Letter to Shareholders

# 2018 Letter to Shareholders ## To the Shareholders of Berkshire Hathaway Inc. We gained $4.0 billion in net worth during 2018, which increased the per-share book value of both our Class A and Class B stock by 0.4%. A more meaningful measure, per-share market value, declined 2.8%. ## Stock Buybacks In 2018, our board authorized a new buyback policy. We may now repurchase Berkshire shares when the price is below what we believe to be intrinsic value. Previously, we were restricted to buying below book value. > "Buybacks should be price-sensitive. Blindly buying back stock at any price is foolish." We will repurchase shares only when the price represents a meaningful discount to intrinsic value. This policy is rational and aligned with shareholders' interests. When we buy below intrinsic value, we increase the per-share intrinsic value for remaining shareholders. During 2018, we did not repurchase any shares. The price never fell sufficiently below our estimate of intrinsic value to justify purchase. We will be patient, acting only when the price is right. ## Apple We increased our [[Apple]] holding during 2018. By year end, we owned 289.6 million shares, representing approximately 5.4% of the company. Our cost was approximately $31 billion, and the market value was $40.3 billion. Apple is one of the strongest businesses we have ever owned. The iPhone franchise has remarkable staying power, and the 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 a business that will compound value for many years. The competitive advantages are durable, and the management is excellent. ## Insurance Operations Our insurance operations performed well in 2018. [[Ajit Jain]] continues to build our reinsurance operation, which is unique in the industry. We take on risks that others cannot, but only when we are paid adequately for doing so. [[GEICO]] gained market share again. Our low-cost model continues to attract price-sensitive consumers. Over time, this advantage compounds as more consumers discover GEICO's value. Our **insurance float** was approximately $122 billion at year end. This float is available for investment at no cost, provided we maintain underwriting discipline. The combination of float and investment returns makes insurance Berkshire's most valuable business. ## Intrinsic Value The true measure of Berkshire's worth is **intrinsic value**—the present value of all future cash flows the business will generate. This number cannot be calculated precisely, but it can be estimated. Book value is a poor proxy for intrinsic value. Our businesses are worth far more than their book values because they have durable competitive advantages and excellent management. The difference between intrinsic value and book value is Berkshire's "goodwill"—not the accounting goodwill, but the economic goodwill that makes our businesses valuable. [[Charlie Munger]] and I focus on increasing intrinsic value per share over time. This is our primary goal. Book value is merely a checkpoint along the way. ## Looking Forward [[Greg Abel]] and [[Ajit Jain]] are both performing at the highest level. 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 investments for the long term - Maintain underwriting discipline in insurance - Repurchase shares when the price is right - Preserve our financial strength Berkshire is built to last. The foundation is solid, the businesses are strong, and the culture is durable. Warren E. Buffett February 2019