Carta a los accionistas de Berkshire Hathaway — 2000
Note: The following table appears in the printed Annual Report on the facing page of the Chairman’s Letter and is referred to in that letter. Berkshire’s Corporate Performance vs. the S&P 500 Annual Percentage Change in Per-Share in S&P 500 Book Value of with Dividends Relative Berkshire Included Results Year (1) (2) (1)-(2)
| Year | Berkshire Book Value Per-Share | S&P 500 with Dividends Included | Relative Results |
|---|---|---|---|
| 1965 | 23.8 | 10.0 | 13.8 |
| 1966 | 20.3 (11.7) 32.0 | ||
| 1967 | 11.0 30.9 (19.9) | ||
| 1968 | 19.0 11.0 8.0 | ||
| 1969 | 16.2 (8.4) 24.6 | ||
| 1970 | 12.0 3.9 8.1 | ||
| 1971 | 16.4 14.6 1.8 | ||
| 1972 | 21.7 18.9 2.8 | ||
| 1973 | 4.7 (14.8) 19.5 | ||
| 1974 | 5.5 (26.4) 31.9 | ||
| 1975 | 21.9 37.2 (15.3) | ||
| 1976 | 59.3 23.6 35.7 | ||
| 1977 | 31.9 (7.4) 39.3 | ||
| 1978 | 24.0 6.4 17.6 | ||
| 1979 | 35.7 18.2 17.5 | ||
| 1980 | 19.3 32.3 (13.0) | ||
| 1981 | 31.4 (5.0) 36.4 | ||
| 1982 | 40.0 21.4 18.6 | ||
| 1983 | 32.3 22.4 9.9 | ||
| 1984 | 13.6 6.1 7.5 | ||
| 1985 | 48.2 31.6 16.6 | ||
| 1986 | 26.1 18.6 7.5 | ||
| 1987 | 19.5 5.1 14.4 | ||
| 1988 | 20.1 16.6 3.5 | ||
| 1989 | 44.4 31.7 12.7 | ||
| 1990 | 7.4 (3.1) 10.5 | ||
| 1991 | 39.6 30.5 9.1 | ||
| 1992 | 20.3 7.6 12.7 | ||
| 1993 | 14.3 10.1 4.2 | ||
| 1994 | 13.9 1.3 12.6 | ||
| 1995 | 43.1 37.6 5.5 | ||
| 1996 | 31.8 23.0 8.8 | ||
| 1997 | 34.1 33.4 .7 | ||
| 1998 | 48.3 28.6 19.7 | ||
| 1999 | .5 21.0 (20.5) | ||
| 2000 | 6.5 (9.1) 15.6 | ||
| Average Annual Gain - 1965-2000 23.6% 11.8% 11.8% Overall Gain - 1964-2000 207,821% 5,383% 202,438% Notes: Data are for calendar years with these exceptions: 1965 and 1966, year ended 9/30; 1967, 15 months ended 12/31. Starting in 1979, accounting rules required insurance companies to value the equity securities they hold at market rather than at the lower of cost or market, which was previously the requirement. In this table, Berkshire’s results through 1978 have been restated to conform to the changed rules. In all other respects, the results are calculated using the numbers originally reported. The S&P 500 numbers are pre-tax whereas the Berkshire numbers are after-tax. If a corporation such as Berkshire were simply to have owned the S&P 500 and accrued the appropriate taxes, its results would have lagged the S&P 500 in years when that index showed a positive return, but would have exceeded the S&P in years when the index showed a negative return. Over the years, the tax costs would have caused the aggregate lag to be substantial. |
BERKSHIRE HATHAWAY INC. To the Shareholders of Berkshire Hathaway Inc.: Our gain in net worth during 2000 was $3.96 billion, which increased the per-share book value of both our Class A and Class B stock by 6.5%. Over the last 36 years (that is, since present management took over) per- * share book value has grown from $19 to $40,442, a gain of 23.6% compounded annually. Overall, we had a decent year, our book-value gain having outpaced the performance of the S&P 500. And, though this judgment is necessarily subjective, we believe Berkshire’s gain in per-share intrinsic value moderately exceeded its gain in book value. (Intrinsic value, as well as other key investment and accounting terms and concepts, are explained in our Owner’s Manual on pages 59-66. Intrinsic value is discussed on page 64.) Furthermore, we completed two significant acquisitions that we negotiated in 1999 and initiated six more. All told, these purchases have cost us about $8 billion, with 97% of that amount paid in cash and 3% in stock. The eight businesses we’ve acquired have aggregate sales of about $13 billion and employ 58,000 people. Still, we incurred no debt in making these purchases, and our shares outstanding have increased only 1/ of 1%. Better yet,
we remain awash in liquid assets and are both eager and ready for even larger acquisitions. I will detail our purchases in the next section of the report. But I will tell you now that we have embraced the 21st century by entering such cutting-edge industries as brick, carpet, insulation and paint. Try to control your excitement. On the minus side, policyholder growth at GEICO slowed to a halt as the year progressed. It has become much more expensive to obtain new business. I told you last year that we would get our money’s worth from stepped-up advertising at GEICO in 2000, but I was wrong. We’ll examine the reasons later in the report. Another negative — which has persisted for several years — is that we see our equity portfolio as only mildly attractive. We own stocks of some excellent businesses, but most of our holdings are fully priced and are unlikely to deliver more than moderate returns in the future. We’re not alone in facing this problem: The long- term prospect for equities in general is far from exciting. Finally, there is the negative that recurs annually: Charlie Munger, Berkshire’s Vice Chairman and my partner, and I are a year older than when we last reported to you. Mitigating this adverse development is the indisputable fact that the age of your top managers is increasing at a considerably lower rate — percentage-wise — than is the case at almost all other major corporations. Better yet, this differential will widen in the future. Charlie and I continue to aim at increasing Berkshire’s per-share value at a rate that, over time, will modestly exceed the gain from owning the S&P 500. As the table on the facing page shows, a small annual advantage in our favor can, if sustained, produce an anything-but-small long-term advantage. To reach our goal we will need to add a few good businesses to Berkshire’s stable each year, have the businesses we own generally gain in value, and avoid any material increase in our outstanding shares. We are confident about meeting the last two objectives; the first will require some luck. It’s appropriate here to thank two groups that made my job both easy and fun last year ¾ just as they do every year. First, our operating managers continue to run their businesses in splendid fashion, which allows me to spend my time allocating capital rather than supervising them. (I wouldn’t be good at that anyway.) * All figures used in this report apply to Berkshire’s A shares, the successor to the only stock that the company had outstanding before 1996. The B shares have an economic interest equal to 1/30th that of the A.
Our managers are a very special breed. At most large companies, the truly talented divisional managers seldom have the job they really want. Instead they yearn to become CEOs, either at their present employer or elsewhere. Indeed, if they stay put, they and their colleagues are likely to feel they have failed. At Berkshire, our all-stars have exactly the jobs they want, ones that they hope and expect to keep throughout their business lifetimes. They therefore concentrate solely on maximizing the long-term value of the businesses that they “own” and love. If the businesses succeed, they have succeeded. And they stick with us: In our last 36 years, Berkshire has never had a manager of a significant subsidiary voluntarily leave to join another business. The other group to which I owe enormous thanks is the home-office staff. After the eight acquisitions more than doubled our worldwide workforce to about 112,000, Charlie and I went soft last year and added one more person at headquarters. (Charlie, bless him, never lets me forget Ben Franklin’s advice: “A small leak can sink a great ship.”) Now we have 13.8 people. This tiny band works miracles. In 2000 it handled all of the details connected with our eight acquisitions, processed extensive regulatory and tax filings (our tax return covers 4,896 pages), smoothly produced an annual meeting to which 25,000 tickets were issued, and accurately dispensed checks to 3,660 charities designated by our shareholders. In addition, the group dealt with all the routine tasks served up by a company with a revenue run- rate of $40 billion and more than 300,000 owners. And, to add to all of this, the other 12.8 are a delight to be around. I should pay to have my job. ## Acquisitions in 2000 Our acquisition technique at Berkshire is simplicity itself: We answer the phone. I’m also glad to report that it rings a bit more often now, because owners and/or managers increasingly wish to join their companies with Berkshire. Our acquisition criteria are set forth on page 23, and the number to call is 402-346-1400. Let me tell you a bit about the businesses we have purchased during the past 14 months, starting with the two transactions that were initiated in 1999, but closed in 2000. (This list excludes some smaller purchases that were made by the managers of our subsidiaries and that, in most cases, will be integrated into their operations.) · I described the first purchase — 76% of MidAmerican Energy — in last year’s report. Because of regulatory constraints on our voting privileges, we perform only a “one-line” consolidation of MidAmerican’s earnings and equity in our financial statements.If we instead fully consolidated the company’s figures, our revenues in 2000 would have been $5 billion greater than we reported, though net income would remain the same. · On November 23, 1999, I received a one-page fax from Bruce Cort that appended a Washington Post article describing an aborted buyout of CORT Business Services. Despite his name, Bruce has no connection with CORT. Rather, he is an airplane broker who had sold Berkshire a jet in
| Data |
|---|
| 1986 and who, before the fax, had not been in touch with me for about ten years. I knew nothing about CORT, but I immediately printed out its SEC filings and liked what I saw. That same day I told Bruce I had a possible interest and asked him to arrange a meeting with Paul Arnold, CORT’s CEO. Paul and I got together on November 29, and I knew at once that we had the right ingredients for a purchase: a fine though unglamorous business, an outstanding manager, and a price (going by that on the failed deal) that made sense. Operating out of 117 showrooms, CORT is the national leader in “rent-to-rent” furniture, primarily used in offices but also by temporary occupants of apartments. This business, it should be noted, has no similarity to “rent-to-own” operations, which usually involve the sale of home furnishings and electronics to people having limited income and poor credit. |
We quickly purchased CORT for Wesco, our 80%-owned subsidiary, paying about $386 million in cash. You will find more details about CORT’s operations in Wesco’s 1999 and 2000 annual reports. Both Charlie and I enjoy working with Paul, and CORT looks like a good bet to beat our original expectations. · Early last year, Ron Ferguson of General Re put me in contact with Bob Berry, whose family had owned U.S. Liability for 49 years. This insurer, along with two sister companies, is a medium- sized, highly-respected writer of unusual risks — “excess and surplus lines” in insurance jargon. After Bob and I got in touch, we agreed by phone on a half-stock, half-cash deal. In recent years, Tom Nerney has managed the operation for the Berry family and has achieved a rare combination of excellent growth and unusual profitability. Tom is a powerhouse in other ways as well. In addition to having four adopted children (two from Russia), he has an extended family: the Philadelphia Belles, a young-teen girls basketball team that Tom coaches. The team had a 62-4 record last year and finished second in the AAU national tournament. Few property-casualty companies are outstanding businesses. We have far more than our share, and U.S. Liability adds luster to the collection. · Ben Bridge Jeweler was another purchase we made by phone, prior to any face-to-face meeting between me and the management. Ed Bridge, who with his cousin, Jon, manages this 65-store West Coast retailer, is a friend of Barnett Helzberg, from whom we bought Helzberg Diamonds in 1995. Upon learning that the Bridge family proposed to sell its company, Barnett gave Berkshire a strong recommendation. Ed then called and explained his business to me, also sending some figures, and we made a deal, again half for cash and half for stock. Ed and Jon are fourth generation owner-managers of a business started 89 years ago in Seattle. Both the business and the family— including Herb and Bob, the fathers of Jon and Ed — enjoy extraordinary reputations. Same-store sales have increased by 9%, 11%, 13%, 10%, 12%, 21% and 7% over the past seven years, a truly remarkable record. It was vital to the family that the company operate in the future as in the past. No one wanted another jewelry chain to come in and decimate the organization with ideas about synergy and cost saving (which, though they would never work, were certain to be tried). I told Ed and Jon that they would be in charge, and they knew I could be believed: After all, it’s obvious that your Chairman would be a disaster at actually running a store or selling jewelry (though there are members of his family who have earned black belts as purchasers).In their typically classy way, the Bridges allocated a substantial portion of the proceeds from their sale to the hundreds of co-workers who had helped the company achieve its success. We’re proud to be associated with both the family and the company. · In July we acquired Justin Industries, the leading maker of Western boots — including the Justin, Tony Lama, Nocona, and Chippewa brands ¾ and the premier producer of brick in Texas and five neighboring states. Here again, our acquisition involved serendipity. On May 4th, I received a fax from Mark Jones, a stranger to me, proposing that Berkshire join a group to acquire an unnamed company. I faxed him back, explaining that with rare exceptions we don’t invest with others, but would happily pay him a commission if he sent details and we later made a purchase. He replied that the “mystery company” was Justin. I then went to Fort Worth to meet John Roach, chairman of the company and John Justin, who had built the business and was its major shareholder. Soon after, we bought Justin for $570 million in cash. John Justin loved Justin Industries but had been forced to retire because of severe health problems (which sadly led to his death in late February). John was a class act ¾ as a citizen, businessman and human being. Fortunately, he had groomed two outstanding managers, Harrold Melton at Acme and Randy Watson at Justin Boot, each of whom runs his company autonomously.
Acme, the larger of the two operations, produces more than one billion bricks per year at its 22 plants, about 11.7% of the industry’s national output. The brick business, however, is necessarily regional, and in its territory Acme enjoys unquestioned leadership. When Texans are asked to name a brand of brick, 75% respond Acme, compared to 16% for the runner-up. (Before our purchase, I couldn’t have named a brand of brick. Could you have?) This brand recognition is not only due to Acme’s product quality, but also reflects many decades of extraordinary community service by both the company and John Justin. I can’t resist pointing out that Berkshire — whose top management has long been mired in the 19th century — is now one of the very few authentic “clicks-and-bricks” businesses around. We went into 2000 with GEICO doing significant business on the Internet, and then we added Acme. You can bet this move by Berkshire is making them sweat in Silicon Valley. · In June, Bob Shaw, CEO of Shaw Industries, the world’s largest carpet manufacturer, came to see me with his partner, Julian Saul, and the CEO of a second company with which Shaw was mulling a merger. The potential partner, however, faced huge asbestos liabilities from past activities, and any deal depended on these being eliminated through insurance. The executives visiting me wanted Berkshire to provide a policy that would pay all future asbestos costs. I explained that though we could write an exceptionally large policy — far larger than any other insurer would ever think of offering — we would never issue a policy that lacked a cap. Bob and Julian decided that if we didn’t want to bet the ranch on the extent of the acquiree’s liability, neither did they. So their deal died. But my interest in Shaw was sparked, and a few months later Charlie and I met with Bob to work out a purchase by Berkshire. A key feature of the deal was that both Bob and Julian were to continue owning at least 5% of Shaw. This leaves us associated with the best in the business as shown by Bob and Julian’s record: Each built a large, successful carpet business before joining forces in 1998. Shaw has annual sales of about $4 billion, and we own 87.3% of the company. Leaving aside our insurance operation, Shaw is by far our largest business. Now, if people walk all over us, we won’t mind. · In July, Bob Mundheim, a director of Benjamin Moore Paint, called to ask if Berkshire might be interested in acquiring it. I knew Bob from Salomon, where he was general counsel during some difficult times, and held him in very high regard. So my answer was “Tell me more.” In late August, Charlie and I met with Richard Roob and Yvan Dupuy, past and present CEOs of Benjamin Moore.We liked them; we liked the business; and we made a $1 billion cash offer on the spot. In October, their board approved the transaction, and we completed it in December. Benjamin Moore has been making paint for 117 years and has thousands of independent dealers that are a vital asset to its business. Make sure you specify our product for your next paint job. · Finally, in late December, we agreed to buy Johns Manville Corp. for about $1.8 billion. This company’s incredible odyssey over the last few decades ¾ too multifaceted to be chronicled here ¾ was shaped by its long history as a manufacturer of asbestos products. The much-publicized health problems that affected many people exposed to asbestos led to JM’s declaring bankruptcy in 1982. Subsequently, the bankruptcy court established a trust for victims, the major asset of which was a controlling interest in JM. The trust, which sensibly wanted to diversify its assets, agreed last June to sell the business to an LBO buyer. In the end, though, the LBO group was unable to obtain financing.
Consequently, the deal was called off on Friday, December 8th. The following Monday, Charlie and I called Bob Felise, chairman of the trust, and made an all-cash offer with no financing contingencies. The next day the trustees voted tentatively to accept our offer, and a week later we signed a contract. JM is the nation’s leading producer of commercial and industrial insulation and also has major positions in roofing systems and a variety of engineered products. The company’s sales exceed $2 billion and the business has earned good, if cyclical, returns. Jerry Henry, JM’s CEO, had announced his retirement plans a year ago, but I’m happy to report that Charlie and I have convinced him to stick around. * * * * * * * * * * * * Two economic factors probably contributed to the rush of acquisition activity we experienced last year. First, many managers and owners foresaw near-term slowdowns in their businesses ¾ and, in fact, we purchased several companies whose earnings will almost certainly decline this year from peaks they reached in 1999 or 2000. The declines make no difference to us, given that we expect all of our businesses to now and then have ups and downs. (Only in the sales presentations of investment banks do earnings move forever upward.) We don’t care about the bumps; what matters are the overall results. But the decisions of other people are sometimes affected by the near-term outlook, which can both spur sellers and temper the enthusiasm of purchasers who might otherwise compete with us. A second factor that helped us in 2000 was that the market for junk bonds dried up as the year progressed. In the two preceding years, junk bond purchasers had relaxed their standards, buying the obligations of ever- weaker issuers at inappropriate prices. The effects of this laxity were felt last year in a ballooning of defaults. In this environment, “financial” buyers of businesses ¾ those who wish to buy using only a sliver of equity ¾ became unable to borrow all they thought they needed. What they could still borrow, moreover, came at a high price. Consequently, LBO operators became less aggressive in their bidding when businesses came up for sale last year. Because we analyze purchases on an all-equity basis, our evaluations did not change, which means we became considerably more competitive. Aside from the economic factors that benefited us, we now enjoy a major and growing advantage in making acquisitions in that we are often the buyer of choice for the seller. That fact, of course, doesn’t assure a deal ¾ sellers have to like our price, and we have to like their business and management ¾ but it does help. We find it meaningful when an owner cares about whom he sells to.We like to do business with someone who loves his company, not just the money that a sale will bring him (though we certainly understand why he likes that as well). When this emotional attachment exists, it signals that important qualities will likely be found within the business: honest accounting, pride of product, respect for customers, and a loyal group of associates having a strong sense of direction. The reverse is apt to be true, also. When an owner auctions off his business, exhibiting a total lack of interest in what follows, you will frequently find that it has been dressed up for sale, particularly when the seller is a “financial owner.” And if owners behave with little regard for their business and its people, their conduct will often contaminate attitudes and practices throughout the company. When a business masterpiece has been created by a lifetime — or several lifetimes — of unstinting care and exceptional talent, it should be important to the owner what corporation is entrusted to carry on its history. Charlie and I believe Berkshire provides an almost unique home. We take our obligations to the people who created a business very seriously, and Berkshire’s ownership structure ensures that we can fulfill our promises. When we tell John Justin that his business will remain headquartered in Fort Worth, or assure the Bridge family that its operation will not be merged with another jeweler, these sellers can take those promises to the bank. How much better it is for the “painter” of a business Rembrandt to personally select its permanent home than to have a trust officer or uninterested heirs auction it off. Throughout the years we have had great experiences with those who recognize that truth and apply it to their business creations. We’ll leave the auctions to others.
Economics of P/C Insurance
Our main business — though we have others of great importance — is insurance. To understand Berkshire, therefore, it is necessary that you understand how to evaluate an insurance company. The key determinants are: (1) the amount of float that the business generates; (2) its cost; and (3) most critical of all, the long-term outlook for both of these factors. To begin with, float is money we hold but don’t own. In an insurance operation, float arises because premiums are received before losses are paid, an interval that sometimes extends over many years. During that time, the insurer invests the money. This pleasant activity typically carries with it a downside: The premiums that an insurer takes in usually do not cover the losses and expenses it eventually must pay. That leaves it running an “underwriting loss,” which is the cost of float. An insurance business has value if its cost of float over time is less than the cost the company would otherwise incur to obtain funds. But the business is a lemon if its cost of float is higher than market rates for money. A caution is appropriate here: Because loss costs must be estimated, insurers have enormous latitude in figuring their underwriting results, and that makes it very difficult for investors to calculate a company’s true cost of float. Errors of estimation, usually innocent but sometimes not, can be huge. The consequences of these miscalculations flow directly into earnings. An experienced observer can usually detect large-scale errors in reserving, but the general public can typically do no more than accept what’s presented, and at times I have been amazed by the numbers that big-name auditors have implicitly blessed. Both the income statements and balance sheets of insurers can be minefields. At Berkshire, we strive to be both consistent and conservative in our reserving. But we will make mistakes. And we warn you that there is nothing symmetrical about surprises in the insurance business: They almost always are unpleasant. The table that follows shows (at intervals) the float generated by the various segments of Berkshire’s insurance operations since we entered the business 34 years ago upon acquiring National Indemnity Company (whose traditional lines are included in the segment “Other Primary”). For the table we have calculated our float — which we generate in large amounts relative to our premium volume — by adding net loss reserves, loss adjustment reserves, funds held under reinsurance assumed and unearned premium reserves, and then subtracting insurance-related receivables, prepaid acquisition costs, prepaid taxes and deferred charges applicable to assumed reinsurance.(Don’t panic, there won’t be a quiz.) Yearend Float (in $ millions) Other Other Year GEICO General Re Reinsurance Primary Total
| Data |
|---|
| 1967 20 20 |
| 1977 40 131 171 |
| 1987 701 807 1,508 |
| 1997 2,917 4,014 455 7,386 |
| 1998 3,125 14,909 4,305 415 22,754 |
| 1999 3,444 15,166 6,285 403 25,298 |
| 2000 3,943 15,525 7,805 598 27,871 |
| We’re pleased by the growth in our float during 2000 but not happy with its cost. Over the years, our cost of float has been very close to zero, with the underwriting profits realized in most years offsetting the occasional terrible year such as 1984, when our cost was a staggering 19%. In 2000, however, we had an underwriting loss of $1.6 billion, which gave us a float cost of 6%. Absent a mega-catastrophe, we expect our float cost to fall in 2001 ¾ perhaps substantially ¾ in large part because of corrections in pricing at General Re that should increasingly be felt as the year progresses. On a smaller scale, GEICO may experience the same improving trend. There are two factors affecting our cost of float that are very rare at other insurers but that now loom large at Berkshire. First, a few insurers that are currently experiencing large losses have offloaded a significant portion of |
these on us in a manner that penalizes our current earnings but gives us float we can use for many years to come. After the loss that we incur in the first year of the policy, there are no further costs attached to this business. When these policies are properly priced, we welcome the pain-today, gain-tomorrow effects they have. In | 1999 | , | 400 | 27.8 | 2000 | the figure was $482 million (34.4% of our loss). We have no way of predicting how much similar business we will write in the future, but what we do get will typically be in large chunks. Because these transactions can materially distort our figures, we will tell you about them as they occur. Other reinsurers have little taste for this insurance. They simply can’t stomach what huge underwriting losses do to their reported results, even though these losses are produced by policies whose overall economics are certain to be favorable. You should be careful, therefore, in comparing our underwriting results with those of other insurers. An even more significant item in our numbers — which, again, you won’t find much of elsewhere — arises from transactions in which we assume past losses of a company that wants to put its troubles behind it. To illustrate, the XYZ insurance company might have last year bought a policy obligating us to pay the first $1 billion of losses and loss adjustment expenses from events that happened in, say, 1995 and earlier years. These contracts can be very large, though we always require a cap on our exposure. We entered into a number of such transactions in 2000 and expect to close several more in 2001. Under GAAP accounting, this “retroactive” insurance neither benefits nor penalizes our current earnings. Instead, we set up an asset called “deferred charges applicable to assumed reinsurance,” in an amount reflecting the difference between the premium we receive and the (higher) losses we expect to pay (for which reserves are immediately established). We then amortize this asset by making annual charges to earnings that create equivalent underwriting losses. You will find the amount of the loss that we incur from these transactions in both our quarterly and annual management discussion. By their nature, these losses will continue for many years, often stretching into decades. As an offset, though, we have the use of float ¾ lots of it. Clearly, float carrying an annual cost of this kind is not as desirable as float we generate from policies that are expected to produce an underwriting profit (of which we have plenty). Nevertheless, this retroactive insurance should be decent business for us.The net of all this is that a) I expect our cost of float to be very attractive in the future but b) rarely to return to a “no-cost” mode because of the annual charge that retroactive reinsurance will lay on us. Also — obviously ¾ the ultimate benefits that we derive from float will depend not only on its cost but, fully as important, how effectively we deploy it. Our retroactive business is almost single-handedly the work of Ajit Jain, whose praises I sing annually. It is impossible to overstate how valuable Ajit is to Berkshire. Don’t worry about my health; worry about his. Last year, Ajit brought home a $2.4 billion reinsurance premium, perhaps the largest in history, from a policy that retroactively covers a major U.K. company. Subsequently, he wrote a large policy protecting the Texas Rangers from the possibility that Alex Rodriguez will become permanently disabled. As sports fans know, “A-Rod” was signed for $252 million, a record, and we think that our policy probably also set a record for disability insurance. We cover many other sports figures as well. In another example of his versatility, Ajit last fall negotiated a very interesting deal with Grab.com, an Internet company whose goal was to attract millions of people to its site and there to extract information from them that would be useful to marketers. To lure these people, Grab.com held out the possibility of a $1 billion prize (having a $170 million present value) and we insured its payment. A message on the site explained that the chance of anyone winning the prize was low, and indeed no one won. But the possibility of a win was far from nil. Writing such a policy, we receive a modest premium, face the possibility of a huge loss, and get good odds. Very few insurers like that equation. And they’re unable to cure their unhappiness by reinsurance. Because each policy has unusual ¾ and sometimes unique ¾ characteristics, insurers can’t lay off the occasional shock loss
through their standard reinsurance arrangements. Therefore, any insurance CEO doing a piece of business like this must run the small, but real, risk of a horrible quarterly earnings number, one that he would not enjoy explaining to his board or shareholders. Charlie and I, however, like any proposition that makes compelling mathematical sense, regardless of its effect on reported earnings. At General Re, the news has turned considerably better: Ron Ferguson, along with Joe Brandon, Tad Montross, and a talented supporting cast took many actions during 2000 to bring that company’s profitability back to past standards. Though our pricing is not fully corrected, we have significantly repriced business that was severely unprofitable or dropped it altogether. If there’s no mega-catastrophe in 2001, General Re’s float cost should fall materially. The last couple of years haven’t been any fun for Ron and his crew. But they have stepped up to tough decisions, and Charlie and I applaud them for these. General Re has several important and enduring business advantages. Better yet, it has managers who will make the most of them. In aggregate, our smaller insurance operations produced an excellent underwriting profit in 2000 while generating significant float — just as they have done for more than a decade. If these companies were a single and separate operation, people would consider it an outstanding insurer. Because the companies instead reside in an enterprise as large as Berkshire, the world may not appreciate their accomplishments — but I sure do. Last year I thanked Rod Eldred, John Kizer, Don Towle and Don Wurster, and I again do so. In addition, we now also owe thanks to Tom Nerney at U.S. Liability and Michael Stearns, the new head of Cypress. You may notice that Brad Kinstler, who was CEO of Cypress and whose praises I’ve sung in the past, is no longer in the list above. That’s because we needed a new manager at Fechheimer Bros., our Cincinnati-based uniform company, and called on Brad. We seldom move Berkshire managers from one enterprise to another, but maybe we should try it more often: Brad is hitting home runs in his new job, just as he always did at Cypress. ## GEICO We show below the usual table detailing GEICO’s growth. Last year I enthusiastically told you that we would step up our expenditures on advertising in 2000 and that the added dollars were the best investment that GEICO could make. I was wrong: The extra money we spent did not produce a commensurate increase in inquiries. Additionally, the percentage of inquiries that we converted into sales fell for the first time in many years. These negative developments combined to produce a sharp increase in our per-policy acquisition cost.New Auto Auto Policies Years Policies(1) In-Force(1)
| Data |
|---|
| 1993 346,882 2,011,055 |
| 1994 384,217 2,147,549 |
| 1995 443,539 2,310,037 |
| 1996 592,300 2,543,699 |
| 1997 868,430 2,949,439 |
| 1998 1,249,875 3,562,644 |
| 1999 1,648,095 4,328,900 |
| 2000 1,472,853 4,696,842 |
| (1) “Voluntary” only; excludes assigned risks and the like. Agonizing over errors is a mistake. But acknowledging and analyzing them can be useful, though that practice is rare in corporate boardrooms. There, Charlie and I have almost never witnessed a candid post-mortem of a failed decision, particularly one involving an acquisition. A notable exception to this never-look-back approach is that of The Washington Post Company, which unfailingly and objectively reviews its acquisitions three years after they are made. Elsewhere, triumphs are trumpeted, but dumb decisions either get no follow-up or are rationalized. |
The financial consequences of these boners are regularly dumped into massive restructuring charges or write-offs that are casually waved off as “nonrecurring.” Managements just love these. Indeed, in recent years it has seemed that no earnings statement is complete without them. The origins of these charges, though, are never explored. When it comes to corporate blunders, CEOs invoke the concept of the Virgin Birth. To get back to our examination of GEICO: There are at least four factors that could account for the increased costs we experienced in obtaining new business last year, and all probably contributed in some manner. First, in our advertising we have pushed “frequency” very hard, and we probably overstepped in certain media. We’ve always known that increasing the number of messages through any medium would eventually produce diminishing returns. The third ad in an hour on a given cable channel is simply not going to be as effective as the first. Second, we may have already picked much of the low-hanging fruit. Clearly, the willingness to do business with a direct marketer of insurance varies widely among individuals: Indeed, some percentage of Americans ¾ particularly older ones ¾ are reluctant to make direct purchases of any kind. Over the years, however, this reluctance will ebb. A new generation with new habits will find the savings from direct purchase of their auto insurance too compelling to ignore. Another factor that surely decreased the conversion of inquiries into sales was stricter underwriting by GEICO. Both the frequency and severity of losses increased during the year, and rates in certain areas became inadequate, in some cases substantially so. In these instances, we necessarily tightened our underwriting standards. This tightening, as well as the many rate increases we put in during the year, made our offerings less attractive to some prospects. A high percentage of callers, it should be emphasized, can still save money by insuring with us. Understandably, however, some prospects will switch to save $200 per year but will not switch to save $50. Therefore, rate increases that bring our prices closer to those of our competitors will hurt our acceptance rate, even when we continue to offer the best deal. Finally, the competitive picture changed in at least one important respect: State Farm ¾ by far the largest personal auto insurer, with about 19% of the market — has been very slow to raise prices. Its costs, however, are clearly increasing right along with those of the rest of the industry. Consequently, State Farm had an underwriting loss last year from auto insurance (including rebates to policyholders) of 18% of premiums, compared to 4% at GEICO. Our loss produced a float cost for us of 6.1%, an unsatisfactory result.(Indeed, at GEICO we expect float, over time, to be free.) But we estimate that State Farm’s float cost in 2000 was about 23%. The willingness of the largest player in the industry to tolerate such a cost makes the economics difficult for other participants. That does not take away from the fact that State Farm is one of America’s greatest business stories. I’ve urged that the company be studied at business schools because it has achieved fabulous success while following a path that in many ways defies the dogma of those institutions. Studying counter-evidence is a highly useful activity, though not one always greeted with enthusiasm at citadels of learning. State Farm was launched in 1922, by a 45-year-old, semi-retired Illinois farmer, to compete with long- established insurers ¾ haughty institutions in New York, Philadelphia and Hartford ¾ that possessed overwhelming advantages in capital, reputation, and distribution. Because State Farm is a mutual company, its board members and managers could not be owners, and it had no access to capital markets during its years of fast growth. Similarly, the business never had the stock options or lavish salaries that many people think vital if an American enterprise is to attract able managers and thrive. In the end, however, State Farm eclipsed all its competitors. In fact, by 1999 the company had amassed a tangible net worth exceeding that of all but four American businesses. If you want to read how this happened, get a copy of The Farmer from Merna.
Despite State Farm’s strengths, however, GEICO has much the better business model, one that embodies significantly lower operating costs. And, when a company is selling a product with commodity-like economic characteristics, being the low-cost producer is all-important. This enduring competitive advantage of GEICO ¾ one it possessed in 1951 when, as a 20-year-old student, I first became enamored with its stock ¾ is the reason that over time it will inevitably increase its market share significantly while simultaneously achieving excellent profits. Our growth will be slow, however, if State Farm elects to continue bearing the underwriting losses that it is now suffering. Tony Nicely, GEICO’s CEO, remains an owner’s dream. Everything he does makes sense. He never engages in wishful thinking or otherwise distorts reality, as so many managers do when the unexpected happens. As
| Data |
|---|
| 2000 unfolded, Tony cut back on advertising that was not cost-effective, and he will continue to do that in 2001 if |
| cutbacks are called for (though we will always maintain a massive media presence). Tony has also aggressively filed for price increases where we need them. He looks at the loss reports every day and is never behind the curve. To steal a line from a competitor, we are in good hands with Tony. I’ve told you about our profit-sharing arrangement at GEICO that targets only two variables — growth in policies and the underwriting results of seasoned business. Despite the headwinds of 2000, we still had a performance that produced an 8.8% profit-sharing payment, amounting to $40.7 million. GEICO will be a huge part of Berkshire’s future. Because of its rock-bottom operating costs, it offers a great many Americans the cheapest way to purchase a high-ticket product that they must buy. The company then couples this bargain with service that consistently ranks high in independent surveys. That’s a combination inevitably producing growth and profitability. In just the last few years, far more drivers have learned to associate the GEICO brand with saving money on their insurance. We will pound that theme relentlessly until all Americans are aware of the value that we offer. ## Investments |
| Below we present our common stock investments. Those that had a market value of more than $1 billion at the end of 2000 are itemized.12/31/00 Shares Company Cost Market (dollars in millions) |
| Data |
| --- |
| 151,610,700 American Express Company |
| 200,000,000 The Coca-Cola Company |
| 96,000,000 The Gillette Company |
| 1,727,765 The Washington Post Company |
| 55,071,380 Wells Fargo & Company |
| Others |
| Total Common Stocks |
| In 2000, we sold nearly all of our Freddie Mac and Fannie Mae shares, established 15% positions in several mid-sized companies, bought the high-yield bonds of a few issuers (very few — the category is not labeled junk without reason) and added to our holdings of high-grade, mortgage-backed securities. There are no “bargains” among our current holdings: We’re content with what we own but far from excited by it. Many people assume that marketable securities are Berkshire’s first choice when allocating capital, but that’s not true: Ever since we first published our economic principles in 1983, we have consistently stated that we would rather purchase businesses than stocks. (See number 4 on page 60.) One reason for that preference is personal, in that I love working with our managers. They are high-grade, talented and loyal. And, frankly, I find their business behavior to be more rational and owner-oriented than that prevailing at many public companies. |
But there’s also a powerful financial reason behind the preference, and that has to do with taxes. The tax code makes Berkshire’s owning 80% or more of a business far more profitable for us, proportionately, than our owning a smaller share. When a company we own all of earns $1 million after tax, the entire amount inures to our benefit. If the $1 million is upstreamed to Berkshire, we owe no tax on the dividend. And, if the earnings are retained and we were to sell the subsidiary ¾ not likely at Berkshire! ¾ for $1million more than we paid for it, we would owe no capital gains tax. That’s because our “tax cost” upon sale would include both what we paid for the business and all earnings it subsequently retained. Contrast that situation to what happens when we own an investment in a marketable security. There, if we own a 10% stake in a business earning $10 million after tax, our $1 million share of the earnings is subject to additional state and federal taxes of (1) about $140,000 if it is distributed to us (our tax rate on most dividends is 14%); or (2) no less than $350,000 if the $1 million is retained and subsequently captured by us in the form of a capital gain (on which our tax rate is usually about 35%, though it sometimes approaches 40%). We may defer paying the $350,000 by not immediately realizing our gain, but eventually we must pay the tax. In effect, the government is our “partner” twice when we own part of a business through a stock investment, but only once when we own at least 80%. Leaving aside tax factors, the formula we use for evaluating stocks and businesses is identical. Indeed, the formula for valuing all assets that are purchased for financial gain has been unchanged since it was first laid out by a very smart man in about 600 B.C. (though he wasn’t smart enough to know it was 600 B.C.). The oracle was Aesop and his enduring, though somewhat incomplete, investment insight was “a bird in the hand is worth two in the bush.” To flesh out this principle, you must answer only three questions. How certain are you that there are indeed birds in the bush? When will they emerge and how many will there be? What is the risk-free interest rate (which we consider to be the yield on long-term U.S. bonds)? If you can answer these three questions, you will know the maximum value of the bush ¾ and the maximum number of the birds you now possess that should be offered for it. And, of course, don’t literally think birds. Think dollars. Aesop’s investment axiom, thus expanded and converted into dollars, is immutable. It applies to outlays for farms, oil royalties, bonds, stocks, lottery tickets, and manufacturing plants.And neither the advent of the steam engine, the harnessing of electricity nor the creation of the automobile changed the formula one iota — nor will the Internet. Just insert the correct numbers, and you can rank the attractiveness of all possible uses of capital throughout the universe. Common yardsticks such as dividend yield, the ratio of price to earnings or to book value, and even growth rates have nothing to do with valuation except to the extent they provide clues to the amount and timing of cash flows into and from the business. Indeed, growth can destroy value if it requires cash inputs in the early years of a project or enterprise that exceed the discounted value of the cash that those assets will generate in later years. Market commentators and investment managers who glibly refer to “growth” and “value” styles as contrasting approaches to investment are displaying their ignorance, not their sophistication. Growth is simply a component ¾ usually a plus, sometimes a minus ¾ in the value equation. Alas, though Aesop’s proposition and the third variable ¾ that is, interest rates ¾ are simple, plugging in numbers for the other two variables is a difficult task. Using precise numbers is, in fact, foolish; working with a range of possibilities is the better approach. Usually, the range must be so wide that no useful conclusion can be reached. Occasionally, though, even very conservative estimates about the future emergence of birds reveal that the price quoted is startlingly low in relation to value. (Let’s call this phenomenon the IBT ¾ Inefficient Bush Theory.) To be sure, an investor needs some general understanding of business economics as well as the ability to think independently to reach a well- founded positive conclusion. But the investor does not need brilliance nor blinding insights. At the other extreme, there are many times when the most brilliant of investors can’t muster a conviction about the birds to emerge, not even when a very broad range of estimates is employed. This kind of uncertainty frequently occurs when new businesses and rapidly changing industries are under examination. In cases of this sort, any capital commitment must be labeled speculative.
Ahora bien, la especulación (en la que la atención no se centra en lo que producirá un activo sino en lo que el próximo pagará por él) no es ilegal, inmoral ni antiestadounidense. Pero no es un juego en el que Charlie y yo quisiéramos participar. No traemos nada a la fiesta, entonces ¿por qué deberíamos esperar llevarnos algo a casa? La línea que separa la inversión y la especulación, que nunca es brillante y clara, se vuelve aún más borrosa cuando la mayoría de los participantes del mercado han disfrutado recientemente de triunfos. Nada tranquiliza más la racionalidad que grandes dosis de dinero sin esfuerzo. Después de una experiencia embriagadora de este tipo, las personas normalmente sensatas adoptan un comportamiento similar al de Cenicienta en el baile. Saben que alargar las festividades (es decir, seguir especulando con empresas que tienen valoraciones gigantescas en relación con el efectivo que probablemente generarán en el futuro) acabará trayendo calabazas y ratones. Pero, aun así, odian perderse un solo minuto de lo que es una fiesta increíble. Por lo tanto, todos los vertiginosos participantes planean irse unos segundos antes de la medianoche. Pero hay un problema: están bailando en una habitación en la que los relojes no tienen manecillas. El año pasado comentamos la exuberancia (y sí, era irracional) que prevalecía, señalando que las expectativas de los inversores habían crecido hasta ser varios múltiplos de los rendimientos probables. Una prueba provino de una encuesta Paine Webber-Gallup entre inversionistas realizada en diciembre de 1999, en la que se preguntó a los participantes su opinión sobre los rendimientos anuales que los inversionistas podrían esperar obtener durante la próxima década. Sus respuestas promediaron el 19%. Esa, sin duda, era una expectativa irracional: para las empresas estadounidenses en su conjunto, no podría haber suficientes pájaros en la selva de 2009 para generar tal retorno. Mucho más irracionales aún eran las enormes valoraciones que los participantes del mercado pusieron entonces a las empresas que casi con seguridad acabarían teniendo un valor modesto o nulo. Sin embargo, los inversores, hipnotizados por el aumento vertiginoso de los precios de las acciones e ignorando todo lo demás, se lanzaron a estas empresas. Era como si algún virus, que corría salvajemente entre los profesionales de la inversión y entre los aficionados, indujera alucinaciones en las que los valores de las acciones de ciertos sectores se desacoplaban de los valores de las empresas que los sustentaban. Esta escena surrealista estuvo acompañada de muchas conversaciones vagas sobre la “creación de valor”. Reconocemos fácilmente que ha habido una enorme cantidad de valor real creado en la última década por empresas nuevas o jóvenes, y que hay mucho más por venir. Pero el valor es destruido, no creado, por cualquier empresa que pierda dinero a lo largo de su vida, sin importar cuán alta pueda llegar a ser su valoración provisional. Lo que realmente ocurre en estos casos es una transferencia de riqueza, a menudo a escala masiva.Al comercializar descaradamente arbustos sin pájaros, en los últimos años los promotores han movido miles de millones de dólares de los bolsillos del público a sus propios bolsillos (y a los de sus amigos y asociados). El hecho es que un mercado de burbujas ha permitido la creación de empresas burbuja, entidades diseñadas más con miras a ganar dinero de los inversores que para ellos. Con demasiada frecuencia, el objetivo principal de los promotores de una empresa era una oferta pública inicial, no las ganancias. En el fondo, el “modelo de negocio” de estas empresas ha sido la anticuada carta en cadena, para la cual muchos banqueros de inversión ávidos de honorarios actuaban como ansiosos carteros. Pero por cada burbuja acecha un alfiler. Y cuando los dos finalmente se encuentran, una nueva ola de inversionistas aprende algunas lecciones muy antiguas: primero, muchos en Wall Street –una comunidad en la que el control de calidad no es apreciado– venderán a los inversionistas cualquier cosa que quieran comprar. En segundo lugar, la especulación es más peligrosa cuando parece más fácil. En Berkshire, no intentamos elegir a los pocos ganadores que surgirán de un océano de empresas no probadas. No somos lo suficientemente inteligentes para hacer eso y lo sabemos. En lugar de ello, tratamos de aplicar la ecuación de Esopo de hace 2.600 años a oportunidades en las que tenemos una confianza razonable en cuanto a cuántos pájaros hay en el monte y cuándo emergerán (una formulación que mis nietos probablemente actualizarían a “Una niña en un convertible vale cinco en la guía telefónica”). Obviamente, nunca podemos predecir con precisión el momento de los flujos de efectivo que entran y salen de una empresa o su monto exacto. Por lo tanto, intentamos mantener nuestras estimaciones conservadoras y centrarnos en industrias donde es poco probable que las sorpresas comerciales causen estragos en los propietarios. Aun así, cometemos muchos errores: recuerden que yo soy el tipo que creía entender la economía futura del comercio de sellos, textiles, zapatos y grandes almacenes de segundo nivel. Últimamente, los “arbustos” más prometedores son las transacciones negociadas para empresas enteras, y eso nos complace. Sin embargo, debe comprender claramente que, en el mejor de los casos, estas adquisiciones sólo nos proporcionarán beneficios razonables. Sólo se pueden anticipar resultados realmente jugosos de los acuerdos negociados cuando los mercados de capital están severamente restringidos y todo el mundo empresarial es pesimista. Estamos a 180 grados de ese punto.
Fuentes de ganancias operativas
La siguiente tabla muestra las principales fuentes de las ganancias reportadas de Berkshire. En esta presentación, los ajustes contables de compras no se asignan a los negocios específicos a los que se aplican, sino que se agregan y se muestran por separado. Este procedimiento le permite ver las ganancias de nuestros negocios tal como se habrían reportado si no los hubiéramos comprado. Por las razones analizadas en la página 65, esta forma de presentación nos parece más útil para los inversores y administradores que otra que utiliza principios de contabilidad generalmente aceptados (GAAP), que exigen que las primas de compra se carguen negocio por negocio. Las ganancias netas totales que mostramos en la tabla son, por supuesto, idénticas al total GAAP en nuestros estados financieros auditados. (en millones) Participación de Berkshire en las ganancias netas (después de impuestos e intereses minoritarios en las ganancias antes de impuestos)
| Datos |
|---|
| 2000 1999 2000 1999 |
| Utilidades Operativas: Grupo Asegurador: |
| Datos |
| --- |
| Suscripción – Reaseguro |
| Suscripción – GEICO |
| Suscripción – Otros Primarios |
| Ingresos netos de inversiones |
| Negocio de Finanzas y Productos Financieros 556 125 360 86 |
| Servicios de vuelo |
| MidAmerican Energy (76% de propiedad) |
| Operaciones minoristas |
| Scott Fetzer (excluyendo operación financiera) |
| Otros Negocios |
| Ajustes Contables de Compras |
| Gastos por intereses corporativos |
| Contribuciones designadas por los accionistas |
| Otro |
| Ganancias operativas |
| Ganancias de capital de inversiones |
| Ganancias totales: todas las entidades |
| A la mayoría de nuestros negocios de fabricación, venta minorista y servicios les fue al menos razonablemente bien el año pasado. La excepción fueron los zapatos, particularmente en Dexter. En general, en nuestras empresas de calzado, nuestro intento de mantener la mayor parte de nuestra producción en fábricas nacionales nos ha costado muy caro. En 2001 también nos enfrentamos a otro año muy difícil, ya que realizamos cambios significativos en la forma en que hacemos negocios. Claramente cometí un error al pagar lo que hice por Dexter en 1993. Además, completé ese error enormemente al utilizar acciones de Berkshire como pago. El año pasado, para reconocer mi error, cancelamos todo el fondo de comercio contable restante atribuible a la transacción de Dexter. Es posible que recuperemos cierta buena voluntad económica en Dexter en el futuro, pero claramente no la tenemos en la actualidad. Los directivos de nuestras empresas de calzado son de primera clase tanto desde el punto de vista empresarial como humano.Están trabajando muy duro en un trabajo duro y a menudo terriblemente doloroso, aunque sus circunstancias financieras personales no les exigen hacerlo. Tienen mi admiración y agradecimiento. |
En una nota más agradable, seguimos siendo el líder indiscutible en dos ramas de Servicios de aeronaves: capacitación de pilotos en FlightSafety (FSI) y propiedad fraccionada de aviones ejecutivos en Executive Jet (EJA). Ambas empresas están dirigidas por sus notables fundadores. Al Ueltschi en FSI tiene ahora 83 años y continúa operando a toda velocidad. Aunque no soy partidario de la división de acciones, planeo dividir la edad de Al 2 por 1 cuando llegue a los 100 años. (Si funciona, adivinen quién será el siguiente). Gastamos 272 millones de dólares en simuladores de vuelo en 2000, y gastaremos una cantidad similar este año. Cualquiera que piense que los cargos anuales por depreciación no reflejan un costo real (tan real como la nómina o las materias primas) debería hacer una pasantía en una empresa de simuladores. Cada año gastamos cantidades iguales a nuestro cargo de depreciación simplemente para permanecer en el mismo lugar económico ¾ y luego gastamos sumas adicionales para crecer. Y, hasta donde alcanza la vista, hay perspectivas de crecimiento para FSI. A EJA (cuyo programa de propiedad fraccionada se le llama NetJetsâ) le espera un crecimiento aún más rápido. Rich Santulli es el motor de este negocio. El año pasado les dije que los ingresos recurrentes de EJA provenientes de tarifas de administración mensuales y uso por horas crecieron un 46% en 1999. En 2000 el crecimiento fue del 49%. También les dije que éste era un negocio de bajos márgenes, en el que los supervivientes serán pocos. De hecho, los márgenes fueron reducidos en EJA el año pasado, en parte debido a los importantes costos en los que incurrimos al desarrollar nuestro negocio en Europa. Independientemente del costo, puede estar seguro de que el gasto de EJA en seguridad será lo que sea necesario. Obviamente, seguiríamos esta política bajo cualquier circunstancia, pero aquí también hay algo de interés propio: yo, mi esposa, mis hijos, mis hermanas, mi tía de 94 años, todos menos uno de nuestros directores y al menos nueve gerentes de Berkshire vuelan regularmente en el programa NetJets. Teniendo en cuenta esa carga, aplaudo la insistencia de Rich en cantidades inusualmente altas de capacitación de pilotos (un promedio de 23 días al año). Además, nuestros pilotos consolidan sus habilidades volando aproximadamente 800 horas al año. Finalmente, cada uno vuela solo un modelo de avión, lo que significa que nuestras tripulaciones no cambian entre aviones con diferentes cabinas y características de vuelo. El negocio de EJA sigue estando limitado por la disponibilidad de nuevos aviones. Aún así, nuestros clientes recibirán más de 50 nuevos aviones en 2001, el 7% de la producción mundial. Confiamos en que seguiremos siendo el líder mundial en propiedad fraccionada, con respecto al número de aviones en vuelo, la calidad del servicio y los estándares de seguridad. * * * * * * * * * * En las páginas 42 a 58 se proporciona información adicional sobre nuestros diversos negocios, donde también encontrará las ganancias de nuestro segmento informadas según los PCGA.Además, en las páginas 67 a 73, hemos reorganizado los datos financieros de Berkshire en cuatro segmentos según los PCGA, una presentación que corresponde a la forma en que Charlie y yo pensamos sobre la empresa. ## Ganancias trasparentes Las ganancias declaradas son una medida inadecuada del progreso económico en Berkshire, en parte porque las cifras que se muestran en la tabla de la página 15 incluyen solo los dividendos que recibimos de las empresas en las que invertimos, aunque estos dividendos generalmente representan solo una pequeña fracción de las ganancias atribuibles a nuestra propiedad. Sin embargo, para representar algo más cercano a la realidad económica en Berkshire que las ganancias reportadas, empleamos el concepto de ganancias “transparentes”. Según los calculamos, consisten en: (1) las ganancias operativas informadas en la página 15; más; (2) nuestra participación en las ganancias operativas retenidas de las principales participadas que, según la contabilidad GAAP, no se reflejan en nuestras ganancias, menos; (3) una provisión para el impuesto que Berkshire pagaría si estas ganancias retenidas de las participadas nos hubieran sido distribuidas. Al tabular aquí las “ganancias operativas”, excluimos los ajustes contables de compras, así como las ganancias de capital y otras partidas no recurrentes importantes. La siguiente tabla muestra nuestras ganancias del año 2000, aunque les advierto que las cifras no pueden ser más que aproximadas, ya que se basan en una serie de decisiones. (Los dividendos que nos pagaron estas participadas se han incluido en las ganancias operativas detalladas en la página 15, principalmente en “Grupo asegurador: Ingresos netos de inversiones”).
Participación aproximada de Berkshire en la propiedad no distribuida de las principales participadas de Berkshire al final del año(1) Ganancias operativas (en millones)(2)
| Datos |
|---|
| Compañía American Express |
| La Compañía Coca-Cola |
| Freddy Mac |
| La empresa Gillette |
| Banco M&T |
| La compañía Washington Post |
| Wells Fargo & Compañía |
| Participación de Berkshire en las ganancias no distribuidas de las principales participadas 740 Impuesto hipotético sobre estas ganancias no distribuidas de las participadas(3) (104) Ganancias operativas reportadas de Berkshire 1,779 Ganancias totales traspasadas de Berkshire $ 2,415 (1) No incluye acciones asignables a intereses minoritarios (2) Calculado sobre la propiedad promedio para el año (3) La tasa impositiva utilizada es del 14%, que es la tasa de Berkshire paga la mayoría de los dividendos que recibe |
Informes completos y justos
En Berkshire, presentar informes completos significa brindarle la información que desearíamos que nos brindara si nuestras posiciones se invirtieran. Lo que Charlie y yo querríamos en esas circunstancias serían todos los hechos importantes sobre las operaciones actuales, así como la visión franca del director ejecutivo sobre las características económicas a largo plazo del negocio. Esperaríamos muchos detalles financieros y una discusión de cualquier dato importante que necesitaríamos para interpretar lo presentado. Cuando Charlie y yo leemos informes, no nos interesan las fotografías de personal, plantas o productos. Las referencias al EBITDA nos hacen estremecer: ¿cree la dirección que el Ratoncito Pérez paga los gastos de capital? Sospechamos mucho de una metodología contable que sea vaga o poco clara, ya que con demasiada frecuencia eso significa que la dirección desea ocultar algo. Y no queremos leer mensajes que haya publicado un departamento de relaciones públicas o un consultor. En cambio, esperamos que el director ejecutivo de una empresa explique con sus propias palabras lo que está sucediendo. Para nosotros, informar de manera justa significa hacer llegar información a nuestros 300.000 “socios” simultáneamente, o lo más cerca posible de esa marca. Por eso publicamos nuestras finanzas anuales y trimestrales en Internet entre el cierre del mercado del viernes y la mañana siguiente. Al hacer esto, los accionistas y otros inversionistas interesados tienen acceso oportuno a estas importantes publicaciones y también tienen una cantidad de tiempo razonable para digerir la información que incluyen antes de que los mercados abran el lunes. Este año nuestra información trimestral estará disponible los sábados 12 de mayo, 11 de agosto y 10 de noviembre. El informe anual de 2001 se publicará el 9 de marzo. Aplaudimos el trabajo que ha realizado Arthur Levitt, Jr., hasta hace poco presidente de la SEC, para acabar con la práctica corporativa de “divulgación selectiva” que se había extendido como un cáncer en los últimos años.De hecho, se había convertido en una práctica prácticamente estándar para las grandes corporaciones “guiar” a los analistas o a los grandes tenedores hacia expectativas de ganancias que debían estar en la nariz o un poquito por debajo de lo que la empresa realmente esperaba ganar. A través de las indirectas, guiños y asentimientos selectivamente dispersos que hacían las empresas, las instituciones y asesores con mentalidad especulativa obtuvieron una ventaja informativa sobre los individuos orientados a la inversión. Se trataba de un comportamiento corrupto, lamentablemente adoptado tanto por Wall Street como por las empresas estadounidenses. Gracias al presidente Levitt, cuyos esfuerzos generales en nombre de los inversionistas fueron incansables y efectivos, ahora se requiere que las corporaciones traten a todos sus propietarios por igual. El hecho de que esta reforma se haya producido por coerción más que por conciencia debería ser motivo de vergüenza para los directores ejecutivos y sus departamentos de relaciones con los inversores.
Una reflexión más mientras estoy en mi tribuna: Charlie y yo creemos que es engañoso y peligroso que los directores ejecutivos predigan las tasas de crecimiento de sus empresas. Por supuesto, con frecuencia son incitados a hacerlo tanto por los analistas como por sus propios departamentos de relaciones con los inversores. Sin embargo, deberían resistirse, porque con demasiada frecuencia estas predicciones generan problemas. Está bien que un director ejecutivo tenga sus propios objetivos internos y, en nuestra opinión, es incluso apropiado que exprese públicamente algunas esperanzas sobre el futuro, si estas expectativas van acompañadas de advertencias sensatas. Pero que una corporación importante prediga que sus ganancias por acción crecerán en el largo plazo a, digamos, un 15% anual es buscarse problemas. Esto es cierto porque una tasa de crecimiento de esa magnitud sólo puede ser mantenida por un porcentaje muy pequeño de grandes empresas. Aquí hay una prueba: examine el registro de, digamos, las 200 empresas con mayores ganancias de 1970 o 1980 y tabule cuántas han aumentado las ganancias por acción en un 15% anual desde esas fechas. Descubrirás que sólo unos pocos lo tienen. Yo apostaría una suma muy significativa a que menos de 10 de las 200 empresas más rentables del año 2000 alcanzarán un crecimiento anual del 15% en beneficios por acción durante los próximos 20 años. El problema que surgen de las elevadas predicciones no es sólo que difunden un optimismo injustificado. Aún más problemático es el hecho de que corroen el comportamiento de los directores ejecutivos. A lo largo de los años, Charlie y yo hemos observado muchos casos en los que los directores ejecutivos participaron en maniobras operativas antieconómicas para poder cumplir los objetivos de ganancias que habían anunciado. Peor aún, después de agotar todo lo que podían hacer las acrobacias operativas, a veces jugaban a una amplia variedad de juegos de contabilidad para “hacer los números”. Estas travesuras contables tienden a crecer como una bola de nieve: una vez que una empresa traslada sus ganancias de un período a otro, los déficits operativos que se producen a partir de entonces la obligan a emprender nuevas maniobras contables que deben ser aún más “heroicas”. Esto puede convertir la falsificación en fraude. (Se ha observado que se ha robado más dinero con la punta de un bolígrafo que con la punta de un arma). Charlie y yo tendemos a desconfiar de las empresas dirigidas por directores ejecutivos que cortejan a los inversores con predicciones sofisticadas. Algunos de estos directivos resultarán proféticos, pero otros resultarán optimistas congénitos o incluso charlatanes. Desafortunadamente, no es fácil para los inversores saber de antemano con qué especies están tratando. * * * * * * * * * * * * Te he advertido en el pasado que no debes creer todo lo que lees o escuchas sobre Berkshire ¾ incluso cuando sea publicado o transmitido por una organización de noticias prestigiosa.De hecho, los informes erróneos son particularmente peligrosos cuando los hacen circular miembros muy respetados de los medios de comunicación, simplemente porque la mayoría de los lectores y oyentes saben que estos medios son generalmente creíbles y, por lo tanto, creen lo que dicen. Un ejemplo es un error flagrante sobre las actividades de Berkshire que apareció en la edición del 29 de diciembre de The Wall Street Journal, un artículo generalmente excelente que durante toda mi vida he considerado útil. En primera plana (y en la mitad superior, como dicen) el Journal publicó un resumen que decía, en términos inequívocos, que estábamos comprando bonos de Conseco y Finova. Este artículo dirigió al lector al artículo principal de la sección Dinero e inversiones. Allí, en el segundo párrafo de la historia, The Journal informó, nuevamente sin ninguna calificación, que Berkshire estaba comprando bonos de Conseco y Finova, y agregó que Berkshire había invertido “varios cientos de millones de dólares” en cada uno. Sólo en el párrafo 18 de la historia (que en ese momento había saltado a una página interior) el periódico se evadió un poco, diciendo que nuestras compras de Conseco habían sido reveladas por “personas familiarizadas con el asunto”. Bueno, no tan familiar. Es cierto que habíamos comprado bonos y deuda bancaria de Finova, aunque el informe era tremendamente inexacto en cuanto al importe. Pero hasta el día de hoy ni Berkshire ni yo hemos comprado nunca una acción o un bono de Conseco. Berkshire normalmente es cubierto por un reportero del Journal en Chicago que es a la vez preciso y concienzudo. En este caso, sin embargo, la “primicia” fue producto de un reportero del periódico de Nueva York. De hecho, el día 29 fue un día muy ocupado para él: a primera hora de la tarde, había repetido la historia en CNBC. Inmediatamente, a modo de lemming, otras respetadas organizaciones de noticias, basándose únicamente en el Journal, comenzaron a relatar los mismos “hechos”. El resultado: las acciones de Conseco avanzaron bruscamente durante el día con un volumen excepcional que las colocó en el noveno lugar de la lista de acciones más activas de la Bolsa de Nueva York. Durante todas las iteraciones de la historia, nunca escuché ni leí la palabra “rumor”. Al parecer, los periodistas y editores, que generalmente se enorgullecen de su cuidadoso uso del lenguaje, simplemente no se atreven a adjuntar esta palabra a sus relatos. Pero ¿qué descripción encajaría con mayor precisión? Ciertamente no son los habituales “dicen las fuentes” o “se ha informado”.
Sin embargo, una columna titulada “Los rumores de hoy” no se equipararía con la imagen que tienen de sí muchas organizaciones de noticias que se consideran por encima de ese tipo de cosas. Estos miembros de los medios de comunicación sentirían que publicar una tontería tan reconocida sería como si L’Osservatore Romano iniciara una columna de chismes. Pero lo que estas organizaciones suelen publicar y difundir son rumores, sea cual sea el eufemismo que escondan. Como mínimo, los lectores merecen una terminología honesta: una etiqueta de advertencia que proteja su salud financiera de la misma manera que se les da una advertencia a los fumadores cuya salud física está en riesgo. La Primera Enmienda de la Constitución permite a los medios imprimir o decir casi cualquier cosa. El primer principio del periodismo debería exigir que los medios sean escrupulosos a la hora de decidir cuál será. ## Varios En el informe del año pasado examinamos la batalla que entonces se libraba sobre el uso de la “agrupación” en la contabilidad de las fusiones. Nos parecía que ambas partes estaban expresando argumentos que eran sólidos en ciertos aspectos y seriamente defectuosos en otros. Nos complace que el Consejo de Normas de Contabilidad Financiera haya adoptado desde entonces un enfoque alternativo que nos parece muy sólido. Si la norma propuesta se vuelve definitiva, ya no incurriremos en un gran cargo anual por la amortización de intangibles. En consecuencia, nuestras ganancias reportadas reflejarán más fielmente la realidad económica. (Consulte la página 65). Nada de esto tendrá un efecto en el valor intrínseco de Berkshire. Su Presidente, sin embargo, se beneficiará personalmente porque habrá un punto menos que explicar en estas cartas. * * * * * * * * * * * * Adjunto un informe ¾ generosamente proporcionado por Outstanding Investor Digest ¾ de los comentarios de Charlie en la reunión anual de Wesco del pasado mes de mayo. Charlie piensa en cuestiones de inversión y economía empresarial mejor que nadie que yo conozca, y he aprendido mucho a lo largo de los años escuchándolo. Leer sus comentarios mejorará su comprensión de Berkshire. * * * * * * * * * * * * En 1985, compramos Scott Fetzer, adquiriendo no sólo un excelente negocio sino también los servicios de Ralph Schey, un director ejecutivo verdaderamente sobresaliente. Ralph tenía entonces 61 años. La mayoría de las empresas, centradas en el calendario más que en la capacidad, se habrían beneficiado del talento de Ralph sólo durante unos pocos años. En Berkshire, por el contrario, Ralph dirigió Scott Fetzer durante 15 años hasta su jubilación a finales de 2000. Bajo su liderazgo, la empresa distribuyó 1.030 millones de dólares a Berkshire frente a nuestro precio de compra neto de 230 millones de dólares. A su vez, utilizamos estos fondos para comprar otros negocios. En total, las contribuciones de Ralph al valor actual de Berkshire ascienden a miles de millones de dólares. Como gerente, Ralph pertenece al Salón de la Fama de Berkshire, y Charlie y yo le damos la bienvenida a él.* * * * * * * * * * * * Un poco de nostalgia: hace exactamente 50 años entré a la clase de Ben Graham en Columbia. Durante la década anterior, había disfrutado –hacer ese amor– analizando, comprando y vendiendo acciones. Pero mis resultados no fueron mejores que el promedio. A partir de 1951 mi desempeño mejoró. No, no había cambiado mi dieta ni había hecho ejercicio. El único ingrediente nuevo fueron las ideas de Ben. Sencillamente, unas pocas horas pasadas a los pies del maestro resultaron mucho más valiosas para mí que diez años de pensamiento supuestamente original. Además de ser un gran maestro, Ben fue un amigo maravilloso. Mi deuda con él es incalculable.
Contribuciones designadas por los accionistas Alrededor del 97% de todas las acciones elegibles participaron en el programa de contribuciones designadas por los accionistas de Berkshire del año 2000, con contribuciones por un total de $16,9 millones. Una descripción completa del programa aparece en las páginas 74-75. En total, durante los 20 años del programa, Berkshire ha realizado contribuciones por valor de 164 millones de dólares de conformidad con las instrucciones de nuestros accionistas. El resto de las donaciones de Berkshire lo realizan nuestras filiales, que se apegan a los patrones filantrópicos que prevalecían antes de ser adquiridas (excepto que sus antiguos propietarios asumen la responsabilidad de sus organizaciones benéficas personales). En total, nuestras subsidiarias hicieron contribuciones por $18,3 millones en 2000, incluidas donaciones en especie por $3 millones. Para participar en programas futuros, debe poseer acciones Clase A que estén registradas a nombre del propietario real, no al nombre nominal de un corredor, banco o depositario. Las acciones no registradas el 31 de agosto de 2001 no serán elegibles para el programa de 2001. Cuando reciba nuestro formulario de contribuciones, devuélvalo lo antes posible para que no lo dejen a un lado ni lo olviden. Las designaciones recibidas después de la fecha límite no serán aceptadas. La Reunión Anual El año pasado trasladamos la reunión anual al Auditorio Cívico y funcionó muy bien para nosotros. Nos reuniremos allí nuevamente el sábado 28 de abril. Las puertas se abrirán a las 7 a.m., la película comenzará a las 8:30 y la reunión en sí comenzará a las 9:30. Habrá un breve descanso al mediodía para comer, con sándwiches disponibles en los puestos de venta del Civic. Excepto por ese interludio, Charlie y yo responderemos preguntas hasta las 3:30. Durante los próximos años, el Civic será nuestra única opción. Por lo tanto, debemos celebrar la reunión el sábado o el domingo para evitar la pesadilla de tráfico y estacionamiento que se produciría en un día laborable. Sin embargo, en breve Omaha contará con un nuevo Centro de Convenciones con amplio estacionamiento. Suponiendo que el Centro esté disponible para nosotros, sondearé a los accionistas para ver si desean volver a la reunión del lunes. Decidiremos esa votación en función de los deseos de la mayoría de los accionistas, no de las acciones. Un archivo adjunto al material de poder que se adjunta a este informe explica cómo puede obtener la credencial que necesitará para la admisión a la reunión de este año y otros eventos. En cuanto a reservas de avión, hotel y coche, volvemos a contratar American Express (800-799-6634) para brindarte ayuda especial. Como de costumbre, llevaremos autobuses desde los hoteles más grandes hasta la reunión. Después de la reunión, los autobuses realizarán viajes de regreso a los hoteles y a Nebraska Furniture Mart, Borsheim’s y el aeropuerto. Aun así, es probable que un coche le resulte útil.Hemos agregado tantas empresas nuevas a Berkshire este año que no voy a detallar todos los productos que venderemos en la reunión. Pero ven preparado para llevarte a casa de todo, desde ladrillos hasta dulces. Sin embargo, hay un nuevo producto que merece una mención especial: Bob Shaw ha diseñado una alfombra de 3 x 5 con una excelente imagen de Charlie. Obviamente, sería vergonzoso para Charlie (y hacerlo humillante) si las bajas ventas nos obligaran a reducir el precio de la alfombra, así que da un paso al frente y haz tu parte. GEICO tendrá un stand atendido por varios de sus mejores asesores de todo el país, todos ellos listos para brindarle cotizaciones de seguros de automóviles. En la mayoría de los casos, GEICO podrá ofrecerle un descuento especial para accionistas (normalmente del 8%). Traiga los detalles de su seguro actual y compruebe si podemos ahorrarle algo de dinero. El sábado en el aeropuerto de Omaha, tendremos la gama habitual de aviones de Executive Jet disponibles para su inspección. Pregúntele a un representante de EJA en el Civic acerca de ver cualquiera de estos aviones. Si compras lo que consideramos un número adecuado de artículos durante el fin de semana, es posible que necesites tu propio avión para llevártelos a casa. En Nebraska Furniture Mart, ubicado en un terreno de 75 acres en 72nd Street entre Dodge y Pacific, nuevamente tendremos precios de “Berkshire Weekend”, lo que significa que ofreceremos a nuestros accionistas un descuento que normalmente se otorga solo a los empleados. Iniciamos este precio especial en NFM hace cuatro años y las ventas durante el “fin de semana” crecieron de 5,3 millones de dólares en 1997 a 9,1 millones de dólares en 2000.
Para obtener el descuento deberás realizar tus compras entre el miércoles 25 de abril y el lunes 30 de abril y además presentar tu credencial de reunión. Los precios especiales del período se aplicarán incluso a los productos de varios fabricantes de prestigio que normalmente tienen reglas estrictas contra los descuentos pero que, en el espíritu de nuestro fin de semana de accionistas, han hecho una excepción para usted. Agradecemos su cooperación. NFM está abierto de 10 a. m. a 9 p. m. de lunes a viernes y de 10 a 18 horas. los sábados y domingos. Borsheim’s, la joyería más grande del país, excepto la tienda Tiffany’s en Manhattan, tendrá dos eventos exclusivos para accionistas. El primero será un cóctel a partir de las 6 p.m. a 10 p.m. el viernes 27 de abril. La segunda, la gala principal, será de 9 a 17 horas. el domingo 29 de abril. Los precios para accionistas estarán disponibles de jueves a lunes, por lo que si desea evitar las grandes multitudes que se reunirán el viernes por la noche y el domingo, venga en otros horarios e identifíquese como accionista. El sábado estaremos abiertos hasta las 6 p.m. Borsheim’s opera con un margen bruto que está veinte puntos porcentuales por debajo del de sus principales rivales, por lo que cuanto más compras, más ahorras (o al menos eso es lo que siempre me dice mi familia). En el centro comercial a las afueras de Borsheim tendremos expertos locales en bridge disponibles para jugar con nuestros accionistas el domingo. Bob Hamman, que normalmente está con nosotros, estará en África este año. Sin embargo, ha prometido estar presente en 2002. Patrick Wolff, dos veces campeón de ajedrez de Estados Unidos, también estará en el centro comercial, enfrentándose a todos los asistentes, ¡con los ojos vendados! El año pasado, Patrick jugó hasta seis juegos simultáneamente ¾ con la venda bien puesta ¾ y destruyó a sus oponentes. Como si todo esto no fuera suficiente para poner a prueba tus habilidades, la Olimpiada de Borsheim de este año también incluirá a Bill Robertie, uno de los dos únicos jugadores que ganaron dos veces el campeonato mundial de backgammon. El backgammon puede generar mucho dinero, así que lleve consigo sus certificados de acciones. Gorat’s ¾ mi asador favorito ¾ volverá a estar abierto exclusivamente para los accionistas de Berkshire el domingo 29 de abril y estará abierto de 4 p.m. hasta las 22 h. Por favor, recuerda que no puedes venir a Gorat’s el domingo sin reserva. Para hacer uno, llame al 402-551-3733 el 2 de abril (pero no antes). Si el domingo está agotado, prueba Gorat’s una de las otras noches que estarás en la ciudad. Si pides un chuletón poco común con una doble ración de croquetas de patata, establecerás tus credenciales como sibarita. El habitual partido de béisbol se llevará a cabo en el estadio Rosenblatt a las 7 p.m. el sábado por la noche. Este año los Omaha Golden Spikes jugarán contra los New Orleans Zephyrs. Ernie Banks nuevamente estará disponible para enfrentar ¾ con valentía ¾ mi bola rápida (una vez registrada a 95 mpm ¾ millas por mes).Mi desempeño el año pasado no fue el mejor: me tomó cinco lanzamientos lograr algo parecido a un strike. Y créanme, uno se siente solo en el montículo cuando no puedes encontrar el plato. Finalmente, conseguí uno y Ernie conectó una línea al jardín izquierdo. Después de que me sacaron del juego, muchos periodistas deportivos presentes me preguntaron qué le había servido a Ernie. Cité lo que dijo Warren Spahn después de que Willie Mays conectara uno de sus lanzamientos para lograr un jonrón (el primero de Willie en las mayores): “Fue un lanzamiento increíble durante los primeros sesenta pies”. Este año será una historia diferente. No quiero revelar mi opinión, así que digamos que Ernie tendrá que lidiar con un lanzamiento que nunca antes había visto. Nuestra declaración de poder contiene instrucciones sobre cómo obtener entradas para el juego y también una gran cantidad de información adicional que le ayudará a disfrutar de su visita a Omaha. Habrá mucha acción en la ciudad. Venga al fin de semana de Woodstock y únase a nuestra Celebración del Capitalismo en el Civic. Warren E. Buffett 28 de febrero de 2001 Presidente de la junta directiva## Conceptos mencionados
-Intrinsic Value -Book Value -Float -Capital Allocation -Economic Moat -Operating Earnings -Speculation -Low-cost Operations -Look-through Earnings -Underwriting Discipline -Investment Principles
Empresas mencionadas
-Berkshire Hathaway -GEICO -General Re -Coca-Cola -MidAmerican Energy -Gillette -American Express -Wells Fargo -The Washington Post Company -CORT Business Services -Shaw Industries -Benjamin Moore -Johns Manville -FlightSafety International -NetJets -Scott Fetzer -Fannie Mae -Freddie Mac -Dexter Shoe
Personas mencionadas
-Warren Buffett -Charlie Munger -Ajit Jain -Lou Simpson -Benjamin Franklin -Aesop