Letter to Shareholders

# 2007 Letter to Shareholders ## To the Shareholders of Berkshire Hathaway Inc. We gained $12.3 billion in net worth during 2007, which increased the per-share book value of both our Class A and Class B stock by 11.0%. Over the last 43 years, per-share book value has grown from $19 to $78,021, a rate of 21.1% compounded annually. ## The Housing Crisis The housing bubble that had been building for years began to deflate in 2007. Prices fell in many markets, defaults increased, and the financial system began to feel stress. We had anticipated problems in housing. In our 2005 letter, we warned that the trade deficit was unsustainable. The housing bubble was another manifestation of the same problem: Americans consuming more than they produce and financing the difference with debt. > "You can't borrow your way to prosperity. Eventually, the bills come due." The housing crisis will have serious consequences. Many homeowners will lose their homes. Many lenders will suffer losses. The economy will slow. But America will recover. We have been through worse. ## Insurance Operations Our insurance operations had an excellent year despite the emerging financial stress. We maintained underwriting discipline, and our float continued to grow. [[Ajit Jain]]'s reinsurance operation performed exceptionally well. Ajit has built a unique business that thrives in difficult times. When others retreat, he finds opportunity. [[GEICO]] gained market share again. Our low-cost model is particularly attractive when consumers are feeling financial pressure. We are gaining customers who previously bought from higher-cost competitors. Our **insurance float** reached $60 billion. This float is available for investment at no cost, provided we maintain underwriting discipline. The combination of float and investment returns is powerful. ## Investment Portfolio Our portfolio performed well. We continue to focus on businesses with durable competitive advantages, and we hold for the long term. We made no significant purchases during 2007. Prices were elevated, and we found nothing that met our criteria. We are patient. We would rather hold cash than buy at unattractive prices. [[Charlie Munger]] and I have always believed that the key to successful investing is not how much you buy, but what you buy and what you pay. We will wait for the right opportunities. ## Looking Forward The financial system is experiencing stress that will likely intensify. This creates risk, but also opportunity. We have the capital and the patience to act when others are forced to sell. We will continue to: - Maintain underwriting discipline in insurance - Preserve our financial strength - Wait for attractive opportunities - Act decisively when they appear Berkshire is built to withstand crises. Our fortress balance sheet, diversified earnings, and long-term orientation give us resilience that few companies can match. Warren E. Buffett February 2008