Letter to Shareholders

# 2004 Letter to Shareholders ## To the Shareholders of Berkshire Hathaway Inc. We gained $7.3 billion in net worth during 2004, which increased the per-share book value of both our Class A and Class B stock by 10.5%. Over the last 40 years, per-share book value has grown from $19 to $55,824, a rate of 21.9% compounded annually. ## Foreign Currency Investment For the first time in Berkshire's history, we made a significant investment in foreign currencies. By year end, we held $21.4 billion in foreign currency contracts. This decision reflects my concern about the U.S. trade deficit. America is consuming more than it produces, financing the difference by selling assets to foreigners and borrowing from abroad. This cannot continue indefinitely. > "The U.S. trade deficit is a problem that will eventually have consequences. We are positioning Berkshire to benefit if the dollar declines." If the dollar declines relative to other currencies, our foreign currency position will profit. If the dollar remains strong, we will forgo returns we could have earned in U.S. investments. We believe this is a reasonable trade-off. I want to emphasize that this is not a bet against America. I am optimistic about our country's future. But the trade deficit is a mathematical problem that must eventually be resolved. We are simply positioning for that resolution. ## Insurance Operations Our insurance operations had an excellent year. Premium volume grew, and we maintained underwriting discipline. The combination produced strong results. [[Ajit Jain]]'s reinsurance operation continues to excel. Ajit has built a unique business that is the envy of the industry. His ability to structure complex transactions and price them accurately is unmatched. [[GEICO]] had a breakthrough year. Premium volume grew 22%, and we gained significant market share. Our low-cost model is attracting more consumers than ever, and our technology investments are paying off. Our **insurance float** reached a record $46 billion. This float is available for investment at no cost, provided we maintain underwriting discipline. The economics of insurance, when practiced well, are extraordinary. ## The Trade Deficit The U.S. trade deficit now exceeds $600 billion annually. This means America is sending $600 billion more abroad each year than it receives. To finance this deficit, we must either sell assets to foreigners or borrow from them. This situation is unsustainable. At some point, the dollar will adjust, or foreign investors will become unwilling to finance our consumption. When that happens, the adjustment could be painful. [[Charlie Munger]] and I believe in preparing for adverse outcomes, even if we cannot predict when they will occur. Our foreign currency position is insurance against a dollar decline. We hope we don't need it, but we're glad to have it. ## Looking Forward We will continue to: - Maintain underwriting discipline in insurance - Invest in wonderful businesses at reasonable prices - Hold our foreign currency position - Preserve our financial strength Berkshire is built to withstand any economic environment. Our fortress balance sheet and diversified earnings give us resilience that few companies can match. Warren E. Buffett February 2005