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1、BERKSHIRE HATHAWAY INC. 1997 Chairmans Letter To the Shareholders of Berkshire Hathaway Inc.: Our gain in net worth during 1997 was $8.0 billion, which increased the per-share book value of both our Class A and Class B stock by 34.1%. Over the last 33 years (that is, since present management took ov
2、er) per-share book value has grown from $19 to $25,488, a rate of 24.1% compounded annually.(1) 1. All figures used in this report apply to Berkshires A shares, the successor to the only stock that the company had outstanding before 1996. The B shares have an economic interest equal to 1/30th that o
3、f the A. Given our gain of 34.1%, it is tempting to declare victory and move on. But last years performance was no great triumph: Any investor can chalk up large returns when stocks soar, as they did in 1997. In a bull market, one must avoid the error of the preening duck that quacks boastfully afte
4、r a torrential rainstorm, thinking that its paddling skills have caused it to rise in the world. A right-thinking duck would instead compare its position after the downpour to that of the other ducks on the pond. So whats our duck rating for 1997? The table on the facing page shows that though we pa
5、ddled furiously last year, passive ducks that simply invested in the S&P Index rose almost as fast as we did. Our appraisal of 1997s performance, then: Quack. When the market booms, we tend to suffer in comparison with the S&P Index. The Index bears no tax costs, nor do mutual funds, since they pass
6、 through all tax liabilities to their owners. Last year, on the other hand, Berkshire paid or accrued $4.2 billion for federal income tax, or about 18% of our beginning net worth. Berkshire will always have corporate taxes to pay, which means it needs to overcome their drag in order to justify its e
7、xistence. Obviously, Charlie Munger, Berkshires Vice Chairman and my partner, and I wont be able to lick that handicap every year. But we expect over time to maintain a modest advantage over the Index, and that is the yardstick against which you should measure us. We will not ask you to adopt the ph
8、ilosophy of the Chicago Cubs fan who reacted to a string of lackluster seasons by saying, Why get upset? Everyone has a bad century now and then. Gains in book value are, of course, not the bottom line at Berkshire. What truly counts are gains in per-share intrinsic business value. Ordinarily, thoug
9、h, the two measures tend to move roughly in tandem, and in 1997 that was the case: Led by a blow-out performance at GEICO, Berkshires intrinsic value (which far exceeds book value) grew at nearly the same pace as book value. For more explanation of the term, intrinsic value, you may wish to refer to
10、 our Owners Manual, reprinted on pages 62 to 71. This manual sets forth our owner-related business principles, information that is important to all of Berkshires shareholders. In our last two annual reports, we furnished you a table that Charlie and I believe is central to estimating Berkshires intr
11、insic value. In the updated version of that table, which follows, we trace our two key components of value. The first column lists our per-share ownership of investments (including cash and equivalents) and the second column shows our per-share earnings from Berkshires operating businesses before ta
12、xes and purchase-accounting adjustments (discussed on pages 69 and 70), but after all interest and corporate expenses. The second column excludes all dividends, interest and capital gains that we realized from the investments presented in the first column. In effect, the columns show what Berkshire
13、would look like were it split into two parts, with one entity holding our investments and the other operating all of our businesses and bearing all corporate costs. Pre-tax Earnings Per Share Investments Excluding All Income from Year Per Share Investments 1967 $ 41 $ 1.09 1977 372 12.44 1987 3,910
14、108.14 1997 38,043 717.82 Pundits who ignore what our 38,000 employees contribute to the company, and instead simply view Berkshire as a de facto investment company, should study the figures in the second column. We made our first business acquisition in 1967, and since then our pre-tax operating earnings have grown from $1 million to $888 million. Furthermore, as noted, in this exercise we have assigned all of Berkshires corporate expenses - overhead of $6.6 million, interest of $66.9 million and shareholder contributions of $15.4 million - to ou
