Letter to Shareholders

# 2006 Letter to Shareholders ## To the Shareholders of Berkshire Hathaway Inc. We gained $16.9 billion in net worth during 2006, which increased the per-share book value of both our Class A and Class B stock by 18.4%. Over the last 42 years, per-share book value has grown from $19 to $70,281, a rate of 21.4% compounded annually. ## Insurance Operations Our insurance operations had an outstanding year. Underwriting profit exceeded $3 billion, and our float reached $50 billion for the first time. > "Insurance float of $50 billion, available at no cost, is an extraordinary asset. Few businesses in the world can match this." [[Ajit Jain]] continues to build our reinsurance operation. His unique approach—taking on risks others cannot, but only at the right price—has generated enormous value. Ajit is one of the most valuable people at Berkshire. [[GEICO]] had another excellent year. Premium volume grew, and we gained market share. Our low-cost model continues to attract price-sensitive consumers. The internet has made comparison shopping easier, which benefits the low-cost provider. The combination of underwriting profit and investment income on float produces extraordinary returns. Insurance is Berkshire's most valuable business, and it continues to get stronger. ## Acquisitions Finding attractive acquisitions has become increasingly difficult. Private equity firms have driven prices to levels that we find unattractive. These firms use leverage to boost returns, but leverage also increases risk. We will not compete with private equity firms on price. We prefer to buy wonderful businesses at fair prices, not fair businesses at wonderful prices. If we cannot find businesses that meet our criteria, we will wait. Patience is a competitive advantage. Most acquirers feel pressure to do deals. We feel no such pressure. We can wait years for the right opportunity. This patience has served us well. ## Investment Portfolio Our portfolio of marketable securities performed well. We continue to focus on businesses with durable competitive advantages, and we hold our investments for the long term. [[Coca-Cola]], American Express, and other long-term holdings contributed to our results. These are wonderful businesses that we intend to hold indefinitely. [[Charlie Munger]] and I have no interest in trading in and out of stocks. We prefer to let the compounding power of great businesses work for us over decades. This approach is tax-efficient and aligned with our long-term orientation. ## Looking Forward We will continue to: - Maintain strict underwriting discipline in insurance - Wait patiently for attractive acquisitions - Hold our investments for the long term - Preserve our financial strength Berkshire has the patience to wait for the right opportunities and the capital to act when they appear. This combination is powerful. Warren E. Buffett February 2007