ENGLISH
BERKSHIRE HATHAWAY INC.
To the Shareholders of Berkshire Hathaway Inc.:
Operating earnings improved to $41.9 million in 1980 from
$36.0 million in 1979, but return on beginning equity capital
(with securities valued at cost) fell to 17.8% from 18.6%. We
believe the latter yardstick to be the most appropriate measure
of single-year managerial economic performance. Informed use of
that yardstick, however, requires an understanding of many
factors, including accounting policies, historical carrying
values of assets, financial leverage, and industry conditions.
In your evaluation of our economic performance, we suggest
that two factors should receive your special attention - one of a
positive nature peculiar, to a large extent, to our own
operation, and one of a negative nature applicable to corporate
performance generally. Let’s look at the bright side first.
Non-Controlled Ownership Earnings
When one company owns part of another company, appropriate
accounting procedures pertaining to that ownership interest must
be selected from one of three major categories. The percentage
of voting stock that is owned, in large part, determines which
category of accounting principles should be utilized.
Generally accepted accounting principles require (subject to
exceptions, naturally, as with our former bank subsidiary) full
consolidation of sales, expenses, taxes, and earnings of business
holdings more than 50% owned. Blue Chip Stamps, 60% owned by
Berkshire Hathaway Inc., falls into this category. Therefore,
all Blue Chip income and expense items are included in full in
Berkshire’s Consolidated Statement of Earnings, with the 40%
ownership interest of others in Blue Chip’s net earnings
reflected in the Statement as a deduction for “minority
interest”.
Full inclusion of underlying earnings from another class of
holdings, companies owned 20% to 50% (usually called
“investees”), also normally occurs. Earnings from such companies
- for example, Wesco Financial, controlled by Berkshire but only
48% owned - are included via a one-line entry in the owner’s
Statement of Earnings. Unlike the over-50% category, all items
of revenue and expense are omitted; just the proportional share
of net income is included. Thus, if Corporation A owns one-third
of Corporation B, one-third of B’s earnings, whether or not
distributed by B, will end up in A’s earnings. There are some
modifications, both in this and the over-50% category, for
intercorporate taxes and purchase price adjustments, the
explanation of which we will save for a later day. (We know you
can hardly wait.)
Finally come holdings representing less than 20% ownership
of another corporation’s voting securities. In these cases,
accounting rules dictate that the owning companies include in
their earnings only dividends received from such holdings.
Undistributed earnings are ignored. Thus, should we own 10% of
Corporation X with earnings of $10 million in 1980, we would
report in our earnings (ignoring relatively minor taxes on
intercorporate dividends) either (a) $1 million if X declared the
full $10 million in dividends; (b) $500,000 if X paid out 50%, or
$5 million, in dividends; or (c) zero if X reinvested all
earnings.
We impose this short - and over-simplified - course in
accounting upon you because Berkshire’s concentration of
resources in the insurance field produces a corresponding
concentration of its assets in companies in that third (less than
20% owned) category. Many of these companies pay out relatively
small proportions of their earnings in dividends. This means
that only a small proportion of their current earning power is
recorded in our own current operating earnings. But, while our
reported operating earnings reflect only the dividends received
from such companies, our economic well-being is determined by
their earnings, not their dividends.
Our holdings in this third category of companies have
increased dramatically in recent years as our insurance business
has prospered and as securities markets have presented
particularly attractive opportunities in the common stock area.
The large increase in such holdings, plus the growth of earnings
experienced by those partially-owned companies, has produced an
unusual result; the part of “our” earnings that these companies
retained last year (the part not paid to us in dividends)
exceeded the total reported annual operating earnings of
Berkshire Hathaway. Thus, conventional accounting only allows
less than half of our earnings “iceberg” to appear above the
surface, in plain view. Within the corporate world such a result
is quite rare; in our case it is likely to be recurring.
Our own analysis of earnings reality differs somewhat from
generally accepted accounting principles, particularly when those
principles must be applied in a world of high and uncertain rates
of inflation. (But it’s much easier to criticize than to improve
such accounting rules. The inherent problems are monumental.) We
have owned 100% of businesses whose reported earnings were not
worth close to 100 cents on the dollar to us even though, in an
accounting sense, we totally controlled their disposition. (The
“control” was theoretical. Unless we reinvested all earnings,
massive deterioration in the value of assets already in place
would occur. But those reinvested earnings had no prospect of
earning anything close to a market return on capital.) We have
also owned small fractions of businesses with extraordinary
reinvestment possibilities whose retained earnings had an
economic value to us far in excess of 100 cents on the dollar.
The value to Berkshire Hathaway of retained earnings is not
determined by whether we own 100%, 50%, 20% or 1% of the
businesses in which they reside. Rather, the value of those
retained earnings is determined by the use to which they are put
and the subsequent level of earnings produced by that usage.
This is true whether we determine the usage, or whether managers
we did not hire - but did elect to join - determine that usage.
(It’s the act that counts, not the actors.) And the value is in
no way affected by the inclusion or non-inclusion of those
retained earnings in our own reported operating earnings. If a
tree grows in a forest partially owned by us, but we don’t record
the growth in our financial statements, we still own part of the
tree.
Our view, we warn you, is non-conventional. But we would
rather have earnings for which we did not get accounting credit
put to good use in a 10%-owned company by a management we did not
personally hire, than have earnings for which we did get credit
put into projects of more dubious potential by another management
- even if we are that management.
(We can’t resist pausing here for a short commercial. One
usage of retained earnings we often greet with special enthusiasm
when practiced by companies in which we have an investment
interest is repurchase of their own shares. The reasoning is
simple: if a fine business is selling in the market place for far
less than intrinsic value, what more certain or more profitable
utilization of capital can there be than significant enlargement
of the interests of all owners at that bargain price? The
competitive nature of corporate acquisition activity almost
guarantees the payment of a full - frequently more than full
price when a company buys the entire ownership of another
enterprise. But the auction nature of security markets often
allows finely-run companies the opportunity to purchase portions
of their own businesses at a price under 50% of that needed to
acquire the same earning power through the negotiated acquisition
of another enterprise.)
Long-Term Corporate Results
As we have noted, we evaluate single-year corporate
performance by comparing operating earnings to shareholders’
equity with securities valued at cost. Our long-term yardstick
of performance, however, includes all capital gains or losses,
realized or unrealized. We continue to achieve a long-term
return on equity that considerably exceeds the average of our
yearly returns. The major factor causing this pleasant result is
a simple one: the retained earnings of those non-controlled
holdings we discussed earlier have been translated into gains in
market value.
Of course, this translation of retained earnings into market
price appreciation is highly uneven (it goes in reverse some
years), unpredictable as to timing, and unlikely to materialize
on a precise dollar-for-dollar basis. And a silly purchase price
for a block of stock in a corporation can negate the effects of a
decade of earnings retention by that corporation. But when
purchase prices are sensible, some long-term market recognition
of the accumulation of retained earnings almost certainly will
occur. Periodically you even will receive some frosting on the
cake, with market appreciation far exceeding post-purchase
retained earnings.
In the sixteen years since present management assumed
responsibility for Berkshire, book value per share with
insurance-held equities valued at market has increased from
$19.46 to $400.80, or 20.5% compounded annually. (You’ve done
better: the value of the mineral content in the human body
compounded at 22% annually during the past decade.) It is
encouraging, moreover, to realize that our record was achieved
despite many mistakes. The list is too painful and lengthy to
detail here. But it clearly shows that a reasonably competitive
corporate batting average can be achieved in spite of a lot of
managerial strikeouts.
Our insurance companies will continue to make large
investments in well-run, favorably-situated, non-controlled
companies that very often will pay out in dividends only small
proportions of their earnings. Following this policy, we would
expect our long-term returns to continue to exceed the returns
derived annually from reported operating earnings. Our
confidence in this belief can easily be quantified: if we were to
sell the equities that we hold and replace them with long-term
tax-free bonds, our reported operating earnings would rise
immediately by over $30 million annually. Such a shift tempts us
not at all.
So much for the good news.
Results for Owners
Unfortunately, earnings reported in corporate financial
statements are no longer the dominant variable that determines
whether there are any real earnings for you, the owner. For only
gains in purchasing power represent real earnings on investment.
If you (a) forego ten hamburgers to purchase an investment; (b)
receive dividends which, after tax, buy two hamburgers; and (c)
receive, upon sale of your holdings, after-tax proceeds that will
buy eight hamburgers, then (d) you have had no real income from
your investment, no matter how much it appreciated in dollars.
You may feel richer, but you won’t eat richer.
High rates of inflation create a tax on capital that makes
much corporate investment unwise - at least if measured by the
criterion of a positive real investment return to owners. This
“hurdle rate” the return on equity that must be achieved by a
corporation in order to produce any real return for its
individual owners - has increased dramatically in recent years.
The average tax-paying investor is now running up a down
escalator whose pace has accelerated to the point where his
upward progress is nil.
For example, in a world of 12% inflation a business earning
20% on equity (which very few manage consistently to do) and
distributing it all to individuals in the 50% bracket is chewing
up their real capital, not enhancing it. (Half of the 20% will go
for income tax; the remaining 10% leaves the owners of the
business with only 98% of the purchasing power they possessed at
the start of the year - even though they have not spent a penny
of their “earnings”). The investors in this bracket would
actually be better off with a combination of stable prices and
corporate earnings on equity capital of only a few per cent.
Explicit income taxes alone, unaccompanied by any implicit
inflation tax, never can turn a positive corporate return into a
negative owner return. (Even if there were 90% personal income
tax rates on both dividends and capital gains, some real income
would be left for the owner at a zero inflation rate.) But the
inflation tax is not limited by reported income. Inflation rates
not far from those recently experienced can turn the level of
positive returns achieved by a majority of corporations into
negative returns for all owners, including those not required to
pay explicit taxes. (For example, if inflation reached 16%,
owners of the 60% plus of corporate America earning less than
this rate of return would be realizing a negative real return -
even if income taxes on dividends and capital gains were
eliminated.)
Of course, the two forms of taxation co-exist and interact
since explicit taxes are levied on nominal, not real, income.
Thus you pay income taxes on what would be deficits if returns to
stockholders were measured in constant dollars.
At present inflation rates, we believe individual owners in
medium or high tax brackets (as distinguished from tax-free
entities such as pension funds, eleemosynary institutions, etc.)
should expect no real long-term return from the average American
corporation, even though these individuals reinvest the entire
after-tax proceeds from all dividends they receive. The average
return on equity of corporations is fully offset by the
combination of the implicit tax on capital levied by inflation
and the explicit taxes levied both on dividends and gains in
value produced by retained earnings.
As we said last year, Berkshire has no corporate solution to
the problem. (We’ll say it again next year, too.) Inflation does
not improve our return on equity.
Indexing is the insulation that all seek against inflation.
But the great bulk (although there are important exceptions) of
corporate capital is not even partially indexed. Of course,
earnings and dividends per share usually will rise if significant
earnings are “saved” by a corporation; i.e., reinvested instead
of paid as dividends. But that would be true without inflation.
A thrifty wage earner, likewise, could achieve regular annual
increases in his total income without ever getting a pay increase
- if he were willing to take only half of his paycheck in cash
(his wage “dividend”) and consistently add the other half (his
“retained earnings”) to a savings account. Neither this high-
saving wage earner nor the stockholder in a high-saving
corporation whose annual dividend rate increases while its rate
of return on equity remains flat is truly indexed.
For capital to be truly indexed, return on equity must rise,
i.e., business earnings consistently must increase in proportion
to the increase in the price level without any need for the
business to add to capital - including working capital -
employed. (Increased earnings produced by increased investment
don’t count.) Only a few businesses come close to exhibiting this
ability. And Berkshire Hathaway isn’t one of them.
We, of course, have a corporate policy of reinvesting
earnings for growth, diversity and strength, which has the
incidental effect of minimizing the current imposition of
explicit taxes on our owners. However, on a day-by-day basis,
you will be subjected to the implicit inflation tax, and when you
wish to transfer your investment in Berkshire into another form
of investment, or into consumption, you also will face explicit
taxes.
Sources of Earnings
The table below shows the sources of Berkshire’s reported
earnings. Berkshire owns about 60% of Blue Chip Stamps, which in
turn owns 80% of Wesco Financial Corporation. The table shows
aggregate earnings of the various business entities, as well as
Berkshire’s share of those earnings. All of the significant
capital gains and losses attributable to any of the business
entities are aggregated in the realized securities gains figure
at the bottom of the table, and are not included in operating
earnings. Our calculation of operating earnings also excludes
the gain from sale of Mutual’s branch offices. In this respect
it differs from the presentation in our audited financial
statements that includes this item in the calculation of
“Earnings Before Realized Investment Gain”.
Net Earnings
Earnings Before Income Taxes After Tax
-------------------------------------- ------------------
Total Berkshire Share Berkshire Share
------------------ ------------------ ------------------
(in thousands of dollars) 1980 1979 1980 1979 1980 1979
-------- -------- -------- -------- -------- --------
Total Earnings - all entities $ 85,945 $ 68,632 $ 70,146 $ 56,427 $ 53,122 $ 42,817
======== ======== ======== ======== ======== ========
Earnings from Operations:
Insurance Group:
Underwriting ............ $ 6,738 $ 3,742 $ 6,737 $ 3,741 $ 3,637 $ 2,214
Net Investment Income ... 30,939 24,224 30,927 24,216 25,607 20,106
Berkshire-Waumbec Textiles (508) 1,723 (508) 1,723 202 848
Associated Retail Stores .. 2,440 2,775 2,440 2,775 1,169 1,280
See’s Candies ............. 15,031 12,785 8,958 7,598 4,212 3,448
Buffalo Evening News ...... (2,805) (4,617) (1,672) (2,744) (816) (1,333)
Blue Chip Stamps - Parent 7,699 2,397 4,588 1,425 3,060 1,624
Illinois National Bank .... 5,324 5,747 5,200 5,614 4,731 5,027
Wesco Financial - Parent .. 2,916 2,413 1,392 1,098 1,044 937
Mutual Savings and Loan ... 5,814 10,447 2,775 4,751 1,974 3,261
Precision Steel ........... 2,833 3,254 1,352 1,480 656 723
Interest on Debt .......... (12,230) (8,248) (9,390) (5,860) (4,809) (2,900)
Other ..................... 2,170 1,342 1,590 996 1,255 753
-------- -------- -------- -------- -------- --------
Total Earnings from
Operations ........... $ 66,361 $ 57,984 $ 54,389 $ 46,813 $ 41,922 $ 35,988
Mutual Savings and Loan -
sale of branches ....... 5,873 -- 2,803 -- 1,293 --
Realized Securities Gain .... 13,711 10,648 12,954 9,614 9,907 6,829
-------- -------- -------- -------- -------- --------
Total Earnings - all entities $ 85,945 $ 68,632 $ 70,146 $ 56,427 $ 53,122 $ 42,817
======== ======== ======== ======== ======== ========
Blue Chip Stamps and Wesco are public companies with
reporting requirements of their own. On pages 40 to 53 of this
report we have reproduced the narrative reports of the principal
executives of both companies, in which they describe 1980
operations. We recommend a careful reading, and suggest that you
particularly note the superb job done by Louie Vincenti and
Charlie Munger in repositioning Mutual Savings and Loan. A copy
of the full annual report of either company will be mailed to any
Berkshire shareholder 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.
As indicated earlier, undistributed earnings in companies we
do not control are now fully as important as the reported
operating earnings detailed in the preceding table. The
distributed portion, of course, finds its way into the table
primarily through the net investment income section of Insurance
Group earnings.
We show below Berkshire’s proportional holdings in those
non-controlled businesses for which only distributed earnings
(dividends) are included in our own earnings.
No. of Shares Cost Market
------------- ---------- ----------
(000s omitted)
434,550 (a) Affiliated Publications, Inc. ......... $ 2,821 $ 12,222
464,317 (a) Aluminum Company of America ........... 25,577 27,685
475,217 (b) Cleveland-Cliffs Iron Company ......... 12,942 15,894
1,983,812 (b) General Foods, Inc. ................... 62,507 59,889
7,200,000 (a) GEICO Corporation ..................... 47,138 105,300
2,015,000 (a) Handy & Harman ........................ 21,825 58,435
711,180 (a) Interpublic Group of Companies, Inc. .. 4,531 22,135
1,211,834 (a) Kaiser Aluminum & Chemical Corp. ...... 20,629 27,569
282,500 (a) Media General ......................... 4,545 8,334
247,039 (b) National Detroit Corporation .......... 5,930 6,299
881,500 (a) National Student Marketing ............ 5,128 5,895
391,400 (a) Ogilvy & Mather Int’l. Inc. ........... 3,709 9,981
370,088 (b) Pinkerton’s, Inc. ..................... 12,144 16,489
245,700 (b) R. J. Reynolds Industries ............. 8,702 11,228
1,250,525 (b) SAFECO Corporation .................... 32,062 45,177
151,104 (b) The Times Mirror Company .............. 4,447 6,271
1,868,600 (a) The Washington Post Company ........... 10,628 42,277
667,124 (b) E W Woolworth Company ................. 13,583 16,511
---------- ----------
$298,848 $497,591
All Other Common Stockholdings ........ 26,313 32,096
---------- ----------
Total Common Stocks ................... $325,161 $529,687
========== ==========
(a) All owned by Berkshire or its insurance subsidiaries.
(b) Blue Chip and/or Wesco own shares of these companies. All
numbers represent Berkshire’s net interest in the larger
gross holdings of the group.
From this table, you can see that our sources of underlying
earning power are distributed far differently among industries
than would superficially seem the case. For example, our
insurance subsidiaries own approximately 3% of Kaiser Aluminum,
and 1 1/4% of Alcoa. Our share of the 1980 earnings of those
companies amounts to about $13 million. (If translated dollar for
dollar into a combination of eventual market value gain and
dividends, this figure would have to be reduced by a significant,
but not precisely determinable, amount of tax; perhaps 25% would
be a fair assumption.) Thus, we have a much larger economic
interest in the aluminum business than in practically any of the
operating businesses we control and on which we report in more
detail. If we maintain our holdings, our long-term performance
will be more affected by the future economics of the aluminum
industry than it will by direct operating decisions we make
concerning most companies over which we exercise managerial
control.
GEICO Corp.
Our largest non-controlled holding is 7.2 million shares of
GEICO Corp., equal to about a 33% equity interest. Normally, an
interest of this magnitude (over 20%) would qualify as an
“investee” holding and would require us to reflect a
proportionate share of GEICO’s earnings in our own. However, we
purchased our GEICO stock pursuant to special orders of the
District of Columbia and New York Insurance Departments, which
required that the right to vote the stock be placed with an
independent party. Absent the vote, our 33% interest does not
qualify for investee treatment. (Pinkerton’s is a similar
situation.)
Of course, whether or not the undistributed earnings of
GEICO are picked up annually in our operating earnings figure has
nothing to do with their economic value to us, or to you as
owners of Berkshire. The value of these retained earnings will
be determined by the skill with which they are put to use by
GEICO management.
On this score, we simply couldn’t feel better. GEICO
represents the best of all investment worlds - the coupling of a
very important and very hard to duplicate business advantage with
an extraordinary management whose skills in operations are
matched by skills in capital allocation.
As you can see, our holdings cost us $47 million, with about
half of this amount invested in 1976 and most of the remainder
invested in 1980. At the present dividend rate, our reported
earnings from GEICO amount to a little over $3 million annually.
But we estimate our share of its earning power is on the order of
$20 million annually. Thus, undistributed earnings applicable to
this holding alone may amount to 40% of total reported operating
earnings of Berkshire.
We should emphasize that we feel as comfortable with GEICO
management retaining an estimated $17 million of earnings
applicable to our ownership as we would if that sum were in our
own hands. In just the last two years GEICO, through repurchases
of its own stock, has reduced the share equivalents it has
outstanding from 34.2 million to 21.6 million, dramatically
enhancing the interests of shareholders in a business that simply
can’t be replicated. The owners could not have been better
served.
We have written in past reports about the disappointments
that usually result from purchase and operation of “turnaround”
businesses. Literally hundreds of turnaround possibilities in
dozens of industries have been described to us over the years
and, either as participants or as observers, we have tracked
performance against expectations. Our conclusion is that, with
few exceptions, when a management with a reputation for
brilliance tackles a business with a reputation for poor
fundamental economics, it is the reputation of the business that
remains intact.
GEICO may appear to be an exception, having been turned
around from the very edge of bankruptcy in 1976. It certainly is
true that managerial brilliance was needed for its resuscitation,
and that Jack Byrne, upon arrival in that year, supplied that
ingredient in abundance.
But it also is true that the fundamental business advantage
that GEICO had enjoyed - an advantage that previously had
produced staggering success - was still intact within the
company, although submerged in a sea of financial and operating
troubles.
GEICO was designed to be the low-cost operation in an
enormous marketplace (auto insurance) populated largely by
companies whose marketing structures restricted adaptation. Run
as designed, it could offer unusual value to its customers while
earning unusual returns for itself. For decades it had been run
in just this manner. Its troubles in the mid-70s were not
produced by any diminution or disappearance of this essential
economic advantage.
GEICO’s problems at that time put it in a position analogous
to that of American Express in 1964 following the salad oil
scandal. Both were one-of-a-kind companies, temporarily reeling
from the effects of a fiscal blow that did not destroy their
exceptional underlying economics. The GEICO and American Express
situations, extraordinary business franchises with a localized
excisable cancer (needing, to be sure, a skilled surgeon), should
be distinguished from the true “turnaround” situation in which
the managers expect - and need - to pull off a corporate
Pygmalion.
Whatever the appellation, we are delighted with our GEICO
holding which, as noted, cost us $47 million. To buy a similar
$20 million of earning power in a business with first-class
economic characteristics and bright prospects would cost a
minimum of $200 million (much more in some industries) if it had
to be accomplished through negotiated purchase of an entire
company. A 100% interest of that kind gives the owner the
options of leveraging the purchase, changing managements,
directing cash flow, and selling the business. It may also
provide some excitement around corporate headquarters (less
frequently mentioned).
We find it perfectly satisfying that the nature of our
insurance business dictates we buy many minority portions of
already well-run businesses (at prices far below our share of the
total value of the entire business) that do not need management
change, re-direction of cash flow, or sale. There aren’t many
Jack Byrnes in the managerial world, or GEICOs in the business
world. What could be better than buying into a partnership with
both of them?
Insurance Industry Conditions
The insurance industry’s underwriting picture continues to
unfold about as we anticipated, with the combined ratio (see
definition on page 37) rising from 100.6 in 1979 to an estimated
103.5 in 1980. It is virtually certain that this trend will
continue and that industry underwriting losses will mount,
significantly and progressively, in 1981 and 1982. To understand
why, we recommend that you read the excellent analysis of
property-casualty competitive dynamics done by Barbara Stewart of
Chubb Corp. in an October 1980 paper. (Chubb’s annual report
consistently presents the most insightful, candid and well-
written discussion of industry conditions; you should get on the
company’s mailing list.) Mrs. Stewart’s analysis may not be
cheerful, but we think it is very likely to be accurate.
And, unfortunately, a largely unreported but particularly
pernicious problem may well prolong and intensify the coming
industry agony. It is not only likely to keep many insurers
scrambling for business when underwriting losses hit record
levels - it is likely to cause them at such a time to redouble
their efforts.
This problem arises from the decline in bond prices and the
insurance accounting convention that allows companies to carry
bonds at amortized cost, regardless of market value. Many
insurers own long-term bonds that, at amortized cost, amount to
two to three times net worth. If the level is three times, of
course, a one-third shrink from cost in bond prices - if it were
to be recognized on the books - would wipe out net worth. And
shrink they have. Some of the largest and best known property-
casualty companies currently find themselves with nominal, or
even negative, net worth when bond holdings are valued at market.
Of course their bonds could rise in price, thereby partially, or
conceivably even fully, restoring the integrity of stated net
worth. Or they could fall further. (We believe that short-term
forecasts of stock or bond prices are useless. The forecasts may
tell you a great deal about the forecaster; they tell you nothing
about the future.)
It might strike some as strange that an insurance company’s
survival is threatened when its stock portfolio falls
sufficiently in price to reduce net worth significantly, but that
an even greater decline in bond prices produces no reaction at
all. The industry would respond by pointing out that, no matter
what the current price, the bonds will be paid in full at
maturity, thereby eventually eliminating any interim price
decline. It may take twenty, thirty, or even forty years, this
argument says, but, as long as the bonds don’t have to be sold,
in the end they’ll all be worth face value. Of course, if they
are sold even if they are replaced with similar bonds offering
better relative value - the loss must be booked immediately.
And, just as promptly, published net worth must be adjusted
downward by the amount of the loss.
Under such circumstances, a great many investment options
disappear, perhaps for decades. For example, when large
underwriting losses are in prospect, it may make excellent
business logic for some insurers to shift from tax-exempt bonds
into taxable bonds. Unwillingness to recognize major bond losses
may be the sole factor that prevents such a sensible move.
But the full implications flowing from massive unrealized
bond losses are far more serious than just the immobilization of
investment intellect. For the source of funds to purchase and
hold those bonds is a pool of money derived from policyholders
and claimants (with changing faces) - money which, in effect, is
temporarily on deposit with the insurer. As long as this pool
retains its size, no bonds must be sold. If the pool of funds
shrinks - which it will if the volume of business declines
significantly - assets must be sold to pay off the liabilities.
And if those assets consist of bonds with big unrealized losses,
such losses will rapidly become realized, decimating net worth in
the process.
Thus, an insurance company with a bond market value
shrinkage approaching stated net worth (of which there are now
many) and also faced with inadequate rate levels that are sure to
deteriorate further has two options. One option for management
is to tell the underwriters to keep pricing according to the
exposure involved - “be sure to get a dollar of premium for every
dollar of expense cost plus expectable loss cost”.
The consequences of this directive are predictable: (a) with
most business both price sensitive and renewable annually, many
policies presently on the books will be lost to competitors in
rather short order; (b) as premium volume shrinks significantly,
there will be a lagged but corresponding decrease in liabilities
(unearned premiums and claims payable); (c) assets (bonds) must
be sold to match the decrease in liabilities; and (d) the
formerly unrecognized disappearance of net worth will become
partially recognized (depending upon the extent of such sales) in
the insurer’s published financial statements.
Variations of this depressing sequence involve a smaller
penalty to stated net worth. The reaction of some companies at
(c) would be to sell either stocks that are already carried at
market values or recently purchased bonds involving less severe
losses. This ostrich-like behavior - selling the better assets
and keeping the biggest losers - while less painful in the short
term, is unlikely to be a winner in the long term.
The second option is much simpler: just keep writing
business regardless of rate levels and whopping prospective
underwriting losses, thereby maintaining the present levels of
premiums, assets and liabilities - and then pray for a better
day, either for underwriting or for bond prices. There is much
criticism in the trade press of “cash flow” underwriting; i.e.,
writing business regardless of prospective underwriting losses in
order to obtain funds to invest at current high interest rates.
This second option might properly be termed “asset maintenance”
underwriting - the acceptance of terrible business just to keep
the assets you now have.
Of course you know which option will be selected. And it
also is clear that as long as many large insurers feel compelled
to choose that second option, there will be no better day for
underwriting. For if much of the industry feels it must maintain
premium volume levels regardless of price adequacy, all insurers
will have to come close to meeting those prices. Right behind
having financial problems yourself, the next worst plight is to
have a large group of competitors with financial problems that
they can defer by a “sell-at-any-price” policy.
We mentioned earlier that companies that were unwilling -
for any of a number of reasons, including public reaction,
institutional pride, or protection of stated net worth - to sell
bonds at price levels forcing recognition of major losses might
find themselves frozen in investment posture for a decade or
longer. But, as noted, that’s only half of the problem.
Companies that have made extensive commitments to long-term bonds
may have lost, for a considerable period of time, not only many
of their investment options, but many of their underwriting
options as well.
Our own position in this respect is satisfactory. We
believe our net worth, valuing bonds of all insurers at amortized
cost, is the strongest relative to premium volume among all large
property-casualty stockholder-owned groups. When bonds are
valued at market, our relative strength becomes far more
dramatic. (But lest we get too puffed up, we remind ourselves
that our asset and liability maturities still are far more
mismatched than we would wish and that we, too, lost important
sums in bonds because your Chairman was talking when he should
have been acting.)
Our abundant capital and investment flexibility will enable
us to do whatever we think makes the most sense during the
prospective extended period of inadequate pricing. But troubles
for the industry mean troubles for us. Our financial strength
doesn’t remove us from the hostile pricing environment now
enveloping the entire property-casualty insurance industry. It
just gives us more staying power and more options.
Insurance Operations
The National Indemnity managers, led by Phil Liesche with
the usual able assistance of Roland Miller and Bill Lyons, outdid
themselves in 1980. While volume was flat, underwriting margins
relative to the industry were at an all-time high. We expect
decreased volume from this operation in 1981. But its managers
will hear no complaints from corporate headquarters, nor will
employment or salaries suffer. We enormously admire the National
Indemnity underwriting discipline - embedded from origin by the
founder, Jack Ringwalt - and know that this discipline, if
suspended, probably could not be fully regained.
John Seward at Home and Auto continues to make good progress
in replacing a diminishing number of auto policies with volume
from less competitive lines, primarily small-premium general
liability. Operations are being slowly expanded, both
geographically and by product line, as warranted by underwriting
results.
The reinsurance business continues to reflect the excesses
and problems of the primary writers. Worse yet, it has the
potential for magnifying such excesses. Reinsurance is
characterized by extreme ease of entry, large premium payments in
advance, and much-delayed loss reports and loss payments.
Initially, the morning mail brings lots of cash and few claims.
This state of affairs can produce a blissful, almost euphoric,
feeling akin to that experienced by an innocent upon receipt of
his first credit card.
The magnetic lure of such cash-generating characteristics,
currently enhanced by the presence of high interest rates, is
transforming the reinsurance market into “amateur night”.
Without a super catastrophe, industry underwriting will be poor
in the next few years. If we experience such a catastrophe,
there could be a bloodbath with some companies not able to live
up to contractual commitments. George Young continues to do a
first-class job for us in this business. Results, with
investment income included, have been reasonably profitable. We
will retain an active reinsurance presence but, for the
foreseeable future, we expect no premium growth from this
activity.
We continue to have serious problems in the Homestate
operation. Floyd Taylor in Kansas has done an outstanding job
but our underwriting record elsewhere is considerably below
average. Our poorest performer has been Insurance Company of
Iowa, at which large losses have been sustained annually since
its founding in 1973. Late in the fall we abandoned underwriting
in that state, and have merged the company into Cornhusker
Casualty. There is potential in the homestate concept, but much
work needs to be done in order to realize it.
Our Workers Compensation operation suffered a severe loss
when Frank DeNardo died last year at 37. Frank instinctively
thought like an underwriter. He was a superb technician and a
fierce competitor; in short order he had straightened out major
problems at the California Workers Compensation Division of
National Indemnity. Dan Grossman, who originally brought Frank
to us, stepped in immediately after Frank’s death to continue
that operation, which now utilizes Redwood Fire and Casualty,
another Berkshire subsidiary, as the insuring vehicle.
Our major Workers Compensation operation, Cypress Insurance
Company, run by Milt Thornton, continues its outstanding record.
Year after year Milt, like Phil Liesche, runs an underwriting
operation that far outpaces his competition. In the industry he
is admired and copied, but not matched.
Overall, we look for a significant decline in insurance
volume in 1981 along with a poorer underwriting result. We
expect underwriting experience somewhat superior to that of the
industry but, of course, so does most of the industry. There
will be some disappointments.
Textile and Retail Operations
During the past year we have cut back the scope of our
textile business. Operations at Waumbec Mills have been
terminated, reluctantly but necessarily. Some equipment was
transferred to New Bedford but most has been sold, or will be,
along with real estate. Your Chairman made a costly mistake in
not facing the realities of this situation sooner.
At New Bedford we have reduced the number of looms operated
by about one-third, abandoning some high-volume lines in which
product differentiation was insignificant. Even assuming
everything went right - which it seldom did - these lines could
not generate adequate returns related to investment. And, over a
full industry cycle, losses were the most likely result.
Our remaining textile operation, still sizable, has been
divided into a manufacturing and a sales division, each free to
do business independent of the other. Thus, distribution
strengths and mill capabilities will not be wedded to each other.
We have more than doubled capacity in our most profitable textile
segment through a recent purchase of used 130-inch Saurer looms.
Current conditions indicate another tough year in textiles, but
with substantially less capital employed in the operation.
Ben Rosner’s record at Associated Retail Stores continues to
amaze us. In a poor retailing year, Associated’s earnings
continued excellent - and those earnings all were translated into
cash. On March 7, 1981 Associated will celebrate its 50th
birthday. Ben has run the business (along with Leo Simon, his
partner from 1931 to 1966) in each of those fifty years.
Disposition of Illinois National Bank and Trust of Rockford
On December 31, 1980 we completed the exchange of 41,086
shares of Rockford Bancorp Inc. (which owns 97.7% of Illinois
National Bank) for a like number of shares of Berkshire Hathaway
Inc.
Our method of exchange allowed all Berkshire shareholders to
maintain their proportional interest in the Bank (except for me;
I was permitted 80% of my proportional share). They were thus
guaranteed an ownership position identical to that they would
have attained had we followed a more conventional spinoff
approach. Twenty-four shareholders (of our approximate 1300)
chose this proportional exchange option.
We also allowed overexchanges, and thirty-nine additional
shareholders accepted this option, thereby increasing their
ownership in the Bank and decreasing their proportional ownership
in Berkshire. All got the full amount of Bancorp stock they
requested, since the total shares desired by these thirty-nine
holders was just slightly less than the number left available by
the remaining 1200-plus holders of Berkshire who elected not to
part with any Berkshire shares at all. As the exchanger of last
resort, I took the small balance (3% of Bancorp’s stock). These
shares, added to shares I received from my basic exchange
allotment (80% of normal), gave me a slightly reduced
proportional interest in the Bank and a slightly enlarged
proportional interest in Berkshire.
Management of the Bank is pleased with the outcome. Bancorp
will operate as an inexpensive and uncomplicated holding company
owned by 65 shareholders. And all of those shareholders will
have become Bancorp owners through a conscious affirmative
decision.
Financing
In August we sold $60 million of 12 3/4% notes due August 1,
2005, with a sinking fund to begin in 1991.
The managing underwriters, Donaldson, Lufkin & Jenrette
Securities Corporation, represented by Bill Fisher, and Chiles,
Heider & Company, Inc., represented by Charlie Heider, did an
absolutely first-class job from start to finish of the financing.
Unlike most businesses, Berkshire did not finance because of
any specific immediate needs. Rather, we borrowed because we
think that, over a period far shorter than the life of the loan,
we will have many opportunities to put the money to good use.
The most attractive opportunities may present themselves at a
time when credit is extremely expensive - or even unavailable.
At such a time we want to have plenty of financial firepower.
Our acquisition preferences run toward businesses that
generate cash, not those that consume it. As inflation
intensifies, more and more companies find that they must spend
all funds they generate internally just to maintain their
existing physical volume of business. There is a certain mirage-
like quality to such operations. However attractive the earnings
numbers, we remain leery of businesses that never seem able to
convert such pretty numbers into no-strings-attached cash.
Businesses meeting our standards are not easy to find. (Each
year we read of hundreds of corporate acquisitions; only a
handful would have been of interest to us.) And logical expansion
of our present operations is not easy to implement. But we’ll
continue to utilize both avenues in our attempts to further
Berkshire’s growth.
Under all circumstances we plan to operate with plenty of
liquidity, with debt that is moderate in size and properly
structured, and with an abundance of capital strength. Our
return on equity is penalized somewhat by this conservative
approach, but it is the only one with which we feel comfortable.
* * * * * * * * * * * *
Gene Abegg, founder of our long-owned bank in Rockford, died
on July 2, 1980 at the age of 82. As a friend, banker and
citizen, he was unsurpassed.
You learn a great deal about a person when you purchase a
business from him and he then stays on to run it as an employee
rather than as an owner. Before the purchase the seller knows
the business intimately, whereas you start from scratch. The
seller has dozens of opportunities to mislead the buyer - through
omissions, ambiguities, and misdirection. After the check has
changed hands, subtle (and not so subtle) changes of attitude can
occur and implicit understandings can evaporate. As in the
courtship-marriage sequence, disappointments are not infrequent.
From the time we first met, Gene shot straight 100% of the
time - the only behavior pattern he had within him. At the
outset of negotiations, he laid all negative factors face up on
the table; on the other hand, for years after the transaction was
completed he would tell me periodically of some previously
undiscussed items of value that had come with our purchase.
Though he was already 71 years of age when he sold us the
Bank, Gene subsequently worked harder for us than he had for
himself. He never delayed reporting a problem for a minute, but
problems were few with Gene. What else would you expect from a
man who, at the time of the bank holiday in 1933, had enough cash
on the premises to pay all depositors in full? Gene never forgot
he was handling other people’s money. Though this fiduciary
attitude was always dominant, his superb managerial skills
enabled the Bank to regularly achieve the top position nationally
in profitability.
Gene was in charge of the Illinois National for close to
fifty years - almost one-quarter of the lifetime of our country.
George Mead, a wealthy industrialist, brought him in from Chicago
to open a new bank after a number of other banks in Rockford had
failed. Mr. Mead put up the money and Gene ran the show. His
talent for leadership soon put its stamp on virtually every major
civic activity in Rockford.
Dozens of Rockford citizens have told me over the years of
help Gene extended to them. In some cases this help was
financial; in all cases it involved much wisdom, empathy and
friendship. He always offered the same to me. Because of our
respective ages and positions I was sometimes the junior partner,
sometimes the senior. Whichever the relationship, it always was
a special one, and I miss it.
Warren E. Buffett
February 27, 1981 Chairman of the Board
中文译文
伯克希尔·哈撒韦公司
致伯克希尔·哈撒韦公司的股东：
1980年的经营利润从1979年的3,600万美元提升至4,190万美元，但期初净资产收益率（证券按成本计价）则从18.6%下降至17.8%。我们认为，后者是衡量单一年度管理层经营业绩最合适的指标。然而，要明智地使用这个指标，需要理解许多因素，包括会计政策、资产的历史账面价值、财务杠杆以及行业状况。
在评估我们的经营业绩时，我们建议您特别关注两个因素——一个是积极因素，很大程度上是我们自身经营所特有的；另一个是消极因素，普遍适用于公司整体表现。我们先来看好的一面。
### 非控股公司收益
当一家公司持有另一家公司的部分股份时，必须从三大类会计方法中选择一种来记录该股权的会计处理。持有投票权股份的比例在很大程度上决定了应适用哪一类会计准则。
公认会计原则要求（自然也有例外，比如我们以前的银行子公司）对持股超过50%的企业全面合并其销售、费用、税金和收益。蓝筹印花公司，伯克希尔·哈撒韦持股60%，就属于这一类。因此，蓝筹的所有收入和费用项目都全额纳入伯克希尔的合并损益表，而其他方在蓝筹净利润中拥有的40%权益，则在损益表中列为“少数股东权益”的扣减项。
另一类持股——拥有20%至50%股份的公司（通常称为“被投资企业”）——其基本收益通常也需要全额纳入。这类公司——例如，由伯克希尔控制但仅持股48%的威斯科金融公司——的收益，通过所有者损益表中的单行条目计入。与持股超过50%的类别不同，所有收入和费用项目均被省略；只按比例计入净收益。因此，如果A公司拥有B公司三分之一的股份，那么无论B公司是否分配，其三分之一收益都将进入A公司的收益。在这类以及持股超过50%的类别中，有一些针对公司间税收和购买价格调整的修正，其解释我们留待日后再说。（我们知道您已经等不及了。）
最后是持有另一家公司投票权证券比例低于20%的持股。在这些情况下，会计准则规定，持股公司只能将从此类持股中收到的股息计入其收益。未分配的收益则被忽略。因此，假设我们在1980年持有X公司10%的股份，其收益为1,000万美元，那么在我们的收益中，我们会报告（忽略公司间股息相对较小的税项）：(a) 如果X公司宣布全额支付1,000万美元股息，则计入100万美元；(b) 如果X公司支付50%，即500万美元股息，则计入50万美元；或(c) 如果X公司将所有收益再投资，则计入零。
我们向您强加这堂简短且过度简化的会计课程，是因为伯克希尔将资源集中投入保险领域，导致其资产相应地集中在属于第三类（持股低于20%）的公司中。这些公司中，有许多只将收益中相对较小的部分作为股息支付。这意味着，它们当前盈利能力的很小一部分才被记录在我们当前的经营利润中。但是，尽管我们报告的经营利润仅反映了从这些公司获得的股息，我们的经济福祉却是由它们的收益决定的，而不是它们的股息。
近年来，随着我们的保险业务蓬勃发展，以及证券市场在普通股领域提供了特别有吸引力的机会，我们在第三类公司中的持股大幅增加。此类持股的大幅增加，加上这些参股公司所经历的收益增长，产生了一个不寻常的结果：去年这些公司保留的“我们”的那部分收益（未以股息形式支付给我们的部分），超过了伯克希尔·哈撒韦报告的年经营利润总额。因此，传统的会计方法只允许我们收益“冰山”的不到一半浮出水面，清晰可见。在企业界，这种情况相当罕见；而在我们这里，这种情况很可能会反复出现。
我们对收益现实的分析与公认会计原则有所不同，尤其是在这些原则必须应用于高通胀且通胀率不确定的世界时。（但批评这类会计规则比改进它们容易得多。其内在问题是巨大的。）我们曾持有100%股权的企业，其报告的收益对我们来说，每1美元账面价值可能都值不了接近1美元的实际价值，即使从会计意义上讲，我们完全控制了它们的处置权。（这种“控制”只是理论上的。除非我们将所有收益再投资，否则现有资产的价值将出现大幅贬值。但这些再投资的收益，几乎没有希望获得接近市场回报率的资本收益。）我们也曾持有小部分股权的企业，这些企业拥有非凡的再投资机会，其保留收益对我们的经济价值远超过每1美元收益本身。
伯克希尔·哈撒韦公司保留收益的价值，并不取决于我们拥有这些收益所在企业股权的100%、50%、20%还是1%。相反，这些保留收益的价值，取决于它们被如何使用，以及这种使用所产生的后续收益水平。无论是由我们决定其用途，还是由我们未曾聘用但选择加入的管理层来决定，这一点都成立。（重要的是行为本身，而非行为者。）而且，这些价值丝毫不会因为这些保留收益是否被纳入我们自己报告的经营利润而受到影响。如果一棵树生长在我们部分拥有的一片森林里，即使我们没有在财务报表中记录它的生长，我们仍然拥有这棵树的一部分。
我们警告您，我们的观点是非传统的。但我们宁愿让那些我们未获得会计认可的收益，在我们持有10%股份的公司里，由我们并非亲自聘用但表现优异的管理层善加利用，也不愿让那些我们获得了会计认可的收益，被另一个管理层——即使那就是我们自己——投入到前景更不明朗的项目中去。
（我们忍不住在此插播一条简短广告。当我们持有投资利益的公司实施股份回购时，我们常常对此表示特别热情。理由很简单：如果一家优秀企业在市场上的售价远低于其内在价值，那么还有什么比以这种便宜价格大幅扩大所有所有者的利益更确定、更有利可图的资本运用方式呢？企业收购活动的竞争性几乎保证了，当一家公司购买另一家企业的全部所有权时，会支付全价——通常甚至高于全价。但证券市场拍卖式的本质，常常允许管理良好的公司有机会以低于协商收购另一家企业同等盈利能力所需价格50%的代价，购买自身业务的一部分。）
### 长期公司业绩
正如我们之前所指出的，我们通过比较经营利润与股东权益（证券按成本计价）来评估单一年度的公司业绩。然而，我们衡量长期业绩的标尺，则包括了所有已实现或未实现的资本利得或损失。我们继续实现长期净资产收益率，该收益率远高于我们年度收益率的平均值。产生这一令人愉快结果的主要因素很简单：我们之前讨论过的那些非控股公司的保留收益，已经转化为市场价值的增长。
当然，这种将保留收益转化为市场价格上涨的过程是极不平衡的（有些年份会反向运行），时机不可预测，也不太可能以精确的1美元对1美元的方式实现。而且，以愚蠢的价格购买一家公司的股票可能会抵消该公司十年保留收益的效果。但是，当购买价格合理时，长期来看，市场几乎必然会承认保留收益的积累。您甚至偶尔会获得蛋糕上的糖霜，即市场升值远超过购买后保留的收益。
在当前管理层接手伯克希尔的十六年里，每股账面价值（保险持有的股票按市价计算）从19.46美元增加到400.80美元，年复合增长率为20.5%。（您做得更好：过去十年，人体内矿物质含量的年复合增长率为22%。）此外，令人鼓舞的是，我们的记录是在犯下许多错误的情况下取得的。错误清单太痛苦也太冗长，无法在此详述。但它清楚地表明，即使管理层有很多三振出局，也能实现相当有竞争力的企业击球率。
我们的保险公司将继续对管理良好、定位有利的非控股公司进行大量投资，这些公司通常只将收益中的很小一部分作为股息支付。遵循这一政策，我们预计我们的长期回报将继续超过每年从报告经营利润中获得的回报。我们对此信念的信心很容易量化：如果我们出售持有的股票，并用长期免税债券取而代之，我们报告的经营利润将立即每年增加超过3,000万美元。这种转变对我们毫无吸引力。
好消息就说到这里。
### 所有者实际收益
不幸的是，公司财务报表中报告的收益，不再是决定作为所有者的您是否能获得任何实际收益的主要变量。因为只有购买力的增长才代表投资的真正收益。如果您(a) 放弃十个汉堡包来购买一项投资；(b) 收到股息，税后能买两个汉堡包；并且(c) 在出售您的持股后，获得税后收益足以购买八个汉堡包，那么 (d) 您从投资中没有获得任何实际收入，无论它以美元计算增值了多少。您可能觉得自己更富有了，但您的饮食不会更丰盛。
高通胀率对资本征收了一种税，使得许多公司投资变得不明智——至少如果以所有者获得正的实际投资回报为标准来衡量的话。这个“门槛收益率”——即公司必须实现的净资产收益率才能为其个人所有者创造任何实际回报——近年来急剧上升。平均而言，纳税投资者现在正沿着一条下行扶梯往上跑，而扶梯的速度已经加快到他的进步为零的地步。
例如，在一个12%通胀率的世界里，一家净资产收益率为20%（很少有公司能持续做到）并将所有收益分配给50%税率档位的个人的企业，实际上是在侵蚀他们的实际资本，而非增加它。（20%的一半将用于缴纳所得税；剩余的10%使得企业主在年底时仅拥有年初购买力的98%——即使他们没有花掉“收益”中的一分钱）。处于这一税档的投资者，如果组合是物价稳定和公司权益资本的收益率仅为百分之几，实际上会过得更好。
仅凭显性所得税，且不伴随任何隐性通胀税，永远无法将正的公司回报转变为负的所有者回报。（即使对股息和资本利得征收90%的个人所得税率，在零通胀率下，所有者仍能保留一些实际收入。）但通胀税并不受报告收入的限制。与最近经历的水平相差不远的高通胀率，可以将大多数公司实现的正回报水平转变为所有所有者的负回报，包括那些无需缴纳显性税的所有者。（例如，如果通胀率达到16%，那么美国60%以上净资产收益率低于此水平的公司所有者，将实现负的实际回报——即使取消对股息和资本利得的所得税。）
当然，这两种形式的税收共存且相互作用，因为显性税是根据名义收入征收的，而不是实际收入。因此，如果股东回报以不变美元计算为亏损，您却要对所谓的收益缴纳所得税。
以目前的通胀率，我们认为，处于中等或高税级（区别于免税实体，如养老基金、慈善机构等）的个人所有者，不应期望从美国普通公司获得长期实际回报，即使这些人将他们收到的所有股息税后收益进行再投资。公司平均的净资产收益率，完全被通胀对资本征收的隐性税以及对股息和留存收益产生的价值增值征收的显性税这两者的结合所抵消。
正如我们去年的所说，伯克希尔没有解决这个问题的公司层面方案。（我们明年还会再说一遍。）通胀并不能提高我们的净资产收益率。
**指数化**是所有人寻求抵御通胀的绝缘体。但绝大多数（尽管有重要的例外）公司资本甚至没有得到部分指数化。当然，如果一家公司“节省”了大量收益（即再投资而非作为股息支付），每股收益和股息通常会上升。但即使没有通胀也会如此。一个节俭的工薪族同样可以做到在不加薪的情况下，通过只领取一半现金工资（他的工资“股息”），并持续将另一半（他的“保留收益”）存入储蓄账户，而实现总收入每年定期增长。无论是这位高储蓄率的工薪族，还是那家高储蓄率、年度股息率上升但其净资产收益率保持不变的公司股东，都并非真正地实现了指数化。
要使资本真正实现指数化，净资产收益率必须上升，即企业收益必须能够持续地与物价水平上涨成比例增长，而无需企业增加所使用的资本（包括营运资本）。（由增加投资产生的收益增长不计入内。）只有少数企业接近具备这种能力。而伯克希尔·哈撒韦不在其中。
当然，我们有一个公司政策，即将收益再投资以促进增长、多元化和增强实力，这附带的效果是最小化当前对所有者征收的显性税。然而，在日常基础上，您将承受隐性的通胀税，而当您希望将您在伯克希尔的投资转换为另一种形式的投资或用于消费时，您还将面临显性的税收。
### 收益来源
下表显示了伯克希尔报告收益的来源。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威斯科金融公司80%的股份。该表显示了各业务实体的总收益，以及伯克希尔在这些收益中所占的份额。归属于任何业务实体的所有重大资本利得和损失，均在表格底部的“已实现证券利得”项下汇总，不包括在经营利润中。我们对经营利润的计算也排除了出售互助储蓄银行分支机构的收益。在这方面，它不同于我们经审计财务报表中的列示方式，后者将该项目纳入“实现投资收益前收益”的计算。
| | 所得税前收益 | | 税后净利润 | |
| :---------------------------------------------------------------------- | :------------------------ | :-------- | :---------------------- | :-------- |
| | 总计 | 伯克希尔份额 | 伯克希尔份额 | |
| （单位：千美元） | 1980 | 1979 | 1980 | 1979 |
| 所有实体总收益 | $ 85,945 | $ 68,632 | $ 70,146 | $ 56,427 |
| 经营利润： | | | | |
| 保险集团： | | | | |
| 承销 | 6,738 | 3,742 | 6,737 | 3,741 |
| 净投资收益 | 30,939 | 24,224 | 30,927 | 24,216 |
| 伯克希尔-旺贝克纺织 | (508) | 1,723 | (508) | 1,723 |
| 联合零售商店 | 2,440 | 2,775 | 2,440 | 2,775 |
| 喜诗糖果 | 15,031 | 12,785 | 8,958 | 7,598 |
| 布法罗晚报 | (2,805) | (4,617) | (1,672) | (2,744) |
| 蓝筹印花公司 - 母公司 | 7,699 | 2,397 | 4,588 | 1,425 |
| 伊利诺伊国民银行 | 5,324 | 5,747 | 5,200 | 5,614 |
| 威斯科金融 - 母公司 | 2,916 | 2,413 | 1,392 | 1,098 |
| 互助储蓄银行 | 5,814 | 10,447 | 2,775 | 4,751 |
| 精密钢业 | 2,833 | 3,254 | 1,352 | 1,480 |
| 债务利息 | (12,230) | (8,248) | (9,390) | (5,860) |
| 其他 | 2,170 | 1,342 | 1,590 | 996 |
| 经营利润总额 | $ 66,361 | $ 57,984 | $ 54,389 | $ 46,813 |
| 互助储蓄银行 - 出售分支机构 | 5,873 | -- | 2,803 | -- |
| 已实现证券利得 | 13,711 | 10,648 | 12,954 | 9,614 |
| 所有实体总收益 | $ 85,945 | $ 68,632 | $ 70,146 | $ 56,427 |
蓝筹印花公司和威斯科金融是上市公司，有自己的报告要求。在本报告的第40至53页，我们转载了两家公司主要管理人员的叙述性报告，他们描述了1980年的运营情况。我们建议您仔细阅读，并特别关注Louie Vincenti和Charlie Munger在重新定位互助储蓄银行方面所做的出色工作。任何伯克希尔股东如需其中任何一家公司的完整年报副本，可致函加州洛杉矶东南大道5801号（邮编90040）蓝筹印花公司的Robert H. Bird先生，或加州帕萨迪纳市东科罗拉多大道315号（邮编91109）威斯科金融公司的Bette Deckard女士索取。
如前所述，在我们未控股的公司中，未分配收益的重要性现在与上表详述的报告经营利润完全相当。当然，已分配的部分主要通过保险集团的净投资收益部分进入该表。
下面我们列出伯克希尔在那些非控股公司中的按比例持股情况，在这些公司中，只有其分配的收益（股息）才被计入我们自己的收益。
| 持股数量 | | 成本 | 市值 |
| :--------------- | :-------------------------------------------- | :------------- | :-------------- |
| | | （千美元，省略） | （千美元，省略） |
| 434,550 (a) | Affiliated Publications, Inc. (联合出版公司) | $ 2,821 | $ 12,222 |
| 464,317 (a) | Aluminum Company of America (美国铝业公司) | 25,577 | 27,685 |
| 475,217 (b) | Cleveland-Cliffs Iron Company (克利夫兰-克利夫斯钢铁公司) | 12,942 | 15,894 |
| 1,983,812 (b) | General Foods, Inc. (通用食品公司) | 62,507 | 59,889 |
| 7,200,000 (a) | GEICO Corporation (GEICO公司) | 47,138 | 105,300 |
| 2,015,000 (a) | Handy & Harman (汉迪与哈曼公司) | 21,825 | 58,435 |
| 711,180 (a) | Interpublic Group of Companies, Inc. (宏盟集团) | 4,531 | 22,135 |
| 1,211,834 (a) | Kaiser Aluminum & Chemical Corp. (凯撒铝业与化学公司) | 20,629 | 27,569 |
| 282,500 (a) | Media General (媒体通用公司) | 4,545 | 8,334 |
| 247,039 (b) | National Detroit Corporation (国民底特律公司) | 5,930 | 6,299 |
| 881,500 (a) | National Student Marketing (全国学生营销公司) | 5,128 | 5,895 |
| 391,400 (a) | Ogilvy & Mather Int’l. Inc. (奥美国际公司) | 3,709 | 9,981 |
| 370,088 (b) | Pinkerton’s, Inc. (平克顿公司) | 12,144 | 16,489 |
| 245,700 (b) | R. J. Reynolds Industries (雷诺兹工业公司) | 8,702 | 11,228 |
| 1,250,525 (b) | SAFECO Corporation (SAFECO公司) | 32,062 | 45,177 |
| 151,104 (b) | The Times Mirror Company (时报镜报公司) | 4,447 | 6,271 |
| 1,868,600 (a) | The Washington Post Company (华盛顿邮报公司) | 10,628 | 42,277 |
| 667,124 (b) | E W Woolworth Company (沃尔沃斯公司) | 13,583 | 16,511 |
| | | $ 298,848 | $ 497,591 |
| 所有其他普通股持股 | | 26,313 | 32,096 |
| 普通股总计 | | $ 325,161 | $ 529,687 |
(a) 全部由伯克希尔或其保险子公司持有。
(b) 蓝筹印花公司和/或威斯科金融持有这些公司的股份。所有数字代表伯克希尔在集团更大总持股中的净权益。
从这张表中，您可以看到，我们潜在盈利能力在各行业的分布情况，与表面看起来的截然不同。例如，我们的保险子公司大约持有凯撒铝业3%的股份，持有美铝1.25%的股份。我们在这些公司1980年收益中所占的份额约为1,300万美元。（如果按1美元兑1美元转化为最终市值增长和股息的组合，这个数字必须扣除一笔数额可观但无法精确确定的税款；或许假定25%是合理的。）因此，我们在铝业中的经济利益，远大于我们在任何一家我们控制并更详细报告的经营性业务中的利益。如果我们维持这些持股，我们的长期业绩将更多地受到铝业未来经济状况的影响，而不是受我们针对大多数行使管理控制权的公司所做的直接经营决策的影响。
### GEICO公司
我们最大的非控股持股是GEICO公司的720万股股份，相当于约33%的股权权益。通常，这种规模的权益（超过20%）将符合“被投资企业”持股的条件，要求我们将GEICO收益的按比例份额反映在我们自己的收益中。然而，我们是根据哥伦比亚特区和纽约州保险部门的特别命令购买GEICO股票的，该命令要求将股票的投票权交由独立方持有。由于缺乏投票权，我们33%的权益不符合被投资企业待遇。（平克顿公司的情况类似。）
当然，GEICO的未分配收益是否每年计入我们的经营利润数字，与其对我们的经济价值，或者对作为伯克希尔所有者的您的价值无关。这些保留收益的价值，将取决于GEICO管理层运用它们的技巧。
在这方面，我们感觉再好不过了。GEICO代表了最佳投资世界——将非常重要且难以复制的商业优势，与在运营技巧和资本配置技巧相匹配的非凡管理层结合在一起。
如您所见，我们的持股成本为4,700万美元，其中大约一半投资于1976年，其余大部分投资于1980年。以当前的股息率计算，我们从GEICO获得的报告收益每年略高于300万美元。但我们估计，我们在其盈利能力中所占的份额每年大约为2,000万美元。因此，仅这一持股的未分配收益就可能达到伯克希尔报告的总经营利润的40%。
我们应该强调，我们对于GEICO管理层保留估计归属于我们所有权的约1,700万美元收益感到非常放心，就如同这笔钱掌握在我们自己手中一样。仅在过去的两年里，GEICO就通过回购自身股票，将已发行股份等价物从3,420万股减少到2,160万股，极大地提升了股东在一个根本无法复制的业务中的利益。所有者不可能得到比这更好的服务了。
我们在过去的报告中写过关于购买和经营“重整企业”通常带来的失望。多年来，有数百个来自数十个行业的重整机会被描述给我们，作为参与者或观察者，我们追踪了实际表现与预期对比的情况。我们的结论是，除了少数例外，当一家享有卓越声誉的管理层去接手一家以基本面经济状况糟糕而闻名的企业时，保持完好的往往是这家企业的声誉。
GEICO可能看起来是个例外，它在1976年从破产边缘重整旗鼓。确实，它的复苏需要卓越的管理才能，而Jack Byrne在那一年到来时，提供了极其丰富的这种要素。
但同样真实的是，GEICO长期以来享有的根本性商业优势——一个曾带来惊人成功的优势——仍然完好无损地存在于公司内部，尽管它淹没在财务和运营问题的海洋中。
GEICO被设计成在一个庞大市场（汽车保险）中的低成本运营者，而这个市场上充斥着营销结构受限的公司。按设计运行，它可以为客户提供非凡的价值，同时为自己赚取非凡的回报。几十年来，它正是以这种方式运作的。它在70年代中期的问题并非由这一基本经济优势的减弱或消失所导致。
当时GEICO的问题使其处于与1964年“色拉油丑闻”后的美国运通类似的境地。两家都是独一无二的公司，暂时因一次财务打击而摇摇欲坠，但这并没有摧毁它们杰出的基本面经济状况。GEICO和美国运通的情况是，拥有非凡的业务特许经营权，并伴有一个局部的、可切除的毒瘤（当然需要一位熟练的外科医生），这应该与真正的“重整”情况区分开来，在后一种情况下，经理人期望并且需要通过努力实现一场企业版的“皮格马利翁效应”。
无论用什么称谓，我们对GEICO的持股感到非常满意，如前所述，我们花了4,700万美元。要在一家具有一流经济特性和光明前景的业务中购买2,000万美元类似的盈利能力，如果通过协商购买整个公司来实现，最低需要花费2亿美元（在某些行业会更多）。拥有100%的权益赋予所有者利用杠杆收购、更换管理层、指导现金流以及出售业务的选项。它也可能在公司总部提供一些刺激（这点较少被提及）。
我们完全满足于我们的保险业务的性质决定了我们购买许多已经运营良好的公司的少数股权（价格远低于我们所占的整个企业总价值的份额），这些公司不需要更换管理层、重新调整现金流或出售。在管理层世界里没有多少Jack Byrne，在企业世界里也没有多少GEICO。与他们两者建立合伙关系，还有什么比这更好的呢？
### 保险行业状况
保险业的承保情况继续大致如我们预期的那样发展，综合成本率（见第37页定义）从1979年的100.6上升到1980年估计的103.5。几乎可以肯定，这一趋势将持续下去，行业承保损失将在1981年和1982年显著且逐步地增加。要理解原因，我们建议您阅读Chubb Corp.的Barbara Stewart在1980年10月的一篇论文中对财产险竞争动态的精彩分析。（Chubb的年报一直提供最具洞察力、最坦诚和写得最好的行业状况讨论；您应该加入该公司的邮件列表。）Stewart女士的分析可能令人不快，但我们认为它很可能是准确的。
而且，不幸的是，一个很大程度上未被报道但特别有害的问题，很可能会延长并加剧即将到来的行业痛苦。它不仅可能会使许多保险公司在承保损失创纪录时仍在争抢业务——它还可能导致他们在此时加倍努力。
这个问题源于债券价格下跌以及允许公司按摊余成本（无论市场价值如何）持有债券的保险会计惯例。许多保险公司持有长期债券，按摊余成本计算，这些债券金额是其净值的两到三倍。如果水平是三倍，那么债券价格从成本下跌三分之一——如果要在账面上确认的话——就会抹去净值。而它们确实下跌了。一些最大和最知名的财产险公司目前发现，当债券持有量按市价估值时，它们的净值微不足道，甚至为负。当然，它们的债券价格可能会上涨，从而部分或甚至完全恢复账面净值的完整性。或者它们可能进一步下跌。（我们认为，对股票或债券价格的短期预测是无用的。预测可能会告诉你很多关于预测者的信息；但它们对未来一无所知。）
有些人可能觉得奇怪，一家保险公司当其股票投资组合价格下跌足以显著减少净值时，其生存会受到威胁，但债券价格更大的下跌却没有引起任何反应。行业的回应会指出，无论当前价格如何，债券到期时都将全额偿付，从而最终消除任何中间时期的价格下跌。这种论点认为，可能需要二十年、三十年甚至四十年，但只要债券不必出售，最终它们都值面值。当然，如果它们被出售——即使是为了替换成提供更好相对价值的类似债券——损失必须立即入账。并且，公布的净值也必须立即相应下调。
在这种情况下，许多投资选择消失了，也许长达数十年。例如，当预计会出现大规模承保损失时，对某些保险公司来说，从免税债券转向应税债券可能具有极好的商业逻辑。不愿确认巨额债券损失可能是阻止这种明智举措的唯一因素。
但是，由巨额未实现债券损失带来的全部影响，远比投资思维的僵化严重得多。因为购买和持有这些债券的资金来源是一个来自投保人和索赔人（面孔不断变化）的资金池——这些资金实际上是暂时存放在保险公司的存款。只要这个资金池保持其规模，就无需出售债券。如果资金池缩水——如果业务量显著下降，就会发生这种情况——则必须出售资产来偿还负债。如果这些资产包括存在巨额未实现损失的债券，这些损失将迅速变为已实现，在此过程中严重侵蚀净值。
因此，一家债券市值缩水接近其账面净值（目前有很多这样的公司），同时又面临注定会进一步恶化的费率水平不足问题的保险公司，有两个选择。管理层的一个选择是告诉承销商，继续根据相关风险定价——“确保每一美元的保费，能覆盖每一美元的费用成本加上预期的损失成本”。
这个指令的后果是可以预见的：(a) 由于大多数业务对价格敏感且每年可续保，目前账面上的许多保单将在相当短的时间内被竞争对手夺走；(b) 随着保费规模显著收缩，负债（未到期保费和应付赔款）将滞后但相应减少；(c) 必须出售资产（债券）以匹配负债的减少；以及 (d) 先前未被确认的净值消失将部分被确认（取决于此类出售的程度），反映在保险公司的公开财务报表中。
这种令人沮丧的链条的变体涉及对账面净值较小的惩罚。某些公司在(c)阶段的反应可能是出售已经按市值计价的股票或最近购买的、涉及损失较轻的债券。这种鸵鸟政策般的做法——卖出较好的资产，保留最大的亏损者——虽然在短期内痛苦较小，但从长远来看不太可能是赢家。
第二个选择要简单得多：无论费率水平和未来巨大的承保损失如何，继续承保业务，从而维持当前的保费、资产和负债水平——然后祈祷未来会有更好的日子，无论是在承保方面还是在债券价格方面。行业媒体对“现金流”承保有很多批评；即，为了获取资金以当前高利率进行投资，而罔顾未来的承保损失来承保业务。这第二种选择可以恰当地称为“资产维护”承保——接受糟糕的业务仅仅是为了保住你现有的资产。
当然，你知道哪个选择会被选中。同样清楚的是，只要许多大型保险公司感到被迫选择第二个选项，承保就不会有更好的日子。因为如果大部分行业都觉得必须维持保费规模而不顾价格是否充足，所有保险公司都将不得不接近满足这些价格。紧随自身财务问题之后，下一个最糟糕的困境是拥有一大群有财务问题的竞争对手，他们可以通过“不惜任何代价出售”的政策来延迟问题。
我们之前提到，那些出于多种原因（包括公众反应、机构自豪感或保护账面净值）不愿意以迫使确认重大损失的价位出售债券的公司，可能会发现自己在投资策略上被冻结十年或更长时间。但是，如前所述，这只是问题的一半。那些对长期债券做出大量承诺的公司，可能已经在一个相当长的时期内，不仅失去了许多投资选择，也失去了许多承保选择。
我们自己在这些方面的状况是令人满意的。我们相信，将所有保险公司债券按摊余成本估值，我们的净值相对于保费规模，在所有大型股东所有的财产险集团中是最强的。当债券按市值估值时，我们的相对实力会变得更加显著。（但为了防止我们过于自满，我们提醒自己，我们的资产和负债期限仍然远未达到我们希望的匹配水平，而且我们也在债券上损失了大量资金，因为在您的主席应该采取行动的时候，他却在夸夸其谈。）
我们充足的资本和投资灵活性将使我们在预期的长期定价不足期间，能够做我们认为最合理的事情。但行业的麻烦也意味着我们的麻烦。我们的财务实力并不能将我们排除在目前笼罩整个财产险行业的敌对定价环境之外。它只是给了我们更多的持久力和更多的选择。
### 保险运营
由Phil Liesche领导，并一如既往得到Roland Miller和Bill Lyons得力协助的国家赔偿公司的经理们，在1980年超越了他们自己。在业务量持平的情况下，相对于行业而言的承保利润率达到了历史最高水平。我们预计该业务在1981年的业务量会下降。但其经理们不会听到公司总部的任何抱怨，就业或薪资也不会受到影响。我们非常钦佩国家赔偿公司的承保纪律——由创始人Jack Ringwalt从一开始就灌输——并且知道这种纪律，如果被暂停，可能无法完全恢复。
Home and Auto公司的John Seward在将不断减少的汽车保单数量替换为来自竞争不那么激烈的险种（主要是小额保费的一般责任险）方面，继续取得良好进展。随着承保结果的需要，业务正在缓慢地按地域和产品线扩张。
再保险业务继续反映着原保险公司的过度行为和各种问题。更糟糕的是，它有放大这些过度行为的潜力。再保险的特点是极易进入、保费预付金额大、损失报告和损失支付严重滞后。最初，早上的邮件带来了大量现金和很少的索赔。这种状况可能会产生一种幸福、近乎欣快的感觉，类似于一个天真的人收到他第一张信用卡时的体验。
这种产生现金特性的磁铁般的吸引力，在目前高利率的增强下，正将再保险市场转变为“业余之夜”。如果没有超级巨灾，未来几年的行业承保将很糟糕。如果我们经历这样一场巨灾，可能会出现血流成河的局面，一些公司将无法履行合同承诺。George Young继续在这个领域为我们做着出色的工作。包括投资收益在内的结果已经相当可观地盈利了。我们将保持活跃的再保险业务存在，但就目前可预见的未来而言，我们预计这项活动不会带来保费增长。
我们在家乡州运营中继续面临严重问题。堪萨斯州的Floyd Taylor做得非常出色，但我们在其他地方的承保记录远低于平均水平。表现最差的是爱荷华保险公司，自1973年成立以来，每年都遭受巨额损失。去年秋末，我们停止了在该州的承保业务，并将该公司并入了Cornhusker Casualty。家乡州的概念有潜力，但需要做大量工作才能实现。
我们的工人赔偿业务在Frank DeNardo去年37岁时去世时遭受了严重损失。Frank本能地像一位承保人那样思考。他是一位出色的技术员和激烈的竞争者；在很短时间内，他就理顺了国家赔偿公司加利福尼亚州工人赔偿部门的重大难题。最初将Frank带给我们的Dan Grossman，在Frank去世后立即介入以继续该业务，该业务现在使用红木火灾与意外保险公司（Berkshire的另一家子公司）作为承保载体。
我们主要的工人赔偿业务——赛普拉斯保险公司，由Milt Thornton经营，继续保持着出色的记录。年复一年，Milt像Phil Liesche一样，经营着一项远远领先于其竞争对手的承保业务。他在业内备受钦佩和效仿，但无人能及。
总体而言，我们预计1981年的保险业务量将显著下降，同时承保结果会更差。我们期望承保经验略优于行业平均水平，但当然，行业中的大多数公司也这么认为。将会有些令人失望的情况。
### 纺织与零售业务
在过去的一年里，我们缩减了纺织业务的规模。旺贝克工厂的运营已终止，虽不情愿但属必要。一些设备已转移到新贝德福德，但大部分连同房地产已经或即将出售。您的主席在未能更早面对这一现实方面犯了一个代价高昂的错误。
在新贝德福德，我们将运营的织机数量减少了约三分之一，放弃了一些产品差异化无意义的大批量生产线。即使假设一切顺利（这很少发生），这些生产线也无法产生与投资相称的足够回报。而且，在一个完整的行业周期中，亏损是最可能的结果。
我们剩余的纺织业务规模仍然可观，已被划分为制造和销售两个部门，每个部门都可以独立于对方进行业务往来。这样，分销优势和工厂产能就不会相互捆绑。通过最近购买一批二手130英寸的Saurer织机，我们在最盈利的纺织细分领域的产能增加了一倍以上。目前的情况表明，纺织业将是又一个艰难的年头，但投入该业务的资本将大幅减少。
Ben Rosner在联合零售商店的记录继续令我们惊叹。在一个零售业不景气的年份，联合零售的收益仍然出色——而且所有这些收益都转化为了现金。1981年3月7日，联合零售将庆祝其成立50周年。在这五十年里，Ben（以及他1931年至1966年的合伙人Leo Simon）一直经营着这家企业。
### 处置伊利诺伊国民银行与信托公司（罗克福德）
1980年12月31日，我们完成了用41,086股罗克福德银行控股公司（拥有伊利诺伊国民银行97.7%的股份）的股票交换等量伯克希尔·哈撒韦公司股票的操作。
我们的交换方法允许所有伯克希尔股东保持他们在该银行的按比例权益（除了我；我被允许获得我按比例份额的80%）。因此，他们保证了与如果我们采用更传统的分拆方法所能达到的所有权地位完全相同。二十四位股东（在我们大约1,300位股东中）选择了这种按比例交换的选项。
我们也允许超额交换，另外三十九位股东接受了这个选项，从而增加了他们在该银行的所有权，并减少了他们在伯克希尔的按比例所有权。所有人都得到了他们要求的全部银行控股公司股票，因为这三十九位股东所需的总股数，仅略少于剩余1,200多位选择根本不交换任何伯克希尔股票的股东所留下的可用股票数量。作为最后交换者，我接手了小额余额（银行控股公司股票的3%）。这些股票，加上我从基本交换配额（正常水平的80%）中获得的股票，使我拥有在该银行的按比例权益略有减少，而在伯克希尔的按比例权益略有增加。
银行管理层对结果感到满意。银行控股公司将作为一个由65位股东拥有的、成本低廉且结构简单的控股公司运营。而且所有这些股东都是通过有意识、肯定的决定才成为银行控股公司所有者的。
### 融资
八月，我们出售了6,000万美元的12 3/4%的票据，该票据将于2005年8月1日到期，并从1991年开始设立偿债基金。
主承销商Donaldson, Lufkin & Jenrette Securities Corporation（由Bill Fisher代表）和Chiles, Heider & Company, Inc.（由Charlie Heider代表）从融资开始到结束都做得绝对一流。
与大多数企业不同，伯克希尔融资并非出于任何特定的即时需求。相反，我们借钱是因为我们认为，在远短于贷款期限的时间内，我们将有很多机会善用这笔资金。最有吸引力的机会可能出现在信贷极其昂贵甚至无法获得的时候。在那个时候，我们希望拥有充足的财务火力。
我们的收购偏好倾向于能产生现金的企业，而不是消耗现金的企业。随着通胀加剧，越来越多的公司发现，他们必须花费内部产生的所有资金，仅仅是为了维持现有的实物业务量。这类运营带有某种海市蜃楼般的性质。无论盈利数字多么诱人，我们仍然对那些似乎永远无法将这些漂亮的数字转换成无附加条件的现金的企业保持警惕。
符合我们标准的企业并不容易找到。（每年我们读到数百起企业收购；只有极少数能引起我们的兴趣。）而对我们现有业务进行合乎逻辑的扩张也并不容易实施。但我们将继续利用这两种途径，努力促进伯克希尔的增长。
在任何情况下，我们都计划保持充足的流动性，维持规模适中且结构合理的债务，并拥有雄厚的资本实力。我们的净资产收益率会因这种保守做法而受到一些影响，但这是唯一让我们感到舒适的方式。
* * * * * * * * * *
Gene Abegg，我们长期持有的罗克福德银行的创始人，于1980年7月2日去世，享年82岁。作为朋友、银行家和公民，他是无与伦比的。
当你从一个人手中购买一家企业，而他随后留下来作为雇员而非所有者继续经营它时，你会对这个人有很深的了解。在收购之前，卖方对企业了如指掌，而您则从零开始。卖方有数十种机会通过遗漏、含糊其辞和误导来欺骗买方。在支票易手之后，微妙（和不那么微妙）的态度变化可能发生，模糊的谅解可能烟消云散。就像求爱到婚姻的顺序一样，失望并不少见。
从我们第一次见面开始，Gene 就百分之百地坦率直言——这是他内在唯一的行为模式。在谈判之初，他把所有不利因素都摊在桌面上；另一方面，在交易完成多年后，他还会定期告诉我一些我们当时收购时附带但之前未讨论过的价值项目。
尽管他在把银行卖给我们时已经71岁，但Gene后来为我们工作比他自己经营时还要努力。他从不拖延报告问题，哪怕一分钟，但Gene的问题很少。你还能对一个在1933年银行节假日期间，手头有足够现金全额偿付所有存款人的人期待什么呢？Gene从未忘记他是在处理别人的钱。虽然这种受托人态度始终占主导地位，但他卓越的管理技能使该银行在全国盈利能力方面长期位居榜首。
Gene负责伊利诺伊国民银行近五十年——几乎是我们国家历史长度的四分之一。在罗克福德其他多家银行倒闭后，富有的实业家George Mead将他从芝加哥带来开设一家新银行。Mead先生出钱，Gene负责经营。他卓越的领导才能很快在罗克福德几乎每一项重大市政活动中都留下了印记。
多年来，数十位罗克福德市民告诉我Gene给予他们的帮助。在某些情况下，这种帮助是经济上的；在所有这些情况下，都包含着大量的智慧、同理心和友谊。他总是给予我同样的帮助。由于我们各自的年龄和职位，我有时是资浅合伙人，有时是资深合伙人。无论关系如何，它总是特别的，我很怀念。
沃伦·E·巴菲特
董事会主席
1981年2月27日