To the Shareholders of Berkshire Hathaway

# 2019 Letter to Shareholders ## To the Shareholders of Berkshire Hathaway Inc. Berkshire's net worth increased by $81 billion in 2019, and per-share book value grew by 11%. Over the past 55 years, book value per share has grown from $19 to $347,725, a compound annual gain of 11.7%. Our board has authorized a new set of principles governing Berkshire's capital allocation, including a provision that Berkshire may repurchase shares at prices that do not exceed our estimate of intrinsic value. ## Apple: A New Kind of Moat One of the most significant portfolio developments of 2019 was our increased investment in Apple. While I have traditionally been skeptical of technology investments (my circle of competence has been defined more by consumer behavior than by technology), Apple has proved to be a different kind of company. > "In Apple's case, we own about 5.6% of the company, and that stake is worth approximately $73 billion. Our holding has generated outstanding returns." Apple possesses characteristics that are deeply familiar to Berkshire: a consumer monopoly with enormous brand strength, ecosystem lock-in that creates switching costs, and management that thinks like owners. The fact that it is a technology company is less important than the fact that it operates like a consumer monopoly. This is an important lesson: the label "technology" versus "consumer" is less important than the underlying economics. Apple's competitive advantage comes not from being a technology company, but from having created a moat that rivals anything in the consumer staples world. ## The Case for Share Repurchases Some commentators have criticized Berkshire for our share repurchase activity. I want to be clear about our rationale. When we repurchase shares at prices below intrinsic value, we create value for remaining shareholders. Each dollar invested in repurchases returns more than a dollar of intrinsic value to those who remain. This is the most efficient form of capital return when the alternative is holding cash that earns inadequate returns. > "The math is simple: if you can buy a dollar of intrinsic value for 80 cents, you are creating value for the shareholders who remain." Our repurchase policy is disciplined: we will repurchase only when we believe the price is meaningfully below intrinsic value, and when we have ample cash beyond what we need for operations, acquisitions, and contingencies. ## Intangibles and the New Economy The traditional measures of value—book value, GAAP earnings—are increasingly inadequate for measuring the true worth of modern businesses. The most valuable assets of many companies today are intangible: brands, software, customer relationships, network effects. This reality has significant implications for how we should think about valuation. A company with $100 billion of book value invested in physical assets is not necessarily more valuable than a company with $10 billion of book value but $200 billion of intangible value. At Berkshire, we own both kinds of businesses. And increasingly, the intangibles—the Berkshire brand, the customer trust in our insurance operations, the relationships built by our managers—are the most important drivers of our intrinsic value. ## Succession: Berkshire's Future [[Charlie Munger]] has been my partner for over 50 years. There is no replacing Charlie. But we have prepared Berkshire for the future with a succession framework that will serve shareholders well. [[Greg Abel]] is prepared to take over as CEO when that day comes. Greg has been managing our operating businesses for many years and has demonstrated the judgment, integrity, and shareholder-orientation that we demand at Berkshire. He is supported by a world-class team of managers who love their businesses. ## Conclusion The future of Berkshire is bright. We have financial strength, a portfolio of excellent businesses, and a culture that prioritizes integrity and long-term thinking. [[Charlie Munger]] and I will continue to work to compound your capital at superior rates. Warren E. Buffett February 2020