ENGLISH
BERKSHIRE HATHAWAY INC.
To the Shareholders of Berkshire Hathaway Inc.:
Our per-share book value increased 14.3% during 1993. Over
the last 29 years (that is, since present management took over)
book value has grown from $19 to $8,854, or at a rate of 23.3%
compounded annually.
During the year, Berkshire's net worth increased by $1.5
billion, a figure affected by two negative and two positive non-
operating items. For the sake of completeness, I'll explain them
here. If you aren't thrilled by accounting, however, feel free
to fast-forward through this discussion:
1. The first negative was produced by a change in
Generally Accepted Accounting Principles (GAAP)
having to do with the taxes we accrue against
unrealized appreciation in the securities we
carry at market value. The old rule said that
the tax rate used should be the one in effect
when the appreciation took place. Therefore,
at the end of 1992, we were using a rate of 34%
on the $6.4 billion of gains generated after
1986 and 28% on the $1.2 billion of gains
generated before that. The new rule stipulates
that the current tax rate should be applied to
all gains. The rate in the first quarter of
1993, when this rule went into effect, was 34%.
Applying that rate to our pre-1987 gains
reduced net worth by $70 million.
2. The second negative, related to the first, came
about because the corporate tax rate was raised
in the third quarter of 1993 to 35%. This
change required us to make an additional charge
of 1% against all of our unrealized gains, and
that charge penalized net worth by $75 million.
Oddly, GAAP required both this charge and the
one described above to be deducted from the
earnings we report, even though the unrealized
appreciation that gave rise to the charges was
never included in earnings, but rather was
credited directly to net worth.
3. Another 1993 change in GAAP affects the value
at which we carry the securities that we own.
In recent years, both the common stocks and
certain common-equivalent securities held by
our insurance companies have been valued at
market, whereas equities held by our non-
insurance subsidiaries or by the parent company
were carried at their aggregate cost or market,
whichever was lower. Now GAAP says that all
common stocks should be carried at market, a
rule we began following in the fourth quarter
of 1993. This change produced a gain in
Berkshire's reported net worth of about $172
million.
4. Finally, we issued some stock last year. In a
transaction described in last year's Annual
Report, we issued 3,944 shares in early
January, 1993 upon the conversion of $46
million convertible debentures that we had
called for redemption. Additionally, we issued
25,203 shares when we acquired Dexter Shoe, a
purchase discussed later in this report. The
overall result was that our shares outstanding
increased by 29,147 and our net worth by about
$478 million. Per-share book value also grew,
because the shares issued in these transactions
carried a price above their book value.
Of course, it's per-share intrinsic value, not book value,
that counts. Book value is an accounting term that measures the
capital, including retained earnings, that has been put into a
business. Intrinsic value is a present-value estimate of the
cash that can be taken out of a business during its remaining
life. At most companies, the two values are unrelated.
Berkshire, however, is an exception: Our book value, though
significantly below our intrinsic value, serves as a useful
device for tracking that key figure. In 1993, each measure grew
by roughly 14%, advances that I would call satisfactory but
unexciting.
These gains, however, were outstripped by a much larger gain
- 39% - in Berkshire's market price. Over time, of course,
market price and intrinsic value will arrive at about the same
destination. But in the short run the two often diverge in a
major way, a phenomenon I've discussed in the past. Two years
ago, Coca-Cola and Gillette, both large holdings of ours, enjoyed
market price increases that dramatically outpaced their earnings
gains. In the 1991 Annual Report, I said that the stocks of
these companies could not continuously overperform their
businesses.
From 1991 to 1993, Coke and Gillette increased their annual
operating earnings per share by 38% and 37% respectively, but
their market prices moved up only 11% and 6%. In other words,
the companies overperformed their stocks, a result that no doubt
partly reflects Wall Street's new apprehension about brand names.
Whatever the reason, what will count over time is the earnings
performance of these companies. If they prosper, Berkshire will
also prosper, though not in a lock-step manner.
Let me add a lesson from history: Coke went public in 1919
at $40 per share. By the end of 1920 the market, coldly
reevaluating Coke's future prospects, had battered the stock down
by more than 50%, to $19.50. At yearend 1993, that single share,
with dividends reinvested, was worth more than $2.1 million. As
Ben Graham said: "In the short-run, the market is a voting
machine - reflecting a voter-registration test that requires only
money, not intelligence or emotional stability - but in the long-
run, the market is a weighing machine."
So how should Berkshire's over-performance in the market
last year be viewed? Clearly, Berkshire was selling at a higher
percentage of intrinsic value at the end of 1993 than was the
case at the beginning of the year. On the other hand, in a world
of 6% or 7% long-term interest rates, Berkshire's market price
was not inappropriate if - and you should understand that this is
a huge if - Charlie Munger, Berkshire's Vice Chairman, and I can
attain our long-standing goal of increasing Berkshire's per-share
intrinsic value at an average annual rate of 15%. We have not
retreated from this goal. But we again emphasize, as we have for
many years, that the growth in our capital base makes 15% an
ever-more difficult target to hit.
What we have going for us is a growing collection of good-
sized operating businesses that possess economic characteristics
ranging from good to terrific, run by managers whose performance
ranges from terrific to terrific. You need have no worries about
this group.
The capital-allocation work that Charlie and I do at the
parent company, using the funds that our managers deliver to us,
has a less certain outcome: It is not easy to find new
businesses and managers comparable to those we have. Despite
that difficulty, Charlie and I relish the search, and we are
happy to report an important success in 1993.
Dexter Shoe
What we did last year was build on our 1991 purchase of H.
H. Brown, a superbly-run manufacturer of work shoes, boots and
other footwear. Brown has been a real winner: Though we had
high hopes to begin with, these expectations have been
considerably exceeded thanks to Frank Rooney, Jim Issler and the
talented managers who work with them. Because of our confidence
in Frank's team, we next acquired Lowell Shoe, at the end of
1992. Lowell was a long-established manufacturer of women's and
nurses' shoes, but its business needed some fixing. Again,
results have surpassed our expectations. So we promptly jumped
at the chance last year to acquire Dexter Shoe of Dexter, Maine,
which manufactures popular-priced men's and women's shoes.
Dexter, I can assure you, needs no fixing: It is one of the
best-managed companies Charlie and I have seen in our business
lifetimes.
Harold Alfond, who started working in a shoe factory at 25
cents an hour when he was 20, founded Dexter in 1956 with $10,000
of capital. He was joined in 1958 by Peter Lunder, his nephew.
The two of them have since built a business that now produces over
7.5 million pairs of shoes annually, most of them made in Maine
and the balance in Puerto Rico. As you probably know, the
domestic shoe industry is generally thought to be unable to
compete with imports from low-wage countries. But someone forgot
to tell this to the ingenious managements of Dexter and H. H.
Brown and to their skilled labor forces, which together make the
U.S. plants of both companies highly competitive against all
comers.
Dexter's business includes 77 retail outlets, located
primarily in the Northeast. The company is also a major
manufacturer of golf shoes, producing about 15% of U.S. output.
Its bread and butter, though, is the manufacture of traditional
shoes for traditional retailers, a job at which it excels: Last
year both Nordstrom and J.C. Penney bestowed special awards upon
Dexter for its performance as a supplier during 1992.
Our 1993 results include Dexter only from our date of
merger, November 7th. In 1994, we expect Berkshire's shoe
operations to have more than $550 million in sales, and we would
not be surprised if the combined pre-tax earnings of these
businesses topped $85 million. Five years ago we had no thought
of getting into shoes. Now we have 7,200 employees in that
industry, and I sing "There's No Business Like Shoe Business" as
I drive to work. So much for strategic plans.
At Berkshire, we have no view of the future that dictates
what businesses or industries we will enter. Indeed, we think
it's usually poison for a corporate giant's shareholders if it
embarks upon new ventures pursuant to some grand vision. We
prefer instead to focus on the economic characteristics of
businesses that we wish to own and the personal characteristics
of managers with whom we wish to associate - and then to hope we
get lucky in finding the two in combination. At Dexter, we did.
* * * * * * * * * * * *
And now we pause for a short commercial: Though they owned
a business jewel, we believe that Harold and Peter (who were not
interested in cash) made a sound decision in exchanging their
Dexter stock for shares of Berkshire. What they did, in effect,
was trade a 100% interest in a single terrific business for a
smaller interest in a large group of terrific businesses. They
incurred no tax on this exchange and now own a security that can
be easily used for charitable or personal gifts, or that can be
converted to cash in amounts, and at times, of their own
choosing. Should members of their families desire to, they can
pursue varying financial paths without running into the
complications that often arise when assets are concentrated in a
private business.
For tax and other reasons, private companies also often find
it difficult to diversify outside their industries. Berkshire,
in contrast, can diversify with ease. So in shifting their
ownership to Berkshire, Dexter's shareholders solved a
reinvestment problem. Moreover, though Harold and Peter now have
non-controlling shares in Berkshire, rather than controlling
shares in Dexter, they know they will be treated as partners and
that we will follow owner-oriented practices. If they elect to
retain their Berkshire shares, their investment result from the
merger date forward will exactly parallel my own result. Since I
have a huge percentage of my net worth committed for life to
Berkshire shares - and since the company will issue me neither
restricted shares nor stock options - my gain-loss equation will
always match that of all other owners.
Additionally, Harold and Peter know that at Berkshire we can
keep our promises: There will be no changes of control or
culture at Berkshire for many decades to come. Finally, and of
paramount importance, Harold and Peter can be sure that they will
get to run their business - an activity they dearly love -
exactly as they did before the merger. At Berkshire, we do not
tell .400 hitters how to swing.
What made sense for Harold and Peter probably makes sense
for a few other owners of large private businesses. So, if you
have a business that might fit, let me hear from you. Our
acquisition criteria are set forth in the appendix on page 22.
Sources of Reported Earnings
The table below shows the major sources of Berkshire's
reported earnings. In this presentation, amortization of
Goodwill and other major purchase-price accounting adjustments
are not charged against the specific businesses to which they
apply, but are instead aggregated and shown separately. This
procedure lets you view the earnings of our businesses as they
would have been reported had we not purchased them. I've
explained in past reports why this form of presentation seems to
us to be more useful to investors and managers than one utilizing
GAAP, which requires purchase-price adjustments to be made on a
business-by-business basis. The total net earnings we show in
the table are, of course, identical to the GAAP total in our
audited financial statements.
(000s omitted)
------------------------------------------
Berkshire's Share
of Net Earnings
(after taxes and
Pre-Tax Earnings minority interests)
---------------------- ------------------
1993 1992 1993 1992
---------- ---------- -------- --------
Operating Earnings:
Insurance Group:
Underwriting ............... $ 30,876 $(108,961) $ 20,156 $(71,141)
Net Investment Income ...... 375,946 355,067 321,321 305,763
H. H. Brown, Lowell,
and Dexter ............... 44,025* 27,883 28,829 17,340
Buffalo News ................. 50,962 47,863 29,696 28,163
Commercial & Consumer Finance 22,695 19,836 14,161 12,664
Fechheimer ................... 13,442 13,698 6,931 7,267
Kirby ........................ 39,147 35,653 25,056 22,795
Nebraska Furniture Mart ...... 21,540 17,110 10,398 8,072
Scott Fetzer Manufacturing Group 38,196 31,954 23,809 19,883
See's Candies ................ 41,150 42,357 24,367 25,501
World Book ................... 19,915 29,044 13,537 19,503
Purchase-Price Accounting &
Goodwill Charges ......... (17,033) (12,087) (13,996) (13,070)
Interest Expense** ........... (56,545) (98,643) (35,614) (62,899)
Shareholder-Designated
Contributions ............ (9,448) (7,634) (5,994) (4,913)
Other ........................ 28,428 67,540 15,094 32,798
---------- ---------- -------- --------
Operating Earnings ............. 643,296 460,680 477,751 347,726
Sales of Securities ............ 546,422 89,937 356,702 59,559
Tax Accruals Caused by
New Accounting Rules ........ --- --- (146,332) ---
---------- ---------- -------- --------
Total Earnings - All Entities .. $1,189,718 $ 550,617 $688,121 $407,285
* Includes Dexter's earnings only from the date it was acquired,
November 7, 1993.
**Excludes interest expense of Commercial and Consumer Finance
businesses. In 1992 includes $22.5 million of premiums paid on
the early redemption of debt.
A large amount of information about these businesses is given
on pages 38-49, where you will also find our segment earnings
reported on a GAAP basis. In addition, on pages 52-59, we have
rearranged Berkshire's financial data into four segments on a non-
GAAP basis, a presentation that corresponds to the way Charlie and
I think about the company. Our intent is to supply you with the
financial information that we would wish you to give us if our
positions were reversed.
"Look-Through" Earnings
We've previously discussed look-through earnings, which we
believe more accurately portray the earnings of Berkshire than does
our GAAP result. As we calculate them, look-through earnings
consist of: (1) the operating earnings reported in the previous
section, plus; (2) the retained operating earnings of major
investees that, under GAAP accounting, are not reflected in our
profits, less; (3) an allowance for the tax that would be paid by
Berkshire if these retained earnings of investees had instead been
distributed to us. The "operating earnings" of which we speak here
exclude capital gains, special accounting items and major
restructuring charges.
Over time, our look-through earnings need to increase at about
15% annually if our intrinsic value is to grow at that rate. Last
year, I explained that we had to increase these earnings to about
$1.8 billion in the year 2000, were we to meet the 15% goal.
Because we issued additional shares in 1993, the amount needed has
risen to about $1.85 billion.
That is a tough goal, but one that we expect you to hold us
to. In the past, we've criticized the managerial practice of
shooting the arrow of performance and then painting the target,
centering it on whatever point the arrow happened to hit. We will
instead risk embarrassment by painting first and shooting later.
If we are to hit the bull's-eye, we will need markets that
allow the purchase of businesses and securities on sensible terms.
Right now, markets are difficult, but they can - and will - change
in unexpected ways and at unexpected times. In the meantime, we'll
try to resist the temptation to do something marginal simply
because we are long on cash. There's no use running if you're on
the wrong road.
The following table shows how we calculate look-through
earnings, though I warn you that the figures are necessarily very
rough. (The dividends paid to us by these investees have been
included in the operating earnings itemized on page 8, mostly
under "Insurance Group: Net Investment Income.")
Berkshire's Share
of Undistributed
Berkshire's Approximate Operating Earnings
Berkshire's Major Investees Ownership at Yearend (in millions)
--------------------------- ----------------------- --------------------
1993 1992 1993 1992
------ ------ ------ ------
Capital Cities/ABC, Inc. ..... 13.0% 18.2% $ 83(2) $ 70
The Coca-Cola Company ........ 7.2% 7.1% 94 82
Federal Home Loan Mortgage Corp. 6.8%(1) 8.2%(1) 41(2) 29(2)
GEICO Corp. .................. 48.4% 48.1% 76(3) 34(3)
General Dynamics Corp. ....... 13.9% 14.1% 25 11(2)
The Gillette Company ......... 10.9% 10.9% 44 38
Guinness PLC ................. 1.9% 2.0% 8 7
The Washington Post Company .. 14.8% 14.6% 15 11
Wells Fargo & Company ........ 12.2% 11.5% 53(2) 16(2)
Berkshire's share of undistributed
earnings of major investees $439 $298
Hypothetical tax on these undistributed
investee earnings(4) (61) (42)
Reported operating earnings of Berkshire 478 348
Total look-through earnings of Berkshire $856 $604
(1) Does not include shares allocable to the minority interest
at Wesco
(2) Calculated on average ownership for the year
(3) Excludes realized capital gains, which have been both
recurring and significant
(4) The tax rate used is 14%, which is the rate Berkshire pays
on the dividends it receives
We have told you that we expect the undistributed,
hypothetically-taxed earnings of our investees to produce at least
equivalent gains in Berkshire's intrinsic value. To date, we have
far exceeded that expectation. For example, in 1986 we bought
three million shares of Capital Cities/ABC for $172.50 per share
and late last year sold one-third of that holding for $630 per
share. After paying 35% capital gains taxes, we realized a $297
million profit from the sale. In contrast, during the eight years
we held these shares, the retained earnings of Cap Cities
attributable to them - hypothetically taxed at a lower 14% in
accordance with our look-through method - were only $152 million.
In other words, we paid a much larger tax bill than our look-
through presentations to you have assumed and nonetheless realized
a gain that far exceeded the undistributed earnings allocable to
these shares.
We expect such pleasant outcomes to recur often in the future
and therefore believe our look-through earnings to be a
conservative representation of Berkshire's true economic earnings.
Taxes
As our Cap Cities sale emphasizes, Berkshire is a substantial
payer of federal income taxes. In aggregate, we will pay 1993
federal income taxes of $390 million, about $200 million of that
attributable to operating earnings and $190 million to realized
capital gains. Furthermore, our share of the 1993 federal and
foreign income taxes paid by our investees is well over $400
million, a figure you don't see on our financial statements but
that is nonetheless real. Directly and indirectly, Berkshire's
1993 federal income tax payments will be about 1/2 of 1% of the total
paid last year by all American corporations.
Speaking for our own shares, Charlie and I have absolutely no
complaint about these taxes. We know we work in a market-based
economy that rewards our efforts far more bountifully than it does
the efforts of others whose output is of equal or greater benefit
to society. Taxation should, and does, partially redress this
inequity. But we still remain extraordinarily well-treated.
Berkshire and its shareholders, in combination, would pay a
much smaller tax if Berkshire operated as a partnership or "S"
corporation, two structures often used for business activities.
For a variety of reasons, that's not feasible for Berkshire to do.
However, the penalty our corporate form imposes is mitigated -
though far from eliminated - by our strategy of investing for the
long term. Charlie and I would follow a buy-and-hold policy even
if we ran a tax-exempt institution. We think it the soundest way
to invest, and it also goes down the grain of our personalities. A
third reason to favor this policy, however, is the fact that taxes
are due only when gains are realized.
Through my favorite comic strip, Li'l Abner, I got a chance
during my youth to see the benefits of delayed taxes, though I
missed the lesson at the time. Making his readers feel superior,
Li'l Abner bungled happily, but moronically, through life in
Dogpatch. At one point he became infatuated with a New York
temptress, Appassionatta Van Climax, but despaired of marrying her
because he had only a single silver dollar and she was interested
solely in millionaires. Dejected, Abner took his problem to Old
Man Mose, the font of all knowledge in Dogpatch. Said the sage:
Double your money 20 times and Appassionatta will be yours (1, 2,
4, 8 . . . . 1,048,576).
My last memory of the strip is Abner entering a roadhouse,
dropping his dollar into a slot machine, and hitting a jackpot that
spilled money all over the floor. Meticulously following Mose's
advice, Abner picked up two dollars and went off to find his next
double. Whereupon I dumped Abner and began reading Ben Graham.
Mose clearly was overrated as a guru: Besides failing to
anticipate Abner's slavish obedience to instructions, he also
forgot about taxes. Had Abner been subject, say, to the 35%
federal tax rate that Berkshire pays, and had he managed one double
annually, he would after 20 years only have accumulated $22,370.
Indeed, had he kept on both getting his annual doubles and paying a
35% tax on each, he would have needed 7 1/2 years more to reach the
$1 million required to win Appassionatta.
But what if Abner had instead put his dollar in a single
investment and held it until it doubled the same 27 1/2 times? In
that case, he would have realized about $200 million pre-tax or,
after paying a $70 million tax in the final year, about $130
million after-tax. For that, Appassionatta would have crawled to
Dogpatch. Of course, with 27 1/2 years having passed, how
Appassionatta would have looked to a fellow sitting on $130 million
is another question.
What this little tale tells us is that tax-paying investors
will realize a far, far greater sum from a single investment that
compounds internally at a given rate than from a succession of
investments compounding at the same rate. But I suspect many
Berkshire shareholders figured that out long ago.
Insurance Operations
At this point in the report we've customarily provided you
with a table showing the annual "combined ratio" of the insurance
industry for the preceding decade. This ratio compares total
insurance costs (losses incurred plus expenses) to revenue from
premiums. For many years, the ratio has been above 100, a level
indicating an underwriting loss. That is, the industry has taken
in less money each year from its policyholders than it has had to
pay for operating expenses and for loss events that occurred during
the year.
Offsetting this grim equation is a happier fact: Insurers get
to hold on to their policyholders' money for a time before paying
it out. This happens because most policies require that premiums
be prepaid and, more importantly, because it often takes time to
resolve loss claims. Indeed, in the case of certain lines of
insurance, such as product liability or professional malpractice,
many years may elapse between the loss event and payment.
To oversimplify the matter somewhat, the total of the funds
prepaid by policyholders and the funds earmarked for incurred-but-
not-yet-paid claims is called "the float." In the past, the
industry was able to suffer a combined ratio of 107 to 111 and
still break even from its insurance writings because of the
earnings derived from investing this float.
As interest rates have fallen, however, the value of float has
substantially declined. Therefore, the data that we have provided
in the past are no longer useful for year-to-year comparisons of
industry profitability. A company writing at the same combined
ratio now as in the 1980's today has a far less attractive business
than it did then.
Only by making an analysis that incorporates both underwriting
results and the current risk-free earnings obtainable from float
can one evaluate the true economics of the business that a
property-casualty insurer writes. Of course, the actual investment
results that an insurer achieves from the use of both float and
stockholders' funds is also of major importance and should be
carefully examined when an investor is assessing managerial
performance. But that should be a separate analysis from the one
we are discussing here. The value of float funds - in effect,
their transfer price as they move from the insurance operation to
the investment operation - should be determined simply by the risk-
free, long-term rate of interest.
On the next page we show the numbers that count in an
evaluation of Berkshire's insurance business. We calculate our
float - which we generate in exceptional amounts relative to our
premium volume - by adding loss reserves, loss adjustment reserves
and unearned premium reserves and then subtracting agent's
balances, prepaid acquisition costs and deferred charges applicable
to assumed reinsurance. Our cost of float is determined by our
underwriting loss or profit. In those years when we have had an
underwriting profit, which includes 1993, our cost of float has
been negative, and we have determined our insurance earnings by
adding underwriting profit to float income.
(1) (2) Yearend Yield
Underwriting Approximate on Long-Term
Loss Average Float Cost of Funds Govt. Bonds
------------ ------------- --------------- -------------
(In $ Millions) (Ratio of 1 to 2)
1967 profit $ 17.3 less than zero 5.50%
1968 profit 19.9 less than zero 5.90%
1969 profit 23.4 less than zero 6.79%
1970 $ 0.37 32.4 1.14% 6.25%
1971 profit 52.5 less than zero 5.81%
1972 profit 69.5 less than zero 5.82%
1973 profit 73.3 less than zero 7.27%
1974 7.36 79.1 9.30% 8.13%
1975 11.35 87.6 12.96% 8.03%
1976 profit 102.6 less than zero 7.30%
1977 profit 139.0 less than zero 7.97%
1978 profit 190.4 less than zero 8.93%
1979 profit 227.3 less than zero 10.08%
1980 profit 237.0 less than zero 11.94%
1981 profit 228.4 less than zero 13.61%
1982 21.56 220.6 9.77% 10.64%
1983 33.87 231.3 14.64% 11.84%
1984 48.06 253.2 18.98% 11.58%
1985 44.23 390.2 11.34% 9.34%
1986 55.84 797.5 7.00% 7.60%
1987 55.43 1,266.7 4.38% 8.95%
1988 11.08 1,497.7 0.74% 9.00%
1989 24.40 1,541.3 1.58% 7.97%
1990 26.65 1,637.3 1.63% 8.24%
1991 119.59 1,895.0 6.31% 7.40%
1992 108.96 2,290.4 4.76% 7.39%
1993 profit 2,624.7 less than zero 6.35%
As you can see, in our insurance operation last year we had
the use of $2.6 billion at no cost; in fact we were paid $31
million, our underwriting profit, to hold these funds. This sounds
good - is good - but is far from as good as it sounds.
We temper our enthusiasm because we write a large volume of
"super-cat" policies (which other insurance and reinsurance
companies buy to recover part of the losses they suffer from mega-
catastrophes) and because last year we had no losses of consequence
from this activity. As that suggests, the truly catastrophic
Midwestern floods of 1993 did not trigger super-cat losses, the
reason being that very few flood policies are purchased from
private insurers.
It would be fallacious, however, to conclude from this single-
year result that the super-cat business is a wonderful one, or even
a satisfactory one. A simple example will illustrate the fallacy:
Suppose there is an event that occurs 25 times in every century.
If you annually give 5-for-1 odds against its occurrence that year,
you will have many more winning years than losers. Indeed, you may
go a straight six, seven or more years without loss. You also will
eventually go broke.
At Berkshire, we naturally believe we are obtaining adequate
premiums and giving more like 3 1/2-for-1 odds. But there is no way
for us - or anyone else - to calculate the true odds on super-cat
coverages. In fact, it will take decades for us to find out
whether our underwriting judgment has been sound.
What we do know is that when a loss comes, it's likely to be a
lulu. There may well be years when Berkshire will suffer losses
from the super-cat business equal to three or four times what we
earned from it in 1993. When Hurricane Andrew blew in 1992, we
paid out about $125 million. Because we've since expanded our
super-cat business, a similar storm today could cost us $600
million.
So far, we have been lucky in 1994. As I write this letter,
we are estimating that our losses from the Los Angeles earthquake
will be nominal. But if the quake had been a 7.5 instead of a 6.8,
it would have been a different story.
Berkshire is ideally positioned to write super-cat policies.
In Ajit Jain, we have by far the best manager in this business.
Additionally, companies writing these policies need enormous
capital, and our net worth is ten to twenty times larger than that
of our main competitors. In most lines of insurance, huge
resources aren't that important: An insurer can diversify the
risks it writes and, if necessary, can lay off risks to reduce
concentration in its portfolio. That isn't possible in the super-
cat business. So these competitors are forced into offering far
smaller limits than those we can provide. Were they bolder, they
would run the risk that a mega-catastrophe - or a confluence of
smaller catastrophes - would wipe them out.
One indication of our premier strength and reputation is that
each of the four largest reinsurance companies in the world buys
very significant reinsurance coverage from Berkshire. Better than
anyone else, these giants understand that the test of a reinsurer
is its ability and willingness to pay losses under trying
circumstances, not its readiness to accept premiums when things
look rosy.
One caution: There has recently been a substantial increase
in reinsurance capacity. Close to $5 billion of equity capital has
been raised by reinsurers, almost all of them newly-formed
entities. Naturally these new entrants are hungry to write
business so that they can justify the projections they utilized in
attracting capital. This new competition won't affect our 1994
operations; we're filled up there, primarily with business written
in 1993. But we are now seeing signs of price deterioration. If
this trend continues, we will resign ourselves to much-reduced
volume, keeping ourselves available, though, for the large,
sophisticated buyer who requires a super-cat insurer with large
capacity and a sure ability to pay losses.
In other areas of our insurance business, our homestate
operation, led by Rod Eldred; our workers' compensation business,
headed by Brad Kinstler; our credit-card operation, managed by the
Kizer family; and National Indemnity's traditional auto and general
liability business, led by Don Wurster, all achieved excellent
results. In combination, these four units produced a significant
underwriting profit and substantial float.
All in all, we have a first-class insurance business. Though
its results will be highly volatile, this operation possesses an
intrinsic value that exceeds its book value by a large amount -
larger, in fact, than is the case at any other Berkshire business.
Common Stock Investments
Below we list our common stockholdings having a value of over
$250 million. A small portion of these investments belongs to
subsidiaries of which Berkshire owns less than 100%.
12/31/93
Shares Company Cost Market
------ ------- ---------- ----------
(000s omitted)
2,000,000 Capital Cities/ABC, Inc. ............. $ 345,000 $1,239,000
93,400,000 The Coca-Cola Company. ............... 1,023,920 4,167,975
13,654,600 Federal Home Loan Mortgage Corp.
("Freddie Mac") ................... 307,505 681,023
34,250,000 GEICO Corp. .......................... 45,713 1,759,594
4,350,000 General Dynamics Corp. ............... 94,938 401,287
24,000,000 The Gillette Company ................. 600,000 1,431,000
38,335,000 Guinness PLC ......................... 333,019 270,822
1,727,765 The Washington Post Company. ......... 9,731 440,148
6,791,218 Wells Fargo & Company ................ 423,680 878,614
Considering the similarity of this year's list and the last,
you may decide your management is hopelessly comatose. But we
continue to think that it is usually foolish to part with an
interest in a business that is both understandable and durably
wonderful. Business interests of that kind are simply too hard to
replace.
Interestingly, corporate managers have no trouble
understanding that point when they are focusing on a business they
operate: A parent company that owns a subsidiary with superb long-
term economics is not likely to sell that entity regardless of
price. "Why," the CEO would ask, "should I part with my crown
jewel?" Yet that same CEO, when it comes to running his personal
investment portfolio, will offhandedly - and even impetuously -
move from business to business when presented with no more than
superficial arguments by his broker for doing so. The worst of
these is perhaps, "You can't go broke taking a profit." Can you
imagine a CEO using this line to urge his board to sell a star
subsidiary? In our view, what makes sense in business also makes
sense in stocks: An investor should ordinarily hold a small piece
of an outstanding business with the same tenacity that an owner
would exhibit if he owned all of that business.
Earlier I mentioned the financial results that could have been
achieved by investing $40 in The Coca-Cola Co. in 1919. In 1938,
more than 50 years after the introduction of Coke, and long after
the drink was firmly established as an American icon, Fortune did
an excellent story on the company. In the second paragraph the
writer reported: "Several times every year a weighty and serious
investor looks long and with profound respect at Coca-Cola's
record, but comes regretfully to the conclusion that he is looking
too late. The specters of saturation and competition rise before
him."
Yes, competition there was in 1938 and in 1993 as well. But
it's worth noting that in 1938 The Coca-Cola Co. sold 207 million
cases of soft drinks (if its gallonage then is converted into the
192-ounce cases used for measurement today) and in 1993 it sold
about 10.7 billion cases, a 50-fold increase in physical volume
from a company that in 1938 was already dominant in its very major
industry. Nor was the party over in 1938 for an investor: Though
the $40 invested in 1919 in one share had (with dividends
reinvested) turned into $3,277 by the end of 1938, a fresh $40 then
invested in Coca-Cola stock would have grown to $25,000 by yearend
1993.
I can't resist one more quote from that 1938 Fortune story:
"It would be hard to name any company comparable in size to Coca-
Cola and selling, as Coca-Cola does, an unchanged product that can
point to a ten-year record anything like Coca-Cola's." In the 55
years that have since passed, Coke's product line has broadened
somewhat, but it's remarkable how well that description still fits.
Charlie and I decided long ago that in an investment lifetime
it's just too hard to make hundreds of smart decisions. That
judgment became ever more compelling as Berkshire's capital
mushroomed and the universe of investments that could significantly
affect our results shrank dramatically. Therefore, we adopted a
strategy that required our being smart - and not too smart at that
- only a very few times. Indeed, we'll now settle for one good
idea a year. (Charlie says it's my turn.)
The strategy we've adopted precludes our following standard
diversification dogma. Many pundits would therefore say the
strategy must be riskier than that employed by more conventional
investors. We disagree. We believe that a policy of portfolio
concentration may well decrease risk if it raises, as it should,
both the intensity with which an investor thinks about a business
and the comfort-level he must feel with its economic characteristics
before buying into it. In stating this opinion, we define risk,
using dictionary terms, as "the possibility of loss or injury."
Academics, however, like to define investment "risk"
differently, averring that it is the relative volatility of a stock
or portfolio of stocks - that is, their volatility as compared to
that of a large universe of stocks. Employing data bases and
statistical skills, these academics compute with precision the
"beta" of a stock - its relative volatility in the past - and then
build arcane investment and capital-allocation theories around this
calculation. In their hunger for a single statistic to measure
risk, however, they forget a fundamental principle: It is better
to be approximately right than precisely wrong.
For owners of a business - and that's the way we think of
shareholders - the academics' definition of risk is far off the
mark, so much so that it produces absurdities. For example, under
beta-based theory, a stock that has dropped very sharply compared
to the market - as had Washington Post when we bought it in 1973 -
becomes "riskier" at the lower price than it was at the higher
price. Would that description have then made any sense to someone
who was offered the entire company at a vastly-reduced price?
In fact, the true investor welcomes volatility. Ben Graham
explained why in Chapter 8 of The Intelligent Investor. There he
introduced "Mr. Market," an obliging fellow who shows up every day
to either buy from you or sell to you, whichever you wish. The
more manic-depressive this chap is, the greater the opportunities
available to the investor. That's true because a wildly
fluctuating market means that irrationally low prices will
periodically be attached to solid businesses. It is impossible to
see how the availability of such prices can be thought of as
increasing the hazards for an investor who is totally free to
either ignore the market or exploit its folly.
In assessing risk, a beta purist will disdain examining what a
company produces, what its competitors are doing, or how much
borrowed money the business employs. He may even prefer not to
know the company's name. What he treasures is the price history of
its stock. In contrast, we'll happily forgo knowing the price
history and instead will seek whatever information will further our
understanding of the company's business. After we buy a stock,
consequently, we would not be disturbed if markets closed for a
year or two. We don't need a daily quote on our 100% position in
See's or H. H. Brown to validate our well-being. Why, then, should
we need a quote on our 7% interest in Coke?
In our opinion, the real risk that an investor must assess is
whether his aggregate after-tax receipts from an investment
(including those he receives on sale) will, over his prospective
holding period, give him at least as much purchasing power as he
had to begin with, plus a modest rate of interest on that initial
stake. Though this risk cannot be calculated with engineering
precision, it can in some cases be judged with a degree of accuracy
that is useful. The primary factors bearing upon this evaluation
are:
1) The certainty with which the long-term economic
characteristics of the business can be evaluated;
2) The certainty with which management can be evaluated,
both as to its ability to realize the full potential of
the business and to wisely employ its cash flows;
3) The certainty with which management can be counted on
to channel the rewards from the business to the
shareholders rather than to itself;
4) The purchase price of the business;
5) The levels of taxation and inflation that will be
experienced and that will determine the degree by which
an investor's purchasing-power return is reduced from his
gross return.
These factors will probably strike many analysts as unbearably
fuzzy, since they cannot be extracted from a data base of any kind.
But the difficulty of precisely quantifying these matters does not
negate their importance nor is it insuperable. Just as Justice
Stewart found it impossible to formulate a test for obscenity but
nevertheless asserted, "I know it when I see it," so also can
investors - in an inexact but useful way - "see" the risks inherent
in certain investments without reference to complex equations or
price histories.
Is it really so difficult to conclude that Coca-Cola and
Gillette possess far less business risk over the long term than,
say, any computer company or retailer? Worldwide, Coke sells about
44% of all soft drinks, and Gillette has more than a 60% share (in
value) of the blade market. Leaving aside chewing gum, in which
Wrigley is dominant, I know of no other significant businesses in
which the leading company has long enjoyed such global power.
Moreover, both Coke and Gillette have actually increased their
worldwide shares of market in recent years. The might of their
brand names, the attributes of their products, and the strength of
their distribution systems give them an enormous competitive
advantage, setting up a protective moat around their economic
castles. The average company, in contrast, does battle daily
without any such means of protection. As Peter Lynch says, stocks
of companies selling commodity-like products should come with a
warning label: "Competition may prove hazardous to human wealth."
The competitive strengths of a Coke or Gillette are obvious to
even the casual observer of business. Yet the beta of their stocks
is similar to that of a great many run-of-the-mill companies who
possess little or no competitive advantage. Should we conclude
from this similarity that the competitive strength of Coke and
Gillette gains them nothing when business risk is being measured?
Or should we conclude that the risk in owning a piece of a company
- its stock - is somehow divorced from the long-term risk inherent
in its business operations? We believe neither conclusion makes
sense and that equating beta with investment risk also makes no
sense.
The theoretician bred on beta has no mechanism for
differentiating the risk inherent in, say, a single-product toy
company selling pet rocks or hula hoops from that of another toy
company whose sole product is Monopoly or Barbie. But it's quite
possible for ordinary investors to make such distinctions if they
have a reasonable understanding of consumer behavior and the
factors that create long-term competitive strength or weakness.
Obviously, every investor will make mistakes. But by confining
himself to a relatively few, easy-to-understand cases, a reasonably
intelligent, informed and diligent person can judge investment
risks with a useful degree of accuracy.
In many industries, of course, Charlie and I can't determine
whether we are dealing with a "pet rock" or a "Barbie." We
couldn't solve this problem, moreover, even if we were to spend
years intensely studying those industries. Sometimes our own
intellectual shortcomings would stand in the way of understanding,
and in other cases the nature of the industry would be the
roadblock. For example, a business that must deal with fast-moving
technology is not going to lend itself to reliable evaluations of
its long-term economics. Did we foresee thirty years ago what
would transpire in the television-manufacturing or computer
industries? Of course not. (Nor did most of the investors and
corporate managers who enthusiastically entered those industries.)
Why, then, should Charlie and I now think we can predict the
future of other rapidly-evolving businesses? We'll stick instead
with the easy cases. Why search for a needle buried in a haystack
when one is sitting in plain sight?
Of course, some investment strategies - for instance, our
efforts in arbitrage over the years - require wide diversification.
If significant risk exists in a single transaction, overall risk
should be reduced by making that purchase one of many mutually-
independent commitments. Thus, you may consciously purchase a
risky investment - one that indeed has a significant possibility of
causing loss or injury - if you believe that your gain, weighted
for probabilities, considerably exceeds your loss, comparably
weighted, and if you can commit to a number of similar, but
unrelated opportunities. Most venture capitalists employ this
strategy. Should you choose to pursue this course, you should
adopt the outlook of the casino that owns a roulette wheel, which
will want to see lots of action because it is favored by
probabilities, but will refuse to accept a single, huge bet.
Another situation requiring wide diversification occurs when
an investor who does not understand the economics of specific
businesses nevertheless believes it in his interest to be a long-
term owner of American industry. That investor should both own a
large number of equities and space out his purchases. By
periodically investing in an index fund, for example, the know-
nothing investor can actually out-perform most investment
professionals. Paradoxically, when "dumb" money acknowledges its
limitations, it ceases to be dumb.
On the other hand, if you are a know-something investor, able
to understand business economics and to find five to ten sensibly-
priced companies that possess important long-term competitive
advantages, conventional diversification makes no sense for you.
It is apt simply to hurt your results and increase your risk. I
cannot understand why an investor of that sort elects to put money
into a business that is his 20th favorite rather than simply adding
that money to his top choices - the businesses he understands best
and that present the least risk, along with the greatest profit
potential. In the words of the prophet Mae West: "Too much of a
good thing can be wonderful."
Corporate Governance
At our annual meetings, someone usually asks "What happens to
this place if you get hit by a truck?" I'm glad they are still
asking the question in this form. It won't be too long before the
query becomes: "What happens to this place if you don't get hit by
a truck?"
Such questions, in any event, raise a reason for me to discuss
corporate governance, a hot topic during the past year. In
general, I believe that directors have stiffened their spines
recently and that shareholders are now being treated somewhat more
like true owners than was the case not long ago. Commentators on
corporate governance, however, seldom make any distinction among
three fundamentally different manager/owner situations that exist
in publicly-held companies. Though the legal responsibility of
directors is identical throughout, their ability to effect change
differs in each of the cases. Attention usually falls on the first
case, because it prevails on the corporate scene. Since Berkshire
falls into the second category, however, and will someday fall into
the third, we will discuss all three variations.
The first, and by far most common, board situation is one in
which a corporation has no controlling shareholder. In that case,
I believe directors should behave as if there is a single absentee
owner, whose long-term interest they should try to further in all
proper ways. Unfortunately, "long-term" gives directors a lot of
wiggle room. If they lack either integrity or the ability to think
independently, directors can do great violence to shareholders
while still claiming to be acting in their long-term interest. But
assume the board is functioning well and must deal with a
management that is mediocre or worse. Directors then have the
responsibility for changing that management, just as an intelligent
owner would do if he were present. And if able but greedy managers
over-reach and try to dip too deeply into the shareholders'
pockets, directors must slap their hands.
In this plain-vanilla case, a director who sees something he
doesn't like should attempt to persuade the other directors of his
views. If he is successful, the board will have the muscle to make
the appropriate change. Suppose, though, that the unhappy director
can't get other directors to agree with him. He should then feel
free to make his views known to the absentee owners. Directors
seldom do that, of course. The temperament of many directors would
in fact be incompatible with critical behavior of that sort. But I
see nothing improper in such actions, assuming the issues are
serious. Naturally, the complaining director can expect a vigorous
rebuttal from the unpersuaded directors, a prospect that should
discourage the dissenter from pursuing trivial or non-rational
causes.
For the boards just discussed, I believe the directors ought
to be relatively few in number - say, ten or less - and ought to
come mostly from the outside. The outside board members should
establish standards for the CEO's performance and should also
periodically meet, without his being present, to evaluate his
performance against those standards.
The requisites for board membership should be business savvy,
interest in the job, and owner-orientation. Too often, directors
are selected simply because they are prominent or add diversity to
the board. That practice is a mistake. Furthermore, mistakes in
selecting directors are particularly serious because appointments
are so hard to undo: The pleasant but vacuous director need never
worry about job security.
The second case is that existing at Berkshire, where the
controlling owner is also the manager. At some companies, this
arrangement is facilitated by the existence of two classes of stock
endowed with disproportionate voting power. In these situations,
it's obvious that the board does not act as an agent between owners
and management and that the directors cannot effect change except
through persuasion. Therefore, if the owner/manager is mediocre or
worse - or is over-reaching - there is little a director can do
about it except object. If the directors having no connections to
the owner/manager make a unified argument, it may well have some
effect. More likely it will not.
If change does not come, and the matter is sufficiently
serious, the outside directors should resign. Their resignation
will signal their doubts about management, and it will emphasize
that no outsider is in a position to correct the owner/manager's
shortcomings.
The third governance case occurs when there is a controlling
owner who is not involved in management. This case, examples of
which are Hershey Foods and Dow Jones, puts the outside directors
in a potentially useful position. If they become unhappy with
either the competence or integrity of the manager, they can go
directly to the owner (who may also be on the board) and report
their dissatisfaction. This situation is ideal for an outside
director, since he need make his case only to a single, presumably
interested owner, who can forthwith effect change if the argument
is persuasive. Even so, the dissatisfied director has only that
single course of action. If he remains unsatisfied about a
critical matter, he has no choice but to resign.
Logically, the third case should be the most effective in
insuring first-class management. In the second case the owner is
not going to fire himself, and in the first case, directors often
find it very difficult to deal with mediocrity or mild over-
reaching. Unless the unhappy directors can win over a majority of
the board - an awkward social and logistical task, particularly if
management's behavior is merely odious, not egregious - their hands
are effectively tied. In practice, directors trapped in situations
of this kind usually convince themselves that by staying around
they can do at least some good. Meanwhile, management proceeds
unfettered.
In the third case, the owner is neither judging himself nor
burdened with the problem of garnering a majority. He can also
insure that outside directors are selected who will bring useful
qualities to the board. These directors, in turn, will know that
the good advice they give will reach the right ears, rather than
being stifled by a recalcitrant management. If the controlling
owner is intelligent and self-confident, he will make decisions in
respect to management that are meritocratic and pro-shareholder.
Moreover - and this is critically important - he can readily
correct any mistake he makes.
At Berkshire we operate in the second mode now and will for as
long as I remain functional. My health, let me add, is excellent.
For better or worse, you are likely to have me as an owner/manager
for some time.
After my death, all of my stock will go to my wife, Susie,
should she survive me, or to a foundation if she dies before I do.
In neither case will taxes and bequests require the sale of
consequential amounts of stock.
When my stock is transferred to either my wife or the
foundation, Berkshire will enter the third governance mode, going
forward with a vitally interested, but non-management, owner and
with a management that must perform for that owner. In preparation
for that time, Susie was elected to the board a few years ago, and
in 1993 our son, Howard, joined the board. These family members
will not be managers of the company in the future, but they will
represent the controlling interest should anything happen to me.
Most of our other directors are also significant owners of
Berkshire stock, and each has a strong owner-orientation. All in
all, we're prepared for "the truck."
Shareholder-Designated Contributions
About 97% of all eligible shares participated in Berkshire's
1993 shareholder-designated contributions program. Contributions
made through the program were $9.4 million and 3,110 charities were
recipients.
Berkshire's practice in respect to discretionary philanthropy
- as contrasted to its policies regarding contributions that are
clearly related to the company's business activities - differs
significantly from that of other publicly-held corporations.
There, most corporate contributions are made pursuant to the wishes
of the CEO (who often will be responding to social pressures),
employees (through matching gifts), or directors (through matching
gifts or requests they make of the CEO).
At Berkshire, we believe that the company's money is the
owners' money, just as it would be in a closely-held corporation,
partnership, or sole proprietorship. Therefore, if funds are to be
given to causes unrelated to Berkshire's business activities, it is
the charities favored by our owners that should receive them.
We've yet to find a CEO who believes he should personally fund the
charities favored by his shareholders. Why, then, should they foot
the bill for his picks?
Let me add that our program is easy to administer. Last fall,
for two months, we borrowed one person from National Indemnity to
help us implement the instructions that came from our 7,500
registered shareholders. I'd guess that the average corporate
program in which employee gifts are matched incurs far greater
administrative costs. Indeed, our entire corporate overhead is
less than half the size of our charitable contributions. (Charlie,
however, insists that I tell you that $1.4 million of our $4.9 million overhead is
attributable to our corporate jet, The Indefensible.)
Below is a list showing the largest categories to which our
shareholders have steered their contributions.
(a) 347 churches and synagogues received 569 gifts
(b) 283 colleges and universities received 670 gifts
(c) 244 K-12 schools (about two-thirds secular, one-
third religious) received 525 gifts
(d) 288 institutions dedicated to art, culture or the
humanities received 447 gifts
(e) 180 religious social-service organizations (split
about equally between Christian and Jewish) received
411 gifts
(f) 445 secular social-service organizations (about 40%
youth-related) received 759 gifts
(g) 153 hospitals received 261 gifts
(h) 186 health-related organizations (American Heart
Association, American Cancer Society, etc.) received
320 gifts
Three things about this list seem particularly interesting to
me. First, to some degree it indicates what people choose to give
money to when they are acting of their own accord, free of pressure
from solicitors or emotional appeals from charities. Second, the
contributions programs of publicly-held companies almost never
allow gifts to churches and synagogues, yet clearly these
institutions are what many shareholders would like to support.
Third, the gifts made by our shareholders display conflicting
philosophies: 130 gifts were directed to organizations that
believe in making abortions readily available for women and 30
gifts were directed to organizations (other than churches) that
discourage or are opposed to abortion.
Last year I told you that I was thinking of raising the amount
that Berkshire shareholders can give under our designated-
contributions program and asked for your comments. We received a
few well-written letters opposing the entire idea, on the grounds
that it was our job to run the business and not our job to force
shareholders into making charitable gifts. Most of the
shareholders responding, however, noted the tax efficiency of the
plan and urged us to increase the designated amount. Several
shareholders who have given stock to their children or
grandchildren told me that they consider the program a particularly
good way to get youngsters thinking at an early age about the
subject of giving. These people, in other words, perceive the
program to be an educational, as well as philanthropic, tool. The
bottom line is that we did raise the amount in 1993, from $8 per
share to $10.
In addition to the shareholder-designated contributions that
Berkshire distributes, our operating businesses make contributions,
including merchandise, averaging about $2.5 million annually.
These contributions support local charities, such as The United
Way, and produce roughly commensurate benefits for our businesses.
We suggest that new shareholders read the description of our
shareholder-designated contributions program that appears on pages
50-51. To participate in future programs, you must make sure your
shares are registered in the name of the actual owner, not in the
nominee name of a broker, bank or depository. Shares not so
registered on August 31, 1994 will be ineligible for the 1994
program.
A Few Personal Items
Mrs. B - Rose Blumkin - had her 100th birthday on December 3,
1993. (The candles cost more than the cake.) That was a day on
which the store was scheduled to be open in the evening. Mrs. B,
who works seven days a week, for however many hours the store
operates, found the proper decision quite obvious: She simply
postponed her party until an evening when the store was closed.
Mrs. B's story is well-known but worth telling again. She
came to the United States 77 years ago, unable to speak English and
devoid of formal schooling. In 1937, she founded the Nebraska
Furniture Mart with $500. Last year the store had sales of $200
million, a larger amount by far than that recorded by any other
home furnishings store in the United States. Our part in all of
this began ten years ago when Mrs. B sold control of the business
to Berkshire Hathaway, a deal we completed without obtaining
audited financial statements, checking real estate records, or
getting any warranties. In short, her word was good enough for us.
Naturally, I was delighted to attend Mrs. B's birthday party.
After all, she's promised to attend my 100th.
* * * * * * * * * * * *
Katharine Graham retired last year as the chairman of The
Washington Post Company, having relinquished the CEO title three
years ago. In 1973, we purchased our stock in her company for
about $10 million. Our holding now garners $7 million a year in
dividends and is worth over $400 million. At the time of our
purchase, we knew that the economic prospects of the company were
good. But equally important, Charlie and I concluded that Kay
would prove to be an outstanding manager and would treat all
shareholders honorably. That latter consideration was particularly
important because The Washington Post Company has two classes of
stock, a structure that we've seen some managers abuse.
All of our judgments about this investment have been validated
by events. Kay's skills as a manager were underscored this past
year when she was elected by Fortune's Board of Editors to the
Business Hall of Fame. On behalf of our shareholders, Charlie and
I had long ago put her in Berkshire's Hall of Fame.
* * * * * * * * * * * *
Another of last year's retirees was Don Keough of Coca-Cola,
although, as he puts it, his retirement lasted "about 14 hours."
Don is one of the most extraordinary human beings I've ever known -
a man of enormous business talent, but, even more important, a man
who brings out the absolute best in everyone lucky enough to
associate with him. Coca-Cola wants its product to be present at
the happy times of a person's life. Don Keough, as an individual,
invariably increases the happiness of those around him. It's
impossible to think about Don without feeling good.
I will edge up to how I met Don by slipping in a plug for my
neighborhood in Omaha: Though Charlie has lived in California for
45 years, his home as a boy was about 200 feet away from the house
where I now live; my wife, Susie, grew up 1 1/2 blocks away; and we
have about 125 Berkshire shareholders in the zip code. As for Don,
in 1958 he bought the house directly across the street from mine.
He was then a coffee salesman with a big family and a small income.
The impressions I formed in those days about Don were a factor
in my decision to have Berkshire make a record $1 billion
investment in Coca-Cola in 1988-89. Roberto Goizueta had become
CEO of Coke in 1981, with Don alongside as his partner. The two of
them took hold of a company that had stagnated during the previous
decade and moved it from $4.4 billion of market value to $58
billion in less than 13 years. What a difference a pair of
managers like this makes, even when their product has been around
for 100 years.
* * * * * * * * * * * *
Frank Rooney did double duty last year. In addition to
leading H. H. Brown to record profits - 35% above the 1992 high -
he also was key to our merger with Dexter.
Frank has known Harold Alfond and Peter Lunder for decades,
and shortly after our purchase of H. H. Brown, told me what a
wonderful operation they managed. He encouraged us to get together
and in due course we made a deal. Frank told Harold and Peter that
Berkshire would provide an ideal corporate "home" for Dexter, and
that assurance undoubtedly contributed to their decision to join
with us.
I've told you in the past of Frank's extraordinary record in
building Melville Corp. during his 23 year tenure as CEO. Now, at
72, he's setting an even faster pace at Berkshire. Frank has a
low-key, relaxed style, but don't let that fool you. When he
swings, the ball disappears far over the fence.
The Annual Meeting
This year the Annual Meeting will be held at the Orpheum
Theater in downtown Omaha at 9:30 a.m. on Monday, April 25, 1994.
A record 2,200 people turned up for the meeting last year, but the
theater can handle many more. We will have a display in the lobby
featuring many of our consumer products - candy, spray guns, shoes,
cutlery, encyclopedias, and the like. Among my favorites slated to
be there is a See's candy assortment that commemorates Mrs. B's
100th birthday and that features her picture, rather than Mrs.
See's, on the package.
We recommend that you promptly get hotel reservations at one
of these hotels: (1) The Radisson-Redick Tower, a small (88 rooms)
but nice hotel across the street from the Orpheum; (2) the much
larger Red Lion Hotel, located about a five-minute walk from the
Orpheum; or (3) the Marriott, located in West Omaha about 100 yards
from Borsheim's, which is a twenty-minute drive from downtown. We
will have buses at the Marriott that will leave at 8:30 and 8:45
for the meeting and return after it ends.
An attachment to our proxy material explains how you can
obtain the card you will need for admission to the meeting. With
the admission card, we will enclose information about parking
facilities located near the Orpheum. If you are driving, come a
little early. Nearby lots fill up quickly and you may have to walk
a few blocks.
As usual, we will have buses to take you to Nebraska Furniture
Mart and Borsheim's after the meeting and to take you from there to
downtown hotels or the airport later. Those of you arriving early
can visit the Furniture Mart any day of the week; it is open from
10 a.m. to 5:30 p.m. on Saturdays and from noon to 5:30 p.m. on
Sundays. Borsheim's normally is closed on Sunday but will be open
for shareholders and their guests from noon to 6 p.m. on Sunday,
April 24.
In past trips to Borsheim's, many of you have met Susan
Jacques. Early in 1994, Susan was made President and CEO of the
company, having risen in 11 years from a $4-an-hour job that she
took at the store when she was 23. Susan will be joined at
Borsheim's on Sunday by many of the managers of our other
businesses, and Charlie and I will be there as well.
On the previous evening, Saturday, April 23, there will be a
baseball game at Rosenblatt Stadium between the Omaha Royals and
the Nashville Sounds (which could turn out to be Michael Jordan's
team). As you may know, a few years ago I bought 25% of the Royals
(a capital-allocation decision for which I will not become famous)
and this year the league has cooperatively scheduled a home stand
at Annual Meeting time.
I will throw the first pitch on the 23rd, and it's a certainty
that I will improve on last year's humiliating performance. On
that occasion, the catcher inexplicably called for my "sinker" and
I dutifully delivered a pitch that barely missed my foot. This
year, I will go with my high hard one regardless of what the
catcher signals, so bring your speed-timing devices. The proxy
statement will include information about obtaining tickets to the
game. I regret to report that you won't have to buy them from
scalpers.
Warren E. Buffett
March 1, 1994 Chairman of the Board
中文译文
伯克希尔·哈撒韦公司
致伯克希尔·哈撒韦公司股东：
1993年，我们的每股账面价值增长了14.3%。过去29年（即现任管理层接手以来），账面价值从19美元增长到8,854美元，年复合增长率23.3%。
这一年，伯克希尔的净资产增加了15亿美元，这一数字受到两个负面和两个正面的非经营性项目影响。为了完整性，我将在此解释这些项目。不过，如果您对会计不感兴趣，可以直接跳过这段讨论：
1. 第一个负面是由美国通用会计准则（GAAP）的变动引起的，该变动涉及我们对按市价计值的证券的未实现增值计提的税款。旧规则规定，使用的税率应为增值发生时的有效税率。因此，在1992年底，我们对1986年后产生的64亿美元收益适用34%的税率，对1986年前产生的12亿美元收益适用28%的税率。新规则规定，所有收益均应适用当前税率。1993年第一季度该规则生效时，税率为34%。对该规则实施前（即1987年前）的收益适用该税率，使净资产减少了7,000万美元。
2. 第二个负面与第一个相关，是因为1993年第三季度企业所得税税率提高至35%。这一变动要求我们对所有未实现收益额外计提1%的费用，该费用使净资产减少了7,500万美元。奇怪的是，美国通用会计准则要求将这笔费用和上述费用都从我们报告的收益中扣除，尽管产生这些费用的未实现增值从未计入收益，而是直接计入净资产。
3. 1993年GAAP的另一项变动影响我们持有证券的入账价值。近年来，我们保险公司持有的普通股和某些等同于普通股的证券均按市价计量，而我们的非保险子公司或母公司持有的权益类证券则按成本与市价孰低法计量。现在GAAP规定所有普通股均应按市价计量，我们于1993年第四季度开始遵循这一规则。这一变动使伯克希尔报告净资产增加了约1.72亿美元。
4. 最后，去年我们发行了一些股票。在去年年报描述的一笔交易中，我们于1993年1月初，因赎回我们要求兑付的4,600万美元可转换债券而发行了3,944股。此外，我们在收购Dexter Shoe（德克斯特鞋业）时发行了25,203股，该收购将在本报告后面讨论。总体结果是，我们的流通股增加了29,147股，净资产增加了约4.78亿美元。每股账面价值也增长了，因为这些交易中发行的股票价格高于其账面价值。
当然，重要的是每股内在价值，而非账面价值。账面价值是一个会计术语，衡量投入一家企业的资本，包括留存收益。内在价值则是一家企业在剩余存续期内可以提取的现金的现值估算。对大多数公司而言，这两种价值并无关联。然而，伯克希尔是个例外：我们的账面价值虽然远低于内在价值，却可作为追踪这一关键指标的有用工具。1993年，这两项指标各自增长了约14%，这一进展我认为令人满意但并不出彩。
然而，这些涨幅被伯克希尔市场价格更大的一涨幅——39%——所超越。当然，长期来看，市场价格和内在价值最终会到达大致相同的目的地。但在短期内，两者常常严重背离，这是我过去谈到过的现象。两年前，可口可乐和吉列，都是我们的大额持仓，它们的市场价格涨幅远远超过了盈利增长。在1991年的年报中，我曾说过这些公司的股票不可能持续跑赢它们的企业本身。
从1991年到1993年，可口可乐和吉列的每股年度经营利润分别增长了38%和37%，但它们的市场价格仅上涨了11%和6%。换句话说，企业的表现超过了它们的股票，这一结果无疑部分反映了华尔街对品牌的新担忧。无论原因如何，长期来看真正重要的是这些公司的盈利表现。如果它们繁荣，伯克希尔也会繁荣，尽管并非步调一致。
让我补充一个历史教训：可口可乐于1919年以每股40美元上市。到1920年底，市场冷酷地重新评估了可口可乐的未来前景，将股价打压超过50%，至19.50美元。到1993年末，那一股股票，在股息再投资后，价值超过210万美元。正如本·格雷厄姆所说："从短期看，市场是一台投票机——反映的是一台只需资金、不需要智力或情绪稳定的选民登记测试——但从长期看，市场是一台称重机。"
那么，如何看待伯克希尔去年在市场上的超常表现？显然，在1993年底，伯克希尔的售价相对于内在价值的百分比高于年初。另一方面，在一个长期利率为6%或7%的世界里，伯克希尔的市场价格并非不合理——如果——而且你要明白这是一个巨大的"如果"——伯克希尔副董事长查理·芒格和我能够实现我们长期以来的目标，即伯克希尔每股内在价值以年均15%的速度增长。我们并未放弃这一目标。但我们也再次强调，正如多年来一直强调的那样，我们资本基础的扩大使得15%成为一个越来越难以实现的目标。
我们拥有的是日益壮大的优质运营企业组合，这些企业的经济特质从良好到极好不等，而管理它们的经理人的表现则从极好到极好。对于这群人，你无需担心。
查理和我在母公司所做的资本配置工作，使用的是经理人上交给我们的资金，其结果则不那么确定：要找到与我们现有企业和管理者相媲美的新企业和管理者并不容易。尽管有这一困难，查理和我仍享受寻找的过程，并且很高兴地报告1993年的一项重大成功。
Dexter Shoe（德克斯特鞋业）
去年我们所做的，是在1991年收购H. H. Brown的基础上继续扩大。H. H. Brown是一家经营极为出色的工作鞋、靴子及其他鞋类制造商。Brown真是一笔好买卖：虽然我们一开始就抱着很高的期望，但结果大大超出了预期——这要感谢Frank Rooney、Jim Issler以及与他们共事的优秀管理团队。基于对Frank团队的信心，我们在1992年底又收购了Lowell Shoe。Lowell是一家历史悠久的女鞋和护士鞋制造商，但业务需要一些调整。同样，结果再次超出了我们的预期。所以我们去年迅速抓住机会，收购了缅因州德克斯特的Dexter Shoe，这家公司生产大众价位的男女鞋。我可以向你保证，Dexter不需要任何调整：它是我和Charlie在生意场上见过管理最好的公司之一。
Harold Alfond，20岁时以每小时25美分的工钱在鞋厂开始工作，于1956年用1万美元的资本创立了Dexter。1958年，他的侄子Peter Lunder加入。两人此后共同打造了一家如今年产超过750万双鞋的企业，其中大部分在缅因州生产，其余在波多黎各生产。如你所知，一般认为美国本土鞋业无法与低工资国家的进口产品竞争。但有人忘了把这事告诉Dexter和H. H. Brown那些富有创造力的管理团队以及技术熟练的工人们——他们共同让这两家公司的美国工厂在竞争中不输任何对手。
Dexter的业务包括77家零售店，主要位于东北部。该公司也是高尔夫球鞋的主要生产商，产量约占美国总产量的15%。不过，它的主业是为传统零售商生产中规中矩的传统鞋——这是它最拿手的：去年，Nordstrom和J.C. Penney都因Dexter在1992年作为供应商的表现授予了特别奖项。
我们的1993年业绩只包含了自11月7日并购日起的Dexter业绩。1994年，我们预计伯克希尔的鞋业业务销售额将超过5.5亿美元，如果这些业务的合并税前利润超过8500万美元，我们也不会感到意外。五年前，我们根本没想过要进入鞋业。现在，我们在该行业有7200名员工，我开车上班时都哼着"没有比鞋业更好的生意了"。所谓战略规划，不过如此。
在伯克希尔，我们对未来要进入什么行业或业务没有任何预设的蓝图。事实上，我们认为，如果一家企业巨头按照某种宏大的愿景去开展新业务，通常对股东是有害的。我们更愿意专注于我们希望拥有的业务的经济特征，以及我们希望与之共事的管理者的个人特征——然后指望运气好，能同时找到这两者的结合。在Dexter，我们就找到了。
* * * * * * * * * * * *
现在插播一段简短广告：尽管他们拥有一个商业瑰宝，但我们认为Harold和Peter（他们对现金不感兴趣）用Dexter的股票交换伯克希尔的股份，是一个明智的决定。实际上，他们所做的，是将一家优秀企业的100%权益，换成了许多家优秀企业中的一个较小权益。这次交换他们没有产生税负，现在拥有的证券可以方便地用于慈善或个人赠予，也可以按照他们自己选择的时间和金额兑换成现金。如果他们家族成员愿意，他们可以追求不同的财务路径，而不会遇到资产集中于一家私人企业时常出现的复杂情况。
出于税务和其他原因，私有公司通常也很难将业务分散到本行业之外。相比之下，伯克希尔可以轻松实现多元化。因此，将所有权转移给伯克希尔，Dexter 的股东就解决了一个再投资问题。此外，尽管 Harold 和 Peter 现在持有的是伯克希尔的非控股股份，而不是 Dexter 的控股股份，但他们知道自己将被视为合伙人，我们将遵循所有者导向的做法。如果他们选择继续持有伯克希尔的股票，从合并日算起，他们的投资结果将与我本人的结果完全一致。由于我净资产的很大一部分已终身投入伯克希尔股票——而且公司不会向我发行限制性股票或股票期权——我的盈亏等式将始终与所有其他股东保持一致。
另外，Harold 和 Peter 知道，在伯克希尔，我们能够信守承诺：未来几十年内，伯克希尔的控制权和文化都不会发生变化。最后，也是最重要的一点，Harold 和 Peter 可以放心，他们将能够继续经营自己的企业——一项他们挚爱的事业——就像合并前一样。在伯克希尔，我们不会教四成打者怎么挥棒。
对 Harold 和 Peter 有道理的事情，对其他大型私有企业的少数所有者可能也有道理。所以，如果你有合适的企业，请与我联系。我们的收购标准列在第 22 页的附录中。
报告利润的来源
下表显示了伯克希尔报告利润的主要来源。在本表中，商誉摊销及其他重大的购买价格会计调整不向所对应的具体业务收取，而是汇总后单独列示。这样做可以让您看到，假如我们没有收购这些业务，它们的利润会是什么样子。我在过去的报告中解释过，为什么我们认为这种列报形式对投资者和管理者来说比采用美国通用会计准则（GAAP）更有用——GAAP 要求逐项业务进行购买价格调整。当然，我们在表格中列出的净利润总额，与经审计财务报表中的 GAAP 总额一致。
（单位：千美元）
─────────────────────────────────────────
伯克希尔所占
净利润份额
（税后及
税前盈余 少数股东权益后）
───────────────────── ─────────────────
1993 1992 1993 1992
────────── ────────── ──────── ────────
经营利润：
保险集团：
承销 ............... $ 30,876 $(108,961) $ 20,156 $(71,141)
净投资收益 ...... 375,946 355,067 321,321 305,763
H. H. Brown、Lowell
和 Dexter ........ 44,025* 27,883 28,829 17,340
Buffalo News ......... 50,962 47,863 29,696 28,163
商业与消费金融 ... 22,695 19,836 14,161 12,664
Fechheimer ........... 13,442 13,698 6,931 7,267
Kirby ................ 39,147 35,653 25,056 22,795
内布拉斯加家具城 .. 21,540 17,110 10,398 8,072
Scott Fetzer 制造集团 38,196 31,954 23,809 19,883
See's Candies ........ 41,150 42,357 24,367 25,501
世界百科全书 ........ 19,915 29,044 13,537 19,503
购买价格会计及商誉摊销 .. (17,033) (12,087) (13,996) (13,070)
利息费用** ........... (56,545) (98,643) (35,614) (62,899)
股东指定捐款 ........ (9,448) (7,634) (5,994) (4,913)
其他 ................. 28,428 67,540 15,094 32,798
────────── ────────── ──────── ────────
经营利润 ............. 643,296 460,680 477,751 347,726
证券出售 ............. 546,422 89,937 356,702 59,559
新会计准则导致的税款计提 .. --- --- (146,332) ---
────────── ────────── ──────── ────────
所有实体总盈余 ...... $1,189,718 $ 550,617 $688,121 $407,285
* 包括 Dexter 自收购日（1993年11月7日）起的盈余。
** 不包括商业与消费金融业务的利息费用。1992年数据包括因提前赎回债务而支付的2250万美元溢价。
关于这些业务的大量信息见第38-49页，您还可以在那里找到我们按美国通用会计准则（GAAP）报告的各分部盈余。此外，在第52-59页，我们将伯克希尔的财务数据按非GAAP口径重新划分为四个分部，这种列示方式更符合我和查理看待公司的角度。我们的目的是向您提供这样的财务信息——倘若角色互换，我们希望您提供给我们同样的信息。
"透视盈余"
我们之前讨论过透视盈余，我们认为它比GAAP结果更能准确反映伯克希尔的真实盈余。按我们的计算方法，透视盈余由以下部分组成：（1）上一节列示的经营利润；（2）主要被投资公司的留存经营利润——这些利润按GAAP会计并不反映在我们的收益中；（3）减去：若这些被投资公司的留存利润实际分配给我们，伯克希尔因此需缴纳的税款。这里所说的"经营利润"不包括资本利得、特殊会计项目及重大重组费用。
随着时间的推移，我们的透视盈余需要以每年约15%的速度增长，内在价值才能以相同速率提升。去年我曾解释过，要实现15%的目标，到2000年我们需要将透视盈余提高到约18亿美元。由于1993年我们又发行了额外股份，所需金额已升至约18.5亿美元。
这是一个艰巨的目标，但我们期望你们以此监督我们。过去，我们批评过一些管理层的做法：先射出业绩之箭，再围绕箭落下的位置画靶心。我们宁愿冒丢脸的风险，先画靶，再射箭。
若想正中靶心，我们需要市场允许我们在合理的条件下收购企业和证券。眼下市场困难，但市场能以出人意料的方式、在出人意料的时刻发生变化——而且一定会变。在此期间，我们会尽力抵制因现金充裕而去做些平庸之事的诱惑。路若走错，跑再快也没用。
下表展示了我们如何计算透视盈余，但我要提醒你，这些数字必然非常粗略。（这些被投资公司支付给我们的股息已计入第8页列示的经营利润，主要归在"保险集团：净投资收益"项下。）
伯克希尔应占
伯克希尔近似持股比例 未分配经营利润（百万美元）
伯克希尔主要被投资公司 年末持股 --------------------
--------------------------- ----------------------- 1993 1992
1993 1992 ------ ------
Capital Cities/ABC, Inc.
（大都会/ABC公司）.......... 13.0% 18.2% $ 83(2) $ 70
The Coca-Cola Company
（可口可乐公司）........... 7.2% 7.1% 94 82
Federal Home Loan Mortgage Corp.
（联邦住房贷款抵押公司）... 6.8%(1) 8.2%(1) 41(2) 29(2)
GEICO Corp.
（GEICO公司）............... 48.4% 48.1% 76(3) 34(3)
General Dynamics Corp.
（通用动力公司）........... 13.9% 14.1% 25 11(2)
The Gillette Company
（吉列公司）............... 10.9% 10.9% 44 38
Guinness PLC
（吉尼斯集团）............. 1.9% 2.0% 8 7
The Washington Post Company
（华盛顿邮报公司）......... 14.8% 14.6% 15 11
Wells Fargo & Company
（富国银行）............... 12.2% 11.5% 53(2) 16(2)
伯克希尔应占主要被投资公司未分配利润 $439 $298
对这些未分配被投资公司利润的假设税项(4) (61) (42)
伯克希尔报告的经营利润 478 348
伯克希尔透视盈余合计 $856 $604
(1) 不包括Wesco（韦斯科）少数股东权益应占的股份
(2) 按当年平均持股计算
(3) 不包括已实现资本利得，该利得既具有经常性又具有重大性
(4) 使用的税率为14%，即伯克希尔为其收到的股息所支付的税率
我们曾告诉过各位，我们预期被投资公司未分配但按假设税率计税的收益，至少会转化为伯克希尔内在价值等额的增幅。迄今为止，这一预期已远远被超越。例如，1986年我们以每股172.50美元买入300万股资本城/ABC，去年年底以每股630美元卖掉了其中三分之一。扣除35%的资本利得税后，我们从中实现了2.97亿美元的利润。相比之下，在我们持有这些股票的八年间，资本城归属于这些股份的留存收益——按我们的透视盈余法以较低的14%假设税率计税——仅为1.52亿美元。换句话说，我们缴纳的税款远高于我们向各位呈现的透视盈余所假设的数额，但即便如此，我们实现的收益仍远超这些股份应占的未分配收益。
我们预期未来此类令人愉快的结局会频繁出现，因此相信我们的透视盈余是伯克希尔真实经济收益的保守体现。
**税收**
正如资本城出售案所强调的，伯克希尔是联邦所得税的重要缴纳者。合计来看，我们将支付1993年联邦所得税3.9亿美元，其中约2亿美元来自经营利润，1.9亿美元来自已实现资本利得。此外，我们1993年应占被投资公司支付的联邦及外国所得税远超4亿美元——这个数字在财务报表上看不到，但却是真实存在的。直接和间接地，伯克希尔1993年缴纳的联邦所得税将约占去年所有美国公司纳税总额的0.5%。
就我们自己的股份而言，查理和我对这些税毫无怨言。我们知道我们是在市场经济中工作，这种经济对我们努力的回报，远比那些产出对社会有同等或更大贡献的人更为丰厚。税收应该——也确实——部分纠正了这种不平等。但我们仍然受到了异常优厚的待遇。
如果伯克希尔以合伙企业或"S公司"（常用于商业活动的两种结构）的形式运营，伯克希尔及其股东的合计税负将小得多。但由于多种原因，这对伯克希尔来说不可行。不过，我们公司形式所施加的惩罚——虽远未消除——已通过我们的长期投资策略得到缓解。即使我们经营一家免税机构，查理和我也会遵循买入并持有的政策。我们认为这是最可靠的投资方式，也契合我们的个性。而支持这一政策的第三个理由是：税款只有在收益实现时才需缴纳。
通过我最喜欢的漫画《小阿布纳》（Li'l Abner），我年轻时曾见识过延迟纳税的好处，尽管当时并未领悟。为了让读者感到优越，小阿布纳在Dogpatch糊里糊涂却快乐地过着日子，像个白痴一样。有一次他迷恋上了纽约的性感尤物Appassionatta Van Climax，但绝望地发现自己娶不到她，因为他只有一个银元，而她只对百万富翁感兴趣。沮丧的阿布纳去找Dogpatch的智慧源泉——老摩西（Old Man Mose）。这位圣人说：把你的钱翻20倍，Appassionatta就是你的了（1, 2, 4, 8……1,048,576）。
我对这漫画最后的记忆是阿布纳走进一家小酒馆，把那个银元投进老虎机，中了大奖，钱撒了一地。阿布纳一丝不苟地遵循摩西的建议，捡起两美元，去找下一个翻倍的机会。于是，我扔掉了《小阿布纳》，开始读本·格雷厄姆。
莫西作为大师显然是过度吹捧了：他不仅没预见到亚伯纳会如此盲目地服从指令，还忘了考虑税收。假设亚伯纳需要缴纳伯克希尔所承担的35%联邦税率，并且他每年能实现一次翻倍，那么20年后他只能累积到22,370美元。实际上，如果他坚持每年翻倍并每次都缴纳35%的税，他还需要再多花7年半时间，才能积累到赢取阿帕西奥娜塔所需的100万美元。
但如果亚伯纳把这一美元投入单笔投资，一直持有直到它同样翻倍27.5次呢？那样的话，他税前能赚到大约2亿美元，或者在最后一年缴纳7,000万美元税款后，到手约1.3亿美元。为了这个，阿帕西奥娜塔怕是得爬到狗镇村去。（译注：借喻“等多久都值”）当然，27.5年过去后，坐在1.3亿美元堆里的老兄看阿帕西奥娜塔又是另一回事了。
这个小故事告诉我们：对于纳税的投资者来说，单笔投资以固定复利增长，最终积累的财富远大于一系列同样复利增长的投资。但我猜伯克希尔的许多股东很久以前就想明白了这一点。
---
保险业务
往年此时，我们通常会提供一张表格，显示保险行业过去十年的年度“综合成本率”。该比率将总保险成本（已发生损失加费用）与保费收入进行比较。多年来，该比率一直高于100，这表明承保业务处于亏损状态。也就是说，行业每年从保单持有人那里收取的钱，少于当年为运营费用和发生的理赔事件所需支付的金额。
但这幅悲观的图景有一个更令人欣慰的事实相抵消：保险公司在支付赔款之前，可以持有保单持有人的资金一段时间。这是因为大多数保单要求预付保费，更重要的是，处理理赔往往需要时间。事实上，在某些险种（例如产品责任险或职业过失险）中，从损失事件发生到实际赔付可能相隔多年。
简单来说，保单持有人预付的资金以及为已发生但尚未赔付的索赔预留的资金总额，被称为“浮存金”。过去，行业可以承受107至111的综合成本率，并仍能从保险业务中实现盈亏平衡，原因是投资这些浮存金所获得的收益。
然而，随着利率下降，浮存金的价值已大幅缩水。因此，我们过去提供的数据现在已不再适用于行业盈利能力的逐年比较。一家公司如果现在的综合成本率与20世纪80年代相同，那么其业务吸引力远不如当年。
只有进行结合了承保结果以及当前从浮存金中获得的无风险收益的分析，才能评估财产险公司所承保业务的真实经济状况。当然，保险公司利用浮存金和股东资金实际获得的投资业绩也至关重要，投资者在评估管理层绩效时应仔细审视。但这应是一个独立于我们在此讨论的分析。浮存金的资金价值——实际上就是这些资金从保险业务转移到投资业务时的转移价格——应简单地由长期无风险利率决定。
下一页我们列出了评估伯克希尔保险业务的关键数字。我们计算了浮存金——相对于我们的保费规模，我们以异常高的比例生成浮存金——方法是将损失准备金、损失调整准备金和未到期保费准备金相加，再减去代理人往来余额、预付手续费以及适用于分入再保险的递延费用。我们的浮存金成本由承销亏损或利润决定。在我们获得承销利润的年份（包括1993年），浮存金成本为负值，而我们的保险收益则通过将承销利润与浮存金收入相加来确定。
(1) (2) 年末长期
承销亏损 平均浮存金 近似资金成本 政府债券收益率
------------ ------------- --------------- -------------
（单位：百万美元） （1与2的比率）
1967 盈利 $ 17.3 低于零 5.50%
1968 盈利 19.9 低于零 5.90%
1969 盈利 23.4 低于零 6.79%
1970 $ 0.37 32.4 1.14% 6.25%
1971 盈利 52.5 低于零 5.81%
1972 盈利 69.5 低于零 5.82%
1973 盈利 73.3 低于零 7.27%
1974 7.36 79.1 9.30% 8.13%
1975 11.35 87.6 12.96% 8.03%
1976 盈利 102.6 低于零 7.30%
1977 盈利 139.0 低于零 7.97%
1978 盈利 190.4 低于零 8.93%
1979 盈利 227.3 低于零 10.08%
1980 盈利 237.0 低于零 11.94%
1981 盈利 228.4 低于零 13.61%
1982 21.56 220.6 9.77% 10.64%
1983 33.87 231.3 14.64% 11.84%
1984 48.06 253.2 18.98% 11.58%
1985 44.23 390.2 11.34% 9.34%
1986 55.84 797.5 7.00% 7.60%
1987 55.43 1,266.7 4.38% 8.95%
1988 11.08 1,497.7 0.74% 9.00%
1989 24.40 1,541.3 1.58% 7.97%
1990 26.65 1,637.3 1.63% 8.24%
1991 119.59 1,895.0 6.31% 7.40%
1992 108.96 2,290.4 4.76% 7.39%
1993 盈利 2,624.7 低于零 6.35%
如你所见，去年在我们的保险业务中，我们无偿使用了26亿美元的资金；事实上，为了持有这些资金，我们还获得了3100万美元的承销利润。这听起来不错——也确实不错——但远没有听起来那么好。
我们之所以克制热情，是因为我们承保了大量"超级巨灾"保单（其他保险公司和再保险公司购买这类保单，以弥补其在大灾难中遭受的部分损失），并且去年这项业务没有给我们造成任何重大损失。这也意味着，1993年中西部那场真正灾难性的洪水并未触发超级巨灾损失，原因在于从私营保险公司购买的洪水保单极少。
然而，如果仅凭这一年的业绩就断定超级巨灾保险是一门好生意，甚至是一门令人满意的生意，那将是错误的。一个简单的例子就能说明这种谬误：假设有一个事件每个世纪发生25次。如果你每年以5赔1的赔率赌它当年不会发生，那么你赢钱的年份将远多于输钱的年份。实际上，你可能会连续6年、7年甚至更久都不亏损，但最终你一定会破产。
在伯克希尔，我们自然相信我们收取了足够的保费，给出的赔率大约在3.5赔1左右。但无论是我们还是其他人，都无法精确计算超级巨灾保险的真实赔率。事实上，我们要等上几十年才能知道我们的承销判断是否合理。
我们唯一知道的是，一旦损失发生，它很可能是个大麻烦。很可能在某些年份，伯克希尔会因超级巨灾业务遭受相当于我们1993年从该业务赚取的利润三到四倍的损失。1992年安德鲁飓风来袭时，我们赔付了约1.25亿美元。由于此后我们扩大了超级巨灾业务，如今一场类似的飓风可能会让我们损失6亿美元。
到目前为止，我们在1994年还算幸运。在我写这封信时，我们估计洛杉矶地震造成的损失微乎其微。但如果那次地震是7.5级而非6.8级，情况就截然不同了。
伯克希尔具有承保超级巨灾保单的理想条件。我们拥有阿吉特·杰恩（Ajit Jain）——该行业迄今为止最优秀的管理者。此外，承保此类保单的公司需要巨额资本，而我们的净资产是主要竞争对手的10到20倍。在大多数保险领域，庞大的资源并非那么重要：保险公司可以分散承保的风险，必要时还可以通过分保来降低投资组合的集中度。但在超级巨灾业务中，这是不可能的。因此，这些竞争对手被迫提供比我们小得多的限额。如果他们更大胆，就会面临一场超级巨灾——或者一系列较小灾难同时发生——将他们彻底摧毁的风险。
有一件事能说明我们卓越的实力和声誉：全球四大再保险公司都从伯克希尔购买了非常可观的再保险保障。这些巨头比其他任何公司都更明白，检验一家再保险公司的标准是它在困难时期的赔付能力和意愿，而不是它在形势一片大好时收取保费的积极性。
需要提醒的是：最近再保险市场的承保能力大幅增加。再保险公司筹集了近50亿美元的股权资本，其中几乎都是新成立的公司。这些新进入者自然急于承揽业务，以便证明他们在吸引资本时所做的预测是合理的。这种新的竞争不会影响我们1994年的运营——我们的业务量已经饱和，主要是1993年承揽的。但现在我们看到了价格恶化的迹象。如果这一趋势持续下去，我们将接受业务量大幅缩减的现实，但会随时准备为那些需要大容量且确定能赔付损失的大型、成熟的客户提供服务。
在我们保险业务的其他领域，由罗德·埃尔德里奇（Rod Eldred）领导的州内业务、布拉德·金斯特勒（Brad Kinstler）领导的工伤赔偿业务、基泽家族（Kizer family）管理的信用卡业务以及唐·沃斯特（Don Wurster）领导的国家赔偿公司（National Indemnity）的传统汽车和一般责任险业务，均取得了优异的成绩。这四个部门合计产生了可观的承保利润和大量的浮存金。
总之，我们拥有一流的保险业务。尽管其业绩波动性会很大，但这项业务的内在价值远超其账面价值——事实上，其超出幅度比伯克希尔任何其他业务都要大。
普通股投资
下面列出我们市值超过2.5亿美元的普通股持仓。这些投资中的一小部分归属于伯克希尔持股不足100%的子公司。
1993年12月31日
股数 公司 成本 市值
------ ------- ---------- ----------
(千美元省略)
2,000,000 Capital Cities/ABC, Inc. ............. $ 345,000 $1,239,000
93,400,000 可口可乐公司 ........................ 1,023,920 4,167,975
13,654,600 联邦住房贷款抵押公司（"房地美"）.... 307,505 681,023
34,250,000 GEICO公司 ........................... 45,713 1,759,594
4,350,000 通用动力公司 ........................ 94,938 401,287
24,000,000 吉列公司 ............................ 600,000 1,431,000
38,335,000 健力士PLC ........................... 333,019 270,822
1,727,765 华盛顿邮报公司 ...................... 9,731 440,148
6,791,218 富国银行 ............................ 423,680 878,614
看到今年的名单和去年如此相似，你可能会认为管理层已经无可救药地昏睡过去了。但我们依然认为，放弃一家既容易理解又具备持久超强竞争优势的业务，通常是愚蠢之举。这类业务权益实在太难找到替代品了。
有趣的是，企业管理者在审视自己经营的公司时，完全理解这一点：一家母公司如果拥有一家长期经济前景极好的子公司，通常不会愿意把它卖掉，无论开价多少。"为什么，"CEO会问，"我要卖掉我的皇冠明珠？"然而，同样是这位CEO，在管理自己的个人投资组合时，却会因为经纪人随便抛出几个肤浅的理由就轻率——甚至冲动地——从一个公司换到另一个公司。最糟糕的借口也许就是："获利了结永远不会让你破产。"你能想象哪位CEO用这句话来劝说董事会卖掉一家明星子公司吗？在我们看来，商业上合理的道理，在股票上也同样成立：一位投资者通常应该持有优秀公司的一小部分股份，其持有的坚韧程度应该像拥有整个公司的所有者所展现的那样。
前面我提到，1919年用40美元投资可口可乐公司本可以取得的财务成果。1938年，在可口可乐问世50多年后，并且这款饮料早已成为美国标志性品牌之后，《财富》杂志发表了一篇关于该公司的精彩报道。在第二段中，作者写道："每年有好几次，一位重要而严肃的投资者会长时间、充满敬意地研究可口可乐的过往业绩，但最终却遗憾地得出结论：他下手太晚了。饱和与竞争的幽灵在他面前升起。"
1938年如此，1993年亦然。但值得留意的是，1938年可口可乐公司卖出了2.07亿箱软饮料（若将其当时的加仑数换算为今天用于计量的192盎司箱装），而1993年大约卖出了107亿箱——一家在1938年便已在其重要行业占据主导地位的公司，实物销量增长达50倍。对于投资者而言，1938年那场盛宴也远未结束：尽管1919年投入40美元购买一股（含股息再投资）到1938年底已变成3,277美元，但若当时再以40美元买入可口可乐股票，到1993年底将增值至25,000美元。
我忍不住再引用一句1938年《财富》杂志文章的原话：“很难举出任何一家规模和可口可乐相当、且像可口可乐那样销售不变产品、却能拥有与可口可乐相媲美的十年记录的公司。”在随后的55年里，可口可乐的产品线虽有拓宽，但描述依然如此贴切，实在令人惊叹。
Charlie和我很久以前就认定，在投资生涯中，做出成百上千个明智决策实在是太难了。随着伯克希尔的资本规模膨胀、能显著影响我们业绩的投资标的急剧减少，这一判断愈发有力。因此，我们采取的策略是：只需聪明——也不必太聪明——那么寥寥几次。事实上，我们现在满足于一年一个绝妙点子。（Charlie说轮到我了。）
我们采取的策略不允许遵循传统的分散投资教条。许多权威人士因此会说，该策略必定比传统投资者所用的策略风险更高。但我们不同意。我们相信，一个集中投资组合的策略若能——也应能——提高投资者在买入前对一家企业的思考深度以及对其经济特征所需的把握程度，那么它很可能降低风险。在陈述这一观点时，我们用词典定义将风险定义为“损失或伤害的可能性”。
然而，学者们却喜欢用另一种方式定义投资“风险”，坚称它是某只股票或股票组合的相对波动性——即与大范围股票相比的波动性。借助数据库和统计技巧，这些学者精确计算出股票的“贝塔”——它过去相对的波动性——然后围绕这一计算结果构建晦涩的投资和资本配置理论。但他们在渴望用一个统计量来衡量风险时，却忘记了一个基本原则：近似正确胜于精确错误。
对于企业所有者——这正是我们对股东的看法——学者们对风险的定义大错特错，错到荒谬的程度。例如，基于贝塔理论，一只与市场相比大幅下跌的股票——正如1973年我们买入华盛顿邮报时那样——在价格较低时反而比价格较高时“风险更大”。对于一个能以大幅折价买入整个公司的人而言，这种描述有任何意义吗？
事实上，真正的投资者欢迎波动。本·格雷厄姆在《聪明的投资者》第八章中解释了原因。他在那里引入了“市场先生”——一个乐于助人的家伙，每天都来向你报价，要么从你手里买，要么卖给你，随你选择。这位仁兄越是躁郁，投资者面对的机会就越大。事实确实如此，因为大幅波动的市场意味着，优质企业的股价会时不时地被非理性地压低。实在难以理解，为何有人会将这样的低价机会视为增加了投资者的风险——投资者完全可以选择无视市场，或利用它的愚蠢。
在评估风险时，贝塔纯粹主义者不屑于研究一家公司生产什么、它的竞争对手在做什么、或者这家企业使用了多少借来的钱。他甚至可能更愿意不知道公司的名字。他珍视的是其股票的价格历史。相比之下，我们很乐意不去了解价格历史，而是寻求任何能加深我们对公司业务理解的信息。因此，在我们买入一只股票后，即便市场休市一两年，我们也不会感到不安。我们持有喜诗糖果（See's）或H.H.布朗鞋业（H. H. Brown）100%的股份，并不需要每日报价来确认我们的安好。那么，我们持有可口可乐（Coke）7%的股份，又为何需要报价呢？
我们认为，投资者必须评估的真正风险是：在他预期的持有期内，他投资所获得的税后总收入（包括出售所得）能否至少给他带来与当初投入相当的购买力，外加初始本金的一笔适度利息。尽管这种风险无法像工程计算那样精确衡量，但在某些情况下，可以用一种有用的准确度进行判断。影响这一评估的主要因素有：
1. 对企业长期经济特征进行评估的确定性；
2. 对管理层进行评估的确定性，包括其实现企业全部潜力以及明智运用现金流的能力；
3. 管理层将企业回报输送给股东而非据为己有的确定性；
4. 企业的购买价格；
5. 将经历的税收与通胀水平——这些因素决定了投资者的购买力回报从其总回报中被削减的程度。
这些因素可能会让许多分析师觉得模糊得难以忍受，因为它们无法从任何类型的数据中提取出来。但无法精确量化这些事项，并不会否定它们的重要性，也不意味着无法克服。正如斯图尔特大法官（Justice Stewart）虽然无法为“淫秽”制定一个检验标准，却断言“我看到就知道”，投资者同样可以——以一种不精确但有用的方式——“看到”某些投资中固有的风险，而无需参考复杂的方程或价格历史。
真的那么难得出结论吗？长期而言，可口可乐和吉列（Gillette）所面临的商业风险远小于，比如说，任何一家电脑公司或零售商。全球范围内，可口可乐约占所有软饮料销量的44%，而吉列在刀片市场（按价值计）占有超过60%的份额。除了口香糖领域（箭牌（Wrigley）占据主导地位）之外，我不知道还有其他什么重要行业的第一名能长期享有如此全球性的统治力。
此外，可口可乐与吉列近年来在全球市场的份额实际上还在增长。它们的品牌威力、产品特质与分销系统的实力，赋予它们巨大的竞争优势，相当于在它们的经济城堡外挖了一条护城河。而一般的公司，每天却是在没有这种保护的情况下作战。正如彼得·林奇所说，那些销售同质化产品的公司的股票，都应该贴上一个警告标签：“竞争可能对人类财富造成危害。”
即使是随意的商业观察者，也能看清可口可乐或吉列的竞争优势。然而，它们的股票贝塔值却与许多毫无竞争优势的普通公司相似。我们是否能从这种相似性中得出结论：在衡量商业风险时，可口可乐和吉列的竞争优势毫无价值？或者我们是否能得出结论：拥有一家公司的部分所有权——即其股票——的风险，与该公司经营中固有的长期风险是毫不相干的？我们认为这两种结论都不合理，而将贝塔等同于投资风险同样不合理。
那些在贝塔理论中成长起来的理论家，没有能力区分比如一家只卖宠物石或呼啦圈的单一产品玩具公司所固有的风险，与另一家只做“大富翁”或芭比娃娃的玩具公司的风险有何不同。但是，普通投资者只要对消费者行为以及那些创造长期竞争优势或劣势的因素有合理理解，就完全能做出这种区分。显然，每位投资者都会犯错。但只要将自己的投资范围限制在少数几个容易理解的案例中，一个相当聪明、见多识广且勤勉的人，就能以相当有用的准确度判断投资风险。
当然，在许多行业中，查理和我无法判断我们面对的是“宠物石”还是“芭比娃娃”。而且，即使我们花上几年时间深入研究那些行业，也解决不了这个问题。有时是我们自身智力上的局限妨碍了理解，有时则是行业本身的特性构成了障碍。例如，一家必须应对快速变化技术的企业，其长期经济状况就难以进行可靠评估。三十年前，我们预见到电视机制造业或计算机行业会发生什么了吗？当然没有。（大多数热情涌入这些行业的投资者和企业管理者同样没有。）那么，查理和我现在凭什么认为自己能预测其他快速发展的行业的未来呢？我们还是坚持做容易的案例。当一根针就明摆在你眼前时，何必去稻草堆里翻找？
当然，有些投资策略——比如我们多年来在套利方面的努力——需要广泛分散。如果单一交易中存在重大风险，那么就应该通过将该笔投资作为众多相互独立的承诺之一来降低整体风险。因此，如果你相信概率加权后的收益显著超过同等方式加权的损失，并且你能够投入多个类似但不相关的机会，那么你可以有意识地买入一项风险投资——一项确实有造成损失或伤害的较大可能性的投资。大多数风险投资家采用这种策略。如果你选择走这条路，你应该采取拥有轮盘的赌场的心态：它希望看到大量下注，因为概率对赌场有利，但会拒绝接受单笔巨额赌注。
另一种需要广泛分散投资的情况是：当一位投资者并不了解具体企业的经济特征，却仍然认为长期持有美国产业符合自身利益时。这位投资者应当持有大量股票，并分批买入。例如，通过定期投资指数基金，这种“一无所知”的投资者实际上能跑赢大多数投资专业人士。矛盾的是，当“笨钱”承认自己的局限时，它就不再笨了。
另一方面，如果你是一位“有所知”的投资者，能够理解企业经济特征，并找到五到十家定价合理、具备长期重要竞争优势的公司，那么传统的分散投资对你毫无意义。分散投资只会损害你的业绩、增加你的风险。我无法理解，为什么这样的投资者愿意把钱投进自己排名第二十位的企业，而不是直接加仓到自己最看好的选择上——那些他最了解、风险最小、同时潜在利润最大的生意。用先知梅·韦斯特的话说：“好东西再多也不嫌多。”
**公司治理**
在每年的股东大会上，总会有人问：“如果你被卡车撞了，这家公司会怎样？”我很高兴大家还在用这种形式提问。不久之后，问题就会变成：“如果你没被卡车撞，这家公司会怎样？”
不管怎样，这类问题促使我讨论一下公司治理——过去一年里的一大热点。总体而言，我认为近来董事们的脊梁骨硬起来了，股东们也比不久之前更被当作真正的主人对待。然而，评论公司治理的人很少区分上市公司中存在的三种根本不同的管理层/所有者情形。尽管董事们的法律责任在任何情形下都一样，但他们在每种情形下推动变革的能力却各不相同。通常人们关注的是第一种情形，因为这在企业界最为普遍。但由于伯克希尔属于第二种情形，而且未来某天会进入第三种，我们将讨论所有三种变体。
第一种，也是迄今为止最常见的董事会情形，是公司没有控股股东。在这种情形下，我认为董事们应当表现得仿佛有一位唯一的、缺席的股东存在，他们应当以一切恰当方式致力于增进这位股东的长期利益。不幸的是，“长期”给了董事们很大的腾挪空间。如果他们缺乏诚信或独立思考能力，董事们就能对股东造成巨大伤害，同时声称自己是在为股东的长期利益行事。但假设董事会运作良好，却要面对一个平庸甚至更差的管理层。此时，董事会有责任更换管理层，就像一位聪明的所有者如果亲临现场会做的那样。而如果能干但贪婪的管理层越界，想把手伸进股东的口袋掏得太深，董事会就必须打他们的手心。
在这种朴素的情形下，一位董事若看到自己不喜欢的事情，应当设法说服其他董事认同他的观点。如果他成功了，董事会就有力量做出适当的改变。但假设这位不满的董事无法说服其他董事同意他的看法，那么他应该有权向缺席的股东表达自己的意见。当然，董事们很少这样做。事实上，许多董事的性情与这种批评行为格格不入。但我认为只要问题严重，此类行动并无不妥。自然，提出异议的董事可能会遭到未被说服的董事们的激烈反驳——这一前景应当足以劝阻异议者不要因琐碎或非理性的事由而纠缠不休。
对于上述这类董事会，我认为董事人数应相对较少——比如说十人或更少——且主要应由外部人士组成。外部董事应当为CEO的绩效设定标准，并应定期在CEO不在场的情况下开会，对照这些标准评估其表现。
担任董事的条件应当是：懂商业、对工作有兴趣、并且持有所有者导向。很多时候，董事仅仅因为有名气或能增加董事会多样性而被选中，这种做法是个错误。而且，选错董事的后果尤其严重，因为任命一旦做出就很难撤销：那些和善但空洞的董事永远不必担心饭碗问题。
第二种情况是伯克希尔目前的模式，即控股所有者同时也是管理者。在一些公司，这种安排通过设置拥有不成比例投票权的两类股票来便利实现。在这种情形下，显然董事会并不充当所有者与管理层之间的代理人，并且董事除了通过说服之外无法促成任何改变。因此，如果所有者/管理者平庸甚至更糟——或者越界——董事除了反对几乎无能为力。如果与所有者/管理者没有关联的董事们能够一致提出意见，或许会产生一些效果——但更可能的是毫无作用。
如果改变没有发生，而问题又足够严重，外部董事应当辞职。他们的辞职将表明对管理层的怀疑，并强调没有任何外部人士能够纠正所有者/管理者的缺陷。
第三种治理情形出现在存在控股所有者但不参与管理时。这种情形的例子包括Hershey Foods（好时食品）和Dow Jones（道琼斯）。这使外部董事处于潜在有用的位置：如果他们不满意经理的能力或诚信，可以直接去找所有者（所有者本人可能也在董事会）报告他们的不满。这种情况对外部董事而言是理想的，因为他只需向一个（很可能关心此事的）所有者陈述理由——如果论据有说服力，所有者可以立即实施改变。即便如此，不满的董事也只有这一条路可走。如果在某个关键问题上他仍然不满意，那么除了辞职别无选择。
从逻辑上讲，第三种情况应最能确保一流的管理层。在第二种情况中，所有者不会解雇自己；而在第一种情况中，董事们往往很难处理平庸无能或轻微越权的问题。除非不满的董事能争取到董事会多数支持——这是一项尴尬的社交和后勤任务，尤其当管理层的行为只是令人反感、而非极其恶劣时——他们的手脚实际上被捆住了。在实践中，陷入这种局面的董事常常会说服自己，认为留在董事会至少能做些好事。与此同时，管理层却毫无约束地自行其是。
在第三种情况下，所有者既不用评价自己，也不用为争取多数支持而烦恼。他还能确保选出的外部董事能为董事会带来有益的特质。而这些董事反过来也会知道，他们提出的好建议能传到该听的耳朵里，不会被顽固的管理层压制。如果控股股东既明智又自信，他会在管理层问题上做出择优录用、有利于股东的决定。而且——这一点至关重要——他能随时纠正自己犯下的任何错误。
在伯克希尔，我们现在采用的是第二种模式，只要我还能履职就会一直这样。顺便说一句，我的健康状况非常好。无论好坏，你们可能还要让我这个所有者/管理者干上一阵子。
我去世后，如果我的妻子苏茜（Susie）比我活得久，我的所有股票将归她；如果她先于我离世，则归一家基金会。无论哪种情况，税收和遗产继承都不会要求出售大额数量的股票。
当我的股票转移给我的妻子或基金会后，伯克希尔将进入第三种治理模式：拥有一个深切关心公司但并非管理者的所有者，以及一个必须为该所有者表现的管理层。为了迎接那个时刻，苏茜几年前当选为董事会成员，1993年我们的儿子霍华德（Howard）也加入了董事会。这些家族成员将来不会成为公司管理者，但如果我发生什么意外，他们将代表控股权益。我们的大多数其他董事也是伯克希尔股票的重要所有者，每个人都具有强烈的所有者意识。总之，我们已经为"那辆卡车"做好了准备。
股东指定捐款计划
1993年，伯克希尔的股东指定捐款计划约有97%的合格股份参与。该计划下的捐款总额为940万美元，共有3,110家慈善机构受益。
伯克希尔在自主慈善方面的做法——与公司对与业务活动明确相关的捐款所采取的政策形成对比——与其他上市公司显著不同。在其他公司，大多数企业捐款都是根据CEO的意愿（他往往要回应社会压力）、员工（通过配捐）或董事（通过配捐或他们向CEO提出的请求）来进行的。
在伯克希尔，我们认为公司的钱就是所有者的钱，就像在封闭控股公司、合伙企业或独资企业中一样。因此，如果要向与伯克希尔业务活动无关的事业捐款，受益的应该是我们的所有者所看中的慈善机构。我们还从未见过哪位CEO认为应该由自己出钱来资助股东看中的慈善机构。那么，为什么股东要为CEO看中的机构买单呢？
让我补充一句，我们的计划执行起来很容易。去年秋天，有两个月时间，我们从National Indemnity（国民 indemnity 公司）借调了一个人，来协助处理来自我们7,500名登记股东的那些指示。我猜，多数企业那种员工捐赠配捐计划，其管理费用远比我们高得多。事实上，我们整个公司的管理费用还不到我们慈善捐款总额的一半。（不过，查理坚持让我告诉大家，我们490万美元的管理费用里，有140万美元花在了我们的公司飞机——"无可辩驳号"上。）
以下是我们的股东们指定捐赠款项流向最多的几大类别清单。
(a) 347个教堂和犹太教堂收到了569份捐赠
(b) 283所学院和大学收到了670份捐赠
(c) 244所中小学（大约三分之二是世俗学校，三分之一是宗教学校）收到了525份捐赠
(d) 288个致力于艺术、文化或人文学科的机构收到了447份捐赠
(e) 180个宗教社会服务机构（基督教和犹太教大致各半）收到了411份捐赠
(f) 445个世俗社会服务机构（大约40%与青少年相关）收到了759份捐赠
(g) 153家医院收到了261份捐赠
(h) 186个健康相关组织（美国心脏协会、美国癌症协会等）收到了320份捐赠
这份清单有三点让我特别感兴趣。第一，它在某种程度上反映了人们不受募捐者施压或慈善机构情感呼吁的影响、完全凭自己意愿选择捐款时，更愿意把钱给哪些机构。第二，上市公司的捐赠计划几乎从不允许向教堂和犹太教堂捐款，但显然这些机构正是许多股东愿意支持的。第三，我们股东的捐赠反映出相互矛盾的哲学理念：有130份捐给了主张女性应能轻易获得堕胎服务的组织，而30份捐给了不赞成或反对堕胎的组织（教堂除外）。
去年我告诉过大家，我在考虑提高伯克希尔股东在我们的指定捐赠计划中可以捐赠的金额，并征求了大家的意见。我们收到了几封写得不错的信，反对整个想法，理由是经营企业是我们的工作，强迫股东进行慈善捐款不是我们分内的事。不过，大多数回信的股东都注意到了该计划的税收效率，并敦促我们提高指定金额。几位把股票送给子女或孙辈的股东告诉我，他们认为这个计划是让年轻人从早期就开始思考捐赠问题的一个特别好的方式。换句话说，这些人认为该计划既是慈善工具，也是教育工具。归根结底，我们在1993年确实提高了这个金额，从每股8美元提高到了10美元。
除了伯克希尔分发的股东指定捐款之外，我们的运营子公司也会进行捐赠（包括实物商品），平均每年约250万美元。这些捐款用于支持当地的慈善机构（例如联合劝募会），并为我们企业带来了大致相当的回报。
我们建议新股东阅读第50-51页上关于我们股东指定捐赠计划的描述。要参与未来的计划，你必须确保你的股份是以实际所有者的名义登记，而不是以经纪商、银行或存管机构的名义代名人登记。在1994年8月31日未能如此登记的股份，将没有资格参与1994年的计划。
几点个人事项
B夫人——罗斯·布隆金——在1993年12月3日迎来了她的100岁生日（蜡烛比蛋糕还贵）。那天商店本来安排晚上营业。B夫人每周工作七天，商店营业多久她就工作多久，她觉得决定再明显不过了：她干脆把生日派对推迟到商店关门的那天晚上。
B夫人的故事广为人知，但值得再讲一遍。77年前她来到美国，不会说英语，也没受过正规教育。1937年，她用500美元创办了内布拉斯加家具城。去年这家店的销售额达到2亿美元，远超美国其他所有家居用品商店的记录。我们参与其中始于十年前，当时B夫人将生意的控股权卖给了Berkshire Hathaway（伯克希尔·哈撒韦），这笔交易我们没要审计报表、没查房地产记录、也没要任何担保。简而言之，她的话对我们来说就够了。
自然，我很高兴能参加B夫人的生日派对。毕竟，她答应要参加我的100岁生日。
* * * * * * * * * * * *
Katharine Graham去年从The Washington Post Company（华盛顿邮报公司）董事长任上退休，三年前她已经卸任CEO。1973年，我们以约1000万美元买入她公司的股票。如今我们的持股每年能获得700万美元分红，市值超过4亿美元。买入时我们就知道公司经济前景不错。但同样重要的是，Charlie和我断定Kay会是一位出色的管理者，并且会诚实地对待所有股东。后一点尤其重要，因为华盛顿邮报公司有两类股票，我们见过有些管理层滥用这种结构。
我们对这笔投资的所有判断都得到了验证。去年《财富》杂志编辑委员会选举Kay进入商界名人堂，这凸显了她作为管理者的才能。代表我们的股东，Charlie和我早就把她放进了伯克希尔的“名人堂”。
* * * * * * * * * * * *
去年另一位退休的是可口可乐的Don Keough，不过按他的说法，他的退休只持续了“大约14个小时”。Don是我认识的最非凡的人之一——他拥有巨大的商业天赋，但更重要的是，他能让有幸与他交往的人展现出最好的一面。可口可乐希望它的产品出现在人们生活中的快乐时刻。而Don Keough这个人，总能增加身边人的快乐。想到Don，心情就不可能不好。
我要怎么讲起与Don的相识呢？先插一句我奥马哈的邻居情况：虽然Charlie在加利福尼亚住了45年，但他小时候的家离我现在住的房子大约200英尺；我的妻子Susie在1.5个街区外长大；我们这个邮编区域大约有125位伯克希尔股东。至于Don，1958年他买下了我家街对面的房子。那时他是个咖啡推销员，家里人口多，收入少。
我当时对Don的印象，是我决定让伯克希尔在1988-89年创纪录地投资10亿美元于可口可乐的一个因素。Roberto Goizueta在1981年成为可口可乐CEO，Don是他的搭档。两人接手了一家在过去十年中停滞不前的公司，在不到13年的时间里，将其市值从44亿美元提升到580亿美元。即便产品已经存在了100年，有这样一对管理者，差别就是如此之大。
* * * * * * * * * * * *
Frank Rooney 去年身兼双职。除了带领 H.H. Brown（布朗鞋业）取得创纪录的利润——比 1992 年的最高纪录还高出 35%——之外，他还促成了我们与 Dexter（德克斯特鞋业）的并购。
Frank 认识 Harold Alfond 和 Peter Lunder 几十年了。在我们收购 H.H. Brown 之后不久，他就告诉我，他们经营的企业多么出色。他鼓励我们见面，随后我们便达成了交易。Frank 告诉 Harold 和 Peter，伯克希尔将为 Dexter 提供一个理想的企业“家园”，这一承诺无疑促成了他们决定与我们联手。
我以前跟你们说过 Frank 的非凡业绩——他在担任 Melville Corp.（梅尔维尔公司）CEO 的 23 年间成就卓著。如今 72 岁的他，在伯克希尔更是快马加鞭。Frank 为人低调随意，但别被这假象骗了。他挥棒时，球会消失得无影无踪，远远飞过围墙。
**年度会议**
今年的年度会议将于 1994 年 4 月 25 日星期一上午 9:30 在奥马哈市中心的 Orpheum 剧院举行。去年有创纪录的 2,200 人出席，但剧院还能容纳更多。我们将在门厅展示许多消费产品——糖果、喷枪、鞋子、刀具、百科全书等等。我最期待的展品之一是喜诗糖果（See's）的一款纪念品，庆祝 B 太太（Mrs. B）百岁生日，包装上印的是她的照片，而不是喜诗太太（Mrs. See's）的。
我们建议您立即在以下酒店之一预订房间：(1) Radisson-Redick Tower（雷迪森-雷迪克大厦），一家小巧（88 间房）但舒适的酒店，就在 Orpheum 剧院对面；(2) 规模大得多的 Red Lion Hotel（红狮酒店），步行约五分钟到 Orpheum；(3) Marriott（万豪酒店），位于西奥马哈，离 Borsheim's（波仙珠宝）约 100 码，距市中心二十分钟车程。我们将在万豪酒店安排巴士，于 8:30 和 8:45 出发前往会场，会议结束后再返回。
随股东委托书附有一份说明，告诉您如何获得入场所需证件。我们将随入场证附上 Orpheum 剧院附近停车设施的信息。如果您开车，请早到一点。附近停车场很快就满，您可能要走几个街区。
与往年一样，会议结束后我们将有巴士送您前往内布拉斯加家具城（Nebraska Furniture Mart）和 Borsheim's，之后再从那里送您去市区酒店或机场。提前到达的朋友可随时参观家具城——周六上午 10 点至下午 5:30，周日中午 12 点至下午 5:30。Borsheim's 通常周日不营业，但在 4 月 24 日周日将为股东及宾客特别开放，从中午 12 点到下午 6 点。
以往去 Borsheim's 时，许多人都见过 Susan Jacques。1994 年初，Susan 被任命为公司总裁兼 CEO，她在 11 年间从时薪 4 美元的工作（23 岁时在店里做的）一路晋升。周日，许多其他企业的经理人也会到 Borsheim's 与 Susan 会合，我和 Charlie 也会在那里。
前一天晚上（周六，4 月 23 日），Rosenblatt 体育场将有一场棒球赛，由奥马哈皇家队（Omaha Royals）对阵纳什维尔声音队（Nashville Sounds）——后者有可能成为迈克尔·乔丹的球队。诸位或许知道，几年前我买了皇家队 25% 的股份（一个不会让我名垂青史的资本配置决定），今年联盟很配合地在年会期间安排了主场比赛。
我将在23日投出第一球，可以肯定的是，我会比去年那次丢人的表现有所进步。去年那次，捕手莫名其妙地要求我投"下沉球"，我乖乖照做，结果球差点砸到自己的脚。今年不管捕手打什么暗号，我都要投我的高速直球，所以请带上你们的测速装置。股东委托书里会附有获取比赛门票的信息。遗憾的是，据我报告，你们不必从黄牛那里买票了。
沃伦·E·巴菲特
董事会主席
1994年3月1日