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Warren Buffett's Letters to Berkshire Shareholders (巴菲特寫給股東的信,1980年)

To the Shareholders of Berkshire Hathaway Inc.:

Operating earnings improved to $41.9 million in 1980 from $36.0 million in 1979, but return on beginning equity capital (with securities valued at cost) fell to 17.8% from 18.6%. We believe the latter yardstick to be the most appropriate measure of single-year managerial economic performance. Informed use of that yardstick, however, requires an understanding of many factors, including accounting policies, historical carrying values of assets, financial leverage, and industry conditions.


In your evaluation of our economic performance, we suggest that two factors should receive your special attention - one of a positive nature peculiar, to a large extent, to our own operation, and one of a negative nature applicable to corporate performance generally. Let’s look at the bright side first.

各位在判斷本公司的經營績效時,有兩個因素是你必須特別注意的,一項是對公司營運相當有利的,而另一項則企業績效相對較不利的。讓我們先從好的那一面看起:Non-Controlled Ownership Earnings無控制權持股之盈餘

When one company owns part of another company, appropriate accounting procedures pertaining to that ownership interest must be sele cted from one of three major categories. The percentage of voting stock that is owned, in large part, determines which category of accounting principles should be utilized.


Generally accepted accounting principles require (subject to exceptions, naturally, as with our former bank subsidiary) full consolidation of sales, expenses, taxes, and earnings of business holdings more than 50% owned.Blue Chip Stamps, 60% owned by Berkshire Hathaway Inc., falls into this category. Therefore, all Blue Chip income and expense items are included in full in Berkshire ’s Consolidated Statement of Earnings, with the 40% ownership interest of others in Blue Chip’s net earnings reflected in the Statement as a deduction for “minority interest”.


Full inclusion of underlying earnings from another class of holdings,companies owned 20% to 50% (usually called “investees”), also normally occurs. Earnings from such companies - for example, Wesco Financial, controlled by Berkshire but only 48% owned - are included via a one-line entry in the owner’s Statement of Earnings. Unlike the over-50% category, all items of revenue and expense are omitted; just the proportional share of net income is included. Thus, if Corporation A owns one-third of Corporation B, one-third of B’s earnings, whether or not distributed by B, will end up in A’s earnings. There are some modifications, both in this and the over-50% category, for intercorporate taxes and purchase price adjustments, the explanation of which we will save for a later day. (We know you can hardly wait.)

而若是持有股權比例介於20%-50% 之間,像Wesco金融公司雖係由Berkshire所控制但卻僅持有48%的股權,則在投資公司的帳上僅記錄一個分錄,將被投資公司依股權比例所認列的投資損失或利益予以入帳。因此如果A公司擁有B公司三分之一的股權,則不論B公司是否將年度盈餘全數發放,A公司都必須依比例認列投資利益,另外這兩類的會計原則都規定,必須附帶一些企業間所得稅、購買法價格調整等調整分錄,這部份的細節請容我們以後有空再詳加說明,(雖然我知道大家可能等不及了)。

Finally come holdings representing less than 20% ownership of another corporation’s voting securities. In these cases, accounting rules dictate that the owning companies include in their earnings only dividends received from such holdings. Undistributed earnings are ignored. Thus, should we own 10% of Corporation X with earnings of $10 million in 1980, we would report on our earnings (ignoring relatively minor taxes on intercorporate dividends) either (a) $1 million if X declared the full $10 million in dividends; (b) $500,000 if X paid out 50%, or $5 million, in dividends; or (c) zero if X reinvested all earnings.

最後若是持股比例低於20%,則依照會計原則,投資公司僅能認列被投資公司實際發放的股利部份,至於保留而不發放的部份盈餘則不予理會,也因此假若我們持有一家X 公司10%的股份,又假設X公司在1980 年共計賺了1,000萬美金,若X公司將盈餘全部發放,則我們可認列100萬的利益,反之若X公司決定保留全部盈餘不予發配,則我們連一毛錢都不能認列。

We impose this short - and over-simplified - course in accounting upon you because Berkshire ’s concentration of resources in the insurance field produces a corresponding concentration of its assets in companies in that third (less than 20% owned) category. Many of these companies pay out relatively small proportions of their earnings in dividends. This means that only a small proportion of their current earning power is recorded in our own current operating earnings. But, while our reported operating earnings reflect only the dividends received from such companies, our economic well-being is determined by their earnings, not their dividends.


Our holdings in this third category of companies have increased dramatically in recent years as our insurance business has prospered and as securities markets have presented particularly attractive opportunities in the common stock area. The large increase in such holdings, plus the growth of earnings experienced by those partially-owned companies, has produced an unusual result; the part of “our” earnings that these companies retained last year (the part not paid to us in dividends) exceeded the total reported annual operating earnings of Berkshire Hathaway. Thus, conventional accounting only allows less than half of our earnings “iceberg” to appear above the surface, in plain view. Within the corporate world such a result is quite rare; in our case it is likely to be recurring.

這類投資近年來因為我們旗下保險事業蓬勃發展,同時也因為股票市場出現許多不錯 的投資機會而大幅增加,股票投資的大量增加再加上這些公司本身獲利能力的增長使 得我們實際獲得的成果相當可觀,以去年來說,光是保留在這些公司而未分配給Berkshire的盈餘,便比Berkshire整年度的帳面盈餘還高,雖然這樣的情況在一般企業界並不多見,但我們預期這種情況在Berkshire將會持續出現。

Our own analysis of earnings reality differs somewhat from generally accepted accounting principles, particularly when those principles must be applied in a world of high and uncertain rates of inflation. (But it’s much easier to criticize than to improve such accounting rules. The inherent problems are monumental.) We have owned 100% of businesses whose reported earnings were not worth close to 100 cents on the dollar to us even though, in an accounting sense, we totally controlled their disposition. (The “control” was theoretical. Unless we reinvested all earnings, massive deterioration in the value of assets already in place would occur. But those reinvested earnings had no prospect of earning anything close to a market return on capital.) We have also owned small fractions of businesses with extraordinary reinvestment possibilities whose retained earnings had an economic value to us far in excess of 100 cents on the dollar.


The value to Berkshire Hathaway of retained earnings is not determined by whether we own 100%, 50%, 20% or 1% of the businesses in which they reside. Rather, the value of those retained earnings is determined by the use to which they are put and the subsequent level of earnings produced by that usage. This is true whether we determine the usage, or whether managers we did not hire - but did elect to join - determine that usage. (It’s the act that counts, not the actors.) And the value is in no way affected by the inclusion or non-inclusion of those retained earnings in our own reported operating earnings. If a tree grows in a forest partially owned by us, but we don’t record the growth in our financial statements, we still own part of the tree.

因此對Berkshire而言,對盈餘的認定並非取決於持股比例是100%、50%、20%、5% 或是1%,盈餘的真正價值在於其將來再投資所能產生的效益,這與是否由我們自己或是專業經理人來決定並不相關,也與我們認列或不認列利益不相關(重要的是劇本而不是演員)。假設我們公司擁有一片山林,即使財務報表無法反映這些樹木的成長,也無法掩蓋我們擁有這片成長中的山林這項事實。

Our view, we warn you, is non-conventional. But we would rather have earnings for which we did not get accounting credit put to good use in a 10%-owned company by a management we did not personally hire, than have earnings for which we did get credit put into projects of more dubious potential by another management - even if we are that management.


(We can’t resist pausing here for a short commercial. One usage of retained earnings we often greet with special enthusiasm when practiced by companies in which we have an investment interest is repurchase of their own shares. The reasoning is simple: if a fine business is selling in the market place for far less than intrinsic value, what more certain or more profitable utilization of capital can there be than significant enlargement of the interests of all owners at that bargain price? The competitive nature of corporate acquisition activity almost guarantees the payment of a full -frequently more than full price when a company buys the entire ownership of another enterprise. But the auction nature of security markets often allows finely-run companies the opportunity to purchase portions of their own businesses at a price under 50% of that needed to acquire the same earning power through the negotiated acquisition of another enterprise.)


Long-Term Corporate Results

As we have noted, we evaluate single-year corporate performance by comparing operating earnings to shareholders’ equity with securities valued at cost. Our long-term yardstick of performance, however, includes all capital gains or losses, realized or unrealized. We continue to achieve a long-term return on equity that considerably exceeds the average of our yearly returns. The major factor causing this pleasant result is a simple one: the retained earnings of those non-controlled holdings we discussed earlier have been translated into gains in market value.


Of course, this translation of retained earnings into market price appreciation is highly uneven (it goes in reverse some years), unpredictable as to timing, and unlikely to materialize on a precise dollar-for-dollar basis. And a silly purchase price for a block of stock in a corporation can negate the effects of a decade of earnings retention by that corporation. But when purchase prices are sensible, some long-term market recognition of the accumulation of retained earnings almost certainly will occur. Periodically you even will receive some frosting on the cake, with market appreciation far
exceeding post-purchase retained earnings.


In the sixteen years since present management assumed responsibility for Berkshire , book value per share with insurance-held equities valued at market has increased from $19.46 to $400.80, or 20.5% compounded annually. (You’ve done better: the value of the mineral content in the human body compounded at 22% annually during the past decade.) It is encouraging, moreover, to realize that our record was achieved despite many mistakes. The list is too painful and lengthy to detail here. But it clearly shows that a reasonably competitive corporate batting average can be achieved in spite of a lot of managerial strikeouts.

在現有經營階層接掌Berkshire的十六年來,公司每股的帳面淨值(其中保險事業的股權投資以市價計)已由原先的19.46美元成長至400.8美元,相當於年複合成長率20.5% (事實上你「本身」作得也不錯,過去十年來人體內所含礦物質成份的價值以年複合成長率22%增加),值得慶幸的是,雖然我們也犯了不少錯,但還是能達到這樣的記錄,儘管管理上時常糟到三振,但優異的企業體質仍然可以維持相當不錯的平均打擊率。

Our insurance companies will continue to make large investments in well-run, favorably-situated, non-controlled companies that very often will pay out in dividends only small proportions of their earnings. Following this policy, we would expect our long-term returns to continue to exceed the returns derived annually from reported operating earnings. Our confidence in this belief can easily be quantified: if we were to sell the equities that we hold and replace them with long-term tax-free bonds, our reported
operating earnings would rise immediately by over $30 million annually. Such a shift tempts us not at all.


So much for the good news.

 Results for Owners

Unfortunately, earnings reported in corporate financial statements are no longer the dominant variable that determines whether there are any real earnings for you, the owner. For only gains in purchasing power represent real earnings on investment. If you (a) forego ten hamburgers to purchase an investment; (b) receive dividends which, after tax, buy two hamburgers; and (c) receive, upon sale of your holdings, after-tax proceeds that will buy  eight hamburgers, then (d) you have had no real income from your investment, no matter how much it appreciated in dollars. You may feel richer, but you won’t eat richer.


High rates of inflation create a tax on capital that makes much corporate investment unwise - at least if measured by the criterion of a positive real investment return to owners. This “hurdle rate” the return on equity that must be achieved by a corporation in order to produce any real return for its individual owners - has increased dramatically in recent years. The average tax-paying investor is now running up a down escalator whose pace has accelerated to the point where his upward progress is nil.


For example, in a world of 12% inflation a business earning 20% on equity (which very few manage consistently to do) and distributing it all to individuals in the 50% bracket is chewing up their real capital, not enhancing it. (Half of the 20% will go for income tax; the remaining 10% leaves the owners of the business with only 98% of the purchasing power they possessed at the start of the year - even though they have not spent a penny if their “earnings”). The investors in this bracket would actually be better off with a combination of stable prices and corporate earnings on equity 
capital of only a few per cent.

舉例來說,假設一位投資人的年報酬率為20%(這已是一般人很難達到的成績了)而當年度的通膨為12%,又若其不幸適用50% 高所得稅級距,則我們會發現該位投資人在盈餘全數發放的情形下,其實質報酬率可能是負的,因為這20%的股利收入有一半要歸公庫,剩下的10%全部被通貨膨漲吃光,不夠還要倒貼,這結局可能比在通膨溫和時投資一家獲利平庸的公司還不如。

Explicit income taxes alone, unaccompanied by any implicit inflation tax, never can turn a positive corporate return into a negative owner return. (Even if there were 90% personal income tax rates on both dividends and capital gains, some real income would be left for the owner at a zero inflation rate.) But the inflation tax is not limited by reported income. Inflation rates not far from those recently experienced can turn the level of positive returns achieved by a majority of corporations into negative returns for all owners, including those not required to pay explicit taxes. (For example, if inflation reached 16%, owners of the 60% plus of corporate America earning less than this rate of return would be realizing a negative real return - even if income taxes on dividends and capital gains were eliminated.)


Of course, the two forms of taxation co-exist and interact since explicit taxes are levied on nominal, not real, income. Thus you pay income taxes on what would be deficits if returns to stockholders were measured in constant dollars.


At present inflation rates, we believe individual owners in medium or high tax brackets (as distinguished from tax-free entities such as pension funds, eleemosynary institutions, etc.) should expect no real long-term return from the average American corporation, even though these individuals reinvest the entire after-tax proceeds from all dividends they receive. The average return on equity of corporations is fully offset by the combination of the implicit tax on capital levied by inflation and the explicit taxes levied both on dividends and gains in value produced by retained earnings.


As we said last year, Berkshire has no corporate solution to the problem. (We’ll say it again next year, too.) Inflation does not improve our return onequity.


Indexing is the insulation that all seek against inflation. But the great bulk (although there are important exceptions) of corporate capital is not even partially indexed. Of course, earnings and dividends per share usually will rise if significant earnings are “saved” by a corporation; i.e., reinvested instead of paid as dividends. But that would be true without inflation. A thrifty wage earner, likewise, could achieve regular annual increases in his total income without ever getting a pay increase - if he were willing to take only half of his paycheck in cash (his wage “dividend”) and consistently add the other half (his “retained earnings”) to a savings account. Neither this high-saving wage earner nor the stockholder in a high-saving corporation whose annual dividend rate increases while its rate of return on equity remains flat is truly indexed.


For capital to be truly indexed, return on equity must rise, i.e., business earnings consistently must increase in proportion to the increase in the price level without any need for the business to add to capital - including working capital - employed. (Increased earnings produced by increased investment don’t count.) Only a few businesses come close to exhibiting this ability. And Berkshire Hathaway isn’t one of them.


We, of course, have a corporate policy of reinvesting earnings for growth, diversity and strength, which has the incidental effect of minimizing the current imposition of explicit taxes on our owners. However, on a day-by-day basis, you will be subjected to the implicit inflation tax, and when you wish to transfer your investment in Berkshire into another form of investment, or into consumption, you also will face explicit taxes.


Sources of Earnings

 The table below shows the sources of Berkshire ’s reported earnings. Berkshire owns about 60% of Blue Chip Stamps, which in turn owns 80% of Wesco Financial Corporation. The table shows aggregate earnings of the various business entities, as well as Berkshire ’s share of those earnings. All of the significant capital gains and losses attributable to any of the business entities are aggregated in the realized securities gains figure at the bottom of the table, and are not included in operating earnings. Our calculation of operating earnings also excludes the gain from sale of Mutual’s branch 
offices. In this respect it differs from the presentation in our audited financial statements that includes this item in the calculation of “Earnings Before Realized Investment Gain”.

下表顯示Berkshire依照各個公司持股比例來列示帳面盈餘的主要來源,而各個公司資本利得損失並不包含在內而是彙總於下表「已實現出售證券利得」一欄中,雖然本表列示的方式與一般公認會計原則不儘相同,但最後的損益數字卻是一致的: 其中Berkshire擁有Blue Chips Stamps 60%的股權,而後者又擁有 Wesco 財務公司80% 的股權。此外,本期的帳面盈餘並不包括聯合儲貸處份分公司辦公室的利得,也因此使得表中「未包括已實現投資利得前盈餘」與經會計師簽證的財務報表數字有所不同。

Net Earnings
Earnings Before Income Taxes After Tax
------------------------------- ------------------
Total Berkshire Share Berkshire Share
----------------- --------------- ---------------
(in thousands of dollars) 1980 1979 1980 1979 1980 1979
------- ------- -------- -------- -------- --------
Total Earnings - all entities $ 85,945 $ 68,632 $ 70,146 $ 56,427 $ 53,122 $ 42,817
===== ====== ====== ====== ====== ======
Earnings from Operations:
Insurance Group:
Underwriting ............ $ 6,738 $ 3,742 $ 6,737 $ 3,741 $ 3,637 $ 2,214
Net Investment Income ..30,939 24,224 30,927 24,216 25,607 20,106
Berkshire-Waumbec Textiles (508) 1,723 (508) 1,723 202 848
Associated Retail Stores .. 2,440 2,775 2,440 2,775 1,169 1,280
See’s Candies ............. 15,031 12,785 8,958 7,598 4,212 3,448
Buffalo Evening News ...... (2,805) (4,617) (1,672) (2,744) (816) (1,333)
Blue Chip Stamps - Parent 7,699 2,397 4,588 1,425 3,060 1,624
Illinois National Bank .... 5,324 5,747 5,200 5,614 4,731 5,027
Wesco Financial - Parent .. 2,916 2,413 1,392 1,098 1,044 937
Mutual Savings and Loan ...5,814 10,447 2,775 4,751 1,974 3,261
Precision Steel ........... 2,833 3,254 1,352 1,480 656 723
Interest on Debt .......... (12,230) (8,248) (9,390) (5,860) (4,809) (2,900)
Other ..................... 2,170 1,342 1,590 996 1,255 753
-------- -------- -------- -------- -------- --------
Total Earnings from
Operations ........... $ 66,361 $ 57,984 $ 54,389 $ 46,813 $ 41,922 $ 35,988
Mutual Savings and Loan -
sale of branches ....... 5,873 -- 2,803 -- 1,293 --
Realized Securities Gain .... 13,711 10,648 12,954 9,614 9,907 6,829
-------- -------- -------- -------- -------- --------
Total Earnings - all entities$ 85,945 $ 68,632 $ 70,146 $ 56,427 $ 53,122 $ 42,817
====== ======= ====== ====== ====== ======

Blue Chip Stamps and Wesco are public companies with reporting requirements of their own. On pages 40 to 53 of this report we have reproduced the narrative reports of the principal executives of both 
companies, in which they describe 1980 operations. We recommend a careful reading, and suggest that you particularly note the superb job done by Louie Vincenti and Charlie Munger in repositioning Mutual Savings and Loan. A copy of the full annual report of either company will be mailed to any Berkshire shareholder upon request to Mr. Robert H. Bird for Blue Chip Stamps, 5801 South Eastern Avenue, Los Angeles, California 90040, or to Mrs. Bette Deckard for Wesco Financial Corporation, 315 East Colorado Boulevard, Pasadena, California 91109.

Blue Chip 及Wesco 兩家公司因為本身是公開發行公司以規定編有自己的年報,我建議大家仔細閱讀,尤其是有關Louie Vincenti和Charlie Munger對聯合儲貸業務所作的改造,若有需要Berkshire的股東可向Mr. Robert(地址:加州洛杉磯5801 South Eastern Avenue)索取藍籌郵票的年報或向Mrs. Bette(地址:加州Pasadena 315 East Colorado Boulevard)索取Wesco的年報。

As indicated earlier, undistributed earnings in companies we do not control are now fully as important as the reported operating earnings detailed in the preceding table. The distributed portion, of course, finds its way into the table primarily through the net investment income section of Insurance Group earnings.


We show below Berkshire ’s proportional holdings in those non-controlled businesses for which only distributed earnings (dividends) are included in our own earnings.

No. of Shares Cost Market
------------- ---------- ----------
(000s omitted)
434,550 (a) Affiliated Publications, Inc. ......... $ 2,821 $ 12,222
464,317 (a) Aluminum Company of America ........... 25,577 27,685
475,217 (b) Cleveland-Cliffs Iron Company ......... 12,942 15,894
1,983,812 (b) General Foods, Inc. ................... 62,507 59,889
7,200,000 (a) GEICO Corporation ..................... 47,138 105,300
2,015,000 (a) Handy & Harman ........................ 21,825 58,435
711,180 (a) Interpublic Group of Companies, Inc. .. 4,531 22,135
1,211,834 (a) Kaiser Aluminum & Chemical Corp. ...... 20,629 27,569
282,500 (a) Media General ......................... 4,545 8,334
247,039 (b) National Detroit Corporation .......... 5,930 6,299
881,500 (a) National Student Marketing ............ 5,128 5,895
391,400 (a) Ogilvy & Mather Int’l. Inc. ........... 3,709 9,981
370,088 (b) Pinkerton’s, Inc. ..................... 12,144 16,489
245,700 (b) R. J. Reynolds Industries ............. 8,702 11,228
1,250,525 (b) SAFECO Corporation .................... 32,062 45,177
151,104 (b) The Times Mirror Company .............. 4,447 6,271
1,868,600 (a) The Washington Post Company ........... 10,628 42,277
667,124 (b) E W Woolworth Company ................. 13,583 16,511
---------- ----------
$298,848 $497,591
All Other Common Stockholdings ........ 26,313 32,096
---------- ----------
Total Common Stocks ................... $325,161 $529,687
========= =========
(a) All owned by Berkshire or its insurance subsidiaries.
(b) Blue Chip and/or Wesco own shares of these companies. All numbers represent 
Berkshire’s net interest in the larger gross holdings of the group.
(a) 代表全部股權由Berkshire及其子公司所持有
(b) 代表由Berkshire子公司Blue Chip與Wesco 所持有,依Berkshire持股比例換算得來

From this table, you can see that our sources of underlying earning power are distributed far differently among industries than would superficially seem the case. For example, our insurance subsidiaries own approximately 3% of Kaiser Aluminum, and 1 1/4% of Alcoa. Our share of the 1980 earnings of those companies amounts to about $13 million. (If translated dollar for dollar into a combination of eventual market value gain and dividends, this figure would have to be reduced by a significant, but not precisely determinable, amount of tax; perhaps 25% would be a fair assumption.) Thus, we have a much larger economic interest in the aluminum business than in practically any of the operating businesses we control and on which we report in more detail. If we maintain our holdings, our long-
term performance will be more affected by the future economics of the aluminum industry than it will by direct operating decisions we make concerning most companies over which we exercise managerial control.

從本表你會發現本公司背後所創造盈餘的動力係來自於各行各業,所以我們只能約略地看個大概,譬如保險子公司約持有Kaiser Alumnium 3%和 Aloca 1.25%的股份,在1980年我們光是從這些公司依持股比例可得約1,300萬美金(當然若將這些盈餘實際轉為資本利得或股利,則大約會被課以25%的稅負),因此單單在製鋁這門行業,我們的經濟利益就大於其它那些我們可以直接控制且須詳盡報告的公司。如果我們的持股不改變,則製鋁產業的景氣變動,將比那些我們具有實質控制權的產業,對本公司長遠的績效表現更有影響力。


 Our largest non-controlled holding is 7.2 million shares of GEICO Corp., equal to about a 33% equity interest. Normally, an interest of this magnitude (over 20%) would qualify as an “investee” holding and would require us to reflect a proportionate share of GEICO’s earnings in our own.However, we purchased our GEICO stock pursuant to special orders of the District of Columbia and New York Insurance Departments, which required that the right to vote the stock be placed with an independent party. Absent the vote, our 33% interest does not qualify for investee treatment. (Pinkerton’s is a similar situation.)


Of course, whether or not the undistributed earnings of GEICO are picked up annually in our operating earnings figure has nothing to do with their economic value to us, or to you as owners of Berkshire . The value of these retained earnings will be determined by the skill with which they are put to use by GEICO management.


On this score, we simply couldn’t feel better. GEICO represents the best of all investment worlds - the coupling of a very important and very hard to duplicate business advantage with an extraordinary management whose skills in operations are matched by skills in capital allocation.


As you can see, our holdings cost us $47 million, with about half of this amount invested in 1976 and most of the remainder invested in 1980. At the present dividend rate, our reported earnings from GEICO amount to a little over $3 million annually. But we estimate our share of its earning power is on the order of $20 million annually. Thus, undistributed earnings applicable to this holding alone may amount to 40% of total reported operating earnings of Berkshire .

如你所見到的,我們的持股成本約4,700萬美元,分別是在1976年與1980年分兩次投入,依實際配息情況,我們每年約從GEIGO 認列300萬元的利益,但實際上每年可分得的盈餘卻高達2,000萬元,換言之,我們光是在該公司未分配的盈餘就達Berkshire帳面盈餘的四成左右。

We should emphasize that we feel as comfortable with GEICO management retaining an estimated $17 million of earnings applicable to our ownership as we would if that sum were in our own hands. In just the last two years GEICO, through repurchases of its own stock, has reduced the share equivalents it has outstanding from 34.2 million to 21.6 million, dramatically enhancing the interests of shareholders in a business that simply can’t be replicated. The owners could not have been better served.

另外我們必須強調的是我們完全贊同GEIGO經營階層將剩下屬於我們的1,700萬保留起來未予分配的作法,因為在此同時,GEIGO 於近兩年內陸續買回自家股票,使得該公司流通在外的股份由3,400萬股縮減至2,100萬股,大大增進了原有股東的權益,如此對待股東的方式實在是無話可說。

We have written in past reports about the disappointments that usually result from purchase and operation of “turnaround” businesses. Literally hundreds of turnaround possibilities in dozens of industries have been described to us over the years and, either as participants or as observers, we have tracked performance against expectations. Our conclusion is that, with few exceptions, when a management with a reputation for brilliance tackles a business with a reputation for poor fundamental economics, it is the reputation of the business that remains intact.


GEICO may appear to be an exception, having been turned around from the very edge of bankruptcy in 1976. It certainly is true that managerial brilliance was needed for its resuscitation, and that Jack Byrne, upon arrival in that year, supplied that ingredient in abundance.

GEIGO或許是一個例外,自1976年幾乎破產的邊緣東山再起,從經營階層Jack Byrne上任的第一天起優異的表現,正是它能獲得重生的最大因素。

But it also is true that the fundamental business advantage that GEICO had enjoyed - an advantage that previously had produced staggering success - was still intact within the company, although submerged in a sea of financial and operating troubles.


GEICO was designed to be the low-cost operation in an enormous marketplace (auto insurance) populated largely by companies whose marketing structures restricted adaptation. Run as designed, it could offer unusual value to its customers while earning unusual returns for itself. For decades it had been run in just this manner. Its troubles in the mid-70s were not produced by any diminution or disappearance of this essential economic advantage.


GEICO’s problems at that time put it in a position analogous to that of American Express in 1964 following the salad oil scandal. Both were one-of-a-kind companies, temporarily reeling from the effects of a fiscal blow that did not destroy their exceptional underlying economics. The GEICO and American Express situations, extraordinary business franchises with a localized excisable cancer (needing, to be sure, a skilled surgeon), should be distinguished from the true “turnaround” situation in which the managers expect - and need - to pull off a corporate Pygmalion.


Whatever the appellation, we are delighted with our GEICO holding which, as noted, cost us $47 million. To buy a similar $20 million of earning power in a business with first-class economic characteristics and bright prospects would cost a minimum of $200 million (much more in some industries) if it had to be accomplished through negotiated purchase of an entire company. A 100% interest of that kind gives the owner the options of leveraging the purchase, changing managements, directing cash flow, and selling the business. It may also provide some excitement around corporate 
headquarters (less frequently mentioned).


We find it perfectly satisfying that the nature of our insurance business dictates we buy many minority portions of already well-run businesses (at prices far below our share of the total value of the entire business) that do not need management change, re-direction of cash flow, or sale. There aren’t many Jack Byrnes in the managerial world, or GEICOs in the business world. What could be better than buying into a partnership with both of them?

對於保險業規定,我們只能取得績優企業的部份少數股權(以遠低於買下整家企業的價格投資),(這代表我們不能更換經營階層、無法對資金做重新配置甚至處份公司),我們從來就不會感到任何不妥,在企業經營的世界裡,Jack Byrnes或GEICO都算是少數,能夠以夥伴的關係與它們共同合作有何不可呢?

Insurance Industry Conditions

The insurance industry’s underwriting picture continues to unfold about as we anticipated, with the combined ratio (see definition on page 37) rising from 100.6 in 1979 to an estimated 103.5 in 1980. It is virtually certain that this trend will continue and that industry underwriting losses will mount, significantly and progressively, in 1981 and 1982. To understand why, we recommend that you read the excellent analysis of property-casualty competitive dynamics done by Barbara Stewart of Chubb Corp. in an October 1980 paper. (Chubb’s annual report consistently presents the most insightful, candid and well-written discussion of industry conditions; you should get on the company’s mailing list.) Mrs. Stewart’s analysis may not be cheerful, but we think it is very likely to be accurate.

保險產業的情況持續依我們先前所預期般地發展,綜合比率(定義請參閱第37頁)從1979年的100.6 升高到1980年估計的103.5,可預期的是1981到1982年這個趨勢將繼續持續下去,業界的核保損失將向上攀升,想要了解箇中原因的人,我建議你讀讀Chubb保險集團的年報,其對產險業競爭態勢所作的精譬分析,雖然報告不見得令人振奮,但絕對中肯。

And, unfortunately, a largely unreported but particularly pernicious problem may well prolong and intensify the coming industry agony. It is not only likely to keep many insurers scrambling for business when underwriting losses hit record levels - it is likely to cause them at such a time to redouble their efforts.


This problem arises from the decline in bond prices and the insurance accounting convention that allows companies to carry bonds at amortized cost, regardless of market value. Many insurers own long-term bonds that, at amortized cost, amount to two to three times net worth. If the level is three times, of course, a one-third shrink from cost in bond prices - if it were to be recognized on the books - would wipe out net worth. And shrink they have. Some of the largest and best known property-casualty companies currently find themselves with nominal, or even negative, net worth when bond holdings are valued at market. Of course their bonds could rise in price, thereby partially, or conceivably even fully, restoring the integrity of stated net worth. Or they could fall further. (We believe that short-term forecasts of stock or bond prices are useless. The forecasts may tell you a great deal about the forecaster; they tell you nothing about the future.)


It might strike some as strange that an insurance company’s survival is threatened when its stock portfolio falls sufficiently in price to reduce net worth significantly, but that an even greater decline in bond prices produces no reaction at all. The industry would respond by pointing out that, no matter what the current price, the bonds will be paid in full at maturity, thereby eventually eliminating any interim price decline. It may take twenty, thirty, or even forty years, this argument says, but, as long as the bonds don’t have to be sold, in the end they’ll all be worth face value. Of course, if they are sold even if they are replaced with similar bonds offering better relative value - the loss must be booked immediately. And, just as promptly, published net worth must be adjusted downward by the amount of the loss.


Under such circumstances, a great many investment options disappear, perhaps for decades. For example, when large underwriting losses are in prospect, it may make excellent business logic for some insurers to shift from tax-exempt bonds into taxable bonds. Unwillingness to recognize major bond losses may be the sole factor that prevents such a sensible move.


But the full implications flowing from massive unrealized bond losses are far more serious than just the immobilization of investment intellect. For the source of funds to purchase and hold those bonds is a pool of money derived from policyholders and claimants (with changing faces) - money which, in effect, is temporarily on deposit with the insurer. As long as this 
pool retains its size, no bonds must be sold. If the pool of funds shrinks - which it will if the volume of business declines significantly - assets must be sold to pay off the liabilities. And if those assets consist of bonds with big unrealized losses, such losses will rapidly become realized, decimating net worth in the process.


Thus, an insurance company with a bond market value shrinkage approaching stated net worth (of which there are now many) and also faced with inadequate rate levels that are sure to deteriorate further has two options. One option for management is to tell the underwriters to keep pricing according to the exposure involved - “be sure to get a dollar of premium for every dollar of expense cost plus expectable loss cost”.

因此保險公司在面臨債券價格下跌,淨值大幅縮水 (目前確有許多業者是如此),同時市場費率又低到不合理時,通常有兩種選擇,一種是告訴核保部門,必須堅守費率底限,保費絕對不可以低於預估損失成本加上營業費用。

The consequences of this directive are predictable: (a) with most business both price sensitive and renewable annually, many policies presently on the books will be lost to competitors in rather short order; (b) as premium volume shrinks significantly, there will be a lagged but corresponding decrease in liabilities (unearned premiums and claims payable); (c) assets (bonds) must be sold to match the decrease in liabilities; and (d) the formerly unrecognized disappearance of net worth will become partially recognized (depending upon the extent of such sales) in the insurer’s published financial statements.

這種選擇的結果相當明確: (a)由於大部份的業務都是每年更新且對價格都相當敏感,所以很多保單在到期後都會流到競爭對手那邊(b)隨著保費收入大幅縮水,相對應的負債科目也會慢慢減少(未到期保費及應付理賠款)(c)資產(債券)必須跟著出售,以因應負債的減少(d)原先檯面下的未實現損失,將被迫認列在保險業者的財務報表之上(當然要看出售的多寡)。

Variations of this depressing sequence involve a smaller penalty to stated net worth. The reaction of some companies at (c) would be to sell either stocks that are already carried at market values or recently purchased bonds involving less severe losses. This ostrich-like behavior - selling the better assets and keeping the biggest losers - while less painful in the short term, is unlikely to be a winner in the long term.


The second option is much simpler: just keep writing business regardless of rate levels and whopping prospective underwriting losses, thereby maintaining the present levels of premiums, assets and liabilities - and then pray for a better day, either for underwriting or for bond prices. There is much criticism in the trade press of “cash flow” underwriting; i.e.,writing business regardless of prospective underwriting losses in order to obtain funds to invest at current high interest rates. This second option might properly be termed “asset maintenance” underwriting - the acceptance 
of terrible business just to keep the assets you now have.


Of course you know which option will be selected. And it also is clear that as long as many large insurers feel compelled to choose that second option, there will be no better day for underwriting. For if much of the industry feels it must maintain premium volume levels regardless of price adequacy, all insurers will have to come close to meeting those prices. Right behind having financial problems yourself, the next worst plight is to have a large group of competitors with financial problems that they can defer by a “sell-at-any-price” policy.


We mentioned earlier that companies that were unwilling - for any of a number of reasons, including public reaction, institutional pride, or protection of stated net worth - to sell bonds at price levels forcing recognition of major losses might find themselves frozen in investment posture for a decade or longer. But, as noted, that’s only half of the problem. Companies that have made extensive commitments to long-term bonds may have lost, for a considerable period of time, not only many of their investment options, but many of their underwriting options as well.


Our own position in this respect is satisfactory. We believe our net worth, valuing bonds of all insurers at amortized cost, is the strongest relative to premium volume among all large property-casualty stockholder-owned groups. When bonds are valued at market, our relative strength becomes far more dramatic. (But lest we get too puffed up, we remind ourselves that our asset and liability maturities still are far more mismatched than we would wish and that we, too, lost important sums in bonds because your Chairman was talking when he should have been acting.)


Our abundant capital and investment flexibility will enable us to do whatever we think makes the most sense during the prospective extended period of inadequate pricing. But troubles for the industry mean troubles for us. Our financial strength doesn’t remove us from the hostile pricing environment now enveloping the entire property-casualty insurance industry. It just gives us more staying power and more options.


Insurance Operations

The National Indemnity managers, led by Phil Liesche with the usual able assistance of Roland Miller and Bill Lyons, outdid themselves in 1980. While volume was flat, underwriting margins relative to the industry were at an all-time high. We expect decreased volume from this operation in 1981. But its managers will hear no complaints from corporate headquarters, nor will employment or salaries suffer. We enormously admire the National Indemnity underwriting discipline - embedded from origin by the founder, Jack Ringwalt - and know that this discipline, if suspended, probably could 
not be fully regained.

今年由Phil Liesche 所領導的國家產險公司在核保部門Roland以及理賠部門Bill Lyons的協助下,不斷地超越自我,雖然保費收入持平,但核保的利潤率卻創同業新高,雖然我們預期明年保費收入將減少,但身為總部的我們不會有任何的抱怨而他們的薪資考績也不會受影響,對於公司創辦人所定下的核保準則我們信奉不渝,而且相當清楚一旦失去就永難再回復。

John Seward at Home and Auto continues to make good progress in replacing a diminishing number of auto policies with volume from less competitive lines, primarily small-premium general liability. Operations are being slowly expanded, both geographically and by product line, as warranted by underwriting results.

John Seward領導的家庭與汽車險公司則小有進展,我們將較不具競爭力的小額一般責任險轉為金額較大的汽車保險,同時隨著核保績效的改進,營運規模,不論是在地區或是產品線,也在緩步提升中。

The reinsurance business continues to reflect the excesses and problems of the primary writers. Worse yet, it has the potential for magnifying such excesses. Reinsurance is characterized by extreme ease of entry, large premium payments in advance, and much-delayed loss reports and loss payments. Initially, the morning mail brings lots of cash and few claims. This state of affairs can produce a blissful, almost euphoric, feeling akin to that experienced by an innocent upon receipt of his first credit card.


The magnetic lure of such cash-generating characteristics, currently enhanced by the presence of high interest rates, is transforming the reinsurance market into “amateur night”. Without a super catastrophe, industry underwriting will be poor in the next few years. If we experience such a catastrophe, there could be a bloodbath with some companies not able to live up to contractual commitments. George Young continues to do a first-class job for us in this business. Results, with investment income included, have been reasonably profitable. We will retain an active reinsurance presence but, for the foreseeable future, we expect no premium 
growth from this activity.

致命的吸引力使得大筆的資金擁入這個行業,目前的高利率環境更加深這樣的現象,導致的結果是若某一年未發生大災難,則往後幾年的核保績效便會變得很差,相反的,若有大災難發生,則更大的災難將會降臨在保險公司身上,因為有些同業可能無法履行與客戶當初簽訂的合約,而我們George Young 在這一行的表現一向是一流的,在加計投資收益後,仍能微持合理的獲利,我們將繼續留在再保市場,但在可預見的未來,保費收入將很難有大幅的成長。

We continue to have serious problems in the Homestate operation. Floyd Taylor in Kansas has done an outstanding job but our underwriting record elsewhere is considerably below average. Our poorest performer has been Insurance Company of Iowa , at which large losses have been sustained annually since its founding in 1973. Late in the fall we abandoned underwriting in that state, and have merged the company into Cornhusker Casualty. There is potential in the homestate concept, but much work needs to be done in order to realize it.

在Homestate家計保險業務方面,我們持續面臨重大的問題,除了Kansas 的Floyd Taylor 外,其餘的核保表現均在同業水準之下,其中Iowa保險,自1973年成立以來,每年皆發生鉅額損失,直到去年我們決定結束該州的業務,並將之併入Cornhusker產險,家計保險概念其實也很大的潛力,但還需要很多努力才有辦法實現它。

Our Workers Compensation operation suffered a severe loss when Frank DeNardo died last year at 37. Frank instinctively thought like an underwriter. He was a superb technician and a fierce competitor; in short order he had straightened out major problems at the California Workers Compensation Division of National Indemnity. Dan Grossman, who originally brought Frank to us, stepped in immediately after Frank’s death to continue that operation, which now utilizes Redwood Fire and Casualty, another Berkshire subsidiary, as the insuring vehicle.


Our major Workers Compensation operation, Cypress Insurance Company, run by Milt Thornton, continues its outstanding record. Year after year Milt, like Phil Liesche, runs an underwriting operation that far outpaces his competition. In the industry he is admired and copied, but notmatched.

至於由Milt 所領導的Cypress 保險公司一直是我們在這項業務的主力,且表現一直相當優異,與Phil Liesche一樣,廣為同業所仰慕與模仿,但其優秀的表現卻是同業無法比擬的。

Overall, we look for a significant decline in insurance volume in 1981 along with a poorer underwriting result. We expect underwriting experience somewhat superior to that of the industry but, of course, so does most of the industry. There will be some disappointments.


Textile and Retail Operations

During the past year we have cut back the scope of our textile business. Operations at Waumbec Mills have been terminated, reluctantly but necessarily. Some equipment was transferred to New Bedford but most has been sold, or will be, along with real estate. Your Chairman made a costly mistake in not facing the realities of this situation sooner.

去年我們縮減在紡織業的營運規模,雖然不願意但卻不得不關閉Waumbec 工廠,除了少數設備轉移至New Bedford外,其餘設備連同廠房都將處份掉,我本人由於無法早日面對事實而犯了重大的錯誤。

At New Bedford we have reduced the number of looms operated by about one-third, abandoning some high-volume lines in which product differentiation was insignificant. Even assuming everything went right - which it seldom did - these lines could not generate adequate returns related to investment. And, over a full industry cycle, losses were the most likely result.

而在New Bedford 我們也淘汰了將近三分之一的織布機,保留適合少量多樣型的機台,而即使一切順利(這種情況很少),這些生產線仍不具投資效益,就產業循環而言,損失將無可避免。

Our remaining textile operation, still sizable, has been divided into a manufacturing and a sales division, each free to do business independent of the other. Thus, distribution strengths and mill capabilities will not be wedded to each other. We have more than doubled capacity in our most profitable textile segment through a recent purchase of used 130-inch Saurer looms. Current conditions indicate another tough year in textiles, but with substantially less capital employed in the operation.


Ben Rosner’s record at Associated Retail Stores continues to amaze us. In a poor retailing year, Associated’s earnings continued excellent - and those earnings all were translated into cash. On March 7, 1981 Associated will celebrate its 50th birthday. Ben has run the business (along with Leo Simon, his partner from 1931 to 1966) in each of those fifty years.


Disposition of Illinois National Bank and Trust of Rockford

On December 30, 1980 we completed the exchange of 41,086 shares of Rockford Bancorp Inc. (which owns 97.7% of Illinois National Bank) for a like number of shares of Berkshire Hathaway Inc.

1980年底,我們終於完成了以Berkshire約當的股份交換41,086股Rockford Bancorp(其持有97.7% 伊利諾國家銀行股份)的動作。Our method of exchange allowed all Berkshire shareholders to maintain their proportional interest in the Bank (except for me; I was permitted 80% of my proportional share). They were thus guaranteed an ownership position identical to that they would have attained had we followed a more conventional spinoff approach. Twenty-four shareholders (of our approximate 1300) chose this proportional exchange option.


We also allowed overexchanges, and thirty-nine additional shareholders accepted this option, thereby increasing their ownership in the Bank and decreasing their proportional ownership in Berkshire . All got the full amount of Bancorp stock they requested, since the total shares desired by these thirty-nine holders was just slightly less than the number left available by the remaining 1200-plus holders of Berkshire who elected not to part with any Berkshire shares at all. As the exchanger of last resort, I took the small balance (3% of Bancorp’s stock). These shares, added to shares I 
received from my basic exchange allotment (80% of normal), gave me a slightly reduced proportional interest in the Bank and a slightly enlarged proportional interest in Berkshire .

另外股東們也可要求增加其在該銀行的權益(相對地,其在Berkshire的權益將減少),所有提出此項要求的股東皆如願拿到股票,因為這39位股東需求的股份數量剛好略低於其他1,200多位選擇全數保留Berkshire股份所釋出的銀行股份,剩下的中間差額則由本人承受(約佔Bancorp 3%的股份),在加計先前基本80%的分配額度後,最後的結果,本人在銀行的權益稍微減少,而在Berkshire的權益則略微增加。

Management of the Bank is pleased with the outcome. Bancorp will operate as an inexpensive and uncomplicated holding company owned by 65 shareholders. And all of those shareholders will have become Bancorp owners through a conscious affirmative decision.



In August we sold $60 million of 12 3/4% notes due August 1, 2005, with a sinking fund to begin in 1991.


The managing underwriters, Donaldson, Lufkin & Jenrette Securities Corporation, represented by Bill Fisher, and Chiles, Heider & Company, Inc., represented by Charlie Heider, did an absolutely first-class job from start to finish of the financing.


Unlike most businesses, Berkshire did not finance because of any specific immediate needs. Rather, we borrowed because we think that, over a period far shorter than the life of the loan, we will have many opportunities to put the money to good use. The most attractive opportunities may present themselves at a time when credit is extremely expensive - or even unavailable. At such a time we want to have plenty of financial firepower.


Our acquisition preferences run toward businesses that generate cash, not those that consume it. As inflation intensifies, more and more companies find that they must spend all funds they generate internally just to maintain their existing physical volume of business. There is a certain mirage-like quality to such operations. However attractive the earnings numbers, we remain leery of businesses that never seem able to convert such pretty numbers into no-strings-attached cash.


Businesses meeting our standards are not easy to find. (Each year we read of hundreds of corporate acquisitions; only a handful would have been of interest to us.) And logical expansion of our present operations is not easy to implement. But we’ll continue to utilize both avenues in our attempts to further Berkshire ’s growth.


Under all circumstances we plan to operate with plenty of liquidity, with debt that is moderate in size and properly structured, and with an abundance of capital strength. Our return on equity is penalized somewhat by this conservative approach, but it is the only one with which we feel comfortable.


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

Gene Abegg, founder of our long-owned bank in Rockford , died on July 2, 1980 at the age of 82. As a friend, banker and citizen, he was 

Gene Abegg 我們長期投資的Rockford銀行創辦人,於 七月二日 逝世,享年八十二歲,身為一位摯友、銀行家與傑出公民,他是無可超越的。

You learn a great deal about a person when you purchase a business from him and he then stays on to run it as an employee rather than as an owner. Before the purchase the seller knows the business intimately, whereas you start from scratch. The seller has dozens of opportunities to mislead the buyer - through omissions, ambiguities, and misdirection. After the check has changed hands, subtle (and not so subtle) changes of attitude can occur and implicit understandings can evaporate. As in the courtship-marriage sequence, disappointments are not infrequent.


From the time we first met, Gene shot straight 100% of the time - the only behavior pattern he had within him. At the outset of negotiations, he laid all negative factors face up on the table; on the other hand, for years after the transaction was completed he would tell me periodically of some previously undiscussed items of value that had come with our purchase.

而當我們第一次碰面,Gene 百分之百坦誠,就像是其為人一般,談判的開始,他把公司所有負面的因素攤開在桌上,另一方面,在交易完成數年後,他還會定期地告知你當初交易時未討論到的地方。

Though he was already 71 years of age when he sold us the Bank, Gene subsequently worked harder for us than he had for himself. He never delayed reporting a problem for a minute, but problems were few with Gene. What else would you expect from a man who, at the time of the bank holiday in 1933, had enough cash on the premises to pay all depositors in full? Gene never forgot he was handling other people’s money. Though this fiduciary attitude was always dominant, his superb managerial skills enabled the Bank to regularly achieve the top position nationally in profitability.

而就算是當他把銀行賣給我們時已高齡71歲,Gene 仍然興勤工作更甚於以往,雖然極少發生問題,但一有問題便立刻報告毫不遲疑,你還能對這樣的人多要求些什麼呢?(早在1933年該銀行所持有的現金便足以立即清償所有存款),他永遠記得他是在處理別人的錢財,雖然這種正直不阿的態度將永遠安息,但他傑出的管理能力將使銀行在全美獲利能力的表現上繼續名列前茅。

Gene was in charge of the Illinois National for close to fifty years - almost one-quarter of the lifetime of our country. George Mead, a wealthy industrialist, brought him in from Chicago to open a new bank after a number of other banks in Rockford had failed. Mr. Mead put up the money and Gene ran the show. His talent for leadership soon put its stamp on virtually every major civic activity in Rockford .

Gene負責伊利諾國家銀行的營運將近50年,約當美國歷史的四分之一,當初是一位工業鉅子George Mead從芝加哥把他找來Rockford開設銀行,Mead先生負責出錢,Gene則負責出力,他的領導才能立即在Rockford地區各種社交活動中展現出來。

Dozens of Rockford citizens have told me over the years of help Gene extended to them. In some cases this help was financial; in all cases it involved much wisdom, empathy and friendship. He always offered the same to me. Because of our respective ages and positions I was sometimes the junior partner, sometimes the senior. Whichever the relationship, it always was a special one, and I miss it.

許多Rockford的居民告訴我這些年來Gene 給予他們很多幫助,有時是金錢上的,但更多時候包含的是智慧、同情與友誼,而我本身也從他身上獲得許多,因為個別年紀與工作上的關係,我們益師益友,不論如何,這種關係相當特殊,我永遠懷念他。

Warren E. Buffett
Chairman of the Board
February 27, 1981


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