Letter to Shareholders

# 2017 Letter to Shareholders ## To the Shareholders of Berkshire Hathaway Inc. We gained $65.3 billion in net worth during 2017, which increased the per-share book value of both our Class A and Class B stock by 23.0%. A significant portion of this gain resulted from the Tax Cuts and Jobs Act passed in December. ## Tax Reform The new tax legislation reduced the corporate tax rate from 35% to 21%. This change delivered a one-time benefit to Berkshire of approximately $29 billion, representing the revaluation of our deferred tax liabilities. > "The tax cut was a huge benefit to Berkshire shareholders. It increased the intrinsic value of our businesses significantly." While we welcomed the tax cut, we note that Berkshire's success has never depended on tax rates. We have prospered under tax rates ranging from 12% to 52%. What matters is not the tax rate, but the after-tax return on capital. Our businesses generate high returns regardless of the tax environment. ## Apple We increased our [[Apple]] holding significantly during 2017. By year end, we owned 165.3 million shares worth $28.2 billion. This represents about 3.3% of Apple's outstanding shares. Apple continues to amaze us. The company's iPhone franchise is stronger than ever, and its services business is growing rapidly. Apple generates enormous free cash flow, which it returns to shareholders through dividends and buybacks. We intend to hold our Apple shares indefinitely. This is exactly the kind of business we seek: a wonderful company with a durable competitive advantage, excellent management, and a long runway for growth. ## Insurance Operations Our insurance operations had another outstanding year. [[Ajit Jain]]'s reinsurance operation continues to generate enormous float while maintaining underwriting discipline. This is a rare combination in the insurance industry. [[GEICO]] gained market share again, as consumers discovered the value of our low-cost model. Technology is making it easier for consumers to compare insurance prices, which benefits the low-cost provider. Our **insurance float** reached $115 billion by year end. This float is available for investment at no cost, making it one of Berkshire's most valuable assets. The combination of float and investment returns has been the engine of Berkshire's growth. ## The Berkshire Model Berkshire is unique among large corporations. We are a collection of operating businesses plus an investment portfolio, managed with a long-term orientation and a commitment to rational capital allocation. This model has several advantages: 1. **Capital allocation flexibility** — We can move capital among businesses and investments 2. **Tax efficiency** — We can reinvest earnings without corporate-level tax 3. **Long-term focus** — We are not pressured for quarterly results 4. **Managerial autonomy** — Our managers run their businesses without interference [[Charlie Munger]] and I designed this model deliberately. It maximizes our ability to compound capital over long periods. ## Looking Forward [[Greg Abel]] and [[Ajit Jain]] continue to perform at the highest level. They are both capable of being CEO of Berkshire tomorrow. Our succession planning is in excellent shape. We will continue to: - Acquire wonderful businesses at reasonable prices - Hold our investments for the long term - Maintain underwriting discipline in insurance - Preserve our financial strength The future of Berkshire is bright. We have the businesses, the people, and the culture to compound value for decades to come. Warren E. Buffett February 2018