Berkshire Hathaway 2014 Annual Report Download - page 9

Among Arno’s “certain things,” I would include two separate skills, the evaluation of investments and the
management of businesses. I therefore think it’s worthwhile for Todd Combs and Ted Weschler, our two
investment managers, to each have oversight of at least one of our businesses. A sensible opportunity for
them to do so opened up a few months ago when we agreed to purchase two companies that, though
smaller than we would normally acquire, have excellent economic characteristics. Combined, the two earn
$100 million annually on about $125 million of net tangible assets.
I’ve asked Todd and Ted to each take on one as Chairman, in which role they will function in the very
limited way that I do with our larger subsidiaries. This arrangement will save me a minor amount of work
and, more important, make the two of them even better investors than they already are (which is to say
among the best).
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Late in 2009, amidst the gloom of the Great Recession, we agreed to buy BNSF, the largest purchase in
Berkshire’s history. At the time, I called the transaction an “all-in wager on the economic future of the United
States.”
That kind of commitment was nothing new for us. We’ve been making similar wagers ever since Buffett
Partnership Ltd. acquired control of Berkshire in 1965. For good reason, too: Charlie and I have always considered a
“bet” on ever-rising U.S. prosperity to be very close to a sure thing.
Indeed, who has ever benefited during the past 238 years by betting against America? If you compare our
country’s present condition to that existing in 1776, you have to rub your eyes in wonder. In my lifetime alone, real
per-capita U.S. output has sextupled. My parents could not have dreamed in 1930 of the world their son would see.
Though the preachers of pessimism prattle endlessly about America’s problems, I’ve never seen one who wishes to
emigrate (though I can think of a few for whom I would happily buy a one-way ticket).
The dynamism embedded in our market economy will continue to work its magic. Gains won’t come in a
smooth or uninterrupted manner; they never have. And we will regularly grumble about our government. But, most
assuredly, America’s best days lie ahead.
With this tailwind working for us, Charlie and I hope to build Berkshire’s per-share intrinsic value by
(1) constantly improving the basic earning power of our many subsidiaries; (2) further increasing their earnings
through bolt-on acquisitions; (3) benefiting from the growth of our investees; (4) repurchasing Berkshire shares
when they are available at a meaningful discount from intrinsic value; and (5) making an occasional large
acquisition. We will also try to maximize results for you by rarely, if ever, issuing Berkshire shares.
Those building blocks rest on a rock-solid foundation. A century hence, BNSF and Berkshire Hathaway
Energy will still be playing vital roles in our economy. Homes and autos will remain central to the lives of most
families. Insurance will continue to be essential for both businesses and individuals. Looking ahead, Charlie and I
see a world made to order for Berkshire. We feel fortunate to be entrusted with its management.
Intrinsic Business Value
As much as Charlie and I talk about intrinsic business value, we cannot tell you precisely what that
number is for Berkshire shares (nor, in fact, for any other stock). In our 2010 annual report, however, we laid out the
three elements – one of them qualitative – that we believe are the keys to a sensible estimate of Berkshire’s intrinsic
value. That discussion is reproduced in full on pages 123-124.
Here is an update of the two quantitative factors: In 2014 our per-share investments increased 8.4% to
$140,123, and our earnings from businesses other than insurance and investments increased 19% to $10,847 per
share.
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