2020 LTR
2020 LTR
2020 LTR
Note: Data are for calendar years with these exceptions: 1965 and 1966, year ended 9/30; 1967, 15
months ended 12/31.
2
BERKSHIRE HATHAWAY INC.
Berkshire earned $42.5 billion in 2020 according to generally accepted accounting principles (commonly
called “GAAP”). The four components of that figure are $21.9 billion of operating earnings, $4.9 billion of realized
capital gains, a $26.7 billion gain from an increase in the amount of net unrealized capital gains that exist in the
stocks we hold and, finally, an $11 billion loss from a write-down in the value of a few subsidiary and affiliate
businesses that we own. All items are stated on an after-tax basis.
Operating earnings are what count most, even during periods when they are not the largest item in our
GAAP total. Our focus at Berkshire is both to increase this segment of our income and to acquire large and
favorably-situated businesses. Last year, however, we met neither goal: Berkshire made no sizable acquisitions and
operating earnings fell 9%. We did, though, increase Berkshire’s per-share intrinsic value by both retaining earnings
and repurchasing about 5% of our shares.
The two GAAP components pertaining to capital gains or losses (whether realized or unrealized) fluctuate
capriciously from year to year, reflecting swings in the stock market. Whatever today’s figures, Charlie Munger, my
long-time partner, and I firmly believe that, over time, Berkshire’s capital gains from its investment holdings will be
substantial.
As I’ve emphasized many times, Charlie and I view Berkshire’s holdings of marketable stocks – at yearend
worth $281 billion – as a collection of businesses. We don’t control the operations of those companies, but we do
share proportionately in their long-term prosperity. From an accounting standpoint, however, our portion of their
earnings is not included in Berkshire’s income. Instead, only what these investees pay us in dividends is recorded on
our books. Under GAAP, the huge sums that investees retain on our behalf become invisible.
What’s out of sight, however, should not be out of mind: Those unrecorded retained earnings are usually
building value – lots of value – for Berkshire. Investees use the withheld funds to expand their business, make
acquisitions, pay off debt and, often, to repurchase their stock (an act that increases our share of their future
earnings). As we pointed out in these pages last year, retained earnings have propelled American business throughout
our country’s history. What worked for Carnegie and Rockefeller has, over the years, worked its magic for millions
of shareholders as well.
Of course, some of our investees will disappoint, adding little, if anything, to the value of their company by
retaining earnings. But others will over-deliver, a few spectacularly. In aggregate, we expect our share of the huge
pile of earnings retained by Berkshire’s non-controlled businesses (what others would label our equity portfolio) to
eventually deliver us an equal or greater amount of capital gains. Over our 56-year tenure, that expectation has been
met.
3
The final component in our GAAP figure – that ugly $11 billion write-down – is almost entirely the
quantification of a mistake I made in 2016. That year, Berkshire purchased Precision Castparts (“PCC”), and I paid
too much for the company.
No one misled me in any way – I was simply too optimistic about PCC’s normalized profit potential. Last
year, my miscalculation was laid bare by adverse developments throughout the aerospace industry, PCC’s most
important source of customers.
In purchasing PCC, Berkshire bought a fine company – the best in its business. Mark Donegan, PCC’s
CEO, is a passionate manager who consistently pours the same energy into the business that he did before we
purchased it. We are lucky to have him running things.
I believe I was right in concluding that PCC would, over time, earn good returns on the net tangible assets
deployed in its operations. I was wrong, however, in judging the average amount of future earnings and,
consequently, wrong in my calculation of the proper price to pay for the business.
PCC is far from my first error of that sort. But it’s a big one.
Berkshire is often labeled a conglomerate, a negative term applied to holding companies that own a hodge-
podge of unrelated businesses. And, yes, that describes Berkshire – but only in part. To understand how and why we
differ from the prototype conglomerate, let’s review a little history.
Over time, conglomerates have generally limited themselves to buying businesses in their entirety. That
strategy, however, came with two major problems. One was unsolvable: Most of the truly great businesses had no
interest in having anyone take them over. Consequently, deal-hungry conglomerateurs had to focus on so-so
companies that lacked important and durable competitive strengths. That was not a great pond in which to fish.
Beyond that, as conglomerateurs dipped into this universe of mediocre businesses, they often found
themselves required to pay staggering “control” premiums to snare their quarry. Aspiring conglomerateurs knew the
answer to this “overpayment” problem: They simply needed to manufacture a vastly overvalued stock of their own
that could be used as a “currency” for pricey acquisitions. (“I’ll pay you $10,000 for your dog by giving you two of
my $5,000 cats.”)
Often, the tools for fostering the overvaluation of a conglomerate’s stock involved promotional techniques
and “imaginative” accounting maneuvers that were, at best, deceptive and that sometimes crossed the line into fraud.
When these tricks were “successful,” the conglomerate pushed its own stock to, say, 3x its business value in order to
offer the target 2x its value.
Investing illusions can continue for a surprisingly long time. Wall Street loves the fees that deal-making
generates, and the press loves the stories that colorful promoters provide. At a point, also, the soaring price of a
promoted stock can itself become the “proof” that an illusion is reality.
Eventually, of course, the party ends, and many business “emperors” are found to have no clothes. Financial
history is replete with the names of famous conglomerateurs who were initially lionized as business geniuses by
journalists, analysts and investment bankers, but whose creations ended up as business junkyards.
************
Charlie and I want our conglomerate to own all or part of a diverse group of businesses with good economic
characteristics and good managers. Whether Berkshire controls these businesses, however, is unimportant to us.
4
It took me a while to wise up. But Charlie – and also my 20-year struggle with the textile operation I
inherited at Berkshire – finally convinced me that owning a non-controlling portion of a wonderful business is more
profitable, more enjoyable and far less work than struggling with 100% of a marginal enterprise.
For those reasons, our conglomerate will remain a collection of controlled and non-controlled businesses.
Charlie and I will simply deploy your capital into whatever we believe makes the most sense, based on a company’s
durable competitive strengths, the capabilities and character of its management, and price.
If that strategy requires little or no effort on our part, so much the better. In contrast to the scoring system
utilized in diving competitions, you are awarded no points in business endeavors for “degree of difficulty.”
Furthermore, as Ronald Reagan cautioned: “It’s said that hard work never killed anyone, but I say why take the
chance?”
The Family Jewels and How We Increase Your Share of These Gems
On page A-1 we list Berkshire’s subsidiaries, a smorgasbord of businesses employing 360,000 at yearend.
You can read much more about these controlled operations in the 10-K that fills the back part of this report. Our
major positions in companies that we partly own and don’t control are listed on page 7 of this letter. That portfolio of
businesses, too, is large and diverse.
Most of Berkshire’s value, however, resides in four businesses, three controlled and one in which we have
only a 5.4% interest. All four are jewels.
The largest in value is our property/casualty insurance operation, which for 53 years has been the core of
Berkshire. Our family of insurers is unique in the insurance field. So, too, is its manager, Ajit Jain, who joined
Berkshire in 1986.
Overall, the insurance fleet operates with far more capital than is deployed by any of its competitors
worldwide. That financial strength, coupled with the huge flow of cash Berkshire annually receives from its non-
insurance businesses, allows our insurance companies to safely follow an equity-heavy investment strategy not
feasible for the overwhelming majority of insurers. Those competitors, for both regulatory and credit-rating reasons,
must focus on bonds.
And bonds are not the place to be these days. Can you believe that the income recently available from a 10-
year U.S. Treasury bond – the yield was 0.93% at yearend – had fallen 94% from the 15.8% yield available in
September 1981? In certain large and important countries, such as Germany and Japan, investors earn a negative
return on trillions of dollars of sovereign debt. Fixed-income investors worldwide – whether pension funds,
insurance companies or retirees – face a bleak future.
Some insurers, as well as other bond investors, may try to juice the pathetic returns now available by
shifting their purchases to obligations backed by shaky borrowers. Risky loans, however, are not the answer to
inadequate interest rates. Three decades ago, the once-mighty savings and loan industry destroyed itself, partly by
ignoring that maxim.
Berkshire now enjoys $138 billion of insurance “float” – funds that do not belong to us, but are nevertheless
ours to deploy, whether in bonds, stocks or cash equivalents such as U.S. Treasury bills. Float has some similarities
to bank deposits: cash flows in and out daily to insurers, with the total they hold changing very little. The massive
sum held by Berkshire is likely to remain near its present level for many years and, on a cumulative basis, has been
costless to us. That happy result, of course, could change – but, over time, I like our odds.
I have repetitiously – some might say endlessly – explained our insurance operation in my annual letters to
you. Therefore, I will this year ask new shareholders who wish to learn more about our insurance business and
“float” to read the pertinent section of the 2019 report, reprinted on page A-2. It’s important that you understand the
risks, as well as the opportunities, existing in our insurance activities.
5
Our second and third most valuable assets – it’s pretty much a toss-up at this point – are Berkshire’s 100%
ownership of BNSF, America’s largest railroad measured by freight volume, and our 5.4% ownership of Apple. And
in the fourth spot is our 91% ownership of Berkshire Hathaway Energy (“BHE”). What we have here is a very
unusual utility business, whose annual earnings have grown from $122 million to $3.4 billion during our 21 years of
ownership.
I’ll have more to say about BNSF and BHE later in this letter. For now, however, I would like to focus on a
practice Berkshire will periodically use to enhance your interest in both its “Big Four” as well as the many other
assets Berkshire owns.
************
Last year we demonstrated our enthusiasm for Berkshire’s spread of properties by repurchasing the
equivalent of 80,998 “A” shares, spending $24.7 billion in the process. That action increased your ownership in all
of Berkshire’s businesses by 5.2% without requiring you to so much as touch your wallet.
Following criteria Charlie and I have long recommended, we made those purchases because we believed
they would both enhance the intrinsic value per share for continuing shareholders and would leave Berkshire with
more than ample funds for any opportunities or problems it might encounter.
In no way do we think that Berkshire shares should be repurchased at simply any price. I emphasize that
point because American CEOs have an embarrassing record of devoting more company funds to repurchases when
prices have risen than when they have tanked. Our approach is exactly the reverse.
Berkshire’s investment in Apple vividly illustrates the power of repurchases. We began buying Apple stock
late in 2016 and by early July 2018, owned slightly more than one billion Apple shares (split-adjusted). Saying that,
I’m referencing the investment held in Berkshire’s general account and am excluding a very small and separately-
managed holding of Apple shares that was subsequently sold. When we finished our purchases in mid-2018,
Berkshire’s general account owned 5.2% of Apple.
Our cost for that stake was $36 billion. Since then, we have both enjoyed regular dividends, averaging
about $775 million annually, and have also – in 2020 – pocketed an additional $11 billion by selling a small portion
of our position.
Despite that sale – voila! – Berkshire now owns 5.4% of Apple. That increase was costless to us, coming
about because Apple has continuously repurchased its shares, thereby substantially shrinking the number it now has
outstanding.
But that’s far from all of the good news. Because we also repurchased Berkshire shares during the 21⁄2 years,
you now indirectly own a full 10% more of Apple’s assets and future earnings than you did in July 2018.
This agreeable dynamic continues. Berkshire has repurchased more shares since yearend and is likely to
further reduce its share count in the future. Apple has publicly stated an intention to repurchase its shares as well. As
these reductions occur, Berkshire shareholders will not only own a greater interest in our insurance group and in
BNSF and BHE, but will also find their indirect ownership of Apple increasing as well.
The math of repurchases grinds away slowly, but can be powerful over time. The process offers a simple
way for investors to own an ever-expanding portion of exceptional businesses.
And as a sultry Mae West assured us: “Too much of a good thing can be . . . wonderful.”
Investments
Below we list our fifteen common stock investments that at yearend were our largest in market value. We
exclude our Kraft Heinz holding — 325,442,152 shares — because Berkshire is part of a control group and therefore
must account for that investment using the “equity” method. On its balance sheet, Berkshire carries the Kraft Heinz
holding at a GAAP figure of $13.3 billion, an amount that represents Berkshire’s share of the audited net worth of
6
Kraft Heinz on December 31, 2020. Please note, though, that the market value of our shares on that date was only
$11.3 billion.
12/31/20
Percentage of
Shares* Company Company Cost** Market
Owned
(in millions)
66,835,615 The Bank of New York Mellon Corp. . . . . . . . . . . . 7.5 2,918 2,837
Success stories abound throughout America. Since our country’s birth, individuals with an idea, ambition
and often just a pittance of capital have succeeded beyond their dreams by creating something new or by improving
the customer’s experience with something old.
Charlie and I journeyed throughout the nation to join with many of these individuals or their families. On
the West Coast, we began the routine in 1972 with our purchase of See’s Candy. A full century ago, Mary See set out
to deliver an age-old product that she had reinvented with special recipes. Added to her business plan were quaint
stores staffed by friendly salespeople. Her first small outlet in Los Angeles eventually led to several hundred shops,
spread throughout the West.
7
Today, Mrs. See’s creations continue to delight customers while providing life-long employment for
thousands of women and men. Berkshire’s job is simply not to meddle with the company’s success. When a business
manufactures and distributes a non-essential consumer product, the customer is the boss. And, after 100 years, the
customer’s message to Berkshire remains clear: “Don’t mess with my candy.” (The website is
https://www.sees.com/; try the peanut brittle.)
Let’s move across the continent to Washington, D.C. In 1936, Leo Goodwin, along with his wife, Lillian,
became convinced that auto insurance – a standardized product customarily purchased from agents – could be sold
directly at a much lower price. Armed with $100,000, the pair took on giant insurers possessing 1,000 times or more
their capital. Government Employees Insurance Company (later shortened to GEICO) was on its way.
By luck, I was exposed to the company’s potential a full 70 years ago. It instantly became my first love (of
an investment sort). You know the rest of the story: Berkshire eventually became the 100% owner of GEICO, which
at 84 years of age is constantly fine-tuning – but not changing – the vision of Leo and Lillian.
There has been, however, a change in the company’s size. In 1937, its first full year of operation, GEICO
did $238,288 of business. Last year the figure was $35 billion.
************
Today, with much of finance, media, government and tech located in coastal areas, it’s easy to overlook the
many miracles occurring in middle America. Let’s focus on two communities that provide stunning illustrations of
the talent and ambition existing throughout our country.
In 1940, Jack Ringwalt, a graduate of Omaha’s Central High School (the alma mater as well of Charlie, my
dad, my first wife, our three children and two grandchildren), decided to start a property/casualty insurance company
funded by $125,000 in capital.
Jack’s dream was preposterous, requiring his pipsqueak operation – somewhat pompously christened as
National Indemnity – to compete with giant insurers, all of which operated with abundant capital. Additionally, those
competitors were solidly entrenched with nationwide networks of well-funded and long-established local agents.
Under Jack’s plan, National Indemnity, unlike GEICO, would itself use whatever agencies deigned to accept it and
consequently enjoy no cost advantage in its acquisition of business. To overcome those formidable handicaps,
National Indemnity focused on “odd-ball” risks, which were deemed unimportant by the “big boys.” And,
improbably, the strategy succeeded.
Jack was honest, shrewd, likeable and a bit quirky. In particular, he disliked regulators. When he
periodically became annoyed with their supervision, he would feel an urge to sell his company.
Fortunately, I was nearby on one of those occasions. Jack liked the idea of joining Berkshire, and we made
a deal in 1967, taking all of 15 minutes to reach a handshake. I never asked for an audit.
Today National Indemnity is the only company in the world prepared to insure certain giant risks. And, yes,
it remains based in Omaha, a few miles from Berkshire’s home office.
Over the years, we have purchased four additional businesses from Omaha families, the best known among
them being Nebraska Furniture Mart (“NFM”). The company’s founder, Rose Blumkin (“Mrs. B”), arrived in Seattle
in 1915 as a Russian emigrant, unable to read or speak English. She settled in Omaha several years later and by 1936
had saved $2,500 with which to start a furniture store.
Competitors and suppliers ignored her, and for a time their judgment seemed correct: World War II stalled
her business, and at yearend 1946, the company’s net worth had grown to only $72,264. Cash, both in the till and on
deposit, totaled $50 (that’s not a typo).
8
One invaluable asset, however, went unrecorded in the 1946 figures: Louie Blumkin, Mrs. B’s only son, had
rejoined the store after four years in the U.S. Army. Louie fought at Normandy’s Omaha Beach following the D-Day
invasion, earned a Purple Heart for injuries sustained in the Battle of the Bulge, and finally sailed home in
November 1945.
Once Mrs. B and Louie were reunited, there was no stopping NFM. Driven by their dream, mother and son
worked days, nights and weekends. The result was a retailing miracle.
By 1983, the pair had created a business worth $60 million. That year, on my birthday, Berkshire purchased
80% of NFM, again without an audit. I counted on Blumkin family members to run the business; the third and fourth
generation do so today. Mrs. B, it should be noted, worked daily until she was 103 – a ridiculously premature
retirement age as judged by Charlie and me.
NFM now owns the three largest home-furnishings stores in the U.S. Each set a sales record in 2020, a feat
achieved despite the closing of NFM’s stores for more than six weeks because of COVID-19.
A post-script to this story says it all: When Mrs. B’s large family gathered for holiday meals, she always
asked that they sing a song before eating. Her selection never varied: Irving Berlin’s “God Bless America.”
************
Let’s move somewhat east to Knoxville, the third largest city in Tennessee. There, Berkshire has ownership
in two remarkable companies – Clayton Homes (100% owned) and Pilot Travel Centers (38% owned now, but
headed for 80% in 2023).
Each company was started by a young man who had graduated from the University of Tennessee and stayed
put in Knoxville. Neither had a meaningful amount of capital nor wealthy parents.
But, so what? Today, Clayton and Pilot each have annual pre-tax earnings of more than $1 billion. Together
they employ about 47,000 men and women.
Jim Clayton, after several other business ventures, founded Clayton Homes on a shoestring in 1956, and
“Big Jim” Haslam started what became Pilot Travel Centers in 1958 by purchasing a service station for $6,000. Each
of the men later brought into the business a son with the same passion, values and brains as his father. Sometimes
there is a magic to genes.
“Big Jim” Haslam, now 90, has recently authored an inspirational book in which he relates how Jim
Clayton’s son, Kevin, encouraged the Haslams to sell a large portion of Pilot to Berkshire. Every retailer knows that
satisfied customers are a store’s best salespeople. That’s true when businesses are changing hands as well.
************
When you next fly over Knoxville or Omaha, tip your hat to the Claytons, Haslams and Blumkins as well as
to the army of successful entrepreneurs who populate every part of our country. These builders needed America’s
framework for prosperity – a unique experiment when it was crafted in 1789 – to achieve their potential. In turn,
America needed citizens like Jim C., Jim H., Mrs. B and Louie to accomplish the miracles our founding fathers
sought.
Today, many people forge similar miracles throughout the world, creating a spread of prosperity that
benefits all of humanity. In its brief 232 years of existence, however, there has been no incubator for unleashing
human potential like America. Despite some severe interruptions, our country’s economic progress has been
breathtaking.
Beyond that, we retain our constitutional aspiration of becoming “a more perfect union.” Progress on that
front has been slow, uneven and often discouraging. We have, however, moved forward and will continue to do so.
Berkshire is a Delaware corporation, and our directors must follow the state’s laws. Among them is a
requirement that board members must act in the best interest of the corporation and its stockholders. Our directors
embrace that doctrine.
In addition, of course, Berkshire directors want the company to delight its customers, to develop and reward
the talents of its 360,000 associates, to behave honorably with lenders and to be regarded as a good citizen of the
many cities and states in which we operate. We value these four important constituencies.
None of these groups, however, have a vote in determining such matters as dividends, strategic direction,
CEO selection, or acquisitions and divestitures. Responsibilities like those fall solely on Berkshire’s directors, who
must faithfully represent the long-term interests of the corporation and its owners.
Beyond legal requirements, Charlie and I feel a special obligation to the many individual shareholders of
Berkshire. A bit of personal history may help you to understand our unusual attachment and how it shapes our
behavior.
************
Before my Berkshire years, I managed money for many individuals through a series of partnerships, the
first three of those formed in 1956. As time passed, the use of multiple entities became unwieldy and, in 1962, we
amalgamated 12 partnerships into a single unit, Buffett Partnership Ltd. (“BPL”).
By that year, virtually all of my own money, and that of my wife as well, had become invested alongside the
funds of my many limited partners. I received no salary or fees. Instead, as the general partner, I was compensated
by my limited partners only after they secured returns above an annual threshold of 6%. If returns failed to meet that
level, the shortfall was to be carried forward against my share of future profits. (Fortunately, that never happened:
Partnership returns always exceeded the 6% “bogey.”) As the years went by, a large part of the resources of my
parents, siblings, aunts, uncles, cousins and in-laws became invested in the partnership.
Charlie formed his partnership in 1962 and operated much as I did. Neither of us had any institutional
investors, and very few of our partners were financially sophisticated. The people who joined our ventures simply
trusted us to treat their money as we treated our own. These individuals – either intuitively or by relying on the
advice of friends – correctly concluded that Charlie and I had an extreme aversion to permanent loss of capital and
that we would not have accepted their money unless we expected to do reasonably well with it.
I stumbled into business management after BPL acquired control of Berkshire in 1965. Later still, in 1969,
we decided to dissolve BPL. After yearend, the partnership distributed, pro-rata, all of its cash along with three
stocks, the largest by value being BPL’s 70.5% interest in Berkshire.
Charlie, meanwhile, wound up his operation in 1977. Among the assets he distributed to partners was a
major interest in Blue Chip Stamps, a company his partnership, Berkshire and I jointly controlled. Blue Chip was
also among the three stocks my partnership had distributed upon its dissolution.
In 1983, Berkshire and Blue Chip merged, thereby expanding Berkshire’s base of registered shareholders
from 1,900 to 2,900. Charlie and I wanted everyone – old, new and prospective shareholders – to be on the same
page.
Therefore, the 1983 annual report – up front – laid out Berkshire’s “major business principles.” The first
principle began: “Although our form is corporate, our attitude is partnership.” That defined our relationship in 1983;
it defines it today. Charlie and I – and our directors as well – believe this dictum will serve Berkshire well for many
decades to come.
************
10
Ownership of Berkshire now resides in five large “buckets,” one occupied by me as a “founder” of sorts.
That bucket is certain to empty as the shares I own are annually distributed to various philanthropies.
Two of the remaining four buckets are filled by institutional investors, each handling other people’s money.
That, however, is where the similarity between those buckets ends: Their investing procedures could not be more
different.
In one institutional bucket are index funds, a large and mushrooming segment of the investment world.
These funds simply mimic the index that they track. The favorite of index investors is the S&P 500, of which
Berkshire is a component. Index funds, it should be emphasized, own Berkshire shares simply because they are
required to do so. They are on automatic pilot, buying and selling only for “weighting” purposes.
In the other institutional bucket are professionals who manage their clients’ money, whether those funds
belong to wealthy individuals, universities, pensioners or whomever. These professional managers have a mandate to
move funds from one investment to another based on their judgment as to valuation and prospects. That is an
honorable, though difficult, occupation.
We are happy to work for this “active” group, while they meanwhile search for a better place to deploy the
funds of their clientele. Some managers, to be sure, have a long-term focus and trade very infrequently. Others use
computers employing algorithms that may direct the purchase or sale of shares in a nano-second. Some professional
investors will come and go based upon their macro-economic judgments.
Our fourth bucket consists of individual shareholders who operate in a manner similar to the active
institutional managers I’ve just described. These owners, understandably, think of their Berkshire shares as a
possible source of funds when they see another investment that excites them. We have no quarrel with that attitude,
which is similar to the way we look at some of the equities we own at Berkshire.
All of that said, Charlie and I would be less than human if we did not feel a special kinship with our fifth
bucket: the million-plus individual investors who simply trust us to represent their interests, whatever the future may
bring. They have joined us with no intent to leave, adopting a mindset similar to that held by our original partners.
Indeed, many investors from our partnership years, and/or their descendants, remain substantial owners of Berkshire.
A prototype of those veterans is Stan Truhlsen, a cheerful and generous Omaha ophthalmologist as well as
personal friend, who turned 100 on November 13, 2020. In 1959, Stan, along with 10 other young Omaha doctors,
formed a partnership with me. The docs creatively labeled their venture Emdee, Ltd. Annually, they joined my wife
and me for a celebratory dinner at our home.
When our partnership distributed its Berkshire shares in 1969, all of the doctors kept the stock they
received. They may not have known the ins and outs of investing or accounting, but they did know that at Berkshire
they would be treated as partners.
Two of Stan’s comrades from Emdee are now in their high-90s and continue to hold Berkshire shares. This
group’s startling durability – along with the fact that Charlie and I are 97 and 90, respectively – serves up an
interesting question: Could it be that Berkshire ownership fosters longevity?
************
Berkshire’s unusual and valued family of individual shareholders may add to your understanding of our
reluctance to court Wall Street analysts and institutional investors. We already have the investors we want and don’t
think that they, on balance, would be upgraded by replacements.
There are only so many seats – that is, shares outstanding – available for Berkshire ownership. And we very
much like the people already occupying them.
Of course, some turnover in “partners” will occur. Charlie and I hope, however, that it will be minimal.
Who, after all, seeks rapid turnover in friends, neighbors or marriage?
11
In 1958, Phil Fisher wrote a superb book on investing. In it, he analogized running a public company to
managing a restaurant. If you are seeking diners, he said, you can attract a clientele and prosper featuring either
hamburgers served with a Coke or a French cuisine accompanied by exotic wines. But you must not, Fisher warned,
capriciously switch from one to the other: Your message to potential customers must be consistent with what they
will find upon entering your premises.
At Berkshire, we have been serving hamburgers and Coke for 56 years. We cherish the clientele this fare has
attracted.
The tens of millions of other investors and speculators in the United States and elsewhere have a wide
variety of equity choices to fit their tastes. They will find CEOs and market gurus with enticing ideas. If they want
price targets, managed earnings and “stories,” they will not lack suitors. “Technicians” will confidently instruct them
as to what some wiggles on a chart portend for a stock’s next move. The calls for action will never stop.
Many of those investors, I should add, will do quite well. After all, ownership of stocks is very much a
“positive-sum” game. Indeed, a patient and level-headed monkey, who constructs a portfolio by throwing 50 darts at
a board listing all of the S&P 500, will – over time – enjoy dividends and capital gains, just as long as it never gets
tempted to make changes in its original “selections.”
Productive assets such as farms, real estate and, yes, business ownership produce wealth – lots of it. Most
owners of such properties will be rewarded. All that’s required is the passage of time, an inner calm, ample
diversification and a minimization of transactions and fees. Still, investors must never forget that their expenses are
Wall Street’s income. And, unlike my monkey, Wall Streeters do not work for peanuts.
When seats open up at Berkshire – and we hope they are few – we want them to be occupied by newcomers
who understand and desire what we offer. After decades of management, Charlie and I remain unable to promise
results. We can and do, however, pledge to treat you as partners.
Recently, I learned a fact about our company that I had never suspected: Berkshire owns American-based
property, plant and equipment – the sort of assets that make up the “business infrastructure” of our country – with a
GAAP valuation exceeding the amount owned by any other U.S. company. Berkshire’s depreciated cost of these
domestic “fixed assets” is $154 billion. Next in line on this list is AT&T, with property, plant and equipment of $127
billion.
Our leadership in fixed-asset ownership, I should add, does not, in itself, signal an investment triumph. The
best results occur at companies that require minimal assets to conduct high-margin businesses – and offer goods or
services that will expand their sales volume with only minor needs for additional capital. We, in fact, own a few of
these exceptional businesses, but they are relatively small and, at best, grow slowly.
Asset-heavy companies, however, can be good investments. Indeed, we are delighted with our two giants –
BNSF and BHE: In 2011, Berkshire’s first full year of BNSF ownership, the two companies had combined earnings
of $4.2 billion. In 2020, a tough year for many businesses, the pair earned $8.3 billion.
BNSF and BHE will require major capital expenditures for decades to come. The good news is that both are
likely to deliver appropriate returns on the incremental investment.
Let’s look first at BNSF. Your railroad carries about 15% of all non-local ton-miles (a ton of freight moved
one mile) of goods that move in the United States, whether by rail, truck, pipeline, barge or aircraft. By a significant
margin, BNSF’s loads top those of any other carrier.
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The history of American railroads is fascinating. After 150 years or so of frenzied construction,
skullduggery, overbuilding, bankruptcies, reorganizations and mergers, the railroad industry finally emerged a few
decades ago as mature and rationalized.
BNSF began operations in 1850 with a 12-mile line in northeastern Illinois. Today, it has 390 antecedents
whose railroads have been purchased or merged. The company’s extensive lineage is laid out at
http://www.bnsf.com/bnsf-resources/pdf/about-bnsf/History_and_Legacy.pdf.
Berkshire acquired BNSF early in 2010. Since our purchase, the railroad has invested $41 billion in fixed
assets, an outlay $20 billion in excess of its depreciation charges. Railroading is an outdoor sport, featuring mile-
long trains obliged to reliably operate in both extreme cold and heat, as they all the while encounter every form of
terrain from deserts to mountains. Massive flooding periodically occurs. BNSF owns 23,000 miles of track, spread
throughout 28 states, and must spend whatever it takes to maximize safety and service throughout its vast system.
Nevertheless, BNSF has paid substantial dividends to Berkshire – $41.8 billion in total. The railroad pays
us, however, only what remains after it both fulfills the needs of its business and maintains a cash balance of about
$2 billion. This conservative policy allows BNSF to borrow at low rates, independent of any guarantee of its debt by
Berkshire.
One further word about BNSF: Last year, Carl Ice, its CEO, and his number two, Katie Farmer, did an
extraordinary job in controlling expenses while navigating a significant downturn in business. Despite a 7% decline
in the volume of goods carried, the two actually increased BNSF’s profit margin by 2.9 percentage points. Carl, as
long planned, retired at yearend and Katie took over as CEO. Your railroad is in good hands.
BHE, unlike BNSF, pays no dividends on its common stock, a highly-unusual practice in the electric-utility
industry. That Spartan policy has been the case throughout our 21 years of ownership. Unlike railroads, our country’s
electric utilities need a massive makeover in which the ultimate costs will be staggering. The effort will absorb all of
BHE’s earnings for decades to come. We welcome the challenge and believe the added investment will be
appropriately rewarded.
Let me tell you about one of BHE’s endeavors – its $18 billion commitment to rework and expand a
substantial portion of the outdated grid that now transmits electricity throughout the West. BHE began this project in
2006 and expects it to be completed by 2030 – yes, 2030.
The advent of renewable energy made our project a societal necessity. Historically, the coal-based
generation of electricity that long prevailed was located close to huge centers of population. The best sites for the
new world of wind and solar generation, however, are often in remote areas. When BHE assessed the situation in
2006, it was no secret that a huge investment in western transmission lines had to be made. Very few companies or
governmental entities, however, were in a financial position to raise their hand after they tallied the project’s cost.
BHE’s decision to proceed, it should be noted, was based upon its trust in America’s political, economic and
judicial systems. Billions of dollars needed to be invested before meaningful revenue would flow. Transmission lines
had to cross the borders of states and other jurisdictions, each with its own rules and constituencies. BHE would also
need to deal with hundreds of landowners and execute complicated contracts with both the suppliers that generated
renewable power and the far-away utilities that would distribute the electricity to their customers. Competing
interests and defenders of the old order, along with unrealistic visionaries desiring an instantly-new world, had to be
brought on board.
Both surprises and delays were certain. Equally certain, however, was the fact that BHE had the managerial
talent, the institutional commitment and the financial wherewithal to fulfill its promises. Though it will be many
years before our western transmission project is completed, we are today searching for other projects of similar size
to take on.
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The Annual Meeting
Last year, on February 22nd, I wrote you about our plans for a gala annual meeting. Within a month, the
schedule was junked.
Our home office group, led by Melissa Shapiro and Marc Hamburg, Berkshire’s CFO, quickly regrouped.
Miraculously, their improvisations worked. Greg Abel, one of Berkshire’s Vice Chairmen, joined me on stage facing
a dark arena, 18,000 empty seats and a camera. There was no rehearsal: Greg and I arrived about 45 minutes before
“showtime.”
Debbie Bosanek, my incredible assistant who joined Berkshire 47 years ago at age 17, had put together
about 25 slides displaying various facts and figures that I had assembled at home. An anonymous but highly-capable
team of computer and camera operators projected the slides onto the screen in proper order.
Yahoo streamed the proceedings to a record-sized international audience. Becky Quick of CNBC, operating
from her home in New Jersey, selected questions from thousands that shareholders had earlier submitted or that
viewers had emailed to her during the four hours Greg and I were on stage. See’s peanut brittle and fudge, along
with Coca-Cola, provided us with nourishment.
This year, on May 1st, we are planning to go one better. Again, we will rely on Yahoo and CNBC to perform
flawlessly. Yahoo will go live at 1 p.m. Eastern Daylight Time (“EDT”). Simply navigate to
https://finance.yahoo.com/brklivestream.
Our formal meeting will commence at 5:00 p.m. EDT and should finish by 5:30 p.m. Earlier, between 1:30-
5:00, we will answer your questions as relayed by Becky. As always, we will have no foreknowledge as to what
questions will be asked. Send your zingers to BerkshireQuestions@cnbc.com. Yahoo will wrap things up after 5:30.
And now – drum roll, please – a surprise. This year our meeting will be held in Los Angeles . . . and
Charlie will be on stage with me offering answers and observations throughout the 3 1⁄2-hour question period. I
missed him last year and, more important, you clearly missed him. Our other invaluable vice-chairmen, Ajit Jain and
Greg Abel, will be with us to answer questions relating to their domains.
Join us via Yahoo. Direct your really tough questions to Charlie! We will have fun, and we hope you will as
well.
Better yet, of course, will be the day when we see you face to face. I hope and expect that will be in 2022.
The citizens of Omaha, our exhibiting subsidiaries and all of us at the home office can’t wait to get you back for an
honest-to-God annual meeting, Berkshire-style.
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