Berkshire's Corporate Performance vs. the S&P 500
| Year | Annual Percentage Change | Relative Results (1)-(2) | ||
| in Per-Share Book Value of Berkshire (1) | in S&P 500 with Dividends Included (2) | |||
| 1965 | ...... | 23.8 | 10.0 | 13.8 |
| 1966 | ...... | 20.3 | (11.7) | 32.0 |
| 1967 | ...... | 11.0 | 30.9 | (19.9) |
| 1968 | ...... | 19.0 | 11.0 | 8.0 |
| 1969 | ...... | 16.2 | (8.4) | 24.6 |
| 1970 | ...... | 12.0 | 3.9 | 8.1 |
| 1971 | ...... | 16.4 | 14.6 | 1.8 |
| 1972 | ...... | 21.7 | 18.9 | 2.8 |
| 1973 | ...... | 4.7 | (14.8) | 19.5 |
| 1974 | ...... | 5.5 | (26.4) | 31.9 |
| 1975 | ...... | 21.9 | 37.2 | (15.3) |
| 1976 | ...... | 59.3 | 23.6 | 35.7 |
| 1977 | ...... | 31.9 | (7.4) | 39.3 |
| 1978 | ...... | 24.0 | 6.4 | 17.6 |
| 1979 | ...... | 35.7 | 18.2 | 17.5 |
| 1980 | ...... | 19.3 | 32.3 | (13.0) |
| 1981 | ...... | 31.4 | (5.0) | 36.4 |
| 1982 | ...... | 40.0 | 21.4 | 18.6 |
| 1983 | ...... | 32.3 | 22.4 | 9.9 |
| 1984 | ...... | 13.6 | 6.1 | 7.5 |
| 1985 | ...... | 48.2 | 31.6 | 16.6 |
| 1986 | ...... | 26.1 | 18.6 | 7.5 |
| 1987 | ...... | 19.5 | 5.1 | 14.4 |
| 1988 | ...... | 20.1 | 16.6 | 3.5 |
| 1989 | ...... | 44.4 | 31.7 | 12.7 |
| 1990 | ...... | 7.4 | (3.1) | 10.5 |
| 1991 | ...... | 39.6 | 30.5 | 9.1 |
| 1992 | ...... | 20.3 | 7.6 | 12.7 |
| 1993 | ...... | 14.3 | 10.1 | 4.2 |
| 1994 | ...... | 13.9 | 1.3 | 12.6 |
| 1995 | ...... | 43.1 | 37.6 | 5.5 |
| 1996 | ...... | 31.8 | 23.0 | 8.8 |
| 1997 | ...... | 34.1 | 33.4 | .7 |
| 1998 | ...... | 48.3 | 28.6 | 19.7 |
| 1999 | ...... | .5 | 21.0 | (20.5) |
| 2000 | ...... | 6.5 | (9.1) | 15.6 |
| 2001 | ...... | (6.2) | (11.9) | 5.7 |
| 2002 | ...... | 10.0 | (22.1) | 32.1 |
| 2003 | ...... | 21.0 | 28.7 | (7.7) |
| 2004 | ...... | 10.5 | 10.9 | (.4) |
| 2005 | ...... | 6.4 | 4.9 | 1.5 |
| 2006 | ...... | 18.4 | 15.8 | 2.6 |
| 2007 | ...... | 11.0 | 5.5 | 5.5 |
| Compounded Annual Gain – 1965-2007 | 21.1% | 10.3% | 10.8 | |
| Overall Gain – 1964-2007 | 400,863% | 6,840% | ||
Notes: Data are for calendar years with these exceptions: 1965 and 1966, year ended 9/30; 1967, 15 months ended 12/31.
Starting in 1979, accounting rules required insurance companies to value the equity securities they hold at market rather than at the lower of cost or market, which was previously the requirement. In this table, Berkshire's results through 1978 have been restated to conform to the changed rules. In all other respects, the results are calculated using the numbers originally reported.
The S&P 500 numbers are pre-tax whereas the Berkshire numbers are after-tax. If a corporation such as Berkshire were simply to have owned the S&P 500 and accrued the appropriate taxes, its results would have lagged the S&P 500 in years when that index showed a positive return, but would have exceeded the S&P 500 in years when the index showed a negative return. Over the years, the tax costs would have caused the aggregate lag to be substantial.
BERKSHIRE HATHAWAY INC.
To the Shareholders of Berkshire Hathaway Inc.:
Our gain in net worth during 2007 was \$12.3 billion, which increased the per-share book value of both our Class A and Class B stock by 11%. Over the last 43 years (that is, since present management took over) book value has grown from \$19 to \$78,008, a rate of 21.1% compounded annually.*
Overall, our 76 operating businesses did well last year. The few that had problems were primarily those linked to housing, among them our brick, carpet and real estate brokerage operations. Their setbacks are minor and temporary. Our competitive position in these businesses remains strong, and we have first-class CEOs who run them right, in good times or bad.
Some major financial institutions have, however, experienced staggering problems because they engaged in the “weakened lending practices” I described in last year’s letter. John Stumpf, CEO of Wells Fargo, aptly dissected the recent behavior of many lenders: “It is interesting that the industry has invented new ways to lose money when the old ways seemed to work just fine.”
You may recall a 2003 Silicon Valley bumper sticker that implored, “Please, God, Just One More Bubble.” Unfortunately, this wish was promptly granted, as just about all Americans came to believe that house prices would forever rise. That conviction made a borrower’s income and cash equity seem unimportant to lenders, who shoveled out money, confident that HPA – house price appreciation – would cure all problems. Today, our country is experiencing widespread pain because of that erroneous belief. As house prices fall, a huge amount of financial folly is being exposed. You only learn who has been swimming naked when the tide goes out – and what we are witnessing at some of our largest financial institutions is an ugly sight.
Turning to happier thoughts, we can report that Berkshire's newest acquisitions of size, TTI and Iscar, led by their CEOs, Paul Andrews and Jacob Harpaz respectively, performed magnificently in 2007. Iscar is as impressive a manufacturing operation as I've seen, a view I reported last year and that was confirmed by a visit I made in the fall to its extraordinary plant in Korea.
Finally, our insurance business – the cornerstone of Berkshire – had an excellent year. Part of the reason is that we have the best collection of insurance managers in the business – more about them later. But we also were very lucky in 2007, the second year in a row free of major insured catastrophes.
That party is over. It's a certainty that insurance-industry profit margins, including ours, will fall significantly in 2008. Prices are down, and exposures inexorably rise. Even if the U.S. has its third consecutive catastrophe-light year, industry profit margins will probably shrink by four percentage points or so. If the winds roar or the earth trembles, results could be far worse. So be prepared for lower insurance earnings during the next few years.
Yardsticks
Berkshire has two major areas of value. The first is our investments: stocks, bonds and cash equivalents. At yearend these totaled \$141 billion (not counting those in our finance or utility operations, which we assign to our second bucket of value).
Insurance float – money we temporarily hold in our insurance operations that does not belong to us – funds \$59 billion of our investments. This float is “free” as long as insurance underwriting breaks even, meaning that the premiums we receive equal the losses and expenses we incur. Of course, insurance underwriting is volatile, swinging erratically between profits and losses. Over our entire history, however, we’ve been profitable, and I expect we will average breakeven results or better in the future. If we do that, our investments can be viewed as an unencumbered source of value for Berkshire shareholders.
Berkshire's second component of value is earnings that come from sources other than investments and insurance. These earnings are delivered by our 66 non-insurance companies, itemized on page 76. In our early years, we focused on the investment side. During the past two decades, however, we have put ever more emphasis on the development of earnings from non-insurance businesses.
The following tables illustrate this shift. In the first we tabulate per-share investments at 14-year intervals. We exclude those applicable to minority interests.
| Year | Per-Share Investments | Years | Compounded Annual Gain in Per-Share Investments |
| 1965 | $ 4 | ||
| 1979 | 577 | 1965-1979 | 42.8% |
| 1993 | 13,961 | 1979-1993 | 25.6% |
| 2007 | 90,343 | 1993-2007 | 14.3% |
For the entire 42 years, our compounded annual gain in per-share investments was $27.1\%$ . But the trend has been downward as we increasingly used our available funds to buy operating businesses.
Here's the record on how earnings of our non-insurance businesses have grown, again on a per-share basis and after applicable minority interests.
| Year | Per Share Pre-Tax Earnings | Years | Compounded Annual Gain in Per-Share Pre-Tax Earnings |
| 1965 | $ 4 | ||
| 1979 | 18 | 1965-1979 | 11.1% |
| 1993 | 212 | 1979-1993 | 19.1% |
| 2007 | 4,093 | 1993-2007 | 23.5% |
For the entire period, the compounded annual gain was 17.8%, with gains accelerating as our focus shifted.
Though these tables may help you gain historical perspective and be useful in valuation, they are completely misleading in predicting future possibilities. Berkshire's past record can't be duplicated or even approached. Our base of assets and earnings is now far too large for us to make outsized gains in the future.
Charlie Munger, my partner at Berkshire, and I will continue to measure our progress by the two yardsticks I have just described and will regularly update you on the results. Though we can't come close to duplicating the past, we will do our best to make sure the future is not disappointing.
* * * * * * * * * * * *
In our efforts, we will be aided enormously by the managers who have joined Berkshire. This is an unusual group in several ways. First, most of them have no financial need to work. Many sold us their businesses for large sums and run them because they love doing so, not because they need the money. Naturally they wish to be paid fairly, but money alone is not the reason they work hard and productively.
A second, somewhat related, point about these managers is that they have exactly the job they want for the rest of their working years. At almost any other company, key managers below the top aspire to keep climbing the pyramid. For them, the subsidiary or division they manage today is a way station – or so they hope. Indeed, if they are in their present positions five years from now, they may well feel like failures.
Conversely, our CEOs' scorecards for success are not whether they obtain my job but instead are the long-term performances of their businesses. Their decisions flow from a here-today, here-forever mindset. I think our rare and hard-to-replicate managerial structure gives Berkshire a real advantage.
Acquisitions
Though our managers may be the best, we will need large and sensible acquisitions to get the growth in operating earnings we wish. Here, we made little progress in 2007 until very late in the year. Then, on Christmas day, Charlie and I finally earned our paychecks by contracting for the largest cash purchase in Berkshire's history.
The seeds of this transaction were planted in 1954. That fall, only three months into a new job, I was sent by my employers, Ben Graham and Jerry Newman, to a shareholders' meeting of Rockwood Chocolate in Brooklyn. A young fellow had recently taken control of this company, a manufacturer of assorted cocoa-based items. He had then initiated a one-of-a-kind tender, offering 80 pounds of cocoa beans for each share of Rockwood stock. I described this transaction in a section of the 1988 annual report that explained arbitrage. I also told you that Jay Pritzker – the young fellow mentioned above – was the business genius behind this tax-efficient idea, the possibilities for which had escaped all the other experts who had thought about buying Rockwood, including my bosses, Ben and Jerry.
At the meeting, Jay was friendly and gave me an education on the 1954 tax code. I came away very impressed. Thereafter, I avidly followed Jay's business dealings, which were many and brilliant. His valued partner was his brother, Bob, who for nearly 50 years ran Marmon Group, the home for most of the Pritzker businesses.
Jay died in 1999, and Bob retired early in 2002. Around then, the Pritzker family decided to gradually sell or reorganize certain of its holdings, including Marmon, a company operating 125 businesses, managed through nine sectors. Marmon's largest operation is Union Tank Car, which together with a Canadian counterpart owns 94,000 rail cars that are leased to various shippers. The original cost of this fleet is \$5.1 billion. All told, Marmon has \$7 billion in sales and about 20,000 employees.
We will soon purchase 60% of Marmon and will acquire virtually all of the balance within six years. Our initial outlay will be \$4.5 billion, and the price of our later purchases will be based on a formula tied to earnings. Prior to our entry into the picture, the Pritzker family received substantial consideration from Marmon's distribution of cash, investments and certain businesses.
This deal was done in the way Jay would have liked. We arrived at a price using only Marmon's financial statements, employing no advisors and engaging in no nit-picking. I knew that the business would be exactly as the Pritzkers represented, and they knew that we would close on the dot, however chaotic financial markets might be. During the past year, many large deals have been renegotiated or killed entirely. With the Pritzkers, as with Berkshire, a deal is a deal.
Marmon's CEO, Frank Ptak, works closely with a long-time associate, John Nichols. John was formerly the highly successful CEO of Illinois Tool Works (ITW), where he teamed with Frank to run a mix of industrial businesses. Take a look at their ITW record; you'll be impressed.
Byron Trott of Goldman Sachs – whose praises I sang in the 2003 report – facilitated the Marmon transaction. Byron is the rare investment banker who puts himself in his client’s shoes. Charlie and I trust him completely.
You'll like the code name that Goldman Sachs assigned the deal. Marmon entered the auto business in 1902 and exited it in 1933. Along the way it manufactured the Wasp, a car that won the first Indianapolis 500 race, held in 1911. So this deal was labeled “Indy 500.”
* * * * * * * * * * *
In May 2006, I spoke at a lunch at Ben Bridge, our Seattle-based jewelry chain. The audience was a number of its vendors, among them Dennis Ulrich, owner of a company that manufactured gold jewelry.
In January 2007, Dennis called me, suggesting that with Berkshire's support he could build a large jewelry supplier. We soon made a deal for his business, simultaneously purchasing a supplier of about equal size. The new company, Richline Group, has since made two smaller acquisitions. Even with those, Richline is far below the earnings threshold we normally require for purchases. I'm willing to bet, however, that Dennis – with the help of his partner, Dave Meleski – will build a large operation, earning good returns on capital employed.
Businesses – The Great, the Good and the Gruesome
Let's take a look at what kind of businesses turn us on. And while we're at it, let's also discuss what we wish to avoid.
Charlie and I look for companies that have a) a business we understand; b) favorable long-term economics; c) able and trustworthy management; and d) a sensible price tag. We like to buy the whole business or, if management is our partner, at least 80%. When control-type purchases of quality aren't available, though, we are also happy to simply buy small portions of great businesses by way of stock-market purchases. It's better to have a part interest in the Hope Diamond than to own all of a rhinestone.
A truly great business must have an enduring “moat” that protects excellent returns on invested capital. The dynamics of capitalism guarantee that competitors will repeatedly assault any business “castle” that is earning high returns. Therefore a formidable barrier such as a company’s being the low-cost producer (GEICO, Costco) or possessing a powerful world-wide brand (Coca-Cola, Gillette, American Express) is essential for sustained success. Business history is filled with “Roman Candles,” companies whose moats proved illusory and were soon crossed.
Our criterion of “enduring” causes us to rule out companies in industries prone to rapid and continuous change. Though capitalism’s “creative destruction” is highly beneficial for society, it precludes investment certainty. A moat that must be continuously rebuilt will eventually be no moat at all.
Additionally, this criterion eliminates the business whose success depends on having a great manager. Of course, a terrific CEO is a huge asset for any enterprise, and at Berkshire we have an abundance of these managers. Their abilities have created billions of dollars of value that would never have materialized if typical CEOs had been running their businesses.
But if a business requires a superstar to produce great results, the business itself cannot be deemed great. A medical partnership led by your area's premier brain surgeon may enjoy outsized and growing earnings, but that tells little about its future. The partnership's moat will go when the surgeon goes. You can count, though, on the moat of the Mayo Clinic to endure, even though you can't name its CEO.
Long-term competitive advantage in a stable industry is what we seek in a business. If that comes with rapid organic growth, great. But even without organic growth, such a business is rewarding. We will simply take the lush earnings of the business and use them to buy similar businesses elsewhere. There's no rule that you have to invest money where you've earned it. Indeed, it's often a mistake to do so: Truly great businesses, earning huge returns on tangible assets, can't for any extended period reinvest a large portion of their earnings internally at high rates of return.
Let's look at the prototype of a dream business, our own See's Candy. The boxed-chocolates industry in which it operates is unexciting: Per-capita consumption in the U.S. is extremely low and doesn't grow. Many once-important brands have disappeared, and only three companies have earned more than token profits over the last forty years. Indeed, I believe that See's, though it obtains the bulk of its revenues from only a few states, accounts for nearly half of the entire industry's earnings.
At See's, annual sales were 16 million pounds of candy when Blue Chip Stamps purchased the company in 1972. (Charlie and I controlled Blue Chip at the time and later merged it into Berkshire.) Last year See's sold 31 million pounds, a growth rate of only $2\%$ annually. Yet its durable competitive advantage, built by the See's family over a 50-year period, and strengthened subsequently by Chuck Huggins and Brad Kinstler, has produced extraordinary results for Berkshire.
We bought See’s for \$25 million when its sales were \$30 million and pre-tax earnings were less than \$5 million. The capital then required to conduct the business was \$8 million. (Modest seasonal debt was also needed for a few months each year.) Consequently, the company was earning 60% pre-tax on invested capital. Two factors helped to minimize the funds required for operations. First, the product was sold for cash, and that eliminated accounts receivable. Second, the production and distribution cycle was short, which minimized inventories.
Last year See’s sales were \$383 million, and pre-tax profits were \$82 million. The capital now required to run the business is \$40 million. This means we have had to reinvest only \$32 million since 1972 to handle the modest physical growth – and somewhat immodest financial growth – of the business. In the meantime pre-tax earnings have totaled \$1.35 billion. All of that, except for the \$32 million, has been sent to Berkshire (or, in the early years, to Blue Chip). After paying corporate taxes on the profits, we have used the rest to buy other attractive businesses. Just as Adam and Eve kick-started an activity that led to six billion humans, See’s has given birth to multiple new streams of cash for us. (The biblical command to “be fruitful and multiply” is one we take seriously at Berkshire.)
There aren’t many See’s in Corporate America. Typically, companies that increase their earnings from \$5 million to \$82 million require, say, \$400 million or so of capital investment to finance their growth. That’s because growing businesses have both working capital needs that increase in proportion to sales growth and significant requirements for fixed asset investments.
A company that needs large increases in capital to engender its growth may well prove to be a satisfactory investment. There is, to follow through on our example, nothing shabby about earning \$82 million pre-tax on \$400 million of net tangible assets. But that equation for the owner is vastly different from the See's situation. It's far better to have an ever-increasing stream of earnings with virtually no major capital requirements. Ask Microsoft or Google.
One example of good, but far from sensational, business economics is our own FlightSafety. This company delivers benefits to its customers that are the equal of those delivered by any business that I know of. It also possesses a durable competitive advantage: Going to any other flight-training provider than the best is like taking the low bid on a surgical procedure.
Nevertheless, this business requires a significant reinvestment of earnings if it is to grow. When we purchased FlightSafety in 1996, its pre-tax operating earnings were \$111 million, and its net investment in fixed assets was \$570 million. Since our purchase, depreciation charges have totaled \$923 million. But capital expenditures have totaled \$1.635 billion, most of that for simulators to match the new airplane models that are constantly being introduced. (A simulator can cost us more than \$12 million, and we have 273 of them.) Our fixed assets, after depreciation, now amount to \$1.079 billion. Pre-tax operating earnings in 2007 were \$270 million, a gain of \$159 million since 1996. That gain gave us a good, but far from See's-like, return on our incremental investment of \$509 million.
Consequently, if measured only by economic returns, FlightSafety is an excellent but not extraordinary business. Its put-up-more-to-earn-more experience is that faced by most corporations. For example, our large investment in regulated utilities falls squarely in this category. We will earn considerably more money in this business ten years from now, but we will invest many billions to make it.
Now let's move to the gruesome. The worst sort of business is one that grows rapidly, requires significant capital to engender the growth, and then earns little or no money. Think airlines. Here a durable competitive advantage has proven elusive ever since the days of the Wright Brothers. Indeed, if a farsighted capitalist had been present at Kitty Hawk, he would have done his successors a huge favor by shooting Orville down.
The airline industry's demand for capital ever since that first flight has been insatiable. Investors have poured money into a bottomless pit, attracted by growth when they should have been repelled by it. And I, to my shame, participated in this foolishness when I had Berkshire buy U.S. Air preferred stock in 1989. As the ink was drying on our check, the company went into a tailspin, and before long our preferred dividend was no longer being paid. But we then got very lucky. In one of the recurrent, but always misguided, bursts of optimism for airlines, we were actually able to sell our shares in 1998 for a hefty gain. In the decade following our sale, the company went bankrupt. Twice.
To sum up, think of three types of “savings accounts.” The great one pays an extraordinarily high interest rate that will rise as the years pass. The good one pays an attractive rate of interest that will be earned also on deposits that are added. Finally, the gruesome account both pays an inadequate interest rate and requires you to keep adding money at those disappointing returns.
* * * * * * * * * * * *
And now it's confession time. It should be noted that no consultant, board of directors or investment banker pushed me into the mistakes I will describe. In tennis parlance, they were all unforced errors.
To begin with, I almost blew the See's purchase. The seller was asking \$30 million, and I was adamant about not going above \$25 million. Fortunately, he caved. Otherwise I would have balked, and that \$1.35 billion would have gone to somebody else.
About the time of the See's purchase, Tom Murphy, then running Capital Cities Broadcasting, called and offered me the Dallas-Fort Worth NBC station for \$35 million. The station came with the Fort Worth paper that Capital Cities was buying, and under the “cross-ownership” rules Murph had to divest it. I knew that TV stations were See’s-like businesses that required virtually no capital investment and had excellent prospects for growth. They were simple to run and showered cash on their owners.
Moreover, Murph, then as now, was a close friend, a man I admired as an extraordinary manager and outstanding human being. He knew the television business forward and backward and would not have called me unless he felt a purchase was certain to work. In effect Murph whispered “buy” into my ear. But I didn’t listen.
In 2006, the station earned \$73 million pre-tax, bringing its total earnings since I turned down the deal to at least \$1 billion – almost all available to its owner for other purposes. Moreover, the property now has a capital value of about \$800 million. Why did I say “no”? The only explanation is that my brain had gone on vacation and forgot to notify me. (My behavior resembled that of a politician Molly Ivins once described: “If his I.Q. was any lower, you would have to water him twice a day.”)
Finally, I made an even worse mistake when I said “yes” to Dexter, a shoe business I bought in 1993 for \$433 million in Berkshire stock (25,203 shares of A). What I had assessed as durable competitive advantage vanished within a few years. But that’s just the beginning: By using Berkshire stock, I compounded this error hugely. That move made the cost to Berkshire shareholders not \$400 million, but rather \$3.5 billion. In essence, I gave away 1.6% of a wonderful business – one now valued at \$220 billion – to buy a worthless business.
To date, Dexter is the worst deal that I've made. But I'll make more mistakes in the future – you can bet on that. A line from Bobby Bare's country song explains what too often happens with acquisitions: "I've never gone to bed with an ugly woman, but I've sure woke up with a few."
* * * * * * * * * * * *
Now, let's examine the four major operating sectors of Berkshire. Each sector has vastly different balance sheet and income account characteristics. Therefore, lumping them together impedes analysis. So we'll present them as four separate businesses, which is how Charlie and I view them.
Insurance
The best anecdote I've heard during the current presidential campaign came from Mitt Romney, who asked his wife, Ann, "When we were young, did you ever in your wildest dreams think I might be president?" To which she replied, "Honey, you weren't in my wildest dreams."
When we first entered the property/casualty insurance business in 1967, my wildest dreams did not envision our current operation. Here's how we did in the first five years after purchasing National Indemnity:
| Year | Underwriting Profit (Loss) | Float |
| (in millions) | ||
| 1967 | $ 0.4 | $18.5 |
| 1968 | 0.6 | 21.3 |
| 1969 | 0.1 | 25.4 |
| 1970 | (0.4) | 39.4 |
| 1971 | 1.4 | 65.6 |
To put it charitably, we were a slow starter. But things changed. Here's the record of the last five years:
| Year | Underwriting Profit (Loss) | Float |
| (in millions) | ||
| 2003 | $1,718 | $44,220 |
| 2004 | 1,551 | 46,094 |
| 2005 | 53 | 49,287 |
| 2006 | 3,838 | 50,887 |
| 2007 | 3,374 | 58,698 |
This metamorphosis has been accomplished by some extraordinary managers. Let's look at what each has achieved.
- GEICO possesses the widest moat of any of our insurers, one carefully protected and expanded by Tony Nicely, its CEO. Last year – again – GEICO had the best growth record among major auto insurers, increasing its market share to 7.2%. When Berkshire acquired control in 1995, that share was 2.5%. Not coincidentally, annual ad expenditures by GEICO have increased from \$31 million to \$751 million during the same period.
Tony, now 64, joined GEICO at 18. Every day since, he has been passionate about the company – proud of how it could both save money for its customers and provide growth opportunities for its associates. Even now, with sales at \$12 billion, Tony feels GEICO is just getting started. So do I.
Here's some evidence. In the last three years, GEICO has increased its share of the motorcycle market from $2.1\%$ to $6\%$ . We've also recently begun writing policies on ATVs and RVs. And in November we wrote our first commercial auto policy. GEICO and National Indemnity are working together in the commercial field, and early results are very encouraging.
Even in aggregate, these lines will remain a small fraction of our personal auto volume. Nevertheless, they should deliver a growing stream of underwriting profits and float.
- General Re, our international reinsurer, is by far our largest source of “home-grown” float – \$23 billion at yearend. This operation is now a huge asset for Berkshire. Our ownership, however, had a shaky start.
For decades, General Re was the Tiffany of reinsurers, admired by all for its underwriting skills and discipline. This reputation, unfortunately, outlived its factual underpinnings, a flaw that I completely missed when I made the decision in 1998 to merge with General Re. The General Re of 1998 was not operated as the General Re of 1968 or 1978.
Now, thanks to Joe Brandon, General Re's CEO, and his partner, Tad Montross, the luster of the company has been restored. Joe and Tad have been running the business for six years and have been doing first-class business in a first-class way, to use the words of J. P. Morgan. They have restored discipline to underwriting, reserving and the selection of clients.
Their job was made more difficult by costly and time-consuming legacy problems, both in the U.S. and abroad. Despite that diversion, Joe and Tad have delivered excellent underwriting results while skillfully repositioning the company for the future.
- Since joining Berkshire in 1986, Ajit Jain has built a truly great specialty reinsurance operation from scratch. For one-of-a-kind mammoth transactions, the world now turns to him.
Last year I told you in detail about the Equitas transfer of huge, but capped, liabilities to Berkshire for a single premium of \$7.1 billion. At this very early date, our experience has been good. But this doesn't tell us much because it's just one straw in a fifty-year-or-more wind. What we know for sure, however, is that the London team who joined us, headed by Scott Moser, is first-rate and has become a valuable asset for our insurance business.
- Finally, we have our smaller operations, which serve specialized segments of the insurance market. In aggregate, these companies have performed extraordinarily well, earning above-average underwriting profits and delivering valuable float for investment.
Last year BoatU.S., headed by Bill Oakerson, was added to the group. This company manages an association of about 650,000 boat owners, providing them services similar to those offered by AAA auto clubs to drivers. Among the association's offerings is boat insurance. Learn more about this operation by visiting its display at the annual meeting.
Below we show the record of our four categories of property/casualty insurance.
| Underwriting Profit | Yearend Float | |||
| (in millions) | ||||
| Insurance Operations | 2007 | 2006 | 2007 | 2006 |
| General Re...... | $ 555 | $ 526 | $23,009 | $22,827 |
| BH Reinsurance...... | 1,427 | 1,658 | 23,692 | 16,860 |
| GEICO...... | 1,113 | 1,314 | 7,768 | 7,171 |
| Other Primary...... | 279 | 340* | 4,229 | 4,029* |
| $3,374 | $3,838 | $58,698 | $50,887 | |
* Includes Applied Underwriters from May 19, 2006.
Regulated Utility Business
Berkshire has an 87.4% (diluted) interest in MidAmerican Energy Holdings, which owns a wide variety of utility operations. The largest of these are (1) Yorkshire Electricity and Northern Electric, whose 3.8 million electric customers make it the third largest distributor of electricity in the U.K.; (2) MidAmerican Energy, which serves 720,000 electric customers, primarily in Iowa; (3) Pacific Power and Rocky Mountain Power, serving about 1.7 million electric customers in six western states; and (4) Kern River and Northern Natural pipelines, which carry about 8% of the natural gas consumed in the U.S.
Our partners in ownership of MidAmerican are Walter Scott, and its two terrific managers, Dave Sokol and Greg Abel. It’s unimportant how many votes each party has; we make major moves only when we are unanimous in thinking them wise. Eight years of working with Dave, Greg and Walter have underscored my original belief: Berkshire couldn’t have better partners.
Somewhat incongruously, MidAmerican also owns the second largest real estate brokerage firm in the U.S., HomeServices of America. This company operates through 20 locally-branded firms with 18,800 agents. Last year was a slow year for residential sales, and 2008 will probably be slower. We will continue, however, to acquire quality brokerage operations when they are available at sensible prices.
Here are some key figures on MidAmerican's operation:
| Earnings (in millions) | ||
| 2007 | 2006 | |
| U.K. utilities | $337 | $338 |
| Iowa utility | 412 | 348 |
| Western utilities (acquired March 21, 2006) | 692 | 356 |
| Pipelines | 473 | 376 |
| HomeServices | 42 | 74 |
| Other (net) | 130 | 245 |
| Earnings before corporate interest and taxes | 2,086 | 1,737 |
| Interest, other than to Berkshire | (312) | (261) |
| Interest on Berkshire junior debt | (108) | (134) |
| Income tax | (477) | (426) |
| Net earnings | $1,189 | $916 |
| Earnings applicable to Berkshire* | $1,114 | $885 |
| Debt owed to others | 19,002 | 16,946 |
| Debt owed to Berkshire | 821 | 1,055 |
*Includes interest earned by Berkshire (net of related income taxes) of \$70 in 2007 and \$87 in 2006.
We agreed to purchase 35,464,337 shares of MidAmerican at \$35.05 per share in 1999, a year in which its per-share earnings were \$2.59. Why the odd figure of \$35.05? I originally decided the business was worth \$35.00 per share to Berkshire. Now, I'm a “one-price” guy (remember See’s?) and for several days the investment bankers representing MidAmerican had no luck in getting me to increase Berkshire’s offer. But, finally, they caught me in a moment of weakness, and I caved, telling them I would go to \$35.05. With that, I explained, they could tell their client they had wrung the last nickel out of me. At the time, it hurt.
Later on, in 2002, Berkshire purchased 6,700,000 shares at \$60 to help finance the acquisition of one of our pipelines. Lastly, in 2006, when MidAmerican bought PacifiCorp, we purchased 23,268,793 shares at \$145 per share.
In 2007, MidAmerican earned \$15.78 per share. However, 77¢ of that was non-recurring – a reduction in deferred tax at our British utility, resulting from a lowering of the U.K. corporate tax rate. So call normalized earnings \$15.01 per share. And yes, I’m glad I wilted and offered the extra nickel.
Manufacturing, Service and Retailing Operations
Our activities in this part of Berkshire cover the waterfront. Let's look, though, at a summary balance sheet and earnings statement for the entire group.
Balance Sheet 12/31/07 (in millions)
| Assets | Liabilities and Equity | ||
| Cash and equivalents | $2,080 | Notes payable | $1,278 |
| Accounts and notes receivable | 4,488 | Other current liabilities | 7,652 |
| Inventory | 5,793 | Total current liabilities | 8,930 |
| Other current assets | 470 | ||
| Total current assets | 12,831 | ||
| Goodwill and other intangibles | 14,201 | Deferred taxes | 828 |
| Fixed assets | 9,605 | Term debt and other liabilities | 3,079 |
| Other assets | 1,685 | Equity | 25,485 |
| $38,322 | $38,322 |
Earnings Statement (in millions)
| 2007 | 2006 | 2005 | |
| Revenues | $59,100 | $52,660 | $46,896 |
| Operating expenses (including depreciation of $955 in 2007, $823 in 2006 and $699 in 2005) | 55,026 | 49,002 | 44,190 |
| Interest expense | 127 | 132 | 83 |
| Pre-tax earnings | 3,947* | 3,526* | 2,623* |
| Income taxes and minority interests | 1,594 | 1,395 | 977 |
| Net income | $2,353 | $2,131 | $1,646 |
*Does not include purchase-accounting adjustments.
This motley group, which sells products ranging from lollipops to motor homes, earned a pleasing 23% on average tangible net worth last year. It’s noteworthy also that these operations used only minor financial leverage in achieving that return. Clearly we own some terrific businesses. We purchased many of them, however, at large premiums to net worth – a point reflected in the goodwill item shown on the balance sheet – and that fact reduces the earnings on our average carrying value to 9.8%.
Here are a few newsworthy items about companies in this sector:
- Shaw, Acme Brick, Johns Manville and MiTek were all hurt in 2007 by the sharp housing downturn, with their pre-tax earnings declining 27%, 41%, 38%, and 9% respectively. Overall, these companies earned \$941 million pre-tax compared to \$1.296 billion in 2006.
Last year, Shaw, MiTek and Acme contracted for tuck-in acquisitions that will help future earnings. You can be sure they will be looking for more of these.
- In a tough year for retailing, our standouts were See's, Borsheims and Nebraska Furniture Mart.
Two years ago Brad Kinstler was made CEO of See's. We very seldom move managers from one industry to another at Berkshire. But we made an exception with Brad, who had previously run our uniform company, Fechheimer, and Cypress Insurance. The move could not have worked out better. In his two years, profits at See's have increased more than $50\%$ .
At Borsheims, sales increased 15.1%, helped by a 27% gain during Shareholder Weekend. Two years ago, Susan Jacques suggested that we remodel and expand the store. I was skeptical, but Susan was right.
Susan came to Borsheims 25 years ago as a \$4-an-hour saleswoman. Though she lacked a managerial background, I did not hesitate to make her CEO in 1994. She’s smart, she loves the business, and she loves her associates. That beats having an MBA degree any time.
(An aside: Charlie and I are not big fans of resumes. Instead, we focus on brains, passion and integrity. Another of our great managers is Cathy Baron Tamraz, who has significantly increased Business Wire's earnings since we purchased it early in 2006. She is an owner's dream. It is positively dangerous to stand between Cathy and a business prospect. Cathy, it should be noted, began her career as a cab driver.)
Finally, at Nebraska Furniture Mart, earnings hit a record as our Omaha and Kansas City stores each had sales of about \$400 million. These, by some margin, are the two top home furnishings stores in the country. In a disastrous year for many furniture retailers, sales at Kansas City increased 8%, while in Omaha the gain was 6%.
Credit the remarkable Blumkin brothers, Ron and Irv, for this performance. Both are close personal friends of mine and great businessmen.
- Iscar continues its wondrous ways. Its products are small carbide cutting tools that make large and very expensive machine tools more productive. The raw material for carbide is tungsten, mined in China. For many decades, Iscar moved tungsten to Israel, where brains turned it into something far more valuable. Late in 2007, Iscar opened a large plant in Dalian, China. In effect, we’ve now moved the brains to the tungsten. Major opportunities for growth await Iscar. Its management team, led by Eitan Wertheimer, Jacob Harpaz, and Danny Goldman, is certain to make the most of them.
- Flight services set a record in 2007 with pre-tax earnings increasing 49% to \$547 million. Corporate aviation had an extraordinary year worldwide, and both of our companies – as runaway leaders in their fields – fully participated.
FlightSafety, our pilot training business, gained 14% in revenues and 20% in pre-tax earnings. We estimate that we train about 58% of U.S. corporate pilots. Bruce Whitman, the company's CEO, inherited this leadership position in 2003 from Al Ueltschi, the father of advanced flight training, and has proved to be a worthy successor.
At NetJets, the inventor of fractional-ownership of jets, we also remain the unchallenged leader. We now operate 487 planes in the U.S. and 135 in Europe, a fleet more than twice the size of that operated by our three major competitors combined. Because our share of the large-cabin market is near 90%, our lead in value terms is far greater.
The NetJets brand – with its promise of safety, service and security – grows stronger every year. Behind this is the passion of one man, Richard Santulli. If you were to pick someone to join you in a foxhole, you couldn’t do better than Rich. No matter what the obstacles, he just doesn’t stop.
Europe is the best example of how Rich's tenacity leads to success. For the first ten years we made little financial progress there, actually running up cumulative losses of \$212 million. After Rich brought Mark Booth on board to run Europe, however, we began to gain traction. Now we have real momentum, and last year earnings tripled.
In November, our directors met at NetJets headquarters in Columbus and got a look at the sophisticated operation there. It is responsible for 1,000 or so flights a day in all kinds of weather, with customers expecting top-notch service. Our directors came away impressed by the facility and its capabilities – but even more impressed by Rich and his associates.
Finance and Finance Products
Our major operation in this category is Clayton Homes, the largest U.S. manufacturer and marketer of manufactured homes. Clayton's market share hit a record $31\%$ last year. But industry volume continues to shrink: Last year, manufactured home sales were 96,000, down from 131,000 in 2003, the year we bought Clayton. (At the time, it should be remembered, some commentators criticized its directors for selling at a cyclical bottom.)
Though Clayton earns money from both manufacturing and retailing its homes, most of its earnings come from an \$11 billion loan portfolio, covering 300,000 borrowers. That's why we include Clayton's operation in this finance section. Despite the many problems that surfaced during 2007 in real estate finance, the Clayton portfolio is performing well. Delinquencies, foreclosures and losses during the year were at rates similar to those we experienced in our previous years of ownership.
Clayton’s loan portfolio is financed by Berkshire. For this funding, we charge Clayton one percentage point over Berkshire’s borrowing cost – a fee that amounted to \$85 million last year. Clayton’s 2007 pre-tax earnings of \$526 million are after its paying this fee. The flip side of this transaction is that Berkshire recorded \$85 million as income, which is included in “other” in the following table.
| Pre-Tax Earnings(in millions) | ||
| 2007 | 2006 | |
| Trading – ordinary income | $272 | $274 |
| Life and annuity operation | (60) | 29 |
| Leasing operations | 111 | 182 |
| Manufactured-housing finance (Clayton) | 526 | 513 |
| Other | 157 | 159 |
| Income before capital gains | 1,006 | 1,157 |
| Trading – capital gains | 105 | 938 |
| $1,111 | $2,095 | |
The leasing operations tabulated are XTRA, which rents trailers, and CORT, which rents furniture. Utilization of trailers was down considerably in 2007 and that led to a drop in earnings at XTRA. That company also borrowed \$400 million last year and distributed the proceeds to Berkshire. The resulting higher interest it is now paying further reduced XTRA's earnings.
Clayton, XTRA and CORT are all good businesses, very ably run by Kevin Clayton, Bill Franz and Paul Arnold. Each has made tuck-in acquisitions during Berkshire's ownership. More will come.
Investments
We show below our common stock investments at yearend, itemizing those with a market value of at least \$600 million.
| Shares | Company | Percentage of Company Owned | 12/31/07 | |
| Cost* | Market (in millions) | |||
| 151,610,700 | American Express Company | 13.1 | $ 1,287 | $ 7,887 |
| 35,563,200 | Anheuser-Busch Companies, Inc | 4.8 | 1,718 | 1,861 |
| 60,828,818 | Burlington Northern Santa Fe | 17.5 | 4,731 | 5,063 |
| 200,000,000 | The Coca-Cola Company | 8.6 | 1,299 | 12,274 |
| 17,508,700 | Conoco Phillips | 1.1 | 1,039 | 1,546 |
| 64,271,948 | Johnson & Johnson | 2.2 | 3,943 | 4,287 |
| 124,393,800 | Kraft Foods Inc | 8.1 | 4,152 | 4,059 |
| 48,000,000 | Moody’s Corporation | 19.1 | 499 | 1,714 |
| 3,486,006 | POSCO | 4.5 | 572 | 2,136 |
| 101,472,000 | The Procter & Gamble Company | 3.3 | 1,030 | 7,450 |
| 17,170,953 | Sanofi-Aventis | 1.3 | 1,466 | 1,575 |
| 227,307,000 | Tesco plc | 2.9 | 1,326 | 2,156 |
| 75,176,026 | U.S. Bancorp | 4.4 | 2,417 | 2,386 |
| 17,072,192 | USG Corp | 17.2 | 536 | 611 |
| 19,944,300 | Wal-Mart Stores, Inc. | 0.5 | 942 | 948 |
| 1,727,765 | The Washington Post Company | 18.2 | 11 | 1,367 |
| 303,407,068 | Wells Fargo & Company | 9.2 | 6,677 | 9,160 |
| 1,724,200 | White Mountains Insurance Group Ltd. | 16.3 | 369 | 886 |
| Others | 5,238 | 7,633 | ||
| Total Common Stocks | $39,252 | $74,999 | ||
*This is our actual purchase price and also our tax basis; GAAP “cost” differs in a few cases because of write-ups or write-downs that have been required.
Overall, we are delighted by the business performance of our investees. In 2007, American Express, Coca-Cola and Procter & Gamble, three of our four largest holdings, increased per-share earnings by 12%, 14% and 14%. The fourth, Wells Fargo, had a small decline in earnings because of the popping of the real estate bubble. Nevertheless, I believe its intrinsic value increased, even if only by a minor amount.
In the strange world department, note that American Express and Wells Fargo were both organized by Henry Wells and William Fargo, Amex in 1850 and Wells in 1852. P&G and Coke began business in 1837 and 1886 respectively. Start-ups are not our game.
I should emphasize that we do not measure the progress of our investments by what their market prices do during any given year. Rather, we evaluate their performance by the two methods we apply to the businesses we own. The first test is improvement in earnings, with our making due allowance for industry conditions. The second test, more subjective, is whether their “moats” – a metaphor for the superiorities they possess that make life difficult for their competitors – have widened during the year. All of the “big four” scored positively on that test.
We made one large sale last year. In 2002 and 2003 Berkshire bought 1.3% of PetroChina for \$488 million, a price that valued the entire business at about \$37 billion. Charlie and I then felt that the company was worth about \$100 billion. By 2007, two factors had materially increased its value: the price of oil had climbed significantly, and PetroChina's management had done a great job in building oil and gas reserves. In the second half of last year, the market value of the company rose to \$275 billion, about what we thought it was worth compared to other giant oil companies. So we sold our holdings for \$4 billion.
A footnote: We paid the IRS tax of \$1.2 billion on our PetroChina gain. This sum paid all costs of the U.S. government – defense, social security, you name it – for about four hours.
* * * * * * * * * * * *
Last year I told you that Berkshire had 62 derivative contracts that I manage. (We also have a few left in the General Re runoff book.) Today, we have 94 of these, and they fall into two categories.
First, we have written 54 contracts that require us to make payments if certain bonds that are included in various high-yield indices default. These contracts expire at various times from 2009 to 2013. At yearend we had received \$3.2 billion in premiums on these contracts; had paid \$472 million in losses; and in the worst case (though it is extremely unlikely to occur) could be required to pay an additional \$4.7 billion.
We are certain to make many more payments. But I believe that on premium revenues alone, these contracts will prove profitable, leaving aside what we can earn on the large sums we hold. Our yearend liability for this exposure was recorded at \$1.8 billion and is included in “Derivative Contract Liabilities” on our balance sheet.
The second category of contracts involves various put options we have sold on four stock indices (the S&P 500 plus three foreign indices). These puts had original terms of either 15 or 20 years and were struck at the market. We have received premiums of \$4.5 billion, and we recorded a liability at yearend of \$4.6 billion. The puts in these contracts are exercisable only at their expiration dates, which occur between 2019 and 2027, and Berkshire will then need to make a payment only if the index in question is quoted at a level below that existing on the day that the put was written. Again, I believe these contracts, in aggregate, will be profitable and that we will, in addition, receive substantial income from our investment of the premiums we hold during the 15- or 20-year period.
Two aspects of our derivative contracts are particularly important. First, in all cases we hold the money, which means that we have no counterparty risk.
Second, accounting rules for our derivative contracts differ from those applying to our investment portfolio. In that portfolio, changes in value are applied to the net worth shown on Berkshire's balance sheet, but do not affect earnings unless we sell (or write down) a holding. Changes in the value of a derivative contract, however, must be applied each quarter to earnings.
Thus, our derivative positions will sometimes cause large swings in reported earnings, even though Charlie and I might believe the intrinsic value of these positions has changed little. He and I will not be bothered by these swings – even though they could easily amount to \$1 billion or more in a quarter – and we hope you won’t be either. You will recall that in our catastrophe insurance business, we are always ready to trade increased volatility in reported earnings in the short run for greater gains in net worth in the long run. That is our philosophy in derivatives as well.
* * * * * * * * * * * *
The U.S. dollar weakened further in 2007 against major currencies, and it's no mystery why: Americans like buying products made elsewhere more than the rest of the world likes buying products made in the U.S. Inevitably, that causes America to ship about \$2 billion of IOUs and assets daily to the rest of the world. And over time, that puts pressure on the dollar.
When the dollar falls, it both makes our products cheaper for foreigners to buy and their products more expensive for U.S. citizens. That’s why a falling currency is supposed to cure a trade deficit. Indeed, the U.S. deficit has undoubtedly been tempered by the large drop in the dollar. But ponder this: In 2002 when the Euro averaged 94.6¢, our trade deficit with Germany (the fifth largest of our trading partners) was \$36 billion, whereas in 2007, with the Euro averaging \$1.37, our deficit with Germany was up to \$45 billion. Similarly, the Canadian dollar averaged 64¢ in 2002 and 93¢ in 2007. Yet our trade deficit with Canada rose as well, from \$50 billion in 2002 to \$64 billion in 2007. So far, at least, a plunging dollar has not done much to bring our trade activity into balance.
There's been much talk recently of sovereign wealth funds and how they are buying large pieces of American businesses. This is our doing, not some nefarious plot by foreign governments. Our trade equation guarantees massive foreign investment in the U.S. When we force-feed \$2 billion daily to the rest of the world, they must invest in something here. Why should we complain when they choose stocks over bonds?
Our country's weakening currency is not the fault of OPEC, China, etc. Other developed countries rely on imported oil and compete against Chinese imports just as we do. In developing a sensible trade policy, the U.S. should not single out countries to punish or industries to protect. Nor should we take actions likely to evoke retaliatory behavior that will reduce America's exports, true trade that benefits both our country and the rest of the world.
Our legislators should recognize, however, that the current imbalances are unsustainable and should therefore adopt policies that will materially reduce them sooner rather than later. Otherwise our \$2 billion daily of force-fed dollars to the rest of the world may produce global indigestion of an unpleasant sort. (For other comments about the unsustainability of our trade deficits, see Alan Greenspan's comments on November 19, 2004, the Federal Open Market Committee's minutes of June 29, 2004, and Ben Bernanke's statement on September 11, 2007.)
* * * * * * * * * * * *
At Berkshire we held only one direct currency position during 2007. That was in – hold your breath – the Brazilian real. Not long ago, swapping dollars for reals would have been unthinkable. After all, during the past century five versions of Brazilian currency have, in effect, turned into confetti. As has been true in many countries whose currencies have periodically withered and died, wealthy Brazilians sometimes stashed large sums in the U.S. to preserve their wealth.
But any Brazilian who followed this apparently prudent course would have lost half his net worth over the past five years. Here's the year-by-year record (indexed) of the real versus the dollar from the end of 2002 to yearend 2007: 100; 122; 133; 152; 166; 199. Every year the real went up and the dollar fell. Moreover, during much of this period the Brazilian government was actually holding down the value of the real and supporting our currency by buying dollars in the market.
Our direct currency positions have yielded \$2.3 billion of pre-tax profits over the past five years, and in addition we have profited by holding bonds of U.S. companies that are denominated in other currencies. For example, in 2001 and 2002 we purchased €310 million Amazon.com, Inc. 6 7/8 of 2010 at 57% of par. At the time, Amazon bonds were priced as “junk” credits, though they were anything but. (Yes, Virginia, you can occasionally find markets that are ridiculously inefficient – or at least you can find them anywhere except at the finance departments of some leading business schools.)
The Euro denomination of the Amazon bonds was a further, and important, attraction for us. The Euro was at 95¢ when we bought in 2002. Therefore, our cost in dollars came to only \$169 million. Now the bonds sell at 102% of par and the Euro is worth \$1.47. In 2005 and 2006 some of our bonds were called and we received \$253 million for them. Our remaining bonds were valued at \$162 million at yearend. Of our \$246 million of realized and unrealized gain, about \$118 million is attributable to the fall in the dollar. Currencies do matter.
At Berkshire, we will attempt to further increase our stream of direct and indirect foreign earnings. Even if we are successful, however, our assets and earnings will always be concentrated in the U.S. Despite our country's many imperfections and unrelenting problems of one sort or another, America's rule of law, market-responsive economic system, and belief in meritocracy are almost certain to produce ever-growing prosperity for its citizens.
* * * * * * * * * * * *
As I have told you before, we have for some time been well-prepared for CEO succession because we have three outstanding internal candidates. The board knows exactly whom it would pick if I were to become unavailable, either because of death or diminishing abilities. And that would still leave the board with two backups.
Last year I told you that we would also promptly complete a succession plan for the investment job at Berkshire, and we have indeed now identified four candidates who could succeed me in managing investments. All manage substantial sums currently, and all have indicated a strong interest in coming to Berkshire if called. The board knows the strengths of the four and would expect to hire one or more if the need arises. The candidates are young to middle-aged, well-to-do to rich, and all wish to work for Berkshire for reasons that go beyond compensation.
(I've reluctantly discarded the notion of my continuing to manage the portfolio after my death – abandoning my hope to give new meaning to the term “thinking outside the box.”)
Fanciful Figures – How Public Companies Juice Earnings
Former Senator Alan Simpson famously said: “Those who travel the high road in Washington need not fear heavy traffic.” If he had sought truly deserted streets, however, the Senator should have looked to Corporate America’s accounting.
An important referendum on which road businesses prefer occurred in 1994. America's CEOs had just strong-armed the U.S. Senate into ordering the Financial Accounting Standards Board to shut up, by a vote that was 88-9. Before that rebuke the FASB had shown the audacity – by unanimous agreement, no less – to tell corporate chieftains that the stock options they were being awarded represented a form of compensation and that their value should be recorded as an expense.
After the senators voted, the FASB – now educated on accounting principles by the Senate’s 88 closet CPAs – decreed that companies could choose between two methods of reporting on options. The preferred treatment would be to expense their value, but it would also be allowable for companies to ignore the expense as long as their options were issued at market value.
A moment of truth had now arrived for America's CEOs, and their reaction was not a pretty sight. During the next six years, exactly two of the 500 companies in the S&P chose the preferred route. CEOs of the rest opted for the low road, thereby ignoring a large and obvious expense in order to report higher “earnings.” I’m sure some of them also felt that if they opted for expensing, their directors might in future years think twice before approving the mega-grants the managers longed for.
It turned out that for many CEOs even the low road wasn't good enough. Under the weakened rule, there remained earnings consequences if options were issued with a strike price below market value. No problem. To avoid that bothersome rule, a number of companies surreptitiously backdated options to falsely indicate that they were granted at current market prices, when in fact they were dished out at prices well below market.
Decades of option-accounting nonsense have now been put to rest, but other accounting choices remain – important among these the investment-return assumption a company uses in calculating pension expense. It will come as no surprise that many companies continue to choose an assumption that allows them to report less-than-solid “earnings.” For the 363 companies in the S&P that have pension plans, this assumption in 2006 averaged 8%. Let’s look at the chances of that being achieved.
The average holdings of bonds and cash for all pension funds is about 28%, and on these assets returns can be expected to be no more than 5%. Higher yields, of course, are obtainable but they carry with them a risk of commensurate (or greater) loss.
This means that the remaining 72% of assets – which are mostly in equities, either held directly or through vehicles such as hedge funds or private-equity investments – must earn 9.2% in order for the fund overall to achieve the postulated 8%. And that return must be delivered after all fees, which are now far higher than they have ever been.
How realistic is this expectation? Let's revisit some data I mentioned two years ago: During the $20^{\text{th}}$ Century, the Dow advanced from 66 to 11,497. This gain, though it appears huge, shrinks to $5.3\%$ when compounded annually. An investor who owned the Dow throughout the century would also have received generous dividends for much of the period, but only about $2\%$ or so in the final years. It was a wonderful century.
Think now about this century. For investors to merely match that 5.3% market-value gain, the Dow – recently below 13,000 – would need to close at about 2,000,000 on December 31, 2099. We are now eight years into this century, and we have racked up less than 2,000 of the 1,988,000 Dow points the market needed to travel in this hundred years to equal the 5.3% of the last.
It's amusing that commentators regularly hyperventilate at the prospect of the Dow crossing an even number of thousands, such as 14,000 or 15,000. If they keep reacting that way, a $5.3\%$ annual gain for the century will mean they experience at least 1,986 seizures during the next 92 years. While anything is possible, does anyone really believe this is the most likely outcome?
Dividends continue to run about 2%. Even if stocks were to average the 5.3% annual appreciation of the 1900s, the equity portion of plan assets – allowing for expenses of .5% – would produce no more than 7% or so. And .5% may well understate costs, given the presence of layers of consultants and high-priced managers (“helpers”).
Naturally, everyone expects to be above average. And those helpers – bless their hearts – will certainly encourage their clients in this belief. But, as a class, the helper-aided group must be below average. The reason is simple: 1) Investors, overall, will necessarily earn an average return, minus costs they incur; 2) Passive and index investors, through their very inactivity, will earn that average minus costs that are very low; 3) With that group earning average returns, so must the remaining group – the active investors. But this group will incur high transaction, management, and advisory costs. Therefore, the active investors will have their returns diminished by a far greater percentage than will their inactive brethren. That means that the passive group – the “know-nothings” – must win.
I should mention that people who expect to earn 10% annually from equities during this century – envisioning that 2% of that will come from dividends and 8% from price appreciation – are implicitly forecasting a level of about 24,000,000 on the Dow by 2100. If your adviser talks to you about double-digit returns from equities, explain this math to him – not that it will faze him. Many helpers are apparently direct descendants of the queen in Alice in Wonderland, who said: “Why, sometimes I’ve believed as many as six impossible things before breakfast.” Beware the glib helper who fills your head with fantasies while he fills his pockets with fees.
Some companies have pension plans in Europe as well as in the U.S. and, in their accounting, almost all assume that the U.S. plans will earn more than the non-U.S. plans. This discrepancy is puzzling: Why should these companies not put their U.S. managers in charge of the non-U.S. pension assets and let them work their magic on these assets as well? I’ve never seen this puzzle explained. But the auditors and actuaries who are charged with vetting the return assumptions seem to have no problem with it.
What is no puzzle, however, is why CEOs opt for a high investment assumption: It lets them report higher earnings. And if they are wrong, as I believe they are, the chickens won't come home to roost until long after they retire.
After decades of pushing the envelope – or worse – in its attempt to report the highest number possible for current earnings, Corporate America should ease up. It should listen to my partner, Charlie: “If you’ve hit three balls out of bounds to the left, aim a little to the right on the next swing.”
* * * * * * * * * * *
Whatever pension-cost surprises are in store for shareholders down the road, these jolts will be surpassed many times over by those experienced by taxpayers. Public pension promises are huge and, in many cases, funding is woefully inadequate. Because the fuse on this time bomb is long, politicians flinch from inflicting tax pain, given that problems will only become apparent long after these officials have departed. Promises involving very early retirement – sometimes to those in their low 40s – and generous cost-of-living adjustments are easy for these officials to make. In a world where people are living longer and inflation is certain, those promises will be anything but easy to keep.
* * * * * * * * * * *
Having laid out the failures of an “honor system” in American accounting, I need to point out that this is exactly the system existing at Berkshire for a truly huge balance-sheet item. In every report we make to you, we must guessimate the loss reserves for our insurance units. If our estimate is wrong, it means that both our balance sheet and our earnings statement will be wrong. So naturally we do our best to make these guesses accurate. Nevertheless, in every report our estimate is sure to be wrong.
At yearend 2007, we show an insurance liability of \$56 billion that represents our guess as to what we will eventually pay for all loss events that occurred before yearend (except for about \$3 billion of the reserve that has been discounted to present value). We know of many thousands of events and have put a dollar value on each that reflects what we believe we will pay, including the associated costs (such as attorney’s fees) that we will incur in the payment process. In some cases, among them claims for certain serious injuries covered by worker’s compensation, payments will be made for 50 years or more.
We also include a large reserve for losses that occurred before yearend but that we have yet to hear about. Sometimes, the insured itself does not know that a loss has occurred. (Think of an embezzlement that remains undiscovered for years.) We sometimes hear about losses from policies that covered our insured many decades ago.
A story I told you some years back illustrates our problem in accurately estimating our loss liability: A fellow was on an important business trip in Europe when his sister called to tell him that their dad had died. Her brother explained that he couldn't get back but said to spare nothing on the funeral, whose cost he would cover. When he returned, his sister told him that the service had been beautiful and presented him with bills totaling \$8,000. He paid up but a month later received a bill from the mortuary for \$10. He paid that, too – and still another \$10 charge he received a month later. When a third \$10 invoice was sent to him the following month, the perplexed man called his sister to ask what was going on. “Oh,” she replied, “I forgot to tell you. We buried Dad in a rented suit.”
At our insurance companies we have an unknown, but most certainly large, number of “rented suits” buried around the world. We try to estimate the bill for them accurately. In ten or twenty years, we will even be able to make a good guess as to how inaccurate our present guess is. But even that guess will be subject to surprises. I personally believe our stated reserves are adequate, but I’ve been wrong several times in the past.
The Annual Meeting
Our meeting this year will be held on Saturday, May $3^{\text{rd}}$ . As always, the doors will open at the Qwest Center at 7 a.m., and a new Berkshire movie will be shown at 8:30. At 9:30 we will go directly to the question-and-answer period, which (with a break for lunch at the Qwest's stands) will last until 3:00. Then, after a short recess, Charlie and I will convene the annual meeting at 3:15. If you decide to leave during the day's question periods, please do so while Charlie is talking.
The best reason to exit, of course is to shop. We will help you do that by filling the 194,300-square-foot hall that adjoins the meeting area with the products of Berkshire subsidiaries. Last year, the 27,000 people who came to the meeting did their part, and almost every location racked up record sales. But you can do better. (If necessary, I'll lock the doors.)
This year we will again showcase a Clayton home (featuring Acme brick, Shaw carpet, Johns Manville insulation, MiTek fasteners, Carefree awnings and NFM furniture). You will find that this 1,550-square-foot home, priced at \$69,500, delivers exceptional value. And after you purchase the house, consider also acquiring the Forest River RV and pontoon boat on display nearby.
GEICO will have a booth staffed by a number of its top counselors from around the country, all of them ready to supply you with auto insurance quotes. In most cases, GEICO will be able to give you a special shareholder discount (usually 8%). This special offer is permitted by 45 of the 50 jurisdictions in which we operate. (One supplemental point: The discount is not additive if you qualify for another, such as that given certain groups.) Bring the details of your existing insurance and check out whether we can save you money. For at least 50% of you, I believe we can.
On Saturday, at the Omaha airport, we will have the usual array of aircraft from NetJets available for your inspection. Stop by the NetJets booth at the Qwest to learn about viewing these planes. Come to Omaha by bus; leave in your new plane. And take all the hair gel and scissors that you wish on board with you.
Next, if you have any money left, visit the Bookworm, where you will find about 25 books and DVDs – all discounted – led again by Poor Charlie’s Almanack. Without any advertising or bookstore placement, Charlie’s book has now remarkably sold nearly 50,000 copies. For those of you who can’t make the meeting, go to poorcharliesalmanack.com to order a copy.
An attachment to the proxy material that is enclosed with this report explains how you can obtain the credential you will need for admission to the meeting and other events. As for plane, hotel and car reservations, we have again signed up American Express (800-799-6634) to give you special help. Carol Pedersen, who handles these matters, does a terrific job for us each year, and I thank her for it. Hotel rooms can be hard to find, but work with Carol and you will get one.
At Nebraska Furniture Mart, located on a 77-acre site on 72 $^{nd}$ Street between Dodge and Pacific, we will again be having “Berkshire Weekend” discount pricing. We initiated this special event at NFM eleven years ago, and sales during the “Weekend” grew from 5.3 million in 1997 to 30.9 million in 2007. This is more volume than most furniture stores register in a year.
To obtain the Berkshire discount, you must make your purchases between Thursday, May $1^{\text{st}}$ and Monday, May $5^{\text{th}}$ inclusive, and also present your meeting credential. The period's special pricing will even apply to the products of several prestigious manufacturers that normally have ironclad rules against discounting but which, in the spirit of our shareholder weekend, have made an exception for you. We appreciate their cooperation. NFM is open from 10 a.m. to 9 p.m. Monday through Saturday, and 10 a.m. to 6 p.m. on Sunday. On Saturday this year, from 5:30 p.m. to 8 p.m., NFM is having a Baja Beach Bash featuring beef and chicken tacos.
At Borsheims, we will again have two shareholder-only events. The first will be a cocktail reception from 6 p.m. to 10 p.m. on Friday, May 2 $^{nd}$ . The second, the main gala, will be held on Sunday, May 4 $^{th}$ , from 9 a.m. to 4 p.m. On Saturday, we will be open until 6 p.m.
We will have huge crowds at Borsheims throughout the weekend. For your convenience, therefore, shareholder prices will be available from Monday, April 28 $^{th}$ through Saturday, May 10 $^{th}$ . During that period, please identify yourself as a shareholder by presenting your meeting credentials or a brokerage statement that shows you are a Berkshire holder.
On Sunday, in a tent outside of Borsheims, a blindfolded Patrick Wolff, twice U.S. chess champion, will take on all comers – who will have their eyes wide open – in groups of six. Nearby, Norman Beck, a remarkable magician from Dallas, will bewilder onlookers. Additionally, we will have Bob Hamman and Sharon Osberg, two of the world’s top bridge experts, available to play bridge with our shareholders on Sunday afternoon.
Gorat's will again be open exclusively for Berkshire shareholders on Sunday, May $4^{\text{th}}$ , and will be serving from 4 p.m. until 10 p.m. Last year Gorat's, which seats 240, served 915 dinners on Shareholder Sunday. The three-day total was 2,487 including 656 T-bone steaks, the entrée preferred by the cognoscenti. Please remember that to come to Gorat's on that day, you must have a reservation. To make one, call 402-551-3733 on April $1^{\text{st}}$ (but not before).
We will again have a reception at 4 p.m. on Saturday afternoon for shareholders who have come from outside of North America. Every year our meeting draws many people from around the globe, and Charlie and I want to be sure we personally greet those who have come so far. Last year we enjoyed meeting more than 400 of you from many dozens of countries. Any shareholder who comes from other than the U.S. or Canada will be given a special credential and instructions for attending this function.
* * * * * * * * * * * *
At 84 and 77, Charlie and I remain lucky beyond our dreams. We were born in America; had terrific parents who saw that we got good educations; have enjoyed wonderful families and great health; and came equipped with a “business” gene that allows us to prosper in a manner hugely disproportionate to that experienced by many people who contribute as much or more to our society’s well-being. Moreover, we have long had jobs that we love, in which we are helped in countless ways by talented and cheerful associates. Every day is exciting to us; no wonder we tap-dance to work. But nothing is more fun for us than getting together with our shareholder-partners at Berkshire’s annual meeting. So join us on May 3 $^{rd}$ at the Qwest for our annual Woodstock for Capitalists. We’ll see you there.
February 2008
Warren E. Buffett
Chairman of the Board
伯克希尔公司业绩 vs. 标普500指数
| 年份 | 年度百分比变化 | 相对业绩 (1)-(2) | ||
| 伯克希尔每股账面价值变化(1) | 标普500含股息指数变化(2) | |||
| 1965 | ...... | 23.8 | 10.0 | 13.8 |
| 1966 | ...... | 20.3 | (11.7) | 32.0 |
| 1967 | ...... | 11.0 | 30.9 | (19.9) |
| 1968 | ...... | 19.0 | 11.0 | 8.0 |
| 1969 | ...... | 16.2 | (8.4) | 24.6 |
| 1970 | ...... | 12.0 | 3.9 | 8.1 |
| 1971 | ...... | 16.4 | 14.6 | 1.8 |
| 1972 | ...... | 21.7 | 18.9 | 2.8 |
| 1973 | ...... | 4.7 | (14.8) | 19.5 |
| 1974 | ...... | 5.5 | (26.4) | 31.9 |
| 1975 | ...... | 21.9 | 37.2 | (15.3) |
| 1976 | ...... | 59.3 | 23.6 | 35.7 |
| 1977 | ...... | 31.9 | (7.4) | 39.3 |
| 1978 | ...... | 24.0 | 6.4 | 17.6 |
| 1979 | ...... | 35.7 | 18.2 | 17.5 |
| 1980 | ...... | 19.3 | 32.3 | (13.0) |
| 1981 | ...... | 31.4 | (5.0) | 36.4 |
| 1982 | ...... | 40.0 | 21.4 | 18.6 |
| 1983 | ...... | 32.3 | 22.4 | 9.9 |
| 1984 | ...... | 13.6 | 6.1 | 7.5 |
| 1985 | ...... | 48.2 | 31.6 | 16.6 |
| 1986 | ...... | 26.1 | 18.6 | 7.5 |
| 1987 | ...... | 19.5 | 5.1 | 14.4 |
| 1988 | ...... | 20.1 | 16.6 | 3.5 |
| 1989 | ...... | 44.4 | 31.7 | 12.7 |
| 1990 | ...... | 7.4 | (3.1) | 10.5 |
| 1991 | ...... | 39.6 | 30.5 | 9.1 |
| 1992 | ...... | 20.3 | 7.6 | 12.7 |
| 1993 | ...... | 14.3 | 10.1 | 4.2 |
| 1994 | ...... | 13.9 | 1.3 | 12.6 |
| 1995 | ...... | 43.1 | 37.6 | 5.5 |
| 1996 | ...... | 31.8 | 23.0 | 8.8 |
| 1997 | ...... | 34.1 | 33.4 | .7 |
| 1998 | ...... | 48.3 | 28.6 | 19.7 |
| 1999 | ...... | .5 | 21.0 | (20.5) |
| 2000 | ...... | 6.5 | (9.1) | 15.6 |
| 2001 | ...... | (6.2) | (11.9) | 5.7 |
| 2002 | ...... | 10.0 | (22.1) | 32.1 |
| 2003 | ...... | 21.0 | 28.7 | (7.7) |
| 2004 | ...... | 10.5 | 10.9 | (.4) |
| 2005 | ...... | 6.4 | 4.9 | 1.5 |
| 2006 | ...... | 18.4 | 15.8 | 2.6 |
| 2007 | ...... | 11.0 | 5.5 | 5.5 |
| 1965-2007年复合年增长率 | 21.1% | 10.3% | 10.8 | |
| 1964-2007年累计涨幅 | 400,863% | 6,840% | ||
注：数据按日历年度统计，但以下例外：1965年和1966年截至9月30日；1967年为截至12月31日的15个月。
自1979年起，会计准则要求保险公司以市价而非之前的成本与市价孰低法来计量其持有的权益证券。在该表中，伯克希尔1978年之前的业绩已按规则变更进行重述。其他方面，结果均按原报告数据计算。
标普500指数为税前数据，而伯克希尔数据为税后。如果像伯克希尔这样的公司仅仅持有标普500指数并计提相应税款，那么在指数正回报的年份，其业绩将落后于标普500；在指数负回报的年份，其业绩将超过标普500。多年累计下来，税负成本会导致整体落后幅度相当大。
伯克希尔·哈撒韦公司
致伯克希尔·哈撒韦公司股东：
2007年我们的净资产增长了123亿美元，使A类股和B类股的每股账面价值均增长了11%。在过去的43年里（即自现任管理层接管以来），账面价值从19美元增至78,008美元，年复合增长率达21.1%。*
总体而言，我们76家运营企业去年表现良好。少数出现问题的企业主要与住房相关，包括我们的砖块、地毯和房地产经纪业务。这些挫折是微小且暂时的。我们在这些业务中的竞争地位依然强劲，而且我们拥有一流的CEO，无论景气好坏，他们都能正确经营。
然而，一些大型金融机构经历了惊人的问题，因为它们采纳了我去年信中描述的那种"弱化贷款操作"。富国银行CEO John Stumpf精辟剖析了许多贷款机构近期的行为："有趣的是，当旧方法似乎运转得挺好时，这个行业却发明了赔钱的新招。"
你可能还记得2003年硅谷的一条汽车贴纸："老天爷，再给一次泡沫吧。"不幸的是，这个愿望很快得到了应验——几乎全体美国人都相信房价会永远上涨。这一信念让借款人的收入和现金权益在贷款机构眼中变得无足轻重，它们大把撒钱，深信HPA——房价升值——能解决一切问题。今天，由于那个错误信念，我们国家正经历广泛的痛苦。随着房价下跌，大量金融愚蠢行为正在暴露。只有退潮时才知道谁在裸泳——而我们正在一些最大金融机构目睹的景象，丑陋不堪。
转到令人高兴的话题，我们可以报告，伯克希尔最新两笔大规模收购——TTI和Iscar——在各自的CEO Paul Andrews和Jacob Harpaz领导下，2007年表现卓越。Iscar是我见过的最令人印象深刻的制造企业，这是我去年就已报告过的观点，而去年秋天我参观了其在韩国的不凡工厂后，更加确认了这一点。
最后，我们的保险业务——伯克希尔的基石——也度过了优秀的一年。部分原因是我们拥有业界最出色的保险管理团队——稍后详述。但2007年我们也很幸运，连续第二年没有重大保险巨灾。
这场派对结束了。可以确定，2008年包括我们在内的保险业利润率将大幅下滑。价格在下降，风险却在无情上升。即使美国连续第三年灾害较轻，行业利润率也可能萎缩约四个百分点。如果狂风呼啸或大地颤抖，结果可能糟糕得多。准备好迎接未来几年保险收益的下降。
业绩基准
伯克希尔的价值来自两大块。第一块是我们的投资：股票、债券和现金等价物。年末，这些投资总计1,410亿美元（不包括我们放在金融或公用事业运营中的部分——那些我们归入第二块价值）。
保险浮存金——我们在保险业务中暂时持有但并不属于我们的资金——为我们的投资提供了590亿美元的资金。只要保险承销盈亏平衡，即我们收取的保费等于我们发生的损失和费用，这笔浮存金就是“免费”的。当然，保险承销波动很大，在盈利和亏损之间反复摇摆。但从我们的整个历史来看，我们一直盈利，而且我预计未来我们将平均实现盈亏平衡或更好的结果。如果做到这一点，我们的投资就可以被视为伯克希尔股东不受约束的价值来源。
伯克希尔的第二块价值来自投资和保险之外的收益。这些收益由我们66家非保险公司贡献，在第76页逐项列出。早年我们专注于投资方面。但在过去二十年里，我们越来越重视非保险业务的收益发展。
下表说明了这一转变。第一张表列出每股投资额，间隔14年。我们排除了少数股东权益对应的部分。
| 年份 | 每股投资额 | 时间段 | 每股投资额年化复合增长率 |
| 1965 | $4 | ||
| 1979 | 577 | 1965-1979 | 42.8% |
| 1993 | 13,961 | 1979-1993 | 25.6% |
| 2007 | 90,343 | 1993-2007 | 14.3% |
在整整42年里，我们的每股投资额年化复合增长率为27.1%。但这一趋势一直在下降，因为我们越来越多地将可用资金用于收购经营性企业。
以下是我们的非保险业务收益增长记录，同样按每股计算，并扣除适用的少数股东权益。
| 年份 | 每股税前利润 | 时间段 | 每股税前利润年化复合增长率 |
| 1965 | $4 | ||
| 1979 | 18 | 1965-1979 | 11.1% |
| 1993 | 212 | 1979-1993 | 19.1% |
| 2007 | 4,093 | 1993-2007 | 23.5% |
在整个期间，年化复合增长率为17.8%，并且随着我们侧重点的转移，增长率在加速。
虽然这些表格可能有助于你了解历史并用于估值，但在预测未来可能性方面它们完全具有误导性。伯克希尔过去的记录无法复制，甚至无法接近。我们的资产和收益基础现在已经过于庞大，未来不可能再获得超大的收益。
我的搭档Charlie Munger和我将继续用我刚才描述的两个标尺来衡量我们的进展，并定期向你们通报结果。虽然我们无法接近复制过去，但我们会尽最大努力确保未来不会令人失望。
* * * * * * * * * * * *
在努力过程中，我们将得到加入伯克希尔的管理者们的大力帮助。这群人在几个方面都不同寻常。首先，他们中的大多数人并没有经济上的工作需要。许多人卖给我们企业时获得了大笔钱，他们之所以继续经营，是因为热爱这份工作，而不是因为需要钱。自然，他们希望获得公平的报酬，但光靠金钱不是他们努力而高效工作的原因。
第二点，与上面相关的是，这些经理人正在做他们余生最想做的事。在几乎所有其他公司，最高层以下的关键经理人都渴望继续向上攀爬。对他们而言，今天管理的子公司或部门只是一个中转站——至少他们希望如此。的确，如果五年后他们还坐在现在的位置上，他们恐怕会觉得自己是个失败者。
反之，我们旗下CEO的记分卡并非看我是否把位子让给他们，而是他们各自企业的长期表现。他们的决策源自一种"今天在此，永远在此"的心态。我认为，我们这种罕见且难以复制的管理架构给了伯克希尔真正的优势。
收购
尽管我们的经理人可能是最优秀的，但我们仍需要规模宏大且明智的收购，才能实现我们期望的经营利润增长。在2007年，直到临近年底，我们在这方面都进展甚微。然后在圣诞节那天，查理和我终于赚到了我们的工资——我们签下了伯克希尔历史上金额最大的现金收购协议。
这笔交易的种子早在1954年就已埋下。那年秋天，我入职新工作仅三个月，就被我的雇主本·格雷厄姆和杰里·纽曼派去参加布鲁克林洛克伍德巧克力的股东会。一个年轻人刚刚控制了这家生产各类可可制品的企业，随后他发起了一项独一无二的要约收购：每股洛克伍德股票换取80磅可可豆。我在1988年年报中曾用一节内容描述过这笔套利交易。我还告诉过你们，杰伊·普利兹克——上面提到的那位年轻人——正是这个税务高效构想的商业天才，这个构想此前所有考虑过收购洛克伍德的其他专家——包括我的老板本和杰里——都没想到。
在那次股东会上，杰伊很友善，给我上了一堂1954年税法课。我离开时对他印象极深。此后，我热切地关注着杰伊的众多商业交易，它们既多且精彩。他宝贵的搭档是他的兄弟鲍勃，鲍勃近50年来一直管理着马蒙集团——普利兹克家族大部分生意的总部。
杰伊于1999年去世，鲍勃于2002年初退休。大约在那个时候，普利兹克家族决定逐步出售或重组其部分资产，其中包括马蒙——一家运营着125项业务、分九个板块管理的公司。马蒙最大的业务是联合油罐车公司，加上一家加拿大同行，共拥有94,000节铁路车厢，租赁给各种货主。这支车队的原始成本为51亿美元。总的来说，马蒙销售额为70亿美元，员工约20,000人。
我们将很快购买马蒙60%的股权，并在六年内收购几乎所有剩余股份。我们的初始支出为45亿美元，后续收购的价格将基于一项与利润挂钩的公式。在我们介入之前，普利兹克家族已从马蒙的现金、投资及某些业务分配中获得了大量收益。
这笔交易是按照杰伊会喜欢的方式完成的。我们仅依据马蒙的财务报表确定了价格，没有聘请顾问，也没有吹毛求疵。我知道这家企业会跟普利兹克家族描述的一模一样，而他们也清楚，无论金融市场如何动荡，我们都会准时交割。在过去一年中，许多大额交易被重新谈判或彻底取消。但在普利兹克家族这里，就像在伯克希尔这里一样，一言既出，驷马难追。
马蒙的CEO弗兰克·普塔克与长期同事约翰·尼科尔斯紧密合作。约翰曾是伊利诺伊工具公司的CEO，业绩非常出色，在那里他与弗兰克一起管理混合型工业业务。看看他们在伊利诺伊工具公司的记录吧；你会印象深刻的。
高盛（Goldman Sachs）的Byron Trott——我在2003年的年报中曾对他大加赞赏——促成了Marmon这笔交易。Byron是那种罕见的投资银行家，他能够设身处地为客户着想。查理和我完全信任他。
你会喜欢高盛给这笔交易起的代号。Marmon在1902年进入汽车行业，1933年退出。在此期间，它生产了“黄蜂”牌汽车，该车赢得了1911年举办的首届印第安纳波利斯500大赛。因此，这笔交易被命名为“Indy 500”。
* * * * * * * * * * *
2006年5月，我在西雅图的珠宝连锁店Ben Bridge的一次午餐会上发表了讲话。听众是它的一些供应商，其中包括黄金首饰制造商的所有者Dennis Ulrich。
2007年1月，Dennis打电话给我，建议在伯克希尔的支持下，他可以打造一家大型珠宝供应商。我们很快达成了收购他公司的交易，同时收购了另一家规模相当的供应商。新公司Richline Group随后又进行了两次较小的收购。即便如此，Richline的盈利仍远低于我们通常要求的收购门槛。但我愿意打赌，Dennis——在他的合伙人Dave Meleski的帮助下——将打造一家大型企业，并为其投入的资本赚取良好的回报。
企业——伟大的、良好的和糟糕的
让我们来看看什么样的企业能让我们心动。同时，也谈谈我们希望回避什么样的企业。
查理和我寻找的企业具备：a) 我们能理解的业务；b) 有利的长期经济特征；c) 能干且值得信赖的管理层；以及d) 合理的价格。我们喜欢收购整个企业，或者如果管理层是我们的合作伙伴，至少收购80%。不过，当无法获得高质量的控制类投资时，我们也很乐意通过股市购买优质企业的少量股份。拥有希望之钻（Hope Diamond）的一部分，总比拥有一整颗人造钻石要好。
真正伟大的企业必须拥有持久的“护城河”，以保护其投入资本的出色回报。资本主义的动力机制决定了，竞争对手会不断攻击任何赚取高额回报的企业“城堡”。因此，对于持续成功而言，拥有像低成本生产商（GEICO、Costco）或强大的全球品牌（可口可乐、吉列、美国运通）这样的坚固壁垒至关重要。商业史上充斥着“罗马焰火筒”（Roman Candles）——那些护城河被证明是虚幻、很快就被攻破的企业。
我们对“持久”这一标准，使我们排除了那些处于快速且持续变化行业中的公司。尽管资本主义的“创造性破坏”对社会极为有益，但它却排除了投资的确定性。一条必须不断重建的护城河，最终将根本不是护城河。
此外，这一标准还排除了那些成功依赖于一位优秀管理者的企业。当然，一位出色的CEO对任何企业来说都是一笔巨大的资产，而在伯克希尔，我们拥有大量这样的经理人。他们的能力创造了数十亿美元的价值，如果由普通CEO经营他们的企业，这些价值永远无法实现。
但是，如果一家企业需要一位超级明星才能产生卓越的业绩，那么这家企业本身就不能被视为伟大。由你所在地区顶尖脑外科医生领导的医疗合伙公司，可能会获得超额且不断增长的盈利，但这并不能说明它的未来。当这位外科医生离开时，合伙公司的护城河也就随之消失了。然而，你可以确信梅奥诊所（Mayo Clinic）的护城河能够持久，即使你叫不出它的CEO的名字。
在一个稳定的行业中拥有长期竞争优势，正是我们在企业中所追求的。如果这伴随着快速的有机增长，那固然很好。但即便没有有机增长，这样的企业也大有回报。我们只需将企业丰厚的收益拿来，用于在其他地方收购类似的企业。并没有规定说你必须在赚到钱的地方继续投资。事实上，这样做往往是个错误：那些真正伟大的企业，在有形资产上赚取巨额回报，却无法在长时间内将大部分收益以高回报率进行内部再投资。
我们来看看理想企业的典范——我们自己的喜诗糖果。它所在的盒装巧克力行业并不令人兴奋：美国的人均消费量极低且没有增长。许多曾经重要的品牌已经消失，过去四十年里，只有三家公司赚取了超过象征性利润的收益。事实上，我相信喜诗虽然其大部分收入仅来自少数几个州，却几乎占据了整个行业利润的近一半。
在喜诗，1972年蓝筹印花公司收购该公司时，年销量为1600万磅糖果（当时查理和我控制着蓝筹印花，后来将其并入伯克希尔）。去年喜诗售出3100万磅，年增长率仅为2%。然而，喜诗家族在50年间建立的持久竞争优势，以及随后Chuck Huggins和Brad Kinstler的加强，为伯克希尔带来了非凡的成果。
我们以2500万美元收购喜诗时，其销售额为3000万美元，税前利润不到500万美元。当时经营该业务所需的资本为800万美元（每年还有几个月需要适度的季节性债务）。因此，该公司在投入资本上的税前收益率达到60%。有两个因素帮助最小化了运营所需的资金：第一，产品以现金销售，从而消除了应收账款；第二，生产和分销周期短，从而最小化了库存。
去年，喜诗的销售额为3.83亿美元，税前利润为8200万美元。现在经营该业务所需的资本是4000万美元。这意味着自1972年以来，我们只需再投资3200万美元，就能应对公司适度的物理增长——以及稍显过分的财务增长。在此期间，税前利润总额达到13.5亿美元。除了那3200万美元，所有这些利润都已送往伯克希尔（或在早期送往蓝筹印花）。在缴纳公司所得税后，我们用剩余的钱购买了其他有吸引力的企业。就像亚当和夏娃启动了导致六十亿人口的活动一样，喜诗为我们催生了多条新的现金流。（圣经中“要生养众多”的诫命，在伯克希尔我们认真对待。）
在美国企业中，像喜诗这样的公司并不多见。通常，将利润从500万美元提高到8200万美元的公司，大概需要4亿美元或更多的资本投资来支持其增长。这是因为成长型企业既有与销售增长成比例增加的营运资金需求，也有对固定资产投资的重大需求。
一家需要大量资本投入才能推动增长的公司，很可能仍然是一项令人满意的投资。沿用我们的例子，在4亿美元的有形资产净额上赚取8200万美元的税前利润，并没有什么可羞愧的。但对所有者而言，这个等式与喜诗的情况截然不同。拥有几乎不需要重大资本投入、却能产生源源不断增长收益的现金流，要好得多。问问微软或谷歌吧。
以下是译文：
业绩出色但远非惊艳的企业，一个例子是我们自己的FlightSafety（飞行安全公司）。这家公司为客户提供的价值，不亚于我所知的任何一家企业。它还有一项持久的竞争优势：如果要选飞行培训机构，弃最佳而选其他，就像做手术时选最低价投标。
然而，这项业务若要增长，就需要大量利润再投资。1996年我们收购FlightSafety时，其税前经营利润为1.11亿美元，固定资产净投资为5.7亿美元。自收购以来，折旧费用累计达9.23亿美元。但资本支出累计达16.35亿美元，其中大部分用于模拟器，以匹配不断推出的新机型。（一台模拟器造价可超过1200万美元，我们有273台。）折旧后，我们的固定资产现为10.79亿美元。2007年的税前经营利润为2.7亿美元，比1996年增长了1.59亿美元。这一增长让我们在5.09亿美元的增量投资上获得了良好、但远非喜诗式的回报。
因此，如果仅以经济回报衡量，FlightSafety是一门优秀但不非凡的生意。它那种"投入更多才能赚更多"的经历，正是大多数企业所面临的。例如，我们对受监管公用事业的大规模投资也完全属于这一类。十年后，我们在这一业务上会赚多得多的钱，但也要投入数十亿才能实现。
现在聊点可怕的。最糟糕的生意是那种增长很快、需要大量资本才能催生增长、最终却赚不到什么钱，甚至不赚钱的生意。想想航空公司。自莱特兄弟时代以来，持久的竞争优势在这里始终难以寻觅。确实，如果有个远见的资本家当时就在基蒂霍克现场，他应该把奥维尔（*莱特兄弟之一*）击毙，这才算为他后来的继承者做了件大好事。
自首飞以来，航空业对资本的需求从未停止。投资者把资金投入无底洞，被增长所吸引——而他们本该被增长所排斥。而我，惭愧地说，也参与了这场愚蠢的游戏：1989年让伯克希尔购买了全美航空（U.S. Air）的优先股。我们支票上的墨迹还没干，公司就陷入了螺旋式下滑，很快我们的优先股股息也不再支付了。但后来我们走了大运。在航空业一股反复出现但总是被误导的乐观浪潮中，我们竟然在1998年以可观的盈利卖出了这些股份。在我们卖出后的十年里，这家公司破产了——两次。
总结一下，想象三种"储蓄账户"。卓越的账户支付极高的利率，且利率会随时间逐年上升。良好的账户支付有吸引力的利率，并且新增存款也能赚取同样的利率。最后，糟糕的账户不仅利率低得可怜，还要求你以同样令人失望的回报率不断往里加钱。
* * * * * * * * * * * *
现在到了坦白时间。需要指出的是，没有顾问、董事会或投资银行家怂恿我犯下接下来要描述的错误。用网球的术语说，这些都是非受迫性失误。
首先，我差点搞砸了喜诗的收购。卖家要价3000万美元，而我坚决不高于2500万美元。幸运的是，他让步了。否则我肯定会退缩，那13.5亿美元（*原文\$1.35 billion指1967年收购价与后续利润的对比，此处按语境理解为累计获利*）就会落到别人手里。
大约在收购喜诗糖果的同时，汤姆·墨菲（Tom Murphy）——当时正在经营首都城市广播公司——给我打来电话，提出以3500万美元将达拉斯-沃斯堡的NBC电视台卖给我。这家电视台是首都城市广播公司正在收购的《沃斯堡报》的一部分，根据“交叉持股”规定，墨菲必须剥离它。我知道电视台和喜诗糖果是同一类生意：几乎不需要资本投入，增长前景极佳。经营简单，还能给主人源源不断地送来现金。
此外，墨菲当时和现在一样，都是我的密友，一位我既钦佩其卓越管理能力、又欣赏其为人品质的人。他对电视行业了如指掌，如果不是确信这笔收购稳赚不赔，他绝不会打电话给我。实际上，墨菲等于在我耳边低语“买吧”。但我没听。
2006年，这家电视台的税前利润是7300万美元，从我拒绝那笔交易以来，它的累计总利润至少达到10亿美元——几乎全都可以让所有者拿去干别的事。此外，这家资产现在的资本价值大约8亿美元。我为什么说了“不”？唯一的解释是：我的大脑度假去了，忘了通知我。（我的行为就像莫莉·艾文斯[molly Ivins]曾经描述过的一位政客：“要是他的智商再低一点，你就得一天给他浇两次水。”）
最后，我在说“是”的时候犯了一个更严重的错误——1993年我用伯克希尔的股票（25203股A类股）以4.33亿美元买下了德克斯特鞋业（Dexter）。我当时评估的持久竞争优势，没几年就消失得无影无踪。但这只是开始：由于我使用了伯克希尔股票，我让这个错误成倍放大。这一举动令伯克希尔股东付出的代价不是4亿美元，而是35亿美元。本质上，我等于把一家好公司（如今价值2200亿美元）的1.6%拱手送人，去买了一家一文不值的公司。
到目前为止，德克斯特是我做过的最糟的交易。但未来我还会犯更多错误——这点你可以打赌。鲍比·贝尔（Bobby Bare）的乡村歌曲里有一句歌词，正好说明了收购中经常发生的事情：“我从未和丑女人上床，但醒来时身边确实躺过几个。”
现在，我们来审视伯克希尔的四个主要经营板块。每个板块的资产负债表和损益表特征都截然不同。因此，把它们混在一起会妨碍分析。所以我们把它们作为四家独立的企业来呈现——查理和我就是这么看的。
保险业
这次总统竞选期间我听过的最好段子来自米特·罗姆尼（Mitt Romney），他问妻子安：“我们年轻的时候，你有没有在最疯狂的梦里想过我可能当总统？”她答道：“亲爱的，你连我最疯狂的梦里都没出现过。”
1967年我们第一次涉足财产/意外险业务时，我连最疯狂的梦也没预见到我们现在的经营规模。以下是收购国民 indemnity 公司（National Indemnity）后头五年的业绩：
| 年份 | 承保利润（亏损） | 浮存金 |
| （单位：百万美元） | ||
| 1967 | $0.4 | $18.5 |
| 1968 | 0.6 | 21.3 |
| 1969 | 0.1 | 25.4 |
| 1970 | (0.4) | 39.4 |
| 1971 | 1.4 | 65.6 |
客气点说，我们起步很慢。但后来情况变了。以下是最近五年的记录：
| 年份 | 承保利润（亏损） | 浮存金 |
| （单位：百万美元） | ||
| 2003 | $1,718 | $44,220 |
| 2004 | 1,551 | 46,094 |
| 2005 | 53 | 49,287 |
| 2006 | 3,838 | 50,887 |
| 2007 | 3,374 | 58,698 |
这种蜕变是由一些杰出的经理人完成的。让我们看看他们各自取得了什么成就。
- 盖可保险（GEICO） 是我们在保险领域护城河最宽的公司，其首席执行官托尼·奈斯利（Tony Nicely）精心守护并不断拓宽这道壁垒。去年——又一次——盖可在大型车险公司中保持了最佳增长记录，市场份额升至 7.2%。1995 年伯克希尔取得控股权时，这一份额仅为 2.5%。并非巧合的是，同期盖可的年广告支出从 3,100 万美元增加到 7.51 亿美元。
托尼现年 64 岁，18 岁就加入盖可。此后每一天，他都对公司充满热忱——为它既能帮客户省钱又能为员工提供成长机会而自豪。即使如今销售额已达 120 亿美元，托尼仍觉得盖可才刚刚起步。我也这么认为。
这里有些证据。过去三年，盖可在摩托车险市场的份额从 2.1% 升至 6%。我们还最近开始承保全地形车（ATV）和房车（RV）的保单。11 月，我们签下了第一份商用车险保单。盖可与国民保险公司（National Indemnity）正联手开拓商用车险领域，初步结果令人鼓舞。
即便加起来，这些业务规模仍然只是我们个人车险业务的一小部分。不过，它们应该会带来持续增长的承保利润和浮存金。
- 通用再保险（General Re） 是我们的国际再保险公司，也是我们“自产”浮存金的最大来源——年底达 230 亿美元。如今这项业务对伯克希尔来说是巨大资产。然而，我们的收购之路起步并不平稳。
几十年来，通用再保险一直是再保险界的蒂芙尼，其承保技能和纪律备受推崇。不幸的是，这一声誉最终超越了事实根基——这个缺陷在 1998 年我决定并购通用再保险时完全被我忽略了。1998 年的通用再保险并非 1968 年或 1978 年的通用再保险。
如今，多亏通用再保险的首席执行官乔·布兰登（Joe Brandon）及其搭档泰德·蒙特罗斯（Tad Montross），公司的光彩已得以重现。乔和泰德已经营该业务六年，用 J.P. 摩根的话说，他们一直以一流的方式做一流的生意。他们在承保、准备金计提和客户选择方面恢复了纪律。
他们的工作因美国本土及海外遗留下来的代价高昂且耗时漫长的历史问题而变得更加困难。尽管有这些干扰，乔和泰德还是取得了出色的承保业绩，同时为未来发展巧妙调整了公司定位。
- 阿吉特·杰恩（Ajit Jain） 自 1986 年加入伯克希尔以来，从零开始打造了一家真正杰出的专业再保险业务。如今，全世界遇到独一无二的巨额交易时都会找他。
去年我详细向你们介绍过 Equitas 转移至伯克希尔的大额但设定了上限的负债，一次性保费为 71 亿美元。在如此早期阶段，我们的经验是好的。但这说明不了太多，因为它只是五十年甚至更久大风中的一根稻草。不过我们确知的是，以斯科特·莫泽（Scott Moser）为首的加入我们的伦敦团队是一流的，并且已成为我们保险业务的宝贵资产。
- 最后，我们还有一些规模较小的业务，服务于保险市场的特定细分领域。总体来看，这些公司表现极为出色，获得了高于平均水平的承保利润，并为投资提供了宝贵的浮存金。
去年，由比尔·奥克森（Bill Oakerson）掌舵的 BoatU.S. 加入了这一群体。该公司管理着一个约 65 万船主的协会，为他们提供类似于 AAA 汽车俱乐部为司机提供的服务。该协会的服务之一就是船险。您可以通过在年会上参观其展台来了解更多信息。
下面展示我们财产/意外险四大类别的记录。
| 承销利润 | 年度末浮存金 | |||
| （单位：百万美元） | ||||
| 保险业务 | 2007 | 2006 | 2007 | 2006 |
| 通用再保险...... | $555 | $526 | $23,009 | $22,827 |
| 伯克希尔再保险...... | 1,427 | 1,658 | 23,692 | 16,860 |
| GEICO...... | 1,113 | 1,314 | 7,768 | 7,171 |
| 其他初级保险...... | 279 | 340* | 4,229 | 4,029* |
| $3,374 | $3,838 | $58,698 | $50,887 | |
* 包括自2006年5月19日收购的Applied Underwriters。
受监管的公用事业业务
伯克希尔持有中美能源控股公司（MidAmerican Energy Holdings）87.4%（稀释后）的权益，该公司旗下拥有多种公用事业业务。其中最大的是：(1) 约克夏电力公司（Yorkshire Electricity）和北方电力公司（Northern Electric），其380万电力用户使其成为英国第三大电力分销商；(2) 中美能源公司（MidAmerican Energy），主要服务于爱荷华州的72万电力用户；(3) 太平洋电力公司（Pacific Power）和落基山电力公司（Rocky Mountain Power），服务于西部六个州的约170万电力用户；(4) 克恩河（Kern River）和北方天然气（Northern Natural）管道，输送量约占美国天然气消费量的8%。
我们在中美能源的所有权合作伙伴是Walter Scott，以及两位出色的管理者Dave Sokol和Greg Abel。各方拥有多少投票权并不重要；只有在大家一致认为某项重大举措明智时，我们才会采取行动。与Dave、Greg和Walter共事八年，印证了我最初的信念：伯克希尔不可能有更好的合作伙伴。
有点不协调的是，中美能源还拥有美国第二大房地产经纪公司——美国家居服务公司（HomeServices of America）。该公司通过20个本地品牌运营，拥有18,800名经纪人。去年住宅销售放缓，2008年可能更慢。不过，我们仍会继续在价格合理时收购优质的经纪业务。
以下是中美能源运营的一些关键数据：
| 盈利（单位：百万美元） | ||
| 2007 | 2006 | |
| 英国公用事业 | $337 | $338 |
| 爱荷华州公用事业 | 412 | 348 |
| 西部公用事业（2006年3月21日收购） | 692 | 356 |
| 管道 | 473 | 376 |
| 家居服务 | 42 | 74 |
| 其他（净额） | 130 | 245 |
| 公司利息和税前盈利 | 2,086 | 1,737 |
| 利息（除伯克希尔外） | (312) | (261) |
| 伯克希尔次级债务利息 | (108) | (134) |
| 所得税 | (477) | (426) |
| 净利润 | $1,189 | $916 |
| 归属于伯克希尔的盈利* | $1,114 | $885 |
| 欠其他方的债务 | 19,002 | 16,946 |
| 欠伯克希尔的债务 | 821 | 1,055 |
* 包括伯克希尔赚取的利息（扣除相关所得税）：2007年为7,000万美元，2006年为8,700万美元。
1999年，我们同意以每股35.05美元的价格购买中美能源35,464,337股股票，而当年其每股盈利为2.59美元。为什么是35.05美元这个古怪的数字？我最初认为这项业务对伯克希尔来说每股值35.00美元。我可是个"一口价"的人（还记得喜诗糖果吗？），连续几天，代表中美能源的投资银行家们都没能让我提高伯克希尔的报价。但最终，他们趁我一时心软，让我屈服了，我告诉他们我会出到35.05美元。这样一来，我解释说，他们可以告诉客户，他们从我身上榨出了最后一个五分硬币。当时，这让我很心疼。
后来，在2002年，伯克希尔（Berkshire）以每股60美元的价格购买了6,700,000股，为收购我们的一条管道提供资金。最后，在2006年，当中美能源（MidAmerican）收购太平洋电力（PacifiCorp）时，我们以每股145美元的价格购买了23,268,793股。
2007年，中美能源每股盈利15.78美元。不过，其中有77美分是非经常性收益——由于英国公司税率下调，我们在英国的公用事业公司产生的递延税项减少。因此，正常化收益为每股15.01美元。是的，我很高兴我最后松了口，多给了那5分钱。
制造、服务和零售业务
我们在伯克希尔这一部分的业务涵盖广泛。不过，让我们先来看看整个集团的资产负债表和利润表摘要。
资产负债表（2007年12月31日，单位：百万美元）
| 资产 | 负债及权益 | ||
| 现金及现金等价物 | $2,080 | 应付票据 | $1,278 |
| 应收账款及票据 | 4,488 | 其他流动负债 | 7,652 |
| 存货 | 5,793 | 流动负债合计 | 8,930 |
| 其他流动资产 | 470 | ||
| 流动资产合计 | 12,831 | ||
| 商誉及其他无形资产 | 14,201 | 递延税项 | 828 |
| 固定资产 | 9,605 | 长期债务及其他负债 | 3,079 |
| 其他资产 | 1,685 | 权益 | 25,485 |
| $38,322 | $38,322 |
利润表（单位：百万美元）
| 2007 | 2006 | 2005 | |
| 营业收入 | $59,100 | $52,660 | $46,896 |
| 营业费用（包括折旧：2007年$955，2006年$823，2005年$699） | 55,026 | 49,002 | 44,190 |
| 利息费用 | 127 | 132 | 83 |
| 税前利润 | 3,947* | 3,526* | 2,623* |
| 所得税及少数股东权益 | 1,594 | 1,395 | 977 |
| 净利润 | $2,353 | $2,131 | $1,646 |
*不包括购买会计调整。
这个五花八门的集团，销售从棒棒糖到房车的各类产品，去年实现了令人满意的平均有形净资产回报率23%。同样值得注意的是，这些业务在实现这一回报时仅使用了极少的财务杠杆。显然，我们拥有一些非常出色的企业。然而，其中许多是我们以相对于净资产的大幅溢价收购的——这一点体现在资产负债表上的商誉科目中——这一事实使我们的平均账面价值回报率降至9.8%。
以下是该领域几家公司的值得注意的信息：
- 肖氏地毯（Shaw）、阿克米砖业（Acme Brick）、约翰斯曼维尔（Johns Manville）和迈泰克（MiTek）在2007年都因房地产市场的急剧下滑而受到冲击，其税前利润分别下降了27%、41%、38%和9%。总体而言，这些公司的税前利润为9.41亿美元，而2006年为12.96亿美元。
去年，肖氏地毯、迈泰克和阿克米砖业签订了补强性收购协议，这些收购将有助于未来的利润。你可以肯定，它们还会寻找更多这样的机会。
- 在零售业艰难的一年里，我们的佼佼者是喜诗糖果（See's）、波仙珠宝（Borsheims）和内布拉斯加家具城（Nebraska Furniture Mart）。
两年前，Brad Kinstler被任命为喜诗糖果的首席执行官。在伯克希尔，我们很少将经理人从一个行业调到另一个行业。但我们对Brad破例了，他之前管理过我们的制服公司菲奇海默（Fechheimer）和赛普拉斯保险（Cypress Insurance）。这次调动效果再好不过了。在他任职的两年里，喜诗糖果的利润增长了超过50%。
在波仙珠宝，销售额增长了15.1%，其中股东周末期间增长了27%。两年前，Susan Jacques建议我们改造并扩建门店。我当初持怀疑态度，但事实证明Susan是对的。
苏珊25年前来到波仙珠宝时，只是一名时薪4美元的售货员。尽管她没有管理背景，我毫不犹豫地在1994年让她担任了CEO。她聪明，热爱这份事业，也关爱同事。这比任何MBA学位都管用。
（插一句：查理和我不怎么看重简历。我们看重的是头脑、激情和诚信。我们另一位出色的经理人是Cathy Baron Tamraz，自2006年初我们收购Business Wire以来，她显著提升了公司的盈利。她是所有老板梦寐以求的人才。若有人挡在Cathy和业务机会之间，那绝对危险。值得一提的是，Cathy的职业生涯是从开出租车起步的。）
最后，内布拉斯加家居城再创利润新高，我们在奥马哈和堪萨斯城的门店各自实现了约4亿美元的销售额。毋庸置疑，这两家店是全美家居零售业的两大龙头。在众多家具零售商遭遇惨淡的一年里，堪萨斯城店的销售额增长了8%，奥马哈店增长了6%。
这一成绩要归功于杰出的Blumkin兄弟，Ron和Irv。他们都是我的挚友，也是了不起的商人。
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伊斯卡公司继续高歌猛进。其产品是小型硬质合金切削刀具，能让昂贵的大型机床效率更高。硬质合金的原材料是钨，产自中国。几十年来，伊斯卡将钨运往以色列，在那里，智慧将其转化为价值高得多的产品。2007年底，伊斯卡在中国大连开设了一家大型工厂。实际上，我们现在是把智慧搬到了钨矿旁边。伊斯卡面前孕育着巨大的增长机遇。由Eitan Wertheimer、Jacob Harpaz和Danny Goldman领导的团队，必将牢牢把握这些机遇。
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飞行服务业务在2007年创下纪录，税前利润增长49%，达到5.47亿美元。全球公务航空市场在这一年表现非凡，而我们两家在该领域遥遥领先的公司，都充分分享了这一增长。
飞行安全公司（FlightSafety），我们的飞行员培训业务，收入增长14%，税前利润增长20%。我们估计，我们培训了美国约58%的企业飞行员。公司CEO Bruce Whitman在2003年从Al Ueltschi（高级飞行训练之父）手中接过了这一领导地位，事实证明他是一位当之无愧的继任者。
在耐特杰（NetJets），这家飞机分时所有权模式的发明者，我们依然是无可争议的领导者。我们现在在美国运营487架飞机，在欧洲运营135架，机队规模是我们三大主要竞争对手总和的两倍多。由于我们在大型客舱市场的份额接近90%，按价值计算，我们的领先优势更为巨大。
耐特杰品牌——以其对安全、服务和保障的承诺——每年都变得更加强大。这背后凝聚着一个人——Richard Santulli的激情。如果你想找一个能并肩作战的战友，Rich绝对是最佳人选。无论遇到什么障碍，他绝不会停下脚步。
欧洲市场最能体现Rich的坚韧如何带来成功。头十年，我们在那里几乎没有取得什么财务进展，反而累积了2.12亿美元的亏损。然而，在Rich请来Mark Booth负责欧洲业务后，我们开始步入正轨。如今我们势头正劲，去年利润翻了三倍。
去年11月，我们的董事们在俄亥俄州哥伦布市的耐特杰总部开会，参观了那里的精密运营系统。该系统每天负责约1000架次的飞行，无论天气如何，客户都期待获得顶级服务。董事们离开时，对那里的设施和运营能力印象深刻——但更让他们折服的，是Rich和他的伙伴们。
金融与金融产品
我们在这个类别中的主要业务是克莱顿家园（Clayton Homes），美国最大的预制房屋制造商和销售商。去年，克莱顿的市场份额达到了创纪录的31%。但行业销量仍在萎缩：去年预制房屋销量为96,000套，低于我们收购克莱顿的2003年的131,000套。（当时，应该记得，一些评论人士批评其董事会在周期底部出售。）
尽管克莱顿从制造和零售房屋两方面都赚钱，但其大部分收益来自110亿美元的贷款组合，覆盖30万名借款人。这就是为什么我们把克莱顿的业务归入这个金融板块。尽管2007年房地产金融领域暴露了许多问题，克莱顿的贷款组合表现仍然良好。拖欠、止赎和损失率与我们之前持有期间的水平相近。
克莱顿的贷款组合由伯克希尔提供资金。为此，我们向克莱顿收取比伯克希尔借款成本高一个百分点的费用——去年这笔费用为8500万美元。克莱顿2007年5.26亿美元的税前收益是在支付这笔费用之后计算的。这笔交易的另一面是，伯克希尔将8500万美元记为收入，包含在下表中"其他"项内。
| 税前收益（百万美元） | ||
| 2007 | 2006 | |
| 交易业务——常规收益 | $272 | $274 |
| 人寿和年金业务 | （60） | 29 |
| 租赁业务 | 111 | 182 |
| 预制房屋金融（克莱顿） | 526 | 513 |
| 其他 | 157 | 159 |
| 资本利得前收益 | 1,006 | 1,157 |
| 交易业务——资本利得 | 105 | 938 |
| $1,111 | $2,095 | |
表中列出的租赁业务是XTRA（租赁拖车）和CORT（租赁家具）。2007年拖车利用率大幅下降，导致XTRA收益下滑。该公司去年还借入了4亿美元，并将所得款项分配给伯克希尔。由此产生的更高利息进一步降低了XTRA的收益。
克莱顿、XTRA和CORT都是好生意，由Kevin Clayton、Bill Franz和Paul Arnold非常能干地管理着。在伯克希尔持有期间，每家都进行过补强收购。未来还会有更多。
投资
以下列出我们年末的普通股投资，仅列示市值至少为6亿美元的投资标的。
| 股数 | 公司 | 持股比例 | 2007年12月31日 | |
| 成本* | 市值（单位：百万美元） | |||
| 151,610,700 | American Express Company（美国运通） | 13.1% | $ 1,287 | $ 7,887 |
| 35,563,200 | Anheuser-Busch Companies, Inc（安海斯-布希公司） | 4.8% | 1,718 | 1,861 |
| 60,828,818 | Burlington Northern Santa Fe（北伯林顿铁路公司） | 17.5% | 4,731 | 5,063 |
| 200,000,000 | The Coca-Cola Company（可口可乐公司） | 8.6% | 1,299 | 12,274 |
| 17,508,700 | Conoco Phillips（康菲石油） | 1.1% | 1,039 | 1,546 |
| 64,271,948 | Johnson & Johnson（强生公司） | 2.2% | 3,943 | 4,287 |
| 124,393,800 | Kraft Foods Inc（卡夫食品） | 8.1% | 4,152 | 4,059 |
| 48,000,000 | Moody’s Corporation（穆迪公司） | 19.1% | 499 | 1,714 |
| 3,486,006 | POSCO（浦项制铁） | 4.5% | 572 | 2,136 |
| 101,472,000 | The Procter & Gamble Company（宝洁公司） | 3.3% | 1,030 | 7,450 |
| 17,170,953 | Sanofi-Aventis（赛诺菲-安万特） | 1.3% | 1,466 | 1,575 |
| 227,307,000 | Tesco plc（乐购） | 2.9% | 1,326 | 2,156 |
| 75,176,026 | U.S. Bancorp（美国合众银行） | 4.4% | 2,417 | 2,386 |
| 17,072,192 | USG Corp（USG公司） | 17.2% | 536 | 611 |
| 19,944,300 | Wal-Mart Stores, Inc.（沃尔玛） | 0.5% | 942 | 948 |
| 1,727,765 | The Washington Post Company（华盛顿邮报公司） | 18.2% | 11 | 1,367 |
| 303,407,068 | Wells Fargo & Company（富国银行） | 9.2% | 6,677 | 9,160 |
| 1,724,200 | White Mountains Insurance Group Ltd.（白山保险集团） | 16.3% | 369 | 886 |
| 其他 | 5,238 | 7,633 | ||
| 普通股合计 | $39,252 | $74,999 | ||
*此为我们的实际买入价，也是我们的计税基础；美国通用会计准则下的"成本"在少数情况下因需进行增记或减记而有所不同。
总体而言，我们对被投资公司的经营表现感到满意。2007年，我们前四大持仓中的三家——American Express（美国运通）、Coca-Cola（可口可乐）和Procter & Gamble（宝洁）——每股收益分别增长了12%、14%和14%。第四家富国银行（Wells Fargo）因房地产泡沫破裂导致收益小幅下降。尽管如此，我相信其内在价值仍然有所提升，哪怕只是微幅增长。
在怪事层出不穷的世界里，请注意：American Express（美国运通）和Wells Fargo（富国银行）都是由Henry Wells和William Fargo创立的——美国运通成立于1850年，富国银行成立于1852年。宝洁和可口可乐则分别于1837年和1886年开始营业。初创公司不是我们的菜。
我要强调，我们并不以某一年这些投资的市场价格来衡量其进展。相反，我们采用与评估自有企业相同的两种方法来评价它们的表现。第一个检验标准是盈利能力的提升，同时适当考虑行业环境。第二个检验标准更为主观：它们的"护城河"——即它们所拥有的、让竞争对手日子难过的优势——是否在年内得到了加宽。我们的"四大金刚"在这个检验上都交出了正面答卷。
去年我们完成了一笔大额卖出。2002年和2003年，伯克希尔以4.88亿美元买入了中石油1.3%的股份，按此价格估算，这家公司的总市值约为370亿美元。当时查理和我认为，该公司的合理价值约为1000亿美元。到2007年，有两个因素显著提升了它的价值：油价大幅上涨，以及中石油管理层在油气储备建设方面做得非常出色。去年下半年，该公司的市值升至2750亿美元，大致与我们对其相比于其他大型石油公司的价值判断相符。于是，我们以40亿美元的价格卖出全部持股。
附带说明：我们因中石油的收益向美国国税局缴纳了12亿美元的税款。这笔钱足以支付美国政府——国防、社会保障，凡所应有——大约四个小时的各类开支。
去年我曾向各位提及，伯克希尔持有62份由我管理的衍生品合约。（在通用再保险的遗留投资组合中也还留有一些。）如今，我们共有94份此类合约，分为两类。
第一类，我们签发了54份合约，承诺如果纳入某些高收益指数的特定债券发生违约，我们将进行赔付。这些合约的到期时间各不相同，分布在2009年至2013年之间。截至年底，我们已收到这些合约的保费收入32亿美元；已支付损失4.72亿美元；在最坏的情况下（尽管发生的可能性极小），我们可能还需额外赔付47亿美元。
可以肯定，我们未来还会进行更多赔付。但我相信，仅凭保费收入，这些合约就能实现盈利，这还不算我们持有的大额资金所能带来的收益。截至年底，我们为此风险敞口确认的负债为18亿美元，计入资产负债表中的"衍生品合约负债"项下。
第二类合约涉及我们卖出的、基于四个股票指数（标普500指数以及三个海外指数）的各种看跌期权。这些看跌期权的原始期限为15年或20年，行权价设定为签约时的市场水平。我们已收到45亿美元的保费，截至年底确认的负债为46亿美元。这些合约中的看跌期权只能在到期日行权，到期日分布在2019年至2027年之间，只有当相关指数在到期日当天的报价低于我们签发看跌期权当天的水平时，伯克希尔才需要进行赔付。我再次相信，这些合约总体上会实现盈利，此外，在15年或20年的期限内，我们还能从持有保费的投资中获得可观的收益。
我们的衍生品合约有两个特别重要的方面。首先，在所有情况下，资金都由我们持有，这意味着我们没有交易对手风险。
其次，针对我们衍生品合约的会计规则，与适用于我们投资组合的规则有所不同。在投资组合中，价值变动会反映在伯克希尔资产负债表的所有者权益上，但除非我们卖出（或减记）某项资产，否则不会影响盈利。而衍生品合约的价值变动，则必须每个季度计入盈利。
因此，我们的衍生品头寸有时会导致报告盈利出现大幅波动，即便查理和我认为这些头寸的内在价值几乎没变。这些波动——即使一个季度轻松超过10亿美元——丝毫不会打扰到我和查理，也希望不会打扰到各位。各位可能还记得，在我们的巨灾保险业务中，我们始终愿意用短期报告盈利的更大波动，来换取长期净值的更大增长。在衍生品业务上，这也是我们的理念。
2007年，美元对主要货币进一步走弱，原因并不神秘：美国人喜欢购买别国制造的产品，超过世界其他国家喜欢购买美国制造的产品。这不可避免地导致美国每天向世界其他地区输送约20亿美元的借据和资产。久而久之，美元便承受压力。
当美元下跌时，一方面让外国买我们的产品更便宜，另一方面让美国公民买外国产品更贵。这就是为什么货币贬值理应能治愈贸易逆差。事实上，美元大幅贬值无疑缓和了美国的逆差。但请想一下：2002年，欧元平均兑94.6美分，我们与德国（第五大贸易伙伴）的贸易逆差是360亿美元；而2007年，欧元平均兑1.37美元，我们与德国的逆差却升至450亿美元。类似地，2002年加元平均兑64美分，2007年兑93美分。然而我们与加拿大的贸易逆差同样上升了，从2002年的500亿美元升至2007年的640亿美元。至少到目前为止，美元暴跌并未多大程度地使我们的贸易活动恢复平衡。
最近有很多关于主权财富基金的讨论，说它们如何大举收购美国企业的大块头。这是我们自己造成的，并非外国政府的什么邪恶阴谋。我们的贸易等式必然导致大量外资涌入美国。当我们每天向世界其他地区强行塞进20亿美元时，他们总得在这里投点什么。当他们选择买股票而非债券时，我们凭什么抱怨？
我们国家的货币走弱，责任不在欧佩克、中国等等。其他发达国家同样依赖进口石油，同样要跟中国进口商品竞争。在制定明智的贸易政策时，美国不应单独挑出某些国家来惩罚，或保护某些行业。我们也不应采取可能引发报复性行为的措施，那样只会减少美国的出口——那种对我们国家和世界都有益的真正贸易。
但我们的立法者应该认识到，当前的不平衡是不可持续的，因此应采纳政策，尽早而非拖晚地大幅削减这些逆差。否则，我们每天向世界其他地区强行塞进的20亿美元，可能会引发令人不快的全球消化不良。（关于贸易逆差不可持续性的其他评论，参见Alan Greenspan 2004年11月19日的讲话、联邦公开市场委员会2004年6月29日的会议纪要，以及Ben Bernanke 2007年9月11日的声明。）
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在伯克希尔，2007年我们只持有一个直接的外汇头寸。那就是——先别吃惊——巴西雷亚尔。不久以前，拿美元换雷亚尔还是不可想象的事。毕竟，在过去一个世纪里，巴西的五版货币实际上都变成了纸屑。和许多货币周期性枯萎消亡的国家一样，富裕的巴西人有时会把大笔钱藏在美国以保全财富。
然而，任何采取这种看似谨慎策略的巴西人，过去五年都会损失一半身家。以下是雷亚尔对美元从2002年底到2007年底的逐年（指数化）记录：100；122；133；152；166；199。每年雷亚尔都在涨，美元都在跌。而且在此期间的很多时间里，巴西政府实际上还在压低雷亚尔汇率、通过买入美元来支撑我们的货币。
我们直接持有的外汇头寸在过去五年里带来了23亿美元的税前利润，此外，我们通过持有以其他货币计价的美国公司债券也获得了收益。例如，在2001年和2002年，我们以面值57%的价格购买了3.1亿欧元的亚马逊公司（Amazon.com, Inc.）2010年到期的6 7/8%债券。当时，亚马逊债券被当作"垃圾"债券定价，尽管它们根本不是。（没错，弗吉尼亚，你有时确实能找到荒谬无效的市场——或者说，至少你在任何地方都能找到，除了某些顶级商学院的金融系。）
以欧元计价的亚马逊债券对我们来说是一个额外的、重要的吸引力。我们在2002年买入时，欧元兑美元是0.95美元。因此，我们的美元成本仅为1.69亿美元。现在这些债券以面值的102%交易，欧元价值1.47美元。在2005年和2006年，部分债券被赎回，我们收到了2.53亿美元。在年底，我们剩余的债券价值1.62亿美元。在我们2.46亿美元的已实现和未实现收益中，约有1.18亿美元来自美元贬值。汇率确实很重要。
在伯克希尔，我们将努力进一步增加直接和间接的外汇收益流。不过，即使我们成功了，我们的资产和收益也始终会集中在美国。尽管我们的国家有许多不完美之处和这样那样层出不穷的问题，但美国的法治、市场导向的经济体系以及对精英治理的信念，几乎必然会给其公民带来日益增长的繁荣。
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正如我以前告诉过你们的，我们一段时间以来一直在为CEO继任做好准备，因为我们现在有三位杰出的内部候选人。如果因去世或能力下降而无法履职，董事会非常清楚会选择哪一位。而且即使如此，董事会仍有两位后备人选。
去年我告诉过你们，我们还将很快完成伯克希尔投资岗位的继任计划，现在我们确实已经确定了四位可以接替我管理投资的候选人。他们目前都管理着巨额资金，并且都表示如果被召唤，非常愿意来伯克希尔。董事会了解这四位的长处，并预计在需要时聘请其中一位或多位。这些候选人从青年到中年，从富裕到富有，并且都希望在薪酬之外的动机下为伯克希尔工作。
（我已经不情愿地放弃了死后继续管理投资组合的想法——放弃了我为"跳出框框思考"这个说法赋予新含义的希望。）
异想天开的数字——上市公司如何粉饰利润
前参议员艾伦·辛普森（Alan Simpson）有句名言："在华盛顿走正道的人不用担心车多。"不过，如果参议员想找真正空无一人的街道，他应该看看美国企业的会计。
1994年发生了一场关于企业偏爱哪条路的重要公投。当时美国的CEO们刚刚通过88比9的投票结果，强行迫使美国参议院命令财务会计准则委员会（Financial Accounting Standards Board）闭嘴。在那个斥责之前，FASB 曾胆敢——而且是全体一致同意——告诉企业高层，他们获得的股票期权是一种补偿形式，其价值应当作为费用入账。参议员投票后，FASB——现在被参议院那88位隐形注册会计师（CPAs）就会计原则教育了一番——规定公司可以在两种期权报告方法中选择。首选处理方式是将期权的价值作为费用入账，但只要期权是按市场价值发行的，公司也可以选择忽略这项费用。
美国CEO们的真相时刻到了，而他们的反应可真不好看。接下来的六年里，标普500强中有且仅有两家公司选择了正道。其余CEO都选了低路，为了报告更高的"利润"，他们对一笔巨大且显而易见的费用视而不见。我确信，其中有些人还觉得：要是他们选了将期权费用化的做法，董事们以后在批准他们渴望的巨额期权授予时，可能会再三思量。
事实证明，对很多CEO来说，连低路都不够好。在弱化版的规则下，如果以低于市价的行权价发行期权，仍会对利润产生影响。没问题。为了绕开这条烦人的规则，许多公司偷偷地回溯期权授予日期，虚假地显示这些期权是按当时市价授予的，而实际上它们是以远低于市价的价格发放的。
几十年来期权会计的胡闹现在终于结束了，但其他会计选择依然存在——其中重要的一个，是公司在计算养老金费用时所用的投资收益假设。不出所料，许多公司继续选择一个能让他们报告不那么扎实的"利润"的假设。对标普500中设有养老金计划的363家公司而言，2006年这一假设平均为8%。我们来看看这个假设实现的可能性有多大。
所有养老基金持有的债券和现金平均约为28%，这些资产的回报率预计最高不超过5%。当然，更高的收益率是可以获得的，但伴随而来的是相应（甚至更大）的损失风险。
这意味着剩余的72%资产——主要是股票，要么直接持有，要么通过对冲基金或私募股权投资这类工具持有——必须赚取9.2%的回报率，才能使整个基金达到假设的8%。而且这个回报必须在扣除所有费用后实现，而现在的费用比以往任何时候都高得多。
这个预期有多现实？我们来回顾一下我两年前提到的一些数据：在20世纪，道指从66点涨到了11,497点。这个涨幅看似巨大，但按年复合计算，只有5.3%。一个在整个世纪持有道指的投资者，在大部分时间里还能获得丰厚的股息，但在最后几年股息率只有约2%。这是一个美妙的世纪。
现在来看看本世纪。投资者要想仅仅达到5.3%的市值涨幅，道指——最近在13,000点下方——必须在2099年12月31日收于大约2,000,000点。我们现在已经进入本世纪八年了，而这100年里市场需要走出的1,988,000道指点中，我们才积累了不到2,000点，才能与上一个世纪5.3%的涨幅持平。
有趣的是，评论员们一看到道指突破某个千点整数（比如14,000或15,000）就会激动得喘不过气。如果他们一直这样反应，那么本世纪5.3%的年涨幅将意味着他们在未来92年里至少会发病1,986次。虽然一切皆有可能，但真的有人相信这是最可能出现的结果吗？
股息率目前仍在2%左右。即使股票能保持1900年代5.3%的年增值率，计划资产中的股票部分——扣除0.5%的费用后——也只能产生7%左右的回报。而0.5%很可能低估了成本，因为还有层层叠叠的顾问和高价经理人（"帮手"）。
自然，每个人都期望自己高于平均水平。而那些帮手——真是好心肠——肯定会鼓励客户相信这一点。但作为一个群体，受帮手辅助的那群人必然低于平均水平。原因很简单：1）总体而言，投资者必然获得平均回报，减去他们承担的成本；2）被动投资者和指数投资者，由于其极低的交易频率，将获得接近平均的回报，减去极低的成本；3）既然这个群体获得了平均回报，那么剩下的群体——主动投资者——也必须获得平均回报。但这个群体将承担高昂的交易、管理和咨询成本。因此，主动投资者的回报被削弱的百分比将远高于他们那些不活跃的同胞。这意味着被动群体——那些“无知者”——必然胜出。
我应该指出，那些期望本世纪从股票中每年赚取10%的人——设想其中2%来自股息，8%来自价格增值——实际上是在暗指道指到2100年将达到约24,000,000点。如果你的顾问跟你谈论股票的两位数回报，把这个算术解释给他听——虽然这不会让他动摇。许多帮手显然就是《爱丽丝梦游仙境》中那位皇后的直系后代，她说：“哎呀，有时候我在早餐前就能相信多达六件不可能的事情。”当心那些油嘴滑舌的帮手，他们用幻想填满你的脑袋，同时用费用填满自己的口袋。
有些公司在美国和欧洲都有养老金计划，而且在它们的会计处理中，几乎所有公司都假设美国计划将比非美国计划赚得更多。这种不一致令人费解：为什么这些公司不让它们的美国经理负责管理非美国的养老金资产，让他们也对这些资产施展魔法呢？我从未看到过有人解释这个谜题。但那些负责审查回报假设的审计师和精算师似乎对此毫无异议。
然而，毫不费解的是为什么CEO们会选择高投资假设：这让他们可以报告更高的盈利。如果他们的假设错了——我相信确实如此——那也要等到他们退休很久以后，鸡才会回家歇着。
几十年来，美国企业界为了报告尽可能高的当期盈利，不断挑战极限——甚至更糟——现在该放松一点了。它应该听听我的合伙人Charlie的话：“如果你已经把三个球打到左侧界外，下一次挥杆时就往右瞄一点。”
无论未来股东会遇到怎样的养老金成本意外，这些冲击都会被纳税人所经历的数倍超越。公共养老金承诺数额巨大，而且在许多情况下，资金严重不足。由于这颗定时炸弹的引线很长，政客们不愿施加税收痛苦，因为问题要到这些官员离职很久之后才会显现。涉及极早退休（有时是四十岁出头）以及慷慨的生活成本调整的承诺，对这些官员来说很容易做出。在一个人们寿命更长、通胀确定无疑的世界里，这些承诺绝不容易兑现。
在陈述了美国会计中“信用体系”的失败之后，我需要指出，这恰恰是伯克希尔在一个真正庞大的资产负债表项目上所采用的体系。在我们向你们提交的每一份报告中，我们都必须估测我们保险部门的损失准备金。如果我们的估计有误，那就意味着我们的资产负债表和利润表都会出错。因此，我们自然尽力使这些猜测准确。然而，每份报告中的估计都肯定会有偏差。
截至2007年底，我们列示了560亿美元的保险负债，这是我们估算的、在年底前发生但尚未支付的所有理赔事件（其中约30亿美元的储备已折现至现值）最终需要赔付的金额。我们了解成千上万起理赔事件，并为每一起事件设定了我们认为将支付的美元金额，包括在赔付过程中产生的相关费用（如律师费）。在某些情况下，比如工伤赔偿中涉及的某些严重伤害索赔，赔付将持续50年甚至更久。
我们还为年底前发生但尚未获悉的损失计提了大额储备。有时，被保险人自己都不知道损失已经发生（想想一件多年未被发现的贪污案）。我们有时会从几十年前承保的保单中得知损失。
几年前我跟你们讲过一个故事，说明了我们在准确估算损失负债时面临的问题：有个家伙去欧洲出差，他姐姐打电话告诉他父亲去世了。他说自己赶不回来，但嘱咐葬礼不要省钱，费用由他承担。他回来后，姐姐说葬礼办得很体面，递给他总计8000美元的账单。他付了钱，但一个月后又收到殡仪馆10美元的账单。他也付了——一个月后又收到另一笔10美元的费用。当第三个月再次收到10美元的发票时，他困惑地打电话问姐姐怎么回事。“哦，”她回答说，“我忘了告诉你。我们把爸安葬时租了一套寿衣。”
在我们的保险公司，全球各地埋着数量未知、但肯定很多的“租来的寿衣”。我们努力准确估算账单。十年或二十年后，我们甚至能很好地猜出现在的猜测有多不准确。但即便是那个猜测，也难免会有意外。我个人认为我们列示的准备金是足够的，但我过去也犯过几次错误。
年度股东大会
今年的股东大会将于5月3日（星期六）举行。和往常一样，Qwest中心早上7点开门，8:30放映一部新的伯克希尔影片。9:30我们直接进入问答环节（中间在Qwest的摊位午餐休息），一直持续到下午3:00。短暂休息后，查理和我在3:15召开年度股东大会。如果你决定在当天问答时段离开，请趁查理说话时走。
当然，离开的最好理由是去购物。我们会帮你实现这一点——在紧邻会议区的194,300平方英尺大厅里摆满伯克希尔子公司的产品。去年，参加会议的27,000人各尽其力，几乎每个展位都创下了销售纪录。但你们可以做得更好（如有必要，我会锁门）。
今年我们将再次展示一栋Clayton房屋（采用Acme砖、Shaw地毯、Johns Manville保温材料、MiTek紧固件、Carefree遮阳篷和NFM家具）。你会发现这栋1,550平方英尺、售价69,500美元的房屋物超所值。买下房子后，也考虑一下附近展出的Forest River房车和浮筒船。
GEICO（政府雇员保险公司）将设立一个展位，由来自全国各地的多名顶级顾问提供服务，随时准备为您提供汽车保险报价。在多数情况下，GEICO能够给您提供特别的股东折扣（通常为8%）。这一优惠在我们经营的50个司法管辖区中，有45个允许提供。（补充一点：如果您符合其他折扣条件，例如针对特定群体的折扣，该折扣不可叠加。）带上您现有保险的详细信息，看看我们能否帮您省钱。我相信，对至少50%的股东来说，我们能做到。
周六，在奥马哈机场，我们将照常展示一系列NetJets（奈特捷）飞机供您参观。请到Qwest（奎斯特中心）的NetJets展位了解如何现场参观这些飞机。坐巴士来奥马哈，开自己的新飞机离开。而且，您想随身带多少发胶和剪刀上飞机都行。
接下来，如果您还有闲钱，请光顾Bookworm（书虫书店），那里有大约25种图书和DVD——全部打折——再次以《穷查理宝典》（Poor Charlie's Almanack）为首。没有任何广告宣传或书店上架，查理的书到现在已售出近5万册，相当了不起。如果您无法亲临大会，可访问poorcharliesalmanack.com订购一本。
随本报告附上的股东委托材料中有附件，说明了如何获取参会和其他活动所需的凭证。至于机票、酒店和租车预订，我们再次与美国运通（American Express，电话800-799-6634）签约，为您提供特别协助。处理这些事务的Carol Pedersen每年都做得非常出色，我在此感谢她。酒店房间可能难订，但跟Carol合作，您一定能订到。
内布拉斯加家具城（Nebraska Furniture Mart，简称NFM）位于72 $^{nd}$ 街（Dodge与Pacific之间），占地77英亩。我们将再次举办“伯克希尔周末”折扣特卖活动。我们11年前在NFM首次推出这一特卖，该“周末”期间的销售额从1997年的530万美元增长到2007年的3090万美元。这一销量超过了大多数家具店一年的销售额。
要享受伯克希尔折扣，您必须在5月1日（周四）至5月5日（周一）期间（含首尾两天）购物，并出示您的参会凭证。这一期间的特价甚至适用于一些知名制造商的产品，这些厂商通常有严格的禁止折扣规定，但本着我们的股东周末精神，为您破例。我们感谢他们的合作。NFM周一至周六营业时间为上午10点至晚上9点，周日为上午10点至下午6点。今年周六下午5:30至8:00，NFM将举办“下加州海滩派对”（Baja Beach Bash），提供牛肉和鸡肉玉米卷。
在Borsheims（博希姆珠宝店），我们将再次举办两场股东专属活动。第一场是5月2日（周五）下午6点至10点的鸡尾酒招待会。第二场是主晚会，将于5月4日（周日）上午9点至下午4点举行。周六，我们将营业至下午6点。
整个周末，Borsheims都将人潮涌动。因此，为了方便您，股东价格将从4月28日（周一）持续到5月10日（周六）。在此期间，请出示您的参会凭证或显示您是伯克希尔股东的券商对账单，以证明股东身份。
周日，在Borsheims外的帐篷里，两届美国国际象棋冠军Patrick Wolff将蒙上眼睛，与所有挑战者（睁着眼睛）以六人一组的形式对弈。旁边，来自达拉斯的杰出魔术师Norman Beck将为观众带来眼花缭乱的表演。此外，我们还邀请了两位世界顶尖桥牌专家Bob Hamman和Sharon Osberg，在周日下午与我们的股东一起打桥牌。
Gorat's 将在5月4日（周日）再次独家对伯克希尔股东开放，营业时间为下午4点至晚上10点。去年，这家仅有240个座位的Gorat's在"股东周日"当晚供应了915份晚餐；整个三天周末总计2,487份，其中包括656份丁骨牛排——这可是行家们最爱的选择。请记住，那天想去Gorat's就餐必须提前预约。预约电话请在4月1日（当天，不要提前）拨打402-551-3733。
我们将在周六下午4点再次为来自北美以外的股东举办招待会。每年我们的年会都吸引了全球各地的很多人，我和查理希望确保亲自迎接远道而来的朋友。去年我们很高兴与来自几十个国家的400多位股东见面。任何来自美国或加拿大以外的股东都将获得特别凭证和参加本次活动的指南。
84岁和77岁的我和查理，依然幸运得超乎想象。我们出生在美国；拥有出色的父母，他们确保我们接受了良好的教育；享有美满的家庭和健康的身体；还天生带有一条"商业"基因，让我们以远超许多对社会同样贡献甚至贡献更多的人的方式兴旺发达。此外，我们长期从事自己热爱的工作，身边有才华横溢、乐观开朗的同事给予无数帮助。每一天都令我们兴奋不已——难怪我们总是跳着踢踏舞去上班。但对我们来说，最开心的莫过于在伯克希尔年会上与我们的股东合伙人相聚。所以，5月3日请到Qwest中心参加我们的"资本家伍德斯托克"（Woodstock for Capitalists）。我们到时见。
2008年2月
沃伦·E·巴菲特
董事会主席