人都在沉睡时，你半醒着并不能充分保护自己。购买15年期债券是个错误，而我们确实买了；我们在没有出售它们（如有必要可以亏损出售）方面犯了更严重的错误，当时我们现在的看法开始成形。（自然，这些看法在事后看来要清晰和确定得多；您有理由问，为什么我们去年没有写这个话题。）
当然，我们必须持有大量债券或其他固定美元负债，以配合我们的保险业务。在过去几年里，我们的净固定美元承诺仅限于购买可转换债券。我们相信，获得的转换期权实际上使这部分债券投资组合的平均期限远低于发行条款所暗示的期限（即，在我们选择的适当时间，我们可以通过转换为股票来终止债券合同）。
这种债券政策使我们遭受的未实现损失远低于绝大多数财产和意外伤害保险公司。近年来我们对股票的强烈偏好也帮了我们，它使我们的整体债券占比相对较低。尽管如此，我们在债券上还是吃了亏，并且觉得，从某种意义上说，我们的错误应该被以比那些不理会问题发展、只管按部就班做自己业务的人所犯的错误更不宽容的态度来看待。
回顾我们的纺织业务经验，我们应该已经意识到，在一个对我们极为不利的潮流中，试图通过（偿债基金和其他特殊类型的发行）耍小聪明是多么徒劳。
我们严重怀疑，在美元价值似乎几乎肯定会逐日缩水的世界里，以美元计价的非常长期固定利率债券是否仍然是一份合适的商业合约。这些美元，以及其他政府的纸质创造物，可能仅仅因为结构性弱点太多，而不适合作为长期商业参考的单位。如果真是这样，真正长期的债券可能会变成过时的工具，而那些购买了2010年或2020年到期债券的保险公司可能会面临重大的、持续的问题。同样，我们也会对我们15年期的债券感到不满，并且每年都将以收益能力的形式为这个错误付出代价。
我们的一些可转换债券对我们来说异常有吸引力，并且具有与我们传统股票投资组合中相同的收益留存因素（适用于其可转换成的股票）。我们期望在这些债券上赚钱（在少数情况下，我们已经赚了），并希望在这一领域的利润可能抵消直接债券的损失。
当然，也有可能是我们目前的分析过于悲观。出现极低通货膨胀率的可能性并非为零。通货膨胀是人造的；或许也能被人所驾驭。令我们警惕的威胁也可能引起立法者和其他有影响力的群体的警惕，从而促使一些适当的应对措施。
此外，当前的利率包含了比一两年前高得多的通胀预期。这样的利率可能被证明足以甚至过度保护债券买家。我们甚至可能错失债券价格大幅反弹带来的巨大利润。然而，我们不愿现在为一磅将在2010年或2020年交付的喜诗糖果或一码伯克希尔布料确定一个价格，这也使我们同样不愿购买那些现在为将来那些年份使用的资金设定价格的债券。总的来说，我们选择波洛尼厄斯（稍作修改）："既不做短期借款人，也不做长期贷款人。"
银行业
这将是我们能报告伊利诺伊国家银行与信托公司作为伯克希尔·哈撒韦子公司的最后一年。因此，特别令人欣慰的是报告：在吉恩·阿贝格和皮特·杰弗里的管理下，该银行去年打破了所有以前的记录，赚取了大约平均资产的2.3%的收益，这个水平再次是普通大型银行平均水平的三倍多，并且是被认为是优秀银行的两倍多。这一记录简直非凡，伯克希尔·哈撒韦的股东们欠吉恩·阿贝格一个热烈的掌声，为今年的业绩，也为我们自1969年收购以来的每一年的业绩。
如你们所知，1969年的《银行控股公司法》要求我们在1980年12月31日之前剥离该银行。几年来，我们一直期望通过在1980年进行剥离来遵守规定。然而，联邦储备委员会采取了坚定的立场，即如果银行被剥离，伯克希尔·哈撒韦的任何高管或董事都不能成为被剥离银行或银行控股公司的高管或董事，即使在我们这样一个个人将持有两家公司超过40%股份的情况下也是如此。
在这些条件下，我们正在研究出售该银行80%至100%股份的可能性。我们对任何买家都会非常挑剔，我们的选择将不仅仅基于价格。该银行及其管理层对我们异常好，如果我们不得不出售，我们想确保他们得到同样好的对待。如果在初秋之前无法获得公平的价格和合适的买家，剥离仍然是一种可能性。
然而，您应该意识到，我们预计无法用出售银行的收益完全、甚至很大程度上替代该银行所代表的盈利能力。你根本不可能以我们银行出售时可能出现的市盈率水平买到高质量的企业。
财务报告
1979年，伯克希尔·哈撒韦的股票开始了NASDAQ交易。这意味着该股票现在在《华尔街日报》的"场外交易"板块下，以"其他场外交易报价"列示。在此上市之前，《华尔街日报》和道琼斯新闻行情机不会报告我们的收益，即使这些收益是它们定期报道的一些公司收益水平的一百倍或更多。
然而现在，道琼斯新闻行情机在我们发布季度收益后立即报告，此外，行情机和《华尔街日报》都会报告我们的年度收益。这解决了一个一直困扰我们的信息传播问题。
在某些方面，我们的股东群体相当不同寻常，这影响了我们向您报告的方式。例如，每年年底，约98%的流通股份由年初也是股东的人持有。因此，在我们的年报中，我们在前几年告诉您的基础上进行构建，而不是重复大量材料。这样您能得到更有用的信息，我们也不会感到无聊。
此外，也许我们90%的股份由投资者持有，对于他们来说，伯克希尔是其最大的证券持仓，而且往往远远大于其他任何持仓。这些所有者中有许多人愿意花大量时间阅读年报，我们试图为他们提供如果我们角色互换我们会觉得有用的相同信息。
相比之下，我们的季度报告不包含任何叙述性内容。我们的所有者和经理人对这项业务都有非常长远的视野，要每个季度就具有长期意义的事件说些新东西或有意义的东西是困难的。
但是当您确实收到我们的通信时，它将来自您付钱来经营业务的那个人。你们的主席坚信，所有者有权直接从CEO那里听到正在发生什么，以及他如何评估当前和未来的业务。在私有公司里，您会要求这一点；在上市公司里，您也应该期望如此。一份一年一度的受托责任报告不应该交给一位不太可能以管理者对所有者身份坦诚谈话的内部专家或公共关系顾问。
我们觉得，作为所有者，您有权从您的经理那里得到与我们觉得我们有权力期望伯克希尔·哈撒韦各业务部门经理向我们报告的那种报告。显然，详细程度必须有所不同，特别是在信息可能对业务竞争对手等有用的情况下。但总体范围、平衡和坦诚程度应该是相似的。当我们的运营经理告诉我们正在发生什么时，我们不期望一份公关文件，我们认为您也不应该收到这样一份文件。
在很大程度上，公司会得到他们所寻求和应得的股东群体。如果他们将其思考和沟通集中于短期结果或短期股市影响上，那么他们很大程度上会吸引关注同样因素的股东。而如果他们在对待投资者时玩世不恭，那么最终这种玩世不恭极有可能被投资界回馈给他们。
备受尊敬的投资者兼作家菲利普·费雪曾将公司吸引股东的政策比作餐厅吸引潜在顾客的政策。一家餐厅可以寻求特定的顾客群——快餐爱好者、精致餐饮爱好者、东方美食爱好者等——并最终获得一群合适的忠实顾客。如果做得专业，这个顾客群，对所提供的服务、菜单和价格水平感到满意，就会持续光顾。但餐厅不能不断地改变其特色，而最终拥有一个快乐和稳定的顾客群。如果生意在法式大餐和外卖炸鸡之间摇摆不定，结果将是一扇旋转门，进出的都是困惑和不满意的顾客。
公司和他们所寻求的股东群体也是如此。你不可能同时成为所有人的一切，同时吸引不同的所有者，他们的主要兴趣从高当期收益率到长期资本增长再到股市烟火表演等等。
那些寻求其股票大量交易活动的管理层的推理让我们困惑。实际上，这样的管理层是在说，他们希望相当多的现有顾客不断抛弃他们，去投奔新顾客——因为如果不失去很多老所有者，你就无法增加很多（带着新期望的）新所有者。
我们更喜欢那些喜欢我们的服务和菜单并年复一年回来的所有者。很难找到比已经坐在伯克希尔·哈撒韦股东"座位"上的人更好的群体了。因此，我们希望继续在我们的所有者中保持非常低的换手率，这反映了一个理解我们的运营、认同我们的政策并分享我们期望的群体。并且我们希望实现这些期望。
前景
去年我们说过，我们预计经营利润在美元金额上会改善，但股本回报率会下降。事实证明这是正确的。我们对1980年的预测相同。如果我们错了，那会是向下偏差。换句话说，我们几乎可以肯定，我们的经营利润按大约2.36亿美元的新股本基础（证券按成本计价）计算的百分比，将从1979年达到的18.6%下降。还有一种相当大的可能性是，经营利润的总美元金额将低于1979年；结果部分取决于银行处置的日期，部分取决于保险承保盈利能力的下滑程度，部分取决于储蓄和贷款行业盈利问题的严重程度。
我们继续对我们的保险权益投资感到非常好。在几年时间里，我们预计将发展出非常庞大且不断增长的潜在盈利能力，这归因于我们对这些公司的部分所有权。在大多数情况下，它们是出色的企业，管理出色，以极具吸引力的价格购买。
你们的公司是按照财务决策在顶层集权（可以补充说，是在最顶层），而将相当大的经营权力下放给各个公司或业务单位的几位关键经理的原则来运营的。我们的公司总部团队（仅占用约1500平方英尺的空间）就能凑齐一支篮球队。
这种方法偶尔会导致一个重大的错误，而这个错误或许可以通过更紧密的运营控制来避免或最小化。但它也消除了大量成本层级，并极大地加快了决策速度。因为每个人都有很多事情要做，所以很多很多事情都完成了。最重要的是，它使我们能够吸引并留住一些非凡的人才——这些人在正常情况下是无法被雇佣的——他们发现为伯克希尔工作几乎和经营自己的事业一模一样。
我们给予他们极大的信任——而他们的成就远远超出了这种信任。
沃伦·E·巴菲特，董事长
1980年3月3日