• 1999年致股东的信
  • 致伯克希尔·哈撒韦公司股东：
    • • To the Shareholders of Berkshire Hathaway Inc.:
      • 内在价值指引
      • Guides to Intrinsic Value
      • 你从未在其他地方读到过的管理故事
      • A Managerial Story You Will Never Read Elsewhere
      • 财产/意外险的经济学
      • The Economics of Property/Casualty Insurance
      • GEICO（1-800-847-7536 或 GEICO.com）
      • GEICO (1-800-847-7536 or GEICO.com)
      • 航空服务
      • Aviation Services
      • 1999年的收购
      • Acquisitions of 1999
      • 透视收益
      • 投资
      • 股票回购
      • 股东指定捐款
      • 年会

To the Shareholders of Berkshire Hathaway Inc.:

Our gain in net worth during 1999 was $358 million, which increased the per-share book value of both our Class A and Class B stock by 0.5%. Over the last 35 years (that is, since present management took over) per-share book value has grown from $19 to $37,987, a rate of 24.0% compounded annually.*

* All figures used in this report apply to Berkshire’s A shares, the successor to the only stock that the company had outstanding before 1996. The B shares have an economic interest equal to 1/30th that of the A.

The numbers on the facing page show just how poor our 1999 record was. We had the worst absolute performance of my tenure and, compared to the S&P, the worst relative performance as well. Relative results are what concern us: Over time, bad relative numbers will produce unsatisfactory absolute results.

Even Inspector Clouseau could find last year’s guilty party: your Chairman. My performance reminds me of the quarterback whose report card showed four Fs and a D but who nonetheless had an understanding coach. “Son,” he drawled, “I think you’re spending too much time on that one subject.”

My “one subject” is capital allocation, and my grade for 1999 most assuredly is a D. What most hurt us during the year was the inferior performance of Berkshire’s equity portfolio — and responsibility for that portfolio, leaving aside the small piece of it run by Lou Simpson of GEICO, is entirely mine. Several of our largest investees badly lagged the market in 1999 because they’ve had disappointing operating results. We still like these businesses and are content to have major investments in them. But their stumbles damaged our performance last year, and it’s no sure thing that they will quickly regain their stride.

The fallout from our weak results in 1999 was a more-than-commensurate drop in our stock price. In 1998, to go back a bit, the stock outperformed the business. Last year the business did much better than the stock, a divergence that has continued to the date of this letter. Over time, of course, the performance of the stock must roughly match the performance of the business.

Despite our poor showing last year, Charlie Munger, Berkshire’s Vice Chairman and my partner, and I expect that the gain in Berkshire’s intrinsic value over the next decade will modestly exceed the gain from owning the S&P. We can’t guarantee that, of course. But we are willing to back our conviction with our own money. To repeat a fact you’ve heard before, well over 99% of my net worth resides in Berkshire. Neither my wife nor I have ever sold a share of Berkshire and — unless our checks stop clearing — we have no intention of doing so.

Please note that I spoke of hoping to beat the S&P “modestly.” For Berkshire, truly large superiorities over that index are a thing of the past. They existed then because we could buy both businesses and stocks at far more attractive prices than we can now, and also because we then had a much smaller capital base, a situation that allowed us to consider a much wider range of investment opportunities than are available to us today.

Our optimism about Berkshire’s performance is also tempered by the expectation — indeed, in our minds, the virtual certainty — that the S&P will do far less well in the next decade or two than it has done since 1982. A recent article in Fortune expressed my views as to why this is inevitable, and I’m enclosing a copy with this report.

Our goal is to run our present businesses well — a task made easy because of the outstanding managers we have in place — and to acquire additional businesses having economic characteristics and managers comparable to those we already own. We made important progress in this respect during 1999 by acquiring Jordan’s Furniture and contracting to buy a major portion of MidAmerican Energy. We will talk more about these companies later in the report but let me emphasize one point here: We bought both for cash, issuing no Berkshire shares. Deals of that kind aren’t always possible, but that is the method of acquisition that Charlie and I vastly prefer.

Guides to Intrinsic Value

I often talk in these pages about intrinsic value, a key, though far from precise, measurement we utilize in our acquisitions of businesses and common stocks. (For an extensive discussion of this, and other investment and accounting terms and concepts, please refer to our Owner’s Manual on pages 55 - 62. Intrinsic value is discussed on page 60.)

In our last four reports, we have furnished you a table that we regard as useful in estimating Berkshire’s intrinsic value. In the updated version of that table, which follows, we trace two key components of value. The first column lists our per-share ownership of investments (including cash and equivalents but excluding assets held in our financial products operation) and the second column shows our per-share earnings from Berkshire’s operating businesses before taxes and purchase-accounting adjustments (discussed on page 61), but after all interest and corporate expenses. The second column excludes all dividends, interest and capital gains that we realized from the investments presented in the first column. In effect, the columns show how Berkshire would look if it were split into two parts, with one entity holding our investments and the other operating all of our businesses and bearing all corporate costs.

Here are the growth rates of the two segments by decade:

In 1999, our per-share investments changed very little, but our operating earnings, affected by negatives that overwhelmed some strong positives, fell apart. Most of our operating managers deserve a grade of A for delivering fine results and for having widened the difference between the intrinsic value of their businesses and the value at which these are carried on our balance sheet. But, offsetting this, we had a huge — and, I believe, aberrational — underwriting loss at General Re. Additionally, GEICO’s underwriting profit fell, as we had predicted it would. GEICO’s overall performance, though, was terrific, outstripping my ambitious goals.

We do not expect our underwriting earnings to improve in any dramatic way this year. Though GEICO’s intrinsic value should grow by a highly satisfying amount, its underwriting performance is almost certain to weaken. That’s because auto insurers, as a group, will do worse in 2000, and because we will materially increase our marketing expenditures. At General Re, we are raising rates and, if there is no mega-catastrophe in 2000, the company’s underwriting loss should fall considerably. It takes some time, however, for the full effect of rate increases to kick in, and General Re is therefore likely to have another unsatisfactory underwriting year.

You should be aware that one item regularly working to widen the amount by which intrinsic value exceeds book value is the annual charge against income we take for amortization of goodwill — an amount now running about $500 million. This charge reduces the amount of goodwill we show as an asset and likewise the amount that is included in our book value. This is an accounting matter having nothing to do with true economic goodwill, which increases in most years. But even if economic goodwill were to remain constant, the annual amortization charge would persistently widen the gap between intrinsic value and book value.

Though we can’t give you a precise figure for Berkshire’s intrinsic value, or even an approximation, Charlie and I can assure you that it far exceeds our $57.8 billion book value. Businesses such as See’s and Buffalo News are now worth fifteen to twenty times the value at which they are carried on our books. Our goal is to continually widen this spread at all subsidiaries.

A Managerial Story You Will Never Read Elsewhere

Berkshire’s collection of managers is unusual in several important ways. As one example, a very high percentage of these men and women are independently wealthy, having made fortunes in the businesses that they run. They work neither because they need the money nor because they are contractually obligated to — we have no contracts at Berkshire. Rather, they work long and hard because they love their businesses. And I use the word “their” advisedly, since these managers are truly in charge — there are no show-and-tell presentations in Omaha, no budgets to be approved by headquarters, no dictums issued about capital expenditures. We simply ask our managers to run their companies as if these are the sole asset of their families and will remain so for the next century.

Charlie and I try to behave with our managers just as we attempt to behave with Berkshire’s shareholders, treating both groups as we would wish to be treated if our positions were reversed. Though “working” means nothing to me financially, I love doing it at Berkshire for some simple reasons: It gives me a sense of achievement, a freedom to act as I see fit and an opportunity to interact daily with people I like and trust. Why should our managers — accomplished artists at what they do — see things differently?

In their relations with Berkshire, our managers often appear to be hewing to President Kennedy’s charge, “Ask not what your country can do for you; ask what you can do for your country.” Here’s a remarkable story from last year: It’s about R. C. Willey, Utah’s dominant home furnishing business, which Berkshire purchased from Bill Child and his family in 1995. Bill and most of his managers are Mormons, and for this reason R. C. Willey’s stores have never operated on Sunday. This is a difficult way to do business: Sunday is the favorite shopping day for many customers. Bill, nonetheless, stuck to his principles — and while doing so built his business from $250,000 of annual sales in 1954, when he took over, to $342 million in 1999.

Bill felt that R. C. Willey could operate successfully in markets outside of Utah and in 1997 suggested that we open a store in Boise. I was highly skeptical about taking a no-Sunday policy into a new territory where we would be up against entrenched rivals open seven days a week. Nevertheless, this was Bill’s business to run. So, despite my reservations, I told him to follow both his business judgment and his religious convictions.

Bill then insisted on a truly extraordinary proposition: He would personally buy the land and build the store — for about $9 million as it turned out — and would sell it to us at his cost if it proved to be successful. On the other hand, if sales fell short of his expectations, we could exit the business without paying Bill a cent. This outcome, of course, would leave him with a huge investment in an empty building. I told him that I appreciated his offer but felt that if Berkshire was going to get the upside it should also take the downside. Bill said nothing doing: If there was to be failure because of his religious beliefs, he wanted to take the blow personally.

The store opened last August and immediately became a huge success. Bill thereupon turned the property over to us — including some extra land that had appreciated significantly — and we wrote him a check for his cost. And get this: Bill refused to take a dime of interest on the capital he had tied up over the two years.

If a manager has behaved similarly at some other public corporation, I haven’t heard about it. You can understand why the opportunity to partner with people like Bill Child causes me to tap dance to work every morning.

* * * * * * * * * * * *

A footnote: After our “soft” opening in August, we had a grand opening of the Boise store about a month later. Naturally, I went there to cut the ribbon (your Chairman, I wish to emphasize, is good for something). In my talk I told the crowd how sales had far exceeded expectations, making us, by a considerable margin, the largest home furnishings store in Idaho. Then, as the speech progressed, my memory miraculously began to improve. By the end of my talk, it all had come back to me: Opening a store in Boise had been my idea.

The Economics of Property/Casualty Insurance

Our main business — though we have others of great importance — is insurance. To understand Berkshire, therefore, it is necessary that you understand how to evaluate an insurance company. The key determinants are: (1) the amount of float that the business generates; (2) its cost; and (3) most critical of all, the long-term outlook for both of these factors.

To begin with, float is money we hold but don’t own. In an insurance operation, float arises because premiums are received before losses are paid, an interval that sometimes extends over many years. During that time, the insurer invests the money. This pleasant activity typically carries with it a downside: The premiums that an insurer takes in usually do not cover the losses and expenses it eventually must pay. That leaves it running an “underwriting loss,” which is the cost of float. An insurance business has value if its cost of float over time is less than the cost the company would otherwise incur to obtain funds. But the business is a lemon if its cost of float is higher than market rates for money.

A caution is appropriate here: Because loss costs must be estimated, insurers have enormous latitude in figuring their underwriting results, and that makes it very difficult for investors to calculate a company’s true cost of float. Errors of estimation, usually innocent but sometimes not, can be huge. The consequences of these miscalculations flow directly into earnings. An experienced observer can usually detect large-scale errors in reserving, but the general public can typically do no more than accept what’s presented, and at times I have been amazed by the numbers that big-name auditors have implicitly blessed. In 1999 a number of insurers announced reserve adjustments that made a mockery of the “earnings” that investors had relied on earlier when making their buy and sell decisions. At Berkshire, we strive to be conservative and consistent in our reserving. Even so, we warn you that an unpleasant surprise is always possible.

The table that follows shows (at intervals) the float generated by the various segments of Berkshire’s insurance operations since we entered the business 33 years ago upon acquiring National Indemnity Company (whose traditional lines are included in the segment “Other Primary”). For the table we have calculated our float — which we generate in large amounts relative to our premium volume — by adding net loss reserves, loss adjustment reserves, funds held under reinsurance assumed and unearned premium reserves, and then subtracting agents balances, prepaid acquisition costs, prepaid taxes and deferred charges applicable to assumed reinsurance. (Got that?)

Growth of float is important — but its cost is what’s vital. Over the years we have usually recorded only a small underwriting loss — which means our cost of float was correspondingly low — or actually had an underwriting profit, which means we were being paid for holding other people’s money. Indeed, our cumulative result through 1998 was an underwriting profit. In 1999, however, we incurred a $1.4 billion underwriting loss that left us with float cost of 5.8%. One mildly mitigating factor: We enthusiastically welcomed $400 million of the loss because it stems from business that will deliver us exceptional float over the next decade. The balance of the loss, however, was decidedly unwelcome, and our overall result must be judged extremely poor. Absent a mega-catastrophe, we expect float cost to fall in 2000, but any decline will be tempered by our aggressive plans for GEICO, which we will discuss later.

There are a number of people who deserve credit for manufacturing so much “no-cost” float over the years. Foremost is Ajit Jain. It’s simply impossible to overstate Ajit’s value to Berkshire: He has from scratch built an outstanding reinsurance business, which during his tenure has earned an underwriting profit and now holds $6.3 billion of float.

In Ajit, we have an underwriter equipped with the intelligence to properly rate most risks; the realism to forget about those he can’t evaluate; the courage to write huge policies when the premium is appropriate; and the discipline to reject even the smallest risk when the premium is inadequate. It is rare to find a person possessing any one of these talents. For one person to have them all is remarkable.

Since Ajit specializes in super-cat reinsurance, a line in which losses are infrequent but extremely large when they occur, his business is sure to be far more volatile than most insurance operations. To date, we have benefitted from good luck on this volatile book. Even so, Ajit’s achievements are truly extraordinary.

In a smaller but nevertheless important way, our “other primary” insurance operation has also added to Berkshire’s intrinsic value. This collection of insurers has delivered a $192 million underwriting profit over the past five years while supplying us with the float shown in the table. In the insurance world, results like this are uncommon, and for their feat we thank Rod Eldred, Brad Kinstler, John Kizer, Don Towle and Don Wurster.

As I mentioned earlier, the General Re operation had an exceptionally poor underwriting year in 1999 (though investment income left the company well in the black). Our business was extremely underpriced, both domestically and internationally, a condition that is improving but not yet corrected. Over time, however, the company should develop a growing amount of low-cost float. At both General Re and its Cologne subsidiary, incentive compensation plans are now directly tied to the variables of float growth and cost of float, the same variables that determine value for owners.

Even though a reinsurer may have a tightly focused and rational compensation system, it cannot count on every year coming up roses. Reinsurance is a highly volatile business, and neither General Re nor Ajit’s operation is immune to bad pricing behavior in the industry. But General Re has the distribution , the underwriting skills, the culture, and — with Berkshire’s backing — the financial clout to become the world’s most profitable reinsurance company. Getting there will take time, energy and discipline, but we have no doubt that Ron Ferguson and his crew can make it happen.

GEICO (1-800-847-7536 or GEICO.com)

GEICO made exceptional progress in 1999. The reasons are simple: We have a terrific business idea being implemented by an extraordinary manager, Tony Nicely. When Berkshire purchased GEICO at the beginning of 1996, we handed the keys to Tony and asked him to run the operation exactly as if he owned 100% of it. He has done the rest. Take a look at his scorecard:

(1) “Voluntary” only; excludes assigned risks and the like.
(2) Revised to exclude policies moved from one GEICO company to another.

In 1995, GEICO spent $33 million on marketing and had 652 telephone counselors. Last year the company spent $242 million, and the counselor count grew to 2,631. And we are just starting: The pace will step up materially in 2000. Indeed, we would happily commit $1 billion annually to marketing if we knew we could handle the business smoothly and if we expected the last dollar spent to produce new business at an attractive cost.

Currently two trends are affecting acquisition costs. The bad news is that it has become more expensive to develop inquiries. Media rates have risen, and we are also seeing diminishing returns — that is, as both we and our competitors step up advertising, inquiries per ad fall for all of us. These negatives are partly offset, however, by the fact that our closure ratio — the percentage of inquiries converted to sales — has steadily improved. Overall, we believe that our cost of new business, though definitely rising, is well below that of the industry. Of even greater importance, our operating costs for renewal business are the lowest among broad-based national auto insurers. Both of these major competitive advantages are sustainable. Others may copy our model, but they will be unable to replicate our economics.

The table above makes it appear that GEICO’s retention of policyholders is falling, but for two reasons appearances are in this case deceiving. First, in the last few years our business mix has moved away from “preferred” policyholders, for whom industrywide retention rates are high, toward “standard” and “non-standard” policyholders for whom retention rates are much lower. (Despite the nomenclature, the three classes have similar profit prospects.) Second, retention rates for relatively new policyholders are always lower than those for long-time customers — and because of our accelerated growth, our policyholder ranks now include an increased proportion of new customers. Adjusted for these two factors, our retention rate has changed hardly at all.

We told you last year that underwriting margins for both GEICO and the industry would fall in 1999, and they did. We make a similar prediction for 2000. A few years ago margins got too wide, having enjoyed the effects of an unusual and unexpected decrease in the frequency and severity of accidents. The industry responded by reducing rates — but now is having to contend with an increase in loss costs. We would not be surprised to see the margins of auto insurers deteriorate by around three percentage points in 2000.

Two negatives besides worsening frequency and severity will hurt the industry this year. First, rate increases go into effect only slowly, both because of regulatory delay and because insurance contracts must run their course before new rates can be put in. Second, reported earnings of many auto insurers have benefitted in the last few years from reserve releases, made possible because the companies overestimated their loss costs in still-earlier years. This reservoir of redundant reserves has now largely dried up, and future boosts to earnings from this source will be minor at best.

In compensating its associates — from Tony on down — GEICO continues to use two variables, and only two, in determining what bonuses and profit-sharing contributions will be: 1) its percentage growth in policyholders and 2) the earnings of its “seasoned” business, meaning policies that have been with us for more than a year. We did outstandingly well on both fronts during 1999 and therefore made a profit-sharing payment of 28.4% of salary (in total, $113.3 million) to the great majority of our associates. Tony and I love writing those checks.

At Berkshire, we want to have compensation policies that are both easy to understand and in sync with what we wish our associates to accomplish. Writing new business is expensive (and, as mentioned, getting more expensive). If we were to include those costs in our calculation of bonuses — as managements did before our arrival at GEICO — we would be penalizing our associates for garnering new policies, even though these are very much in Berkshire’s interest. So, in effect, we say to our associates that we will foot the bill for new business. Indeed, because percentage growth in policyholders is part of our compensation scheme, we reward our associates for producing this initially-unprofitable business. And then we reward them additionally for holding down costs on our seasoned business.

Despite the extensive advertising we do, our best source of new business is word-of-mouth recommendations from existing policyholders, who on the whole are pleased with our prices and service. An article published last year by Kiplinger’s Personal Finance Magazine gives a good picture of where we stand in customer satisfaction: The magazine’s survey of 20 state insurance departments showed that GEICO’s complaint ratio was well below the ratio for most of its major competitors.

Our strong referral business means that we probably could maintain our policy count by spending as little as $50 million annually on advertising. That’s a guess, of course, and we will never know whether it is accurate because Tony’s foot is going to stay on the advertising pedal (and my foot will be on his). Nevertheless, I want to emphasize that a major percentage of the $300-$350 million we will spend in 2000 on advertising, as well as large additional costs we will incur for sales counselors, communications and facilities, are optional outlays we choose to make so that we can both achieve significant growth and extend and solidify the promise of the GEICO brand in the minds of Americans.

Personally, I think these expenditures are the best investment Berkshire can make. Through its advertising, GEICO is acquiring a direct relationship with a huge number of households that, on average, will send us $1,100 year after year. That makes us — among all companies, selling whatever kind of product — one of the country’s leading direct merchandisers. Also, as we build our long-term relationships with more and more families, cash is pouring in rather than going out (no Internet economics here). Last year, as GEICO increased its customer base by 766,256, it gained $590 million of cash from operating earnings and the increase in float.

In the past three years, we have increased our market share in personal auto insurance from 2.7% to 4.1%. But we rightfully belong in many more households — maybe even yours. Give us a call and find out. About 40% of those people checking our rates find that they can save money by doing business with us. The proportion is not 100% because insurers differ in their underwriting judgments, with some giving more credit than we do to drivers who live in certain geographic areas or work at certain occupations. Our closure rate indicates, however, that we more frequently offer the low price than does any other national carrier selling insurance to all comers. Furthermore, in 40 states we can offer a special discount — usually 8% — to our shareholders. Just be sure to identify yourself as a Berkshire owner so that our sales counselor can make the appropriate adjustment.

* * * * * * * * * * * *

It’s with sadness that I report to you that Lorimer Davidson, GEICO’s former Chairman, died last November, a few days after his 97th birthday. For GEICO, Davy was a business giant who moved the company up to the big leagues. For me, he was a friend, teacher and hero. I have told you of his lifelong kindnesses to me in past reports. Clearly, my life would have developed far differently had he not been a part of it. Tony, Lou Simpson and I visited Davy in August and marveled at his mental alertness — particularly in all matters regarding GEICO. He was the company’s number one supporter right up to the end, and we will forever miss him.

Aviation Services

Our two aviation services companies — FlightSafety International (“FSI”) and Executive Jet Aviation (“EJA”) — are both runaway leaders in their field. EJA, which sells and manages the fractional ownership of jet aircraft, through its NetJets® program, is larger than its next two competitors combined. FSI trains pilots (as well as other transportation professionals) and is five times or so the size of its nearest competitor.

Another common characteristic of the companies is that they are still managed by their founding entrepreneurs. Al Ueltschi started FSI in 1951 with $10,000, and Rich Santulli invented the fractional-ownership industry in 1986. These men are both remarkable managers who have no financial need to work but thrive on helping their companies grow and excel.

Though these two businesses have leadership positions that are similar, they differ in their economic characteristics. FSI must lay out huge amounts of capital. A single flight simulator can cost as much as $15 million and we have 222. Only one person at a time, furthermore, can be trained in a simulator, which means that the capital investment per dollar of revenue at FSI is exceptionally high. Operating margins must therefore also be high, if we are to earn a reasonable return on capital. Last year we made capital expenditures of $215 million at FSI and FlightSafety Boeing, its 50%-owned affiliate.

At EJA, in contrast, the customer owns the equipment, though we, of course, must invest in a core fleet of our own planes to ensure outstanding service. For example, the Sunday after Thanksgiving, EJA’s busiest day of the year, strains our resources since fractions of 169 planes are owned by 1,412 customers, many of whom are bent on flying home between 3 and 6 p.m. On that day, and certain others, we need a supply of company-owned aircraft to make sure all parties get where they want, when they want.

Still, most of the planes we fly are owned by customers, which means that modest pre-tax margins in this business can produce good returns on equity. Currently, our customers own planes worth over $2 billion, and in addition we have $4.2 billion of planes on order. Indeed, the limiting factor in our business right now is the availability of planes. We now are taking delivery of about 8% of all business jets manufactured in the world, and we wish we could get a bigger share than that. Though EJA was supply-constrained in 1999, its recurring revenues — monthly management fees plus hourly flight fees — increased 46%.

The fractional-ownership industry is still in its infancy. EJA is now building critical mass in Europe, and over time we will expand around the world. Doing that will be expensive — very expensive — but we will spend what it takes. Scale is vital to both us and our customers: The company with the most planes in the air worldwide will be able to offer its customers the best service. “Buy a fraction, get a fleet” has real meaning at EJA.

EJA enjoys another important advantage in that its two largest competitors are both subsidiaries of aircraft manufacturers and sell only the aircraft their parents make. Though these are fine planes, these competitors are severely limited in the cabin styles and mission capabilities they can offer. EJA, in contrast, offers a wide array of planes from five suppliers. Consequently, we can give the customer whatever he needs to buy — rather than his getting what the competitor’s parent needs to sell.

Last year in this report, I described my family’s delight with the one-quarter (200 flight hours annually) of a Hawker 1000 that we had owned since 1995. I got so pumped up by my own prose that shortly thereafter I signed up for one-sixteenth of a Cessna V Ultra as well. Now my annual outlays at EJA and Borsheim’s, combined, total ten times my salary. Think of this as a rough guideline for your own expenditures with us.

During the past year, two of Berkshire’s outside directors have also signed on with EJA. (Maybe we’re paying them too much.) You should be aware that they and I are charged exactly the same price for planes and service as is any other customer: EJA follows a “most favored nations” policy, with no one getting a special deal.

And now, brace yourself. Last year, EJA passed the ultimate test: Charlie signed up. No other endorsement could speak more eloquently to the value of the EJA service. Give us a call at 1-800-848-6436 and ask for our “white paper” on fractional ownership.

Acquisitions of 1999

At both GEICO and Executive Jet, our best source of new customers is the happy ones we already have. Indeed, about 65% of our new owners of aircraft come as referrals from current owners who have fallen in love with the service.

Our acquisitions usually develop in the same way. At other companies, executives may devote themselves to pursuing acquisition possibilities with investment bankers, utilizing an auction process that has become standardized. In this exercise the bankers prepare a “book” that makes me think of the Superman comics of my youth. In the Wall Street version, a formerly mild-mannered company emerges from the investment banker’s phone booth able to leap over competitors in a single bound and with earnings moving faster than a speeding bullet. Titillated by the book’s description of the acquiree’s powers, acquisition-hungry CEOs — Lois Lanes all, beneath their cool exteriors — promptly swoon.

What’s particularly entertaining in these books is the precision with which earnings are projected for many years ahead. If you ask the author-banker, however, what his own firm will earn next month, he will go into a protective crouch and tell you that business and markets are far too uncertain for him to venture a forecast.

Here’s one story I can’t resist relating: In 1985, a major investment banking house undertook to sell Scott Fetzer, offering it widely — but with no success. Upon reading of this strikeout, I wrote Ralph Schey, then and now Scott Fetzer’s CEO, expressing an interest in buying the business. I had never met Ralph, but within a week we had a deal. Unfortunately, Scott Fetzer’s letter of engagement with the banking firm provided it a $2.5 million fee upon sale, even if it had nothing to do with finding the buyer. I guess the lead banker felt he should do something for his payment, so he graciously offered us a copy of the book on Scott Fetzer that his firm had prepared. With his customary tact, Charlie responded: “I’ll pay $2.5 million not to read it.”

At Berkshire, our carefully-crafted acquisition strategy is simply to wait for the phone to ring. Happily, it sometimes does so, usually because a manager who sold to us earlier has recommended to a friend that he think about following suit.

Which brings us to the furniture business. Two years ago I recounted how the acquisition of Nebraska Furniture Mart in 1983 and my subsequent association with the Blumkin family led to follow-on transactions with R. C. Willey (1995) and Star Furniture (1997). For me, these relationships have all been terrific. Not only did Berkshire acquire three outstanding retailers; these deals also allowed me to become friends with some of the finest people you will ever meet.

Naturally, I have persistently asked the Blumkins, Bill Child and Melvyn Wolff whether there are any more out there like you. Their invariable answer was the Tatelman brothers of New England and their remarkable furniture business, Jordan’s.

I met Barry and Eliot Tatelman last year and we soon signed an agreement for Berkshire to acquire the company. Like our three previous furniture acquisitions, this business had long been in the family — in this case since 1927, when Barry and Eliot’s grandfather began operations in a Boston suburb. Under the brothers’ management, Jordan’s has grown ever more dominant in its region, becoming the largest furniture retailer in New Hampshire as well as Massachusetts.

The Tatelmans don’t just sell furniture or manage stores. They also present customers with a dazzling entertainment experience called “shoppertainment.” A family visiting a store can have a terrific time, while concurrently viewing an extraordinary selection of merchandise. The business results are also extraordinary: Jordan’s has the highest sales per square foot of any major furniture operation in the country. I urge you to visit one of their stores if you are in the Boston area — particularly the one at Natick, which is Jordan’s newest. Bring money.

Barry and Eliot are classy people — just like their counterparts at Berkshire’s three other furniture operations. When they sold to us, they elected to give each of their employees at least 50¢ for every hour that he or she had worked for Jordan’s. This payment added up to $9 million, which came from the Tatelmans’ own pockets, not from Berkshire’s. And Barry and Eliot were thrilled to write the checks.

Each of our furniture operations is number one in its territory. We now sell more furniture than anyone else in Massachusetts, New Hampshire, Texas, Nebraska, Utah and Idaho. Last year Star’s Melvyn Wolff and his sister, Shirley Toomim, scored two major successes: a move into San Antonio and a significant enlargement of Star’s store in Austin.

There’s no operation in the furniture retailing business remotely like the one assembled by Berkshire. It’s fun for me and profitable for you. W. C. Fields once said, “It was a woman who drove me to drink, but unfortunately I never had the chance to thank her.” I don’t want to make that mistake. My thanks go to Louie, Ron and Irv Blumkin for getting me started in the furniture business and for unerringly guiding me as we have assembled the group we now have.

* * * * * * * * * * * *

Now, for our second acquisition deal: It came to us through my good friend, Walter Scott, Jr., chairman of Level 3 Communications and a director of Berkshire. Walter has many other business connections as well, and one of them is with MidAmerican Energy, a utility company in which he has substantial holdings and on whose board he sits. At a conference in California that we both attended last September, Walter casually asked me whether Berkshire might be interested in making a large investment in MidAmerican, and from the start the idea of being in partnership with Walter struck me as a good one. Upon returning to Omaha, I read some of MidAmerican’s public reports and had two short meetings with Walter and David Sokol, MidAmerican’s talented and entrepreneurial CEO. I then said that, at an appropriate price, we would indeed like to make a deal.

Acquisitions in the electric utility industry are complicated by a variety of regulations including the Public Utility Holding Company Act of 1935. Therefore, we had to structure a transaction that would avoid Berkshire gaining voting control. Instead we are purchasing an 11% fixed-income security, along with a combination of common stock and exchangeable preferred that will give Berkshire just under 10% of the voting power of MidAmerican but about 76% of the equity interest. All told, our investment will be about $2 billion.

Walter characteristically backed up his convictions with real money: He and his family will buy more MidAmerican stock for cash when the transaction closes, bringing their total investment to about $280 million. Walter will also be the controlling shareholder of the company, and I can’t think of

喜诗糖果值得一提，其去年的营业利润率达到了创纪录的24%。自1972年我们以2500万美元收购喜诗以来，它已实现税前利润8.57亿美元。而且，尽管业务有所增长，但所需额外资本却很少。这一成就归功于查克·哈金斯。查理和我在收购当天就让他负责管理，他对产品质量和友好服务的狂热坚持，回报了客户、员工和所有者。

查克每年都变得更好。当他46岁接管喜诗时，公司的税前利润（以百万美元计）大约是他年龄的10%。如今他74岁，这个比例已经增加到100%。发现了这个数学关系——我们称之为哈金斯定律——之后，查理和我现在一想到查克的生日就兴奋不已。

关于我们各项业务的更多信息见第39至54页，您还会找到按公认会计原则（GAAP）报告的各部门收益。此外，在第63至69页，我们按非GAAP基础将伯克希尔的财务数据重新排列为四个部门，这种呈现方式与查理和我对公司的思考方式一致。

透视收益

报告收益不足以衡量伯克希尔的经济进展，部分原因在于前面表格中显示的数字仅包括我们从被投资公司收到的股息——尽管这些股息通常只占我们所有权应占收益的一小部分。我们并不介意这种资金分配方式，因为总的来说，我们认为被投资公司未分配的收益比已分配的部分对我们更有价值。我们这样想的理由很简单：我们的被投资公司通常有机会将收益以高回报率进行再投资。那么，我们为何要希望它们派发股息呢？

不过，为了更贴近伯克希尔的经济现实，我们采用了“透视收益”的概念。按照我们的计算方式，它包括：(1) 前一节报告的营业收益，加上；(2) 我们对主要被投资公司未分配营业收益的份额（这部分根据GAAP会计原则未反映在我们的利润中），减去；(3) 如果这些被投资公司的未分配收益改为分配给伯克希尔，伯克希尔本应支付的税款备抵。在此归纳“营业收益”时，我们排除了购买会计调整以及资本收益和其他重大非经常性项目。

下表列出了我们1999年的透视收益，不过我提醒您，这些数字只能是近似值，因为它们基于许多判断。（这些被投资公司支付给我们的股息已包含在第13页列出的营业收益中，主要列在“保险集团：净投资收益”项下。）

(1) 不包含可分配给少数股东的股份
(2) 按本年平均持股比例计算
(3) 使用的税率为14%，即伯克希尔就其收到的股息所支付的税率

投资

以下是我们持有的普通股投资。其中1999年底市值超过7.5亿美元的项目已逐项列出。

* 代表税基成本，该成本总额比GAAP成本少6.91亿美元。

1999年我们的投资组合变动不大。正如我之前提到的，我们拥有大量投资的几家公司去年的经营业绩令人失望。尽管如此，我们相信这些公司拥有重要的竞争优势，这些优势会随着时间的推移而持久。这种特性，能带来良好的长期投资结果，是查理和我偶尔认为我们能够识别的。然而，更多时候，我们无法识别——至少无法以高度的确信度识别。顺便说一句，这解释了为什么我们不持有科技公司的股票，尽管我们同意普遍的看法，即我们的社会将被它们的产品和服务所改变。我们的问题——我们无法通过学习研究来解决——是我们无法洞察科技领域的哪些参与者拥有真正持久的竞争优势。

我们应该补充一点，缺乏对科技的洞察力并不会让我们感到苦恼。毕竟，在许多商业领域，查理和我并没有特殊的资本配置专长。例如，在评估专利、制造流程或地质前景方面，我们毫无建树。所以我们根本不会涉足这些领域的判断。

如果说我们有优势，那就是认识到我们何时在自己的能力圈内运作良好，以及何时接近边界。预测快速变化行业中的公司的长期经济状况，完全超出了我们的能力圈。如果其他人在那些行业声称有预测能力——并且他们的说法似乎得到了股市行为的验证——我们既不嫉妒也不模仿。相反，我们只坚持我们理解的东西。如果我们偏离了，那也将是无意中发生的，而不是因为我们变得焦躁不安，用希望代替了理性。幸运的是，几乎可以肯定，伯克希尔未来会时不时地有机会在我们划定的能力圈内大展拳脚。

目前，我们已经拥有的优秀企业的价格并不那么有吸引力。换句话说，我们对这些企业本身的感受远好于它们的股票。这就是为什么我们没有增持现有头寸的原因。尽管如此，我们还没有大幅缩减投资组合：如果是在一个价格合理的可疑业务和一个价格可疑的合理业务之间做选择，我们更喜欢后者。然而，真正引起我们注意的是一个价格合理的合理业务。

我们对所持证券价格的保留意见也适用于整体股票价格水平。我们从未试图预测股票市场下个月或明年会怎样，我们现在也不会这样做。但是，正如我在随附的文章中指出的那样，股票投资者目前对未来回报的预期似乎过于乐观。

我们认为企业利润的增长主要与国家的商业活动（国内生产总值）挂钩，并且我们预计国内生产总值的实际增长率约为3%。此外，我们假设通货膨胀率为2%。查理和我对2%的准确性没有特别的信念。然而，这是市场的观点：通胀保值国债（TIPS）的收益率比标准国债低约两个百分点，如果你相信通胀率会更高，你可以通过简单地买入TIPS并做空常规国债来获利。

如果利润确实随着GDP以约5%的速度增长，那么对美国企业的估值不太可能比这高出太多。加上一些股息因素，你得到的股票收益率将远低于大多数投资者过去经历或未来期望的水平。如果投资者的预期变得更加现实——这几乎肯定会发生——那么市场调整可能会很剧烈，尤其是在投机集中的领域。

伯克希尔总有一天会有机会将大量现金部署到股票市场——我们对此充满信心。但是，正如歌中所唱：“谁知道何时何地？”与此同时，如果有人开始向你解释这个“迷人”市场中真正狂热的部分正在发生什么，你或许会想起另一句歌词：“傻瓜给出理由，智者从不尝试。”

股票回购

最近，许多股东向我们建议伯克希尔回购其股票。通常这些请求是基于理性的，但也有一些依赖于站不住脚的逻辑。

只有一种事实组合能使公司回购其股票是可取的：首先，公司拥有超出业务近期需求的可用资金（现金加上合理的借贷能力）；其次，发现其股票在市场上的售价低于保守计算的内在价值。对此我们补充一个告诫：股东应该已经获得了他们估算该价值所需的所有信息。否则，内部人士可能会利用他们信息不足的合伙人，以实际价值的一小部分买断他们的权益。我们偶尔见过这种情况发生。当然，通常情况下，诡计是用来推高股价的，而不是压低。

我所说的业务“需求”有两种：第一，公司为维持其竞争地位所必需的支出（例如，海兹博格商店的翻新）；第二，旨在业务增长的、管理层期望每花一美元能产生超过一美元价值的可选支出（例如，R.C. Willey 扩展到爱达荷州）。

当可用资金超过这些需求时，一家拥有以增长为导向的股东群体的公司可以收购新业务或回购股票。如果公司股票的价格远低于内在价值，回购通常最有意义。在20世纪70年代中期，这样做的明智性几乎在向管理层大喊大叫，但很少有公司回应。在大多数情况下，这样做的公司为其所有者创造的财富远多于采取其他行动方案。事实上，在20世纪70年代（以及之后断断续续的一些年份），我们寻找那些大规模回购股票的公司。这通常是该公司被低估并由以股东为导向的管理层经营的一个信号。

那个时代已经过去了。现在，回购风靡一时，但往往出于一个未言明且在我们看来不光彩的理由：推高或支撑股价。当然，选择今天卖出的股东会因任何买家而受益，无论其来源或动机如何。但继续持有的股东会因为以高于内在价值的价格回购而受损。以1.10美元的价格购买1美元钞票，对留下的人来说不是好生意。

查理和我承认，我们只在部分交易股票中，并且只有在使用一个价值区间而非某个伪精确数字时，才有信心估算内在价值。尽管如此，在我们看来，许多目前进行回购的公司，是以牺牲留存的股东为代价，向离开的股东支付过高价格。为这些公司辩护，我会说CEO对自己的业务持有乐观态度是很自然的。而且，他们对此的了解远比我多。然而，我忍不住感到，如今太多的回购是出于管理层想要“展示信心”或赶时髦的愿望，而非出于提升每股价值的愿望。

有时，公司还会说他们回购股票是为了抵消以更低价格授予的股票期权行权时所发行的股份。这种“高买低卖”策略是许多不幸投资者采用过的——但绝非有意为之！然而，管理层似乎非常愉快地遵循这种反常活动。

当然，期权授予和回购可能都是有道理的——但如果是这样，那并非因为这两项活动在逻辑上相关。理性地说，公司回购或发行股票的决定应该独立做出。仅仅因为股票是为了满足期权行权而发行的——或出于任何其他原因——并不意味着股票应该被以高于内在价值的价格回购。相应地，价格远低于内在价值的股票应该被回购，无论之前是否发行过股票（或者可能因为未行权的期权而未来会发行）。

你应该知道，在过去某些时候，我因为没有进行回购而犯过错误。我当时对伯克希尔价值的评估过于保守，或者我对资金的某些替代用途过于热衷。因此，我们错过了一些机会——尽管在这些时间点伯克希尔的交易量太小，我们无法大量买入，这意味着我们每股价值的提升微乎其微。（例如，以比每股内在价值折价25%的价格回购公司2%的股份，最多只能使该价值增加0.5%——如果这些资金本可以在价值创造行动中部署的话，收益甚至更少。）

我们收到的一些信件明确暗示，写信人并不关心内在价值方面的考虑，而是希望我们宣扬回购意图，以便股价上涨（或停止下跌）。如果写信人想明天卖出，他的想法对他自己来说是有道理的——但如果他打算持有，他反而应该希望股价下跌并且交易量足够大，以便我们能够大量买入。这是回购计划能对持续股东产生任何真正好处的唯一途径。

除非我们相信伯克希尔的股票售价远低于保守计算的内在价值，否则我们不会回购股票。我们也不会试图抬高或压低股价。（无论是公开还是私下，我从未告诉任何人买入或卖出伯克希尔的股票。）相反，我们会向所有股东——以及潜在股东——提供我们处于相反立场时所希望拥有的、与估值相关的相同信息。

最近，当A股跌破45,000美元时，我们考虑过进行回购。然而，我们决定推迟购买——如果我们确实选择进行任何购买的话——直到股东有机会审阅这份报告。如果我们确实发现回购是合理的，我们将很少在纽约证券交易所（NYSE）上出价。相反，我们将回应直接向我们提出的、价格等于或低于纽约证券交易所买价的要约。如果你想出售股票，请让你的经纪人拨打402-346-1400联系马克·米勒德。交易发生时，经纪人可以在“第三市场”或纽约证券交易所记录交易。如果B股相对于A股的折价超过2%，我们将倾向于购买B股。我们不会进行少于10股A股或50股B股的交易。

请明确一点：我们绝不会以阻止伯克希尔价格下跌为目的进行购买。相反，我们只会在认为这些购买代表公司资金的有吸引力的用途时才进行。充其量，回购对我们股票内在价值未来增长率的影响可能非常微小。

股东指定捐款

1999年，约97.3%的合格股份参与了伯克希尔的股东指定捐款计划，捐款总额为1720万美元。该计划的完整描述见第70至71页。

在该计划实施的19年中，伯克希尔已根据我们股东的指示累计捐款1.47亿美元。伯克希尔其余捐款由其子公司进行，这些子公司遵循被收购前存在的慈善模式（但其前所有者个人承担其个人慈善的责任）。总体而言，我们的子公司1999年捐款1380万美元，其中包括价值250万美元的实物捐赠。

要参与未来的计划，您必须拥有以实际所有人名义注册的A类股票，而不是以经纪人、银行或存托机构的名义注册。在2000年8月31日未如此注册的股份将没有资格参加2000年的计划。当您收到我们的捐款表格后，请立即寄回，以免搁置或遗忘。逾期收到的指定捐款将不予处理。

年会

今年的资本家伍德斯托克周末将采用与近年略有不同的形式。我们需要做出改变，因为过去三年为我们提供良好服务的阿克萨本体育馆正在逐步关闭。因此，我们将搬迁至市政礼堂（位于国会大道，第18街和第19街之间，双树酒店后面），这是奥马哈唯一另一个能提供我们所需空间的场所。

然而，市政礼堂位于奥马哈市中心，如果我们在工作日在那里开会，将会造成停车和交通的噩梦。因此，我们将于4月29日星期六召开会议，早上7点开门，8点30分开始播放电影，会议本身于9点30分开始。与过去一样，会议将持续到下午3点30分，中午短暂休息提供食物，市政礼堂的餐饮摊位将提供食物。

随此报告附上的委托材料附件说明了如何获取进入会议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（800-799-6634）签约，为您提供特别帮助。按照我们的常规方式，我们将安排从大型酒店到会议地点的巴士。会后，巴士将返回酒店，并开往内布拉斯加家具城、波仙珠宝店和机场。即便如此，您可能会发现租车是有用的。

我们将2002年和2003年的会议安排在惯例的5月第一个星期六。但是，2001年，市政礼堂在那个星期六已被预订，因此我们将于4月28日开会。市政礼堂应该在任何周末都能很好地满足我们的需求，因为届时附近的停车场、车库以及街道上都有充足的停车位。我们还将能够大幅扩大提供给参展商的空间。因此，克服了我惯常的商业保守，我会确保您在市政礼堂能看到大量可以购买的伯克希尔产品展销。作为参考，1999年股东们购买了3,059磅喜诗糖果、价值16,155美元的世界图书产品、1,928双戴克斯特鞋、895套奎库特刀具、1,752个带有伯克希尔·哈撒韦标志的高尔夫球以及3,446件伯克希尔服装。我知道你们可以做得更好。

去年，我们还开始销售至少八份耐特杰飞机（的产权份额）。我们将在奥马哈机场再次陈列一系列机型，供您在周六和周日参观。向市政礼堂的EJA代表询问如何参观这些飞机。

冰雪皇后也将出现在市政礼堂，并再次将所有收益捐赠给儿童奇迹网络。去年我们卖出了4,586个迪利棒、软糖棒和香草/橙子棒。此外，GEICO将设立一个展位，由我们来自全国各地的多位顶级顾问提供服务，他们随时准备为您提供汽车保险报价。在大多数情况下，GEICO能够为您提供特别的股东折扣。请携带您现有保险的详细信息，查看我们能否为您省钱。

最后，阿吉特·杰恩和他的同事将在场提供免佣金年金和一份在其他地方很少见的巨额责任保险。与阿吉特交谈，了解如何保护您自己和您的家人免受1000万美元判决的影响。

内布拉斯加家具城新近翻新的综合大楼位于72街，道奇街和太平洋街之间，占地75英亩，工作日营业时间为上午10点至晚上9点，周六和周日为上午10点至下午6点。该店提供无与伦比的商品种类——家具、电子产品、电器、地毯和电脑——价格无可匹敌。1999年，内布拉斯加家具城在72街的店面实现了超过3亿美元的营业额，在一个只有67.5万人口的大都市区，这绝对是一个奇迹。在4月27日星期四至5月1日星期一期间，任何出示会议凭证的股东都将获得通常只给予员工的折扣。我们在过去几年为股东提供了这一优惠，销售额令人惊叹。在去年为期五天的“伯克希尔周末”期间，内布拉斯加家具城的销售额为798万美元，比1998年增长26%，比1997年增长51%。

波仙珠宝店——全国除蒂芙尼曼哈顿店外最大的珠宝店——将举办两场仅限股东参加的活动。第一场是4月28日星期五下午6点至10点的香槟甜点派对。第二场是主要盛会，于4月30日星期日上午9点至下午6点举行。那天，查理和我将在现场为销售单签名。股东价格将于周四至周一有效，因此如果您想避开周五晚上和周日形成的最拥挤人群，请在其他时间前来并表明自己的股东身份。星期六，我们将营业至晚上7点。波仙珠宝店的毛利率完全比其主要竞争对手低二十个百分点，所以请准备好被我们的价格和选择所震撼。

在波仙珠宝店外的商场里，我们将再次邀请鲍勃·哈曼——桥牌历史上最伟大的牌手——周日在现场与我们的股东们一起打牌。我们还将在其他牌桌上安排几位其他专家。1999年，我们的需求超过了牌桌供应，但今年我们将解决这个问题。

两次美国国际象棋冠军帕特里克·沃尔夫将再次出现在商场里，蒙目对战所有挑战者。他告诉我，他从未尝试在这种受限情况下同时进行超过四盘对局，但可能会在今年尝试将上限提高到五或六盘。如果您是国际象棋迷，请向帕特里克发起挑战——但在您走出第一步之前，务必检查他的眼罩。

戈拉特餐厅——我最喜欢的牛排馆——将于4月30日星期日再次独家对伯克希尔股东开放，营业时间从下午4点至午夜左右。请记住，周日没有预订您不能来戈拉特餐厅。要预订，请于4月3日（但不要在此之前）致电402-551-3733。如果周日已满，请尝试在您在城里的其他晚上去戈拉特餐厅。我大约每周对戈拉特做一次“质量检查”，可以报告说，他们的带骨牛排（搭配双份薯饼）在全国仍然无与伦比。

例行的棒球比赛将于周六晚上7点在罗森布拉特体育场举行。今年奥马哈金钉队将对阵爱荷华小熊队。请早点来，因为真正的行动在那时开始。那些去年参加的人看到了你们的董事长向厄尼·班克斯投球。

这次对决被证明是体育界期待已久的巨人决斗。在最初的几投之后——那不是我的最佳状态，但我什么时候投出过最佳状态呢？——我向厄尼投了一个近身球，只是想让他知道谁在掌控局面。厄尼冲向投手丘，我冲向本垒板。但一场冲突得以避免，因为我们在到达对方之前就筋疲力尽了。

厄尼对自己去年的表现不满意，整个冬天都在研究比赛录像。你可能知道，厄尼职业生涯作为小熊队成员击出了512个本垒打。既然他已经发现了我的投球动作中的致命弱点，他期望在4月29日打出第513个。然而，我学会了新的方法来伪装我的“漂浮球”。来看这场对决吧。

我应该补充一点，我已经从厄尼那里得到了承诺，他不会朝我打“投手正面球”，因为我永远无法及时躲开。我的反应像伍迪·艾伦一样，他说他的反应如此之慢，以至于曾被两个人推着的汽车撞到。

我们的代理声明包含获取比赛门票的说明，以及大量其他有助于您在奥马哈享受旅程的信息。加入我们，参加国会大道的资本家盛会。

2000年3月1日

沃伦·E·巴菲特
董事会主席