Letter to Shareholders

# 2016 Letter to Shareholders ## To the Shareholders of Berkshire Hathaway Inc. We gained $27.5 billion in net worth during 2016, which increased the per-share book value of both our Class A and Class B stock by 10.7%. Over the last 52 years, book value has grown from $19 to $172,108, a rate of 19.0% compounded annually. ## Precision Castparts In January 2016, we completed the acquisition of Precision Castparts Corp. for $32.3 billion. This was the largest acquisition in Berkshire's history. Precision Castparts is a manufacturer of complex metal components, primarily for the aerospace industry. The business has strong customer relationships, technical expertise, and a reputation for quality. These advantages create a durable competitive position. > "Precision Castparts is exactly the kind of business we seek: excellent economics, strong management, and a durable competitive advantage." The acquisition price was substantial, but the business is worth it. Precision Castparts will contribute to Berkshire's earnings for decades to come. We are delighted to add this fine business to our collection. ## Apple During 2016, we began purchasing shares of [[Apple]]. By year end, we owned 61.2 million shares worth $7.0 billion. Apple is a remarkable business. The company has created products that have become integral to people's lives. The iPhone, in particular, has become an essential device for hundreds of millions of users. Apple's competitive advantage comes from its ecosystem. Users who own iPhones tend to buy other Apple products and services. This creates a powerful network effect that makes the platform increasingly valuable over time. We believe Apple has many years of growth ahead. The company's strong brand, loyal user base, and enormous free cash flow generation make it an ideal long-term holding. ## Insurance Operations Our insurance operations had an excellent year. [[Ajit Jain]] continues to build our reinsurance business, taking on risks that others cannot or will not underwrite—but only when the price is right. [[GEICO]] continues to gain market share. Our low-cost model gives us a significant price advantage, which attracts price-sensitive consumers. Over time, this advantage compounds as more consumers discover GEICO's value. Our **insurance float** now exceeds $100 billion. This float is available for investment at no cost, provided we maintain underwriting discipline. The combination of free float and investment returns makes insurance Berkshire's most valuable business. ## The Power of Compounding Over 52 years, Berkshire's per-share market value has increased at a rate of 20.8% compounded annually. This result is extraordinary. It was achieved not through brilliant strategy or special insight, but through consistent application of simple principles: 1. **Buy wonderful businesses** — Quality matters more than price 2. **Hold indefinitely** — Let compounding work its magic 3. **Reinvest earnings** — Direct capital to the highest returns 4. **Maintain discipline** — Never overpay, never use excessive leverage [[Charlie Munger]] and I have followed these principles for decades. They have served us well, and they will continue to guide us. ## Looking Forward [[Greg Abel]] and [[Ajit Jain]] are both performing at the top of their games. They have built extraordinary businesses that will contribute to Berkshire for decades. Our succession planning is in excellent shape. We will continue to: - Acquire wonderful businesses at reasonable prices - Hold our stock investments for the long term - Maintain our insurance underwriting discipline - Preserve our fortress balance sheet Berkshire is built to last. The foundation is solid, the businesses are strong, and the culture is durable. I am optimistic about our future. Warren E. Buffett February 2017