ENGLISH
BERKSHIRE HATHAWAY INC.
March 3, 1983
To the Stockholders of Berkshire Hathaway Inc.:
Operating earnings of $31.5 million in 1982 amounted to only
9.8% of beginning equity capital (valuing securities at cost),
down from 15.2% in 1981 and far below our recent high of 19.4% in
1978. This decline largely resulted from:
(1) a significant deterioration in insurance underwriting
results;
(2) a considerable expansion of equity capital without a
corresponding growth in the businesses we operate
directly; and
(3) a continually-enlarging commitment of our resources to
investment in partially-owned, nonoperated businesses;
accounting rules dictate that a major part of our
pro-rata share of earnings from such businesses must be
excluded from Berkshire’s reported earnings.
It was only a few years ago that we told you that the
operating earnings/equity capital percentage, with proper
allowance for a few other variables, was the most important
yardstick of single-year managerial performance. While we still
believe this to be the case with the vast majority of companies,
we believe its utility in our own case has greatly diminished.
You should be suspicious of such an assertion. Yardsticks seldom
are discarded while yielding favorable readings. But when
results deteriorate, most managers favor disposition of the
yardstick rather than disposition of the manager.
To managers faced with such deterioration, a more flexible
measurement system often suggests itself: just shoot the arrow of
business performance into a blank canvas and then carefully draw
the bullseye around the implanted arrow. We generally believe in
pre-set, long-lived and small bullseyes. However, because of the
importance of item (3) above, further explained in the following
section, we believe our abandonment of the operating
earnings/equity capital bullseye to be warranted.
Non-Reported Ownership Earnings
The appended financial statements reflect “accounting”
earnings that generally include our proportionate share of
earnings from any underlying business in which our ownership is
at least 20%. Below the 20% ownership figure, however, only our
share of dividends paid by the underlying business units is
included in our accounting numbers; undistributed earnings of
such less-than-20%-owned businesses are totally ignored.
There are a few exceptions to this rule; e.g., we own about
35% of GEICO Corporation but, because we have assigned our voting
rights, the company is treated for accounting purposes as a less-
than-20% holding. Thus, dividends received from GEICO in 1982 of
$3.5 million after tax are the only item included in our
“accounting”earnings. An additional $23 million that represents
our share of GEICO’s undistributed operating earnings for 1982 is
totally excluded from our reported operating earnings. If GEICO
had earned less money in 1982 but had paid an additional $1
million in dividends, our reported earnings would have been
larger despite the poorer business results. Conversely, if GEICO
had earned an additional $100 million - and retained it all - our
reported earnings would have been unchanged. Clearly
“accounting” earnings can seriously misrepresent economic
reality.
We prefer a concept of “economic” earnings that includes all
undistributed earnings, regardless of ownership percentage. In
our view, the value to all owners of the retained earnings of a
business enterprise is determined by the effectiveness with which
those earnings are used - and not by the size of one’s ownership
percentage. If you have owned .01 of 1% of Berkshire during the
past decade, you have benefited economically in full measure from
your share of our retained earnings, no matter what your
accounting system. Proportionately, you have done just as well
as if you had owned the magic 20%. But if you have owned 100% of
a great many capital-intensive businesses during the decade,
retained earnings that were credited fully and with painstaking
precision to you under standard accounting methods have resulted
in minor or zero economic value. This is not a criticism of
accounting procedures. We would not like to have the job of
designing a better system. It’s simply to say that managers and
investors alike must understand that accounting numbers are the
beginning, not the end, of business valuation.
In most corporations, less-than-20% ownership positions are
unimportant (perhaps, in part, because they prevent maximization
of cherished reported earnings) and the distinction between
accounting and economic results we have just discussed matters
little. But in our own case, such positions are of very large
and growing importance. Their magnitude, we believe, is what
makes our reported operating earnings figure of limited
significance.
In our 1981 annual report we predicted that our share of
undistributed earnings from four of our major non-controlled
holdings would aggregate over $35 million in 1982. With no
change in our holdings of three of these companies - GEICO,
General Foods and The Washington Post - and a considerable
increase in our ownership of the fourth, R. J. Reynolds
Industries, our share of undistributed 1982 operating earnings of
this group came to well over $40 million. This number - not
reflected at all in our earnings - is greater than our total
reported earnings, which include only the $14 million in
dividends received from these companies. And, of course, we have
a number of smaller ownership interests that, in aggregate, had
substantial additional undistributed earnings.
We attach real significance to the general magnitude of
these numbers, but we don’t believe they should be carried to ten
decimal places. Realization by Berkshire of such retained
earnings through improved market valuations is subject to very
substantial, but indeterminate, taxation. And while retained
earnings over the years, and in the aggregate, have translated
into at least equal market value for shareholders, the
translation has been both extraordinarily uneven among companies
and irregular and unpredictable in timing.
However, this very unevenness and irregularity offers
advantages to the value-oriented purchaser of fractional portions
of businesses. This investor may select from almost the entire
array of major American corporations, including many far superior
to virtually any of the businesses that could be bought in their
entirety in a negotiated deal. And fractional-interest purchases
can be made in an auction market where prices are set by
participants with behavior patterns that sometimes resemble those
of an army of manic-depressive lemmings.
Within this gigantic auction arena, it is our job to select
businesses with economic characteristics allowing each dollar of
retained earnings to be translated eventually into at least a
dollar of market value. Despite a lot of mistakes, we have so
far achieved this goal. In doing so, we have been greatly
assisted by Arthur Okun’s patron saint for economists - St.
Offset. In some cases, that is, retained earnings attributable
to our ownership position have had insignificant or even negative
impact on market value, while in other major positions a dollar
retained by an investee corporation has been translated into two
or more dollars of market value. To date, our corporate over-
achievers have more than offset the laggards. If we can continue
this record, it will validate our efforts to maximize “economic”
earnings, regardless of the impact upon “accounting” earnings.
Satisfactory as our partial-ownership approach has been,
what really makes us dance is the purchase of 100% of good
businesses at reasonable prices. We’ve accomplished this feat a
few times (and expect to do so again), but it is an
extraordinarily difficult job - far more difficult than the
purchase at attractive prices of fractional interests.
As we look at the major acquisitions that others made during
1982, our reaction is not envy, but relief that we were non-
participants. For in many of these acquisitions, managerial
intellect wilted in competition with managerial adrenaline The
thrill of the chase blinded the pursuers to the consequences of
the catch. Pascal’s observation seems apt: “It has struck me
that all men’s misfortunes spring from the single cause that they
are unable to stay quietly in one room.”
(Your Chairman left the room once too often last year and
almost starred in the Acquisition Follies of 1982. In
retrospect, our major accomplishment of the year was that a very
large purchase to which we had firmly committed was unable to be
completed for reasons totally beyond our control. Had it come
off, this transaction would have consumed extraordinary amounts
of time and energy, all for a most uncertain payoff. If we were
to introduce graphics to this report, illustrating favorable
business developments of the past year, two blank pages depicting
this blown deal would be the appropriate centerfold.)
Our partial-ownership approach can be continued soundly only
as long as portions of attractive businesses can be acquired at
attractive prices. We need a moderately-priced stock market to
assist us in this endeavor. The market, like the Lord, helps
those who help themselves. But, unlike the Lord, the market does
not forgive those who know not what they do. For the investor, a
too-high purchase price for the stock of an excellent company can
undo the effects of a subsequent decade of favorable business
developments.
Should the stock market advance to considerably higher
levels, our ability to utilize capital effectively in partial-
ownership positions will be reduced or eliminated. This will
happen periodically: just ten years ago, at the height of the
two-tier market mania (with high-return-on-equity businesses bid
to the sky by institutional investors), Berkshire’s insurance
subsidiaries owned only $18 million in market value of equities,
excluding their interest in Blue Chip Stamps. At that time, such
equity holdings amounted to about 15% of our insurance company
investments versus the present 80%. There were as many good
businesses around in 1972 as in 1982, but the prices the stock
market placed upon those businesses in 1972 looked absurd. While
high stock prices in the future would make our performance look
good temporarily, they would hurt our long-term business
prospects rather than help them. We currently are seeing early
traces of this problem.
Long-Term Corporate Performance
Our gain in net worth during 1982, valuing equities held by
our insurance subsidiaries at market value (less capital gain
taxes payable if unrealized gains were actually realized)
amounted to $208 million. On a beginning net worth base of $519
million, the percentage gain was 40%.
During the 18-year tenure of present management, book value
has grown from $19.46 per share to $737.43 per share, or 22.0%
compounded annually. You can be certain that this percentage
will diminish in the future. Geometric progressions eventually
forge their own anchors.
Berkshire’s economic goal remains to produce a long-term
rate of return well above the return achieved by the average
large American corporation. Our willingness to purchase either
partial or total ownership positions in favorably-situated
businesses, coupled with reasonable discipline about the prices
we are willing to pay, should give us a good chance of achieving
our goal.
Again this year the gain in market valuation of partially-
owned businesses outpaced the gain in underlying economic value
of those businesses. For example, $79 million of our $208
million gain is attributable to an increased market price for
GEICO. This company continues to do exceptionally well, and we
are more impressed than ever by the strength of GEICO’s basic
business idea and by the management skills of Jack Byrne.
(Although not found in the catechism of the better business
schools, “Let Jack Do It” works fine as a corporate creed for
us.)
However, GEICO’s increase in market value during the past
two years has been considerably greater than the gain in its
intrinsic business value, impressive as the latter has been. We
expected such a favorable variation at some point, as the
perception of investors converged with business reality. And we
look forward to substantial future gains in underlying business
value accompanied by irregular, but eventually full, market
recognition of such gains.
Year-to-year variances, however, cannot consistently be in
our favor. Even if our partially-owned businesses continue to
perform well in an economic sense, there will be years when they
perform poorly in the market. At such times our net worth could
shrink significantly. We will not be distressed by such a
shrinkage; if the businesses continue to look attractive and we
have cash available, we simply will add to our holdings at even
more favorable prices.
Sources of Reported Earnings
The table below shows the sources of Berkshire’s reported
earnings. In 1981 and 1982 Berkshire owned about 60% of Blue
Chip Stamps which, in turn, owned 80% of Wesco Financial
Corporation. The table displays aggregate operating earnings of
the various business entities, as well as Berkshire’s share of
those earnings. All of the significant gains and losses
attributable to unusual sales of assets by any of the business
entities are aggregated with securities transactions in the line
near 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
------------------ ------------------ ------------------
1982 1981 1982 1981 1982 1981
-------- -------- -------- -------- -------- --------
(000s omitted)
Operating Earnings:
Insurance Group:
Underwriting ............ $(21,558) $ 1,478 $(21,558) $ 1,478 $(11,345) $ 798
Net Investment Income ... 41,620 38,823 41,620 38,823 35,270 32,401
Berkshire-Waumbec Textiles (1,545) (2,669) (1,545) (2,669) (862) (1,493)
Associated Retail Stores .. 914 1,763 914 1,763 446 759
See’s Candies ............. 23,884 20,961 14,235 12,493 6,914 5,910
Buffalo Evening News ...... (1,215) (1,217) (724) (725) (226) (320)
Blue Chip Stamps - Parent 4,182 3,642 2,492 2,171 2,472 2,134
Wesco Financial - Parent .. 6,156 4,495 2,937 2,145 2,210 1,590
Mutual Savings and Loan ... (6) 1,605 (2) 766 1,524 1,536
Precision Steel ........... 1,035 3,453 493 1,648 265 841
Interest on Debt .......... (14,996) (14,656) (12,977) (12,649) (6,951) (6,671)
Other* .................... 2,631 2,985 1,857 1,992 1,780 1,936
-------- -------- -------- -------- -------- --------
Operating Earnings .......... 41,102 60,663 27,742 47,236 31,497 39,421
Sales of securities and
unusual sales of assets .. 36,651 37,801 21,875 33,150 14,877 23,183
-------- -------- -------- -------- -------- --------
Total Earnings - all entities $ 77,753 $ 98,464 $ 49,617 $ 80,386 $ 46,374 $ 62,604
======== ======== ======== ======== ======== ========
* Amortization of intangibles arising in accounting for purchases
of businesses (i.e. See’s, Mutual and Buffalo Evening News) is
reflected in the category designated as “Other”.
On pages 45-61 of this report we have reproduced the
narrative reports of the principal executives of Blue Chip and
Wesco, in which they describe 1982 operations. 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. Jeanne Leach for Wesco Financial
Corporation, 315 East Colorado Boulevard, Pasadena, California
91109.
I believe you will find the Blue Chip chronicle of
developments in the Buffalo newspaper situation particularly
interesting. There are now only 14 cities in the United States
with a daily newspaper whose weekday circulation exceeds that of
the Buffalo News. But the real story has been the growth in
Sunday circulation. Six years ago, prior to introduction of a
Sunday edition of the News, the long-established Courier-Express,
as the only Sunday newspaper published in Buffalo, had
circulation of 272,000. The News now has Sunday circulation of
367,000, a 35% gain - even though the number of households within
the primary circulation area has shown little change during the
six years. We know of no city in the United States with a long
history of seven-day newspaper publication in which the
percentage of households purchasing the Sunday newspaper has
grown at anything like this rate. To the contrary, in most
cities household penetration figures have grown negligibly, or
not at all. Our key managers in Buffalo - Henry Urban, Stan
Lipsey, Murray Light, Clyde Pinson, Dave Perona and Dick Feather
- deserve great credit for this unmatched expansion in Sunday
readership.
As we 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 non-controlled earnings, of course, finds
its way into that table primarily through the net investment
income segment 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 earnings.
No. of Shares
or Share Equiv. Cost Market
--------------- ---------- ----------
(000s omitted)
460,650 (a) Affiliated Publications, Inc. ...... $ 3,516 $ 16,929
908,800 (c) Crum & Forster ..................... 47,144 48,962
2,101,244 (b) General Foods, Inc. ................ 66,277 83,680
7,200,000 (a) GEICO Corporation .................. 47,138 309,600
2,379,200 (a) Handy & Harman ..................... 27,318 46,692
711,180 (a) Interpublic Group of Companies, Inc. 4,531 34,314
282,500 (a) Media General ...................... 4,545 12,289
391,400 (a) Ogilvy & Mather Int’l. Inc. ........ 3,709 17,319
3,107,675 (b) R. J. Reynolds Industries .......... 142,343 158,715
1,531,391 (a) Time, Inc. ......................... 45,273 79,824
1,868,600 (a) The Washington Post Company ........ 10,628 103,240
---------- ----------
$402,422 $911,564
All Other Common Stockholdings ..... 21,611 34,058
---------- ----------
Total Common Stocks $424,033 $945,622
========== ==========
(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.
(c) Temporary holding as cash substitute.
In case you haven’t noticed, there is an important
investment lesson to be derived from this table: nostalgia should
be weighted heavily in stock selection. Our two largest
unrealized gains are in Washington Post and GEICO, companies with
which your Chairman formed his first commercial connections at
the ages of 13 and 20, respectively After straying for roughly 25
years, we returned as investors in the mid-1970s. The table
quantifies the rewards for even long-delayed corporate fidelity.
Our controlled and non-controlled businesses operate over
such a wide spectrum that detailed commentary here would prove
too lengthy. Much financial and operational information
regarding the controlled businesses is included in Management’s
Discussion on pages 34-39, and in the narrative reports on pages
45-61. However, our largest area of business activity has been,
and almost certainly will continue to be, the property-casualty
insurance area. So commentary on developments in that industry
is appropriate.
Insurance Industry Conditions
We show below an updated table of the industry statistics we
utilized in last year’s annual report. Its message is clear:
underwriting results in 1983 will not be a sight for the
squeamish.
Yearly Change Yearly Change Combined Ratio
in Premiums in Premiums after Policy-
Written (%) Earned (%) holder Dividends
------------- ------------- ----------------
1972 ................ 10.2 10.9 96.2
1973 ................ 8.0 8.8 99.2
1974 ................ 6.2 6.9 105.4
1975 ................ 11.0 9.6 107.9
1976 ................ 21.9 19.4 102.4
1977 ................ 19.8 20.5 97.2
1978 ................ 12.8 14.3 97.5
1979 ................ 10.3 10.4 100.6
1980 ................ 6.0 7.8 103.1
1981 (Rev.) ......... 3.9 4.1 106.0
1982 (Est.) ......... 5.1 4.6 109.5
Source: Best’s Aggregates and Averages.
The Best’s data reflect the experience of practically the
entire industry, including stock, mutual and reciprocal
companies. The combined ratio represents total operating and
loss costs as compared to revenue from premiums; a ratio below
100 indicates an underwriting profit, and one above 100 indicates
a loss.
For reasons outlined in last year’s report, as long as the
annual gain in industry premiums written falls well below 10%,
you can expect the underwriting picture in the next year to
deteriorate. This will be true even at today’s lower general
rate of inflation. With the number of policies increasing
annually, medical inflation far exceeding general inflation, and
concepts of insured liability broadening, it is highly unlikely
that yearly increases in insured losses will fall much below 10%.
You should be further aware that the 1982 combined ratio of
109.5 represents a “best case” estimate. In a given year, it is
possible for an insurer to show almost any profit number it
wishes, particularly if it (1) writes “long-tail” business
(coverage where current costs can be only estimated, because
claim payments are long delayed), (2) has been adequately
reserved in the past, or (3) is growing very rapidly. There are
indications that several large insurers opted in 1982 for obscure
accounting and reserving maneuvers that masked significant
deterioration in their underlying businesses. In insurance, as
elsewhere, the reaction of weak managements to weak operations is
often weak accounting. (“It’s difficult for an empty sack to
stand upright.”)
The great majority of managements, however, try to play it
straight. But even managements of integrity may subconsciously
be less willing in poor profit years to fully recognize adverse
loss trends. Industry statistics indicate some deterioration in
loss reserving practices during 1982 and the true combined ratio
is likely to be modestly worse than indicated by our table.
The conventional wisdom is that 1983 or 1984 will see the
worst of underwriting experience and then, as in the past, the
“cycle” will move, significantly and steadily, toward better
results. We disagree because of a pronounced change in the
competitive environment, hard to see for many years but now quite
visible.
To understand the change, we need to look at some major
factors that affect levels of corporate profitability generally.
Businesses in industries with both substantial over-capacity and
a “commodity” product (undifferentiated in any customer-important
way by factors such as performance, appearance, service support,
etc.) are prime candidates for profit troubles. These may be
escaped, true, if prices or costs are administered in some manner
and thereby insulated at least partially from normal market
forces. This administration can be carried out (a) legally
through government intervention (until recently, this category
included pricing for truckers and deposit costs for financial
institutions), (b) illegally through collusion, or (c) “extra-
legally” through OPEC-style foreign cartelization (with tag-along
benefits for domestic non-cartel operators).
If, however, costs and prices are determined by full-bore
competition, there is more than ample capacity, and the buyer
cares little about whose product or distribution services he
uses, industry economics are almost certain to be unexciting.
They may well be disastrous.
Hence the constant struggle of every vendor to establish and
emphasize special qualities of product or service. This works
with candy bars (customers buy by brand name, not by asking for a
“two-ounce candy bar”) but doesn’t work with sugar (how often do
you hear, “I’ll have a cup of coffee with cream and C & H sugar,
please”).
In many industries, differentiation simply can’t be made
meaningful. A few producers in such industries may consistently
do well if they have a cost advantage that is both wide and
sustainable. By definition such exceptions are few, and, in many
industries, are non-existent. For the great majority of
companies selling “commodity”products, a depressing equation of
business economics prevails: persistent over-capacity without
administered prices (or costs) equals poor profitability.
Of course, over-capacity may eventually self-correct, either
as capacity shrinks or demand expands. Unfortunately for the
participants, such corrections often are long delayed. When they
finally occur, the rebound to prosperity frequently produces a
pervasive enthusiasm for expansion that, within a few years,
again creates over-capacity and a new profitless environment. In
other words, nothing fails like success.
What finally determines levels of long-term profitability in
such industries is the ratio of supply-tight to supply-ample
years. Frequently that ratio is dismal. (It seems as if the most
recent supply-tight period in our textile business - it occurred
some years back - lasted the better part of a morning.)
In some industries, however, capacity-tight conditions can
last a long time. Sometimes actual growth in demand will outrun
forecasted growth for an extended period. In other cases, adding
capacity requires very long lead times because complicated
manufacturing facilities must be planned and built.
But in the insurance business, to return to that subject,
capacity can be instantly created by capital plus an
underwriter’s willingness to sign his name. (Even capital is less
important in a world in which state-sponsored guaranty funds
protect many policyholders against insurer insolvency.) Under
almost all conditions except that of fear for survival -
produced, perhaps, by a stock market debacle or a truly major
natural disaster - the insurance industry operates under the
competitive sword of substantial overcapacity. Generally, also,
despite heroic attempts to do otherwise, the industry sells a
relatively undifferentiated commodity-type product. (Many
insureds, including the managers of large businesses, do not even
know the names of their insurers.) Insurance, therefore, would
seem to be a textbook case of an industry usually faced with the
deadly combination of excess capacity and a “commodity” product.
Why, then, was underwriting, despite the existence of
cycles, generally profitable over many decades? (From 1950
through 1970, the industry combined ratio averaged 99.0.
allowing all investment income plus 1% of premiums to flow
through to profits.) The answer lies primarily in the historic
methods of regulation and distribution. For much of this
century, a large portion of the industry worked, in effect,
within a legal quasi-administered pricing system fostered by
insurance regulators. While price competition existed, it was
not pervasive among the larger companies. The main competition
was for agents, who were courted via various non-price-related
strategies.
For the giants of the industry, most rates were set through
negotiations between industry “bureaus” (or through companies
acting in accord with their recommendations) and state
regulators. Dignified haggling occurred, but it was between
company and regulator rather than between company and customer.
When the dust settled, Giant A charged the same price as Giant B
- and both companies and agents were prohibited by law from
cutting such filed rates.
The company-state negotiated prices included specific profit
allowances and, when loss data indicated that current prices were
unprofitable, both company managements and state regulators
expected that they would act together to correct the situation.
Thus, most of the pricing actions of the giants of the industry
were “gentlemanly”, predictable, and profit-producing. Of prime
importance - and in contrast to the way most of the business
world operated - insurance companies could legally price their
way to profitability even in the face of substantial over-
capacity.
That day is gone. Although parts of the old structure
remain, far more than enough new capacity exists outside of that
structure to force all parties, old and new, to respond. The new
capacity uses various methods of distribution and is not
reluctant to use price as a prime competitive weapon. Indeed, it
relishes that use. In the process, customers have learned that
insurance is no longer a one-price business. They won’t forget.
Future profitability of the industry will be determined by
current competitive characteristics, not past ones. Many
managers have been slow to recognize this. It’s not only
generals that prefer to fight the last war. Most business and
investment analysis also comes from the rear-view mirror. It
seems clear to us, however, that only one condition will allow
the insurance industry to achieve significantly improved
underwriting results. That is the same condition that will allow
better results for the aluminum, copper, or corn producer - a
major narrowing of the gap between demand and supply.
Unfortunately, there can be no surge in demand for insurance
policies comparable to one that might produce a market tightness
in copper or aluminum. Rather, the supply of available insurance
coverage must be curtailed. “Supply”, in this context, is mental
rather than physical: plants or companies need not be shut; only
the willingness of underwriters to sign their names need be
curtailed.
This contraction will not happen because of generally poor
profit levels. Bad profits produce much hand-wringing and
finger-pointing. But they do not lead major sources of insurance
capacity to turn their backs on very large chunks of business,
thereby sacrificing market share and industry significance.
Instead, major capacity withdrawals require a shock factor
such as a natural or financial “megadisaster”. One might occur
tomorrow - or many years from now. The insurance business - even
taking investment income into account - will not be particularly
profitable in the meantime.
When supply ultimately contracts, large amounts of business
will be available for the few with large capital capacity, a
willingness to commit it, and an in-place distribution system.
We would expect great opportunities for our insurance
subsidiaries at such a time.
During 1982, our insurance underwriting deteriorated far
more than did the industry’s. From a profit position well above
average, we, slipped to a performance modestly below average.
The biggest swing was in National Indemnity’s traditional
coverages. Lines that have been highly profitable for us in the
past are now priced at levels that guarantee underwriting losses.
In 1983 we expect our insurance group to record an average
performance in an industry in which average is very poor.
Two of our stars, Milt Thornton at Cypress and Floyd Taylor
at Kansas Fire and Casualty, continued their outstanding records
of producing an underwriting profit every year since joining us.
Both Milt and Floyd simply are incapable of being average. They
maintain a passionately proprietary attitude toward their
operations and have developed a business culture centered upon
unusual cost-consciousness and customer service. It shows on
their scorecards.
During 1982, parent company responsibility for most of our
insurance operations was given to Mike Goldberg. Planning,
recruitment, and monitoring all have shown significant
improvement since Mike replaced me in this role.
GEICO continues to be managed with a zeal for efficiency and
value to the customer that virtually guarantees unusual success.
Jack Byrne and Bill Snyder are achieving the most elusive of
human goals - keeping things simple and remembering what you set
out to do. In Lou Simpson, additionally, GEICO has the best
investment manager in the property-casualty business. We are
happy with every aspect of this operation. GEICO is a
magnificent illustration of the high-profit exception we
described earlier in discussing commodity industries with over-
capacity - a company with a wide and sustainable cost advantage.
Our 35% interest in GEICO represents about $250 million of
premium volume, an amount considerably greater than all of the
direct volume we produce.
Issuance of Equity
Berkshire and Blue Chip are considering merger in 1983. If
it takes place, it will involve an exchange of stock based upon
an identical valuation method applied to both companies. The one
other significant issuance of shares by Berkshire or its
affiliated companies that occurred during present management’s
tenure was in the 1978 merger of Berkshire with Diversified
Retailing Company.
Our share issuances follow a simple basic rule: we will not
issue shares unless we receive as much intrinsic business value
as we give. Such a policy might seem axiomatic. Why, you might
ask, would anyone issue dollar bills in exchange for fifty-cent
pieces? Unfortunately, many corporate managers have been willing
to do just that.
The first choice of these managers in making acquisitions
may be to use cash or debt. But frequently the CEO’s cravings
outpace cash and credit resources (certainly mine always have).
Frequently, also, these cravings occur when his own stock is
selling far below intrinsic business value. This state of
affairs produces a moment of truth. At that point, as Yogi Berra
has said, “You can observe a lot just by watching.” For
shareholders then will find which objective the management truly
prefers - expansion of domain or maintenance of owners’ wealth.
The need to choose between these objectives occurs for some
simple reasons. Companies often sell in the stock market below
their intrinsic business value. But when a company wishes to
sell out completely, in a negotiated transaction, it inevitably
wants to - and usually can - receive full business value in
whatever kind of currency the value is to be delivered. If cash
is to be used in payment, the seller’s calculation of value
received couldn’t be easier. If stock of the buyer is to be the
currency, the seller’s calculation is still relatively easy: just
figure the market value in cash of what is to be received in
stock.
Meanwhile, the buyer wishing to use his own stock as
currency for the purchase has no problems if the stock is selling
in the market at full intrinsic value.
But suppose it is selling at only half intrinsic value. In
that case, the buyer is faced with the unhappy prospect of using
a substantially undervalued currency to make its purchase.
Ironically, were the buyer to instead be a seller of its
entire business, it too could negotiate for, and probably get,
full intrinsic business value. But when the buyer makes a
partial sale of itself - and that is what the issuance of shares
to make an acquisition amounts to - it can customarily get no
higher value set on its shares than the market chooses to grant
it.
The acquirer who nevertheless barges ahead ends up using an
undervalued (market value) currency to pay for a fully valued
(negotiated value) property. In effect, the acquirer must give
up $2 of value to receive $1 of value. Under such circumstances,
a marvelous business purchased at a fair sales price becomes a
terrible buy. For gold valued as gold cannot be purchased
intelligently through the utilization of gold - or even silver -
valued as lead.
If, however, the thirst for size and action is strong
enough, the acquirer’s manager will find ample rationalizations
for such a value-destroying issuance of stock. Friendly
investment bankers will reassure him as to the soundness of his
actions. (Don’t ask the barber whether you need a haircut.)
A few favorite rationalizations employed by stock-issuing
managements follow:
(a) “The company we’re buying is going to be worth a lot
more in the future.” (Presumably so is the interest in
the old business that is being traded away; future
prospects are implicit in the business valuation
process. If 2X is issued for X, the imbalance still
exists when both parts double in business value.)
(b) “We have to grow.” (Who, it might be asked, is the “we”?
For present shareholders, the reality is that all
existing businesses shrink when shares are issued. Were
Berkshire to issue shares tomorrow for an acquisition,
Berkshire would own everything that it now owns plus the
new business, but your interest in such hard-to-match
businesses as See’s Candy Shops, National Indemnity,
etc. would automatically be reduced. If (1) your family
owns a 120-acre farm and (2) you invite a neighbor with
60 acres of comparable land to merge his farm into an
equal partnership - with you to be managing partner,
then (3) your managerial domain will have grown to 180
acres but you will have permanently shrunk by 25% your
family’s ownership interest in both acreage and crops.
Managers who want to expand their domain at the expense
of owners might better consider a career in government.)
(c) “Our stock is undervalued and we’ve minimized its use in
this deal - but we need to give the selling shareholders
51% in stock and 49% in cash so that certain of those
shareholders can get the tax-free exchange they want.”
(This argument acknowledges that it is beneficial to the
acquirer to hold down the issuance of shares, and we like
that. But if it hurts the old owners to utilize shares
on a 100% basis, it very likely hurts on a 51% basis.
After all, a man is not charmed if a spaniel defaces his
lawn, just because it’s a spaniel and not a St. Bernard.
And the wishes of sellers can’t be the determinant of the
best interests of the buyer - what would happen if,
heaven forbid, the seller insisted that as a condition of
merger the CEO of the acquirer be replaced?)
There are three ways to avoid destruction of value for old
owners when shares are issued for acquisitions. One is to have a
true business-value-for-business-value merger, such as the
Berkshire-Blue Chip combination is intended to be. Such a merger
attempts to be fair to shareholders of both parties, with each
receiving just as much as it gives in terms of intrinsic business
value. The Dart Industries-Kraft and Nabisco Standard Brands
mergers appeared to be of this type, but they are the exceptions.
It’s not that acquirers wish to avoid such deals; it’s just that
they are very hard to do.
The second route presents itself when the acquirer’s stock
sells at or above its intrinsic business value. In that
situation, the use of stock as currency actually may enhance the
wealth of the acquiring company’s owners. Many mergers were
accomplished on this basis in the 1965-69 period. The results
were the converse of most of the activity since 1970: the
shareholders of the acquired company received very inflated
currency (frequently pumped up by dubious accounting and
promotional techniques) and were the losers of wealth through
such transactions.
During recent years the second solution has been available
to very few large companies. The exceptions have primarily been
those companies in glamorous or promotional businesses to which
the market temporarily attaches valuations at or above intrinsic
business valuation.
The third solution is for the acquirer to go ahead with the
acquisition, but then subsequently repurchase a quantity of
shares equal to the number issued in the merger. In this manner,
what originally was a stock-for-stock merger can be converted,
effectively, into a cash-for-stock acquisition. Repurchases of
this kind are damage-repair moves. Regular readers will
correctly guess that we much prefer repurchases that directly
enhance the wealth of owners instead of repurchases that merely
repair previous damage. Scoring touchdowns is more exhilarating
than recovering one’s fumbles. But, when a fumble has occurred,
recovery is important and we heartily recommend damage-repair
repurchases that turn a bad stock deal into a fair cash deal.
The language utilized in mergers tends to confuse the issues
and encourage irrational actions by managers. For example,
“dilution” is usually carefully calculated on a pro forma basis
for both book value and current earnings per share. Particular
emphasis is given to the latter item. When that calculation is
negative (dilutive) from the acquiring company’s standpoint, a
justifying explanation will be made (internally, if not
elsewhere) that the lines will cross favorably at some point in
the future. (While deals often fail in practice, they never fail
in projections - if the CEO is visibly panting over a prospective
acquisition, subordinates and consultants will supply the
requisite projections to rationalize any price.) Should the
calculation produce numbers that are immediately positive - that
is, anti-dilutive - for the acquirer, no comment is thought to be
necessary.
The attention given this form of dilution is overdone:
current earnings per share (or even earnings per share of the
next few years) are an important variable in most business
valuations, but far from all powerful.
There have been plenty of mergers, non-dilutive in this
limited sense, that were instantly value destroying for the
acquirer. And some mergers that have diluted current and near-
term earnings per share have in fact been value-enhancing. What
really counts is whether a merger is dilutive or anti-dilutive in
terms of intrinsic business value (a judgment involving
consideration of many variables). We believe calculation of
dilution from this viewpoint to be all-important (and too seldom
made).
A second language problem relates to the equation of
exchange. If Company A announces that it will issue shares to
merge with Company B, the process is customarily described as
“Company A to Acquire Company B”, or “B Sells to A”. Clearer
thinking about the matter would result if a more awkward but more
accurate description were used: “Part of A sold to acquire B”, or
“Owners of B to receive part of A in exchange for their
properties”. In a trade, what you are giving is just as
important as what you are getting. This remains true even when
the final tally on what is being given is delayed. Subsequent
sales of common stock or convertible issues, either to complete
the financing for a deal or to restore balance sheet strength,
must be fully counted in evaluating the fundamental mathematics
of the original acquisition. (If corporate pregnancy is going to
be the consequence of corporate mating, the time to face that
fact is before the moment of ecstasy.)
Managers and directors might sharpen their thinking by
asking themselves if they would sell 100% of their business on
the same basis they are being asked to sell part of it. And if
it isn’t smart to sell all on such a basis, they should ask
themselves why it is smart to sell a portion. A cumulation of
small managerial stupidities will produce a major stupidity - not
a major triumph. (Las Vegas has been built upon the wealth
transfers that occur when people engage in seemingly-small
disadvantageous capital transactions.)
The “giving versus getting” factor can most easily be
calculated in the case of registered investment companies.
Assume Investment Company X, selling at 50% of asset value,
wishes to merge with Investment Company Y. Assume, also, that
Company X therefore decides to issue shares equal in market value
to 100% of Y’s asset value.
Such a share exchange would leave X trading $2 of its
previous intrinsic value for $1 of Y’s intrinsic value. Protests
would promptly come forth from both X’s shareholders and the SEC,
which rules on the fairness of registered investment company
mergers. Such a transaction simply would not be allowed.
In the case of manufacturing, service, financial companies,
etc., values are not normally as precisely calculable as in the
case of investment companies. But we have seen mergers in these
industries that just as dramatically destroyed value for the
owners of the acquiring company as was the case in the
hypothetical illustration above. This destruction could not
happen if management and directors would assess the fairness of
any transaction by using the same yardstick in the measurement of
both businesses.
Finally, a word should be said about the “double whammy”
effect upon owners of the acquiring company when value-diluting
stock issuances occur. Under such circumstances, the first blow
is the loss of intrinsic business value that occurs through the
merger itself. The second is the downward revision in market
valuation that, quite rationally, is given to that now-diluted
business value. For current and prospective owners
understandably will not pay as much for assets lodged in the
hands of a management that has a record of wealth-destruction
through unintelligent share issuances as they will pay for assets
entrusted to a management with precisely equal operating talents,
but a known distaste for anti-owner actions. Once management
shows itself insensitive to the interests of owners, shareholders
will suffer a long time from the price/value ratio afforded their
stock (relative to other stocks), no matter what assurances
management gives that the value-diluting action taken was a one-
of-a-kind event.
Those assurances are treated by the market much as one-bug-
in-the-salad explanations are treated at restaurants. Such
explanations, even when accompanied by a new waiter, do not
eliminate a drop in the demand (and hence market value) for
salads, both on the part of the offended customer and his
neighbors pondering what to order. Other things being equal, the
highest stock market prices relative to intrinsic business value
are given to companies whose managers have demonstrated their
unwillingness to issue shares at any time on terms unfavorable to
the owners of the business.
At Berkshire, or any company whose policies we determine
(including Blue Chip and Wesco), we will issue shares only if our
owners receive in business value as much as we give. We will not
equate activity with progress or corporate size with owner-
wealth.
Miscellaneous
This annual report is read by a varied audience, and it is
possible that some members of that audience may be helpful to us
in our acquisition program.
We prefer:
(1) large purchases (at least $5 million of after-tax
earnings),
(2) demonstrated consistent earning power (future
projections are of little interest to us, nor are
“turn-around” situations),
(3) businesses earning good returns on equity while
employing little or no debt,
(4) management in place (we can’t supply it),
(5) simple businesses (if there’s lots of technology, we
won’t understand it),
(6) an offering price (we don’t want to waste our time or
that of the seller by talking, even preliminarily,
about a transaction when price is unknown).
We will not engage in unfriendly transactions. We can
promise complete confidentiality and a very fast answer as to
possible interest - customarily within five minutes. Cash
purchases are preferred, but we will consider the use of stock
when it can be done on the basis described in the previous
section.
* * * * *
Our shareholder-designated contributions program met with
enthusiasm again this year; 95.8% of eligible shares
participated. This response was particularly encouraging since
only $1 per share was made available for designation, down from
$2 in 1981. If the merger with Blue Chip takes place, a probable
by-product will be the attainment of a consolidated tax position
that will significantly enlarge our contribution base and give us
a potential for designating bigger per-share amounts in the
future.
If you wish to participate in future programs, we strongly
urge that you immediately make sure that your shares are
registered in the actual owner’s name, not a “street” or nominee
name. For new shareholders, a more complete description of the
program is on pages 62-63.
* * * * *
In a characteristically rash move, we have expanded World
Headquarters by 252 square feet (17%), coincidental with the
signing of a new five-year lease at 1440 Kiewit Plaza. The five
people who work here with me - Joan Atherton, Mike Goldberg,
Gladys Kaiser, Verne McKenzie and Bill Scott - outproduce
corporate groups many times their number. A compact organization
lets all of us spend our time managing the business rather than
managing each other.
Charlie Munger, my partner in management, will continue to
operate from Los Angeles whether or not the Blue Chip merger
occurs. Charlie and I are interchangeable in business decisions.
Distance impedes us not at all: we’ve always found a telephone
call to be more productive than a half-day committee meeting.
* * * * *
Two of our managerial stars retired this year: Phil Liesche
at 65 from National Indemnity Company, and Ben Rosner at 79 from
Associated Retail Stores. Both of these men made you, as
shareholders of Berkshire, a good bit wealthier than you
otherwise would have been. National Indemnity has been the most
important operation in Berkshire’s growth. Phil and Jack
Ringwalt, his predecessor, were the two prime movers in National
Indemnity’s success. Ben Rosner sold Associated Retail Stores to
Diversified Retailing Company for cash in 1967, promised to stay
on only until the end of the year, and then hit business home
runs for us for the next fifteen years.
Both Ben and Phil ran their businesses for Berkshire with
every bit of the care and drive that they would have exhibited
had they personally owned 100% of these businesses. No rules
were necessary to enforce or even encourage this attitude; it was
embedded in the character of these men long before we came on the
scene. Their good character became our good fortune. If we can
continue to attract managers with the qualities of Ben and Phil,
you need not worry about Berkshire’s future.
Warren E. Buffett
Chairman of the Board
中文译文
伯克希尔·哈撒韦公司
1983年3月3日
致伯克希尔·哈撒韦公司全体股东：
1982年，我们的经营利润为3150万美元，仅占期初股东权益（按成本计价证券）的9.8%，低于1981年的15.2%，更是远低于我们1978年创下的19.4%的高点。这一下滑主要源于：
(1) 保险承销业绩显著恶化；
(2) 股东权益大幅扩张，但我们直接经营的企业并未同步增长；
(3) 我们将越来越多的资源投入到部分持股但非控股的企业中；会计规则规定，我们从这类企业应占的大部分利润必须从伯克希尔的报告利润中剔除。
就在几年前，我们还曾告诉各位，经营利润/股东权益百分比——在适当考虑其他几个变量的情况下——是衡量单一年度管理层业绩最重要的标尺。尽管我们仍然认为这对绝大多数公司而言是正确的，但我们相信，这一标尺对我们自身的作用已大大减弱。你们应该对这种说法心存怀疑。很少有人会在标尺读数良好时将其丢弃。但当业绩恶化时，大多数管理者更倾向于丢弃标尺，而不是丢弃管理者自己。
面对这样的恶化，管理者往往能想到一个更灵活的衡量体系：只需将经营业绩的箭射向一张空白的画布，然后小心地在箭矢插入的位置画上靶心。我们通常相信预先设定、长期有效且范围较小的靶心。然而，由于上述第(3)点的重要性（下一节将进一步解释），我们认为放弃经营利润/股东权益这一靶心是合理的。
未报告的持股利润
随附财务报表反映的是“会计”利润，通常包括我们在持股比例至少20%的底层企业中应占的利润份额。然而，当持股比例低于20%时，我们的会计数字中仅包含底层企业支付给我们的股息；这类持股比例低于20%的企业的未分配利润则完全被忽略。
这条规则也有例外；例如，我们持有GEICO公司约35%的股份，但由于我们已委托投票权，公司在会计处理上被视为持股低于20%的持股。因此，1982年从GEICO收到的税后股息350万美元是唯一计入我们“会计”利润的项目。另外的2300万美元，即我们应占的GEICO 1982年未分配经营利润，则完全被排除在我们的报告经营利润之外。如果GEICO 1982年少赚了一些钱，但多支付了100万美元的股息，尽管经营业绩更差，我们的报告利润反而会更高。反之，如果GEICO多赚了1亿美元——并且全部留存——我们的报告利润则不会有任何变化。显然，“会计”利润可能会严重歪曲经济现实。
我们更倾向于“经济”利润的概念，即包含所有未分配利润，无论持股比例多少。我们认为，企业留存收益对所有所有者的价值，取决于这些收益被使用的效率——而不是取决于持股比例的大小。如果你在过去十年中拥有伯克希尔0.01%的股份，那么无论你的会计系统如何，你都能从你所占的留存收益份额中充分获得经济收益。按比例而言，你的表现与拥有那神奇的20%股份一样好。但如果你在这十年中拥有大量资本密集型企业的100%股份，那么根据标准会计方法，那些完全且精确地计入你名下的留存收益，可能只产生微乎其微或为零的经济价值。这不是对会计程序的批评。我们也不希望承担设计更好系统的任务。这仅仅是为了说明，管理者和投资者都必须明白，会计数字是价值评估的起点，而非终点。
在大多数公司中，持股比例低于20%的仓位并不重要（部分原因可能是它们会阻碍最大化珍贵的报告利润），因此我们刚才讨论的会计结果与经济结果之间的区别关系不大。但在我们自己的情况下，这类仓位非常庞大且日益重要。我们认为，正是它们的规模使得我们的报告经营利润数字意义有限。
在1981年的年报中，我们预测，我们在四个主要非控股持股中的未分配利润份额在1982年总计将超过3500万美元。由于我们对其中三家公司——GEICO、通用食品和华盛顿邮报——的持股没有变化，而对第四家雷诺兹烟草公司的持股则有相当增加，1982年我们从这一组公司中应占的未分配经营利润远远超过了4000万美元。这个数字——完全没有反映在我们的利润中——超过了我们的总报告利润，而报告利润中仅包含从这些公司收到的1400万美元股息。当然，我们还有一些较小的持股权益，它们合计也有大量额外的未分配利润。
我们确实重视这些数字的大致规模，但我们不认为它们应该精确到小数点后十位。伯克希尔通过市场估值改善来变现这些留存收益，需要缴纳非常可观但数额不确定的税款。而且，尽管多年来留存收益总体上已转化为至少同等的股东市场价值，但这种转化在公司之间异常不均衡，在时间上也极不规律且难以预测。
然而，正是这种不均衡和不规律性，为价值导向的部分持股买家提供了优势。这位投资者几乎可以从所有美国大公司中进行选择，其中许多公司远远优于任何通过协商交易整体购买的企业。而且，部分权益的购买可以在拍卖市场中进行，该市场的价格由参与者设定，而参与者的行为模式有时就像一群狂躁抑郁的旅鼠。
在这个巨大的拍卖场中，我们的工作是选择那些经济特征能够使每一美元留存收益最终转化为至少一美元市场价值的企业。尽管犯过很多错误，但我们迄今为止实现了这一目标。在此过程中，我们得到了阿瑟·奥肯的经济学守护神——“抵消圣徒”——的巨大帮助。也就是说，在某些情况下，归因于我们持股地位的留存收益对市场价值的影响微不足道，甚至为负；而在其他重要仓位中，被投资公司留存的一美元已转化为两美元或更多的市场价值。迄今为止，我们公司中的“优等生”已完全抵消了“落后生”。如果我们能继续保持这一记录，将验证我们最大化“经济”利润的努力是正确的，无论其对“会计”利润有何影响。
尽管我们的部分持股方法令人满意，但真正让我们兴奋的是以合理价格购买100%的好企业。我们曾几次完成这一壮举（并期望再次做到），但这是一项极其困难的工作——远比以有吸引力的价格购买部分权益困难得多。
当我们审视1982年其他公司进行的大型收购时，我们的反应不是嫉妒，而是庆幸自己没有参与其中。因为在许多收购中，管理层的理智在与管理层的肾上腺素竞赛中败下阵来。追逐的刺激让追逐者忽视了捕获的后果。帕斯卡的观察似乎很贴切：“我注意到，人类所有的不幸都源于一个原因：他们无法安静地呆在一个房间里。”
（你们的董事长去年离开房间的次数太多了，差点成为1982年收购闹剧的主角。回想起来，我们当年最大的成就是：一项我们坚定承诺的、非常大规模的收购，因完全不受我们控制的原因而未能完成。如果它完成了，这项交易将消耗大量的时间和精力，而回报却极不确定。如果我们打算在报告中加入图表来说明去年的有利业务进展，那么描述这笔失败交易的空白两页将是最合适的中心插页。）
只有当有吸引力的企业的部分权益能够以有吸引力的价格获得时，我们的部分持股方法才能持续健康地运作。我们需要一个价格适中的股票市场来帮助我们实现这一目标。市场，就像上帝一样，帮助那些自助的人。但与上帝不同的是，市场不会原谅那些不知道自己正在做什么的人。对于投资者来说，为一支优秀公司的股票支付过高的价格，可能会抵消随后十年有利业务发展带来的影响。
如果股票市场大幅上涨，我们有效利用资本进行部分持股的能力将受到削弱甚至消失。这种情况会周期性发生：就在十年前，在两级市场狂热的高峰期（机构投资者将高净资产收益率的公司股价竞拍到天际），伯克希尔的保险子公司仅持有价值1800万美元的股票（不包括其在蓝筹印花公司的权益）。当时，这些股票投资约占我们保险公司投资的15%，而现在是80%。1972年像1982年一样，有同样多的好企业，但1972年市场对这些企业的定价似乎荒谬可笑。虽然未来股价高企会让我们暂时看起来表现不错，但会损害我们的长期业务前景，而不是帮助它们。我们目前正看到这个问题的早期迹象。
长期公司业绩
1982年，我们的净资产增加额为2.08亿美元，这是基于我们保险子公司持有的股票按市值计价（扣除未实现收益实际变现时应缴的资本利得税）。以5.19亿美元的期初净资产为基础，增幅为40%。
在本届管理层执掌的18年间，每股账面价值从19.46美元增长到737.43美元，年复合增长率为22.0%。可以肯定的是，这个百分比未来将会下降。几何级数增长最终会为自己套上锚链。
伯克希尔的经济目标仍然是产生一个远高于美国大型公司平均水平的长期回报率。我们愿意以合理价格购买处于有利地位的企业（无论是部分持股还是全部持股），同时对我们愿意支付的价格保持合理的纪律，这应该给我们很大的机会实现目标。
今年，部分持股企业的市场估值涨幅再次超过了这些企业的基础经济价值涨幅。例如，我们2.08亿美元增幅中有7900万美元归因于GEICO股价的上涨。这家公司继续表现得异常出色，我们对GEICO基本商业理念的强劲以及Jack Byrne的管理才能比以往任何时候都印象深刻。（尽管在优秀商学院的教义中找不到，“让杰克去做”作为我们的公司信条却行之有效。）
然而，GEICO在过去两年中的市场价值增长，远远超过了其内在商业价值的增长（尽管后者本身也令人印象深刻）。我们在某个时候预料到了这种有利的偏差，因为投资者的认知会与企业现实趋同。我们期待未来基础商业价值的大幅增长，同时伴随着这些增长不定期但最终充分的市场认可。
然而，年度之间的差异不可能始终对我们有利。即使我们的部分持股企业在经济意义上继续表现良好，也会有一些年份它们在市场上表现不佳。到那时，我们的净资产可能会大幅缩水。我们不会因此感到沮丧；如果这些企业看起来仍然有吸引力，并且我们有现金可用，我们只会以更有利的价格增持。
报告利润来源
下表显示了伯克希尔报告利润的来源。1981年和1982年，伯克希尔持有蓝筹印花公司约60%的股份，而蓝筹印花公司又持有韦斯科金融公司80%的股份。该表显示了各个业务实体的总经营利润，以及伯克希尔应占的份额。所有因任何业务实体出售资产而产生的重大损益，均与证券交易合并列示在表格底部附近的行中，不计入经营利润。
净利润
税前利润 税后
-------------------------------------- ------------------
总计 伯克希尔应占 伯克希尔应占
------------------ ------------------ ------------------
1982 1981 1982 1981 1982 1981
-------- -------- -------- -------- -------- --------
（千美元省略）
经营利润：
保险集团：
承销 ................. $(21,558) $ 1,478 $(21,558) $ 1,478 $(11,345) $ 798
净投资收益 ........... 41,620 38,823 41,620 38,823 35,270 32,401
伯克希尔-旺贝克纺织 .... (1,545) (2,669) (1,545) (2,669) (862) (1,493)
联合零售店 ............. 914 1,763 914 1,763 446 759
喜诗糖果 ............... 23,884 20,961 14,235 12,493 6,914 5,910
布法罗晚报 ............. (1,215) (1,217) (724) (725) (226) (320)
蓝筹印花公司-母公司 .... 4,182 3,642 2,492 2,171 2,472 2,134
韦斯科金融-母公司 ....... 6,156 4,495 2,937 2,145 2,210 1,590
共同储蓄与贷款 ......... (6) 1,605 (2) 766 1,524 1,536
精密钢铁 ............... 1,035 3,453 493 1,648 265 841
债务利息 ............... (14,996) (14,656) (12,977) (12,649) (6,951) (6,671)
其他* .................. 2,631 2,985 1,857 1,992 1,780 1,936
-------- -------- -------- -------- -------- --------
经营利润 ................. 41,102 60,663 27,742 47,236 31,497 39,421
出售证券及异常资产出售 ... 36,651 37,801 21,875 33,150 14,877 23,183
-------- -------- -------- -------- -------- --------
所有实体总利润 ........... $ 77,753 $ 98,464 $ 49,617 $ 80,386 $ 46,374 $ 62,604
======== ======== ======== ======== ======== ========
* 收购业务（如喜诗、共同储蓄与贷款及布法罗晚报）时会计处理中产生的无形资产摊销已反映在“其他”类别中。
在本报告第45至61页，我们转载了蓝筹印花公司和韦斯科公司主要高管的情况报告，他们描述了1982年的运营情况。任何伯克希尔股东均可向以下地址索取任一公司的完整年报：蓝筹印花公司，Robert H. Bird先生收，地址：5801 South Eastern Avenue, Los Angeles, California 90040；或韦斯科金融公司，Jeanne Leach女士收，地址：315 East Colorado Boulevard, Pasadena, California 91109。
我相信你们会发现蓝筹印花关于布法罗报纸情况的叙述特别有趣。目前美国只有14个城市的日报平日发行量超过《布法罗新闻》。但真正的故事在于周日发行量的增长。六年前，在《新闻报》推出周日版之前，长期运营的《信使快报》作为布法罗唯一出版的周日报纸，发行量为27.2万份。现在《新闻报》的周日发行量为36.7万份，增长了35%——尽管在六年间，主要发行区域内的家庭户数几乎没有变化。据我们所知，在美国没有一个具有长期七日出版报纸历史的城市，周日报纸的家庭渗透率能以如此速度增长。相反，在大多数城市，家庭渗透率增长甚微，或者根本没有增长。我们在布法罗的关键管理人员——Henry Urban、Stan Lipsey、Murray Light、Clyde Pinson、Dave Perona和Dick Feather——为这种无与伦比的周日读者群扩张赢得了巨大的赞誉。
正如我们之前所说，非控股公司的未分配利润现在与前表详列的报告经营利润同等重要。当然，非控股利润中已分配的部分，主要通过保险集团的净投资收益渠道进入该表。
下表显示了伯克希尔在那些仅将已分配收益（股息）计入我们利润的非控股公司中的持股比例。
持股数
或等价股数 成本 市值
--------------- ---------- ----------
（千美元省略）
460,650 (a) 联合出版公司 ................. $ 3,516 $ 16,929
908,800 (c) 克鲁姆与福斯特 ................ 47,144 48,962
2,101,244 (b) 通用食品公司 ................. 66,277 83,680
7,200,000 (a) GEICO公司 .................... 47,138 309,600
2,379,200 (a) Handy & Harman公司 ........... 27,318 46,692
711,180 (a) 宏盟集团（Interpublic Group） . 4,531 34,314
282,500 (a) Media General公司 ............. 4,545 12,289
391,400 (a) 奥美国际公司 ................. 3,709 17,319
3,107,675 (b) 雷诺兹烟草公司 ............... 142,343 158,715
1,531,391 (a) 时代公司 ..................... 45,273 79,824
1,868,600 (a) 华盛顿邮报公司 ............... 10,628 103,240
---------- ----------
$402,422 $911,564
所有其他普通股持股 ............. 21,611 34,058
---------- ----------
普通股总计 $424,033 $945,622
========== ==========
(a) 由伯克希尔或其保险子公司全资拥有。
(b) 蓝筹印花公司和/或韦斯科公司持有这些公司的股份。所有数字代表伯克希尔在这些集团更大总持股中的净权益。
(c) 作为现金替代品的临时持股。
各位可能没有注意到，这个表格蕴含着一个重要的投资教训：在选择股票时，怀旧之情应被赋予重要权重。我们两个最大的未实现收益来自华盛顿邮报和GEICO，你们的董事长分别在13岁和20岁时与这两家公司建立了最初的商业联系。在偏离了大约25年后，我们于20世纪70年代中期作为投资者回归。该表量化了即使是很长时间延迟的公司忠诚度所获得的回报。
我们的控股和非控股业务横跨如此广泛的领域，在此进行详细评论将过于冗长。关于控股业务的大量财务和运营信息包含在第34-39页的“管理层讨论”以及第45-61页的情况报告中。然而，我们最大的业务活动领域一直是，而且几乎肯定将继续是，财产意外险领域。因此，对该行业的发展情况进行评论是合适的。
保险行业状况
下方是我们去年年报中使用过的行业统计数据的更新表。其信息很明确：1983年的承销结果不会让胆小的人感到乐观。
年保费增长率 年已赚保费增长率 支付保单持有人
(%) (%) 分红后综合比率
------------- ------------- ----------------
1972 ................ 10.2 10.9 96.2
1973 ................ 8.0 8.8 99.2
1974 ................ 6.2 6.9 105.4
1975 ................ 11.0 9.6 107.9
1976 ................ 21.9 19.4 102.4
1977 ................ 19.8 20.5 97.2
1978 ................ 12.8 14.3 97.5
1979 ................ 10.3 10.4 100.6
1980 ................ 6.0 7.8 103.1
1981 (修订) ......... 3.9 4.1 106.0
1982 (估计) ......... 5.1 4.6 109.5
来源：贝斯特汇总与平均值。
贝斯特的数据反映了几乎整个行业的经验，包括股份制、相互制和互助制公司。综合比率表示总运营和损失成本与保费收入的比率；比率低于100表示承保盈利，高于100表示承保亏损。
基于去年报告中所阐述的原因，只要行业保费年增长率远低于10%，你就可以预期下一年的承保状况将会恶化。即使在今天较低的整体通胀率下，情况也是如此。随着保单数量逐年增加，医疗通胀率远高于整体通胀率，以及保险责任概念的拓宽，年承保损失增长率不太可能远低于10%。
你还需要知道，1982年109.5的综合比率代表了一个“最佳情况”的估计。在特定年份，保险公司几乎可以显示其想要的任何利润数字，特别是如果它 (1) 承保“长尾”业务（由于理赔支付延迟很久，当前成本只能估算的险种），(2) 过去准备充足，或 (3) 增长非常迅速。有迹象表明，一些大型保险公司在1982年选择了模糊的会计和准备金操作，掩盖了其基础业务的显著恶化。在保险业，如同在其他领域一样，薄弱的管理层对薄弱业务做出的反应往往是薄弱的会计。（“空袋子难以直立。”）
然而，绝大多数管理层试图公平行事。但即使是正直的管理层，在盈利不佳的年份，也可能下意识地不愿充分承认不利的损失趋势。行业统计数据显示，1982年损失准备金计提做法有所恶化，实际综合比率可能比我们表格显示的结果略差。
传统观点认为，1983年或1984年将是承保经验最糟糕的时期，然后就像过去一样，“周期”将朝着更好的结果显著而稳定地移动。我们不同意这种观点，因为竞争环境发生了明显的、多年来难以看到但现在相当明显的变化。
要理解这种变化，我们需要审视一些通常影响企业盈利水平的主要因素。那些既有严重产能过剩又生产“商品”型产品（在性能、外观、服务支持等任何对客户重要的方面都无法区分）的行业中的企业，是利润问题的主要候选人。当然，如果价格或成本以某种方式被管理，从而至少部分地与正常市场力量隔离开来，这些企业可能会避免利润问题。这种管理可以通过 (a) 合法地通过政府干预（直到最近，这类包括卡车运输公司的定价和金融机构的存款成本），(b) 非法地通过合谋，或 (c) “超合法”地通过欧佩克式的外国卡特尔化（为国内非卡特尔经营者带来附带利益）来进行。
然而，如果成本和价格完全由竞争决定，产能过剩严重，并且买家不太在乎使用谁的产品或分销服务，那么行业经济几乎肯定会平淡无奇。它们很可能是灾难性的。
因此，每个供应商都在不断努力建立和强调其产品或服务的特殊品质。这对糖果棒有效（顾客按品牌购买，而不是要求“两盎司的糖果棒”），但对糖无效（你多久会听到一次“请给我一杯加奶油和C&H糖的咖啡”）。
在许多行业中，差异化根本无法有意义地实现。这类行业中少数生产者如果拥有既广泛又可持续的成本优势，可能会持续表现良好。但根据定义，这种例外很少，并且在许多行业中根本不存在。对于销售“商品”型产品的绝大多数公司来说，一个令人沮丧的商业经济学方程式盛行：持续产能过剩加上缺乏受管理的价格（或成本）等于盈利能力低下。
当然，产能过剩最终可能会自我修正，要么产能缩减，要么需求扩张。然而，对参与者来说不幸的是，这种修正往往被长期拖延。当它们最终发生时，向繁荣的反弹常常会引发一种普遍的对扩张的热情，这种热情在几年内又会造成产能过剩和新的无盈利环境。换句话说，没有什么比成功更失败。
最终决定这类行业长期盈利水平的是供应紧张年份与供应充足年份的比率。这个比率往往是糟糕的。（似乎我们纺织业务最近一次供应紧张时期——发生在几年前——持续了大约一个上午的时间。）
然而，在某些行业中，产能紧张的状况可能持续很长时间。有时，实际需求增长会长期超过预测增长。在其他情况下，增加产能需要很长的准备时间，因为必须规划和建造复杂的制造设施。
但在保险业务中——回到这个话题——资本加上承销商签署名字的意愿就可以立即创造产能。（在一个州政府赞助的担保基金保护许多保单持有人免受保险公司破产影响的世界里，资本甚至不那么重要。）在任何条件下——除了对生存的恐惧（可能由股市崩盘或真正的大自然灾害引起）——保险业都是在严重产能过剩的竞争之剑下运营的。此外，尽管做出了英勇的努力试图做到不同，但该行业通常销售一种相对无差异化的商品型产品。（许多被保险人，包括大企业的管理者，甚至不知道他们保险公司的名字。）因此，保险业似乎是教科书般的典型行业，通常面临产能过剩和“商品”型产品的致命组合。
那么，为什么尽管存在周期，承保业务在几十年来总体上还是有盈利的呢？（从1950年到1970年，行业综合比率平均为99.0，允许所有投资收益加上1%的保费流入利润。）答案主要在于历史上监管和分销的方式。在本世纪的大部分时间里，该行业的很大一部分实际上是在保险监管机构促成的法律准行政定价体系内运作的。虽然存在价格竞争，但在大公司之间并不普遍。主要的竞争是针对代理人的，通过各种非价格相关策略来争夺他们。
对于行业巨头来说，大多数费率是通过行业“局”（或遵照其建议行事的公司）与州监管机构之间的谈判来设定的。发生了有尊严的讨价还价，但这发生在公司与监管机构之间，而不是公司与客户之间。尘埃落定后，巨头A收取的价格与巨头B相同——而且法律禁止公司和代理人降低这些已申报的费率。
公司-州政府协商的价格包括特定的利润津贴，当损失数据显示当前价格无利可图时，公司管理层和州监管机构都期望他们将共同采取行动来纠正这种情况。因此，行业巨头的大多数定价行为是“绅士般的”、可预测的且能产生利润的。至关重要的是——与大多数商业世界的运作方式相反——即使在严重产能过剩的情况下，保险公司也可以合法地通过定价走向盈利。
那个时代已经过去了。尽管旧结构的部分仍然存在，但该结构之外有太多新产能，迫使所有各方，无论新旧，都做出回应。新产能使用各种分销方法，并且不忌讳使用价格作为主要的竞争武器。事实上，它乐于这样做。在这个过程中，客户已经认识到保险不再是一价制的生意。他们不会忘记。
该行业未来的盈利能力将由当前的竞争特征决定，而不是过去的特征。许多管理者迟迟没有认识到这一点。不仅仅是将军们喜欢打上一场战争。大多数商业和投资分析也来自后视镜。然而，在我们看来，似乎只有一种条件能使保险业实现承销结果的显著改善。那就是与允许铝、铜或玉米生产者取得更好结果的相同条件——供需缺口大幅缩小。
不幸的是，对保险单的需求不可能出现像铜或铝那样可能产生市场紧张的局面。相反，必须削减可用保险覆盖的供应。在这里，“供应”是精神上的而非物质上的：工厂或公司无需关闭；只需削减承销商签署名字的意愿。
这种收缩不会因为普遍的糟糕盈利水平而发生。糟糕的利润会引发大量的搓手和指责。但它们不会导致主要的保险产能来源背弃非常大块的业务，从而牺牲市场份额和行业地位。
相反，产能的大幅收缩需要一个震撼因素，比如自然或金融“超级灾难”。这可能发生在明天——也可能发生在许多年后。在此期间，保险业务——即使考虑投资收益——也不会特别有利可图。
当供应最终收缩时，大量业务将提供给少数拥有大量资本能力、愿意投入资本以及拥有现成分销系统的公司。我们期待在那个时候为我们的保险子公司带来巨大的机会。
1982年，我们的保险承销业绩恶化程度远超过行业平均水平。从一个远高于平均水平的盈利状态，我们滑落到略低于平均水平的业绩。最大的波动出现在国家赔偿公司的传统险种上。过去对我们来说利润丰厚的险种，现在的定价水平已保证承保亏损。1983年，我们预计我们的保险集团将录得行业平均水平的表现，而在此行业中，平均水平是非常糟糕的。
我们的两位明星——Cypress公司的Milt Thornton和堪萨斯火险与意外险公司的Floyd Taylor——自加入我们以来，继续保持着每年承保盈利的出色记录。Milt和Floyd都无法做到平庸。他们对自己的业务保持着热情的主人翁态度，并培养了一种以异常的成本意识和客户服务为中心的商业文化。这在他们的记分卡上清晰可见。
1982年，我们大部分保险业务的母公司责任交给了Mike Goldberg。自从Mike接替我担任这个角色以来，规划、招聘和监督都显示出显著的改善。
GEICO继续以对效率和客户价值的热情进行管理，这几乎保证了非凡的成功。Jack Byrne和Bill Snyder正在实现人类最难以捉摸的目标——保持简单，并记住你最初想做的事情。此外，Lou Simpson使GEICO拥有财产意外险行业中最好的投资经理。我们对这项业务的每一个方面都感到满意。GEICO是我们在前面讨论产能过剩的商品行业中描述的高利润例外的一个绝佳例证——一家拥有广泛且可持续成本优势的公司。我们在GEICO的35%权益代表着约2.5亿美元的保费规模，这远远大于我们自己产生的所有直接保费。
发行股票
伯克希尔和蓝筹印花正在考虑1983年合并。如果合并发生，将涉及基于对两家公司采用相同估值方法的股票交换。在本届管理层任期内，伯克希尔或其关联公司进行的唯一一次其他重要股票发行是在1978年伯克希尔与多元化零售公司的合并。
我们的股票发行遵循一个简单的基本规则：我们不会发行股票，除非我们获得了与我们给予的同等内在商业价值。这样的政策似乎是公理。你可能会问，为什么会有人用美元钞票换取50美分硬币？不幸的是，许多公司管理层一直愿意这样做。
这些管理者在选择收购时，首选可能是使用现金或债务。但通常CEO的渴望会超出现金和信贷资源（我的当然总是如此）。而且，这些渴望常常发生在他自己的股票远低于内在商业价值出售的时候。这种情况产生了一个真相时刻。在那一刻，正如Yogi Berra所说，“你只要观察就能学到很多。”因为股东们随后会发现，管理层真正偏好的目标是扩大地盘还是维护所有者财富。
需要在这两个目标之间做出选择，源于一些简单的原因。公司股票的市场售价往往低于其内在商业价值。但是，当一家公司希望通过协商交易完全出售时，它不可避免地希望——并且通常能够——以其交付的任何货币形式获得全部商业价值。如果使用现金支付，卖方对收到价值的计算再简单不过了。如果买方的股票是货币，卖方的计算仍然相对容易：只需计算要收到的股票现金市场价值。
与此同时，希望使用自己股票作为购买货币的买方，如果其股票在市场上以全部内在价值出售，则没有问题。
但假设股票只以内在价值的一半出售。在这种情况下，买方将面临使用一种大幅贬值的货币进行购买的不愉快前景。
具有讽刺意味的是，如果买方本身是出售其全部业务，它也可以协商并获得全部内在商业价值。但是，当买方进行部分自我出售时——发行股票进行收购实质上就是如此——它通常无法为其股票获得高于市场愿意赋予它的价值。
尽管如此，仍然蛮干的收购方最终会用一种低估（市场价值）的货币来支付一项充分估值（协商价值）的资产。实际上，收购方必须放弃2美元的价值才能获得1美元的价值。在这种情况下，一笔以公平售价买下的绝妙生意变成了一笔糟糕的买卖。因为，被视为黄金的黄金，不能通过使用被视为铅的金子——甚至是银子——来明智地购买。
然而，如果对规模和行动的渴望足够强烈，收购方的管理者会为这种损害价值的股票发行找到充分的理由。友好的投资银行家会向他保证其行动的合理性。（不要问理发师你是否需要理发。）
以下是股票发行管理层常用的一些最喜欢的合理化理由：
(a) “我们正在收购的公司将来会值更多钱。”（大概被交易掉的旧业务的权益也是如此；未来前景隐含在商业估值过程中。如果发行2X换取X，当两部分商业价值翻倍时，不平衡仍然存在。）
(b) “我们必须增长。”（可能会问，“我们”是谁？对于现有股东来说，现实情况是，当发行股票时，所有现有业务都会缩水。如果伯克希尔明天为收购发行股票，伯克希尔将拥有其现在拥有的一切加上新业务，但是你在喜诗糖果店、国家赔偿公司等难以匹敌的业务中的权益将自动减少。如果 (1) 你的家族拥有一块120英亩的农场，(2) 你邀请一位拥有60英亩类似土地的邻居，将他的农场合并为一家合伙企业——你担任管理合伙人，那么 (3) 你的管理地盘将扩大到180英亩，但你家族在土地和农作物中的所有权权益将永久缩减25%。希望以牺牲所有者为代价来扩张地盘的管理者，或许应该考虑在政府部门谋求职业。）
(c) “我们的股票被低估了，我们在这场交易中已尽量少用股票——但我们需要向出售股东提供51%的股票和49%的现金，以便其中某些股东能够获得他们想要的免税交换。”（这个论点承认，对收购方来说，限制股票发行是有利的，我们喜欢这样。但是，如果100%使用股票会损害旧所有者，那么51%使用股票很可能也会造成损害。毕竟，如果一只西班牙猎狗弄脏了你的草坪，你不会因为它是一只西班牙猎狗而不是圣伯纳犬而感到庆幸。卖方的愿望不能决定买方的最佳利益——如果，天哪，卖方坚持要求收购方的CEO被替换作为合并条件，那会发生什么？）
当为收购发行股票时，有三种方法可以避免对旧所有者的价值破坏。一是进行真正的商业价值对商业价值的合并，就像伯克希尔-蓝筹印花合并预期的那样。这样的合并试图公平对待双方的股东，每个人在内在商业价值方面付出的与得到的一样多。达特工业-卡夫以及纳贝斯克-标准品牌合并似乎属于这种类型，但它们是例外。并非收购方不愿意做这样的交易；只是它们非常难以实现。
第二种途径出现在收购方的股票以等于或高于其内在商业价值出售时。在这种情况下，使用股票作为货币实际上可能会增加收购方公司所有者的财富。在1965-1969年期间，许多合并就是在此基础上实现的。结果与1970年以来的大部分活动相反：被收购公司的股东收到了非常膨胀的货币（通常被可疑的会计和促销手段推高），并因此成为这些交易中的财富输家。
近年来，第二种解决方案对极少数大公司可行。例外的主要是那些处于时尚或促销行业的公司，市场暂时给予其估值等于或高于内在商业价值。
第三种解决方案是收购方继续进行收购，但随后回购与合并中发行的股份数量相等的股票。通过这种方式，原本的股票换股票合并可以有效地转化为现金换股票收购。这种回购是损害修复行动。经常阅读我们报告的人会正确猜测，我们更喜欢直接增加所有者财富的回购，而不是仅仅修复先前损害的回购。达阵得分比恢复自己掉球更令人兴奋。但是，当掉球发生时，恢复球权很重要，我们衷心推荐损害修复回购，将糟糕的股票交易变成公平的现金交易。
合并中使用的语言往往混淆问题并鼓励管理者的非理性行为。例如，“稀释”通常根据预估基准针对每股账面价值和当前每股收益进行仔细计算。尤其强调后者。当从收购方角度看计算结果是负的（稀释性）时，将会做出一个合理的解释（内部，如果不是其他地方），即这些线将在未来某个时间点有利地交叉。（虽然交易在实践中常常失败，但它们从未在预测中失败——如果CEO明显对一个潜在收购垂涎欲滴，下属和顾问将会提供必要的预测来合理化任何价格。）如果计算得出的数字对收购方立即是正的——即反稀释——通常认为无需评论。
对这种形式稀释的关注是过度的：当前每股收益（甚至未来几年的每股收益）是大多数商业估值中的一个重要变量，但远非唯一决定因素。
过去有许多在此有限意义上非稀释的合并，对收购方来说却是立即损害价值的。而一些稀释了当前和近期每股收益的合并实际上却增加了价值。真正重要的是，在内在商业价值方面，一项合并是稀释性的还是反稀释性的（一个涉及考虑许多变量的判断）。我们认为从这个角度计算稀释至关重要（并且很少进行）。
第二个语言问题涉及交换比率。如果A公司宣布将发行股票与B公司合并，这个过程通常被描述为“A公司收购B公司”，或“B卖给A”。如果使用一个更笨拙但更准确的描述，可能会产生更清晰的思考：“A的一部分被出售以收购B”，或“B的所有者将获得A的一部分以交换他们的财产”。在交易中，你付出什么和你得到什么同等重要。即使最终付出的数额被推迟，这一点仍然成立。后续的普通股或可转换债券的销售，无论是为了完成融资交易还是恢复资产负债表实力，都必须完全计入评估原始收购的基本数学原理中。（如果公司婚姻的结果是公司怀孕，那么在欢乐时刻之前就应该面对这个事实。）
管理者和董事们可以问自己一个问题来理清思路：他们是否愿意按照要求出售部分业务同样的条件来出售100%的业务？如果以此条件出售全部业务并不明智，他们应该问问自己为什么出售部分就是明智的。小管理愚蠢行为的累积将产生大愚蠢——而不是大胜利。（拉斯维加斯就是建立在人们从事看似微小但不利的资本交易时发生的财富转移之上的。）
在注册投资公司的情况下，“付出与获得”因素最容易计算。假设投资公司X，以资产价值50%的价格交易，希望与投资公司Y合并。再假设X公司因此决定发行市场价值等于Y资产价值100%的股票。
这样的股票交换将导致X用其先前内在价值的2美元换取Y内在价值的1美元。X的股东和美国证券交易委员会（SEC）会立即提出抗议，SEC对注册投资公司合并的公平性做出裁决。这样的交易根本不会被允许。
对于制造、服务、金融等公司来说，价值通常不像投资公司那样可以精确计算。但我们见过这些行业中发生的合并，它们对收购方公司所有者的价值破坏程度，与上述假设案例一样严重。如果管理层和董事们能够使用相同的标尺来衡量双方业务，评估任何交易的公平性，这种破坏就不会发生。
最后，当发生价值稀释的股票发行时，还应该提一下对收购方所有者的“双重打击”效应。在这种情况下，第一击是合并本身导致的内在商业价值损失。第二击是市场估值理性下调，因为现在这种稀释后的商业价值获得了较低估值。当前和潜在的所有者理解，对于那些有过因不明智股票发行而破坏财富记录的管理层所拥有的资产，他们不会像对委托给具有完全相同运营才能但已知厌恶反所有者行为的管理层所拥有的资产那样，支付同样多的价格。一旦管理层表现出对所有者利益不敏感，股东将在很长一段时间内承受其股票价格/价值比率（相对于其他股票）的惩罚，无论管理层如何保证这种价值稀释行为是一次性事件。
市场对待这些保证的态度，就像餐馆对待沙拉里有一只虫子的解释一样。这种解释，即使由新服务员提供，也不会消除对沙拉的需求（以及市场价值）的下降，无论是对于被冒犯的顾客，还是正在考虑点什么菜的邻桌。在其他条件相同的情况下，相对于内在商业价值，最高的股票市场价格给予那些管理层已证明在任何时候都不愿意以不利于企业所有者的条件发行股票的公司。
在伯克希尔，或任何我们决定政策的公司（包括蓝筹印花和韦斯科），我们只会在所有者获得与我们付出同等商业价值的情况下发行股票。我们不会将活动等同于进步，也不会将公司规模等同于所有者财富。
杂项
这份年报被各种读者阅读，其中某些读者可能对我们的收购计划有所帮助。
我们偏好：
(1) 大规模收购（至少500万美元的税后利润），
(2) 经过验证的持续盈利能力（未来预测对我们没什么兴趣，扭亏为盈的情况也是如此），
(3) 在几乎没有或完全没有债务的情况下获得良好净资产收益率的企业，
(4) 管理层到位（我们无法提供），
(5) 简单的业务（如果技术含量很高，我们就无法理解），
(6) 报价（我们不想浪费时间或卖方的时间，甚至初步谈论，在价格未知的情况下进行交易）。
我们不会参与不友好的交易。我们可以承诺完全保密，并尽快给出对可能兴趣的答复——通常在五分钟内。现金购买是首选，但当我们可以在前文所述的基础上进行时，我们也会考虑使用股票。
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我们的股东指定捐赠计划今年再次受到热烈欢迎；95.8%的合格股份参与其中。这一反应尤其令人鼓舞，因为每股仅有1美元可用于指定，低于1981年的2美元。如果与蓝筹印花的合并得以实现，一个可能的副产品将是获得合并税项地位，这将显著扩大我们的捐赠基础，并使我们未来有潜力指定更高的每股金额。
如果您希望参与未来的计划，我们强烈建议您立即确保您的股票以实际所有者的名义登记，而不是“街头”或名义持有人名义。对于新股东，该计划的更完整描述在第62-63页。
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在一次典型的大胆举动中，我们将全球总部扩大了252平方英尺（17%），同时签署了1440 Kiewit Plaza的新五年租约。与我在这里一起工作的五个人——Joan Atherton、Mike Goldberg、Gladys Kaiser、Verne McKenzie和Bill Scott——生产的产品数倍于他们的数量。一个紧凑的组织让我们所有人都能将时间花在管理业务上，而不是相互管理。
我的管理合伙人Charlie Munger，无论蓝筹印花合并是否发生，都将继续在洛杉矶运营。Charlie和我可以在业务决策上互换。距离对我们毫无阻碍：我们一直认为一个电话比半天的委员会会议更有效率。
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今年，我们两位管理明星退休了：国家赔偿公司的Phil Liesche（65岁）和联合零售店的Ben Rosner（79岁）。这两个人都让你们，作为伯克希尔的股东，比本来应该的更富有。国家赔偿公司一直是伯克希尔增长中最重要的业务。Phil和他的前任Jack Ringwalt是国家赔偿公司成功的两位主要推动者。Ben Rosner于1967年将联合零售店卖给多元化零售公司，换取现金，承诺只留任到年底，然后在接下来的十五年里为我们打出了商业全垒打。
Ben和Phil都以他们如果个人100%拥有这些企业时会表现出的同样的关心和动力来为伯克希尔经营他们的业务。没有任何规则必要去强制执行甚至鼓励这种态度；这种态度在我们出现之前很久就根植于这些人的性格中。他们的良好品格变成了我们的好运。如果我们能够继续吸引具有Ben和Phil品质的管理者，你们无需担心伯克希尔的未来。
沃伦·E·巴菲特
董事会主席