Buffett's 2021 Shareholder Letter

The first page of the shareholder letter is a comparison of the earnings of Berkshire and the S&P 500 index over the years. Berkshire's compound growth rate from 1965 to 2020 was 20.0%, of which the growth rate in 2020 was 2.4%:

The following is the full text of the shareholder letter translated by Futu Information:

To Berkshire Hathaway shareholders:

According to generally accepted accounting principles (commonly referred to as “GAAP”), Berkshire's revenue in 2020 was US$42.5 billion. The four components of this figure are operating income of 21.9 billion dollars, realized capital gains of 4.9 billion dollars, unrealized capital gains of 26.7 billion US dollars from shares held, and finally 11 billion yuan in impairment losses of several of our subsidiaries and subsidiaries. All items are explained on a post-tax basis.

Operating income is paramount, even if they aren't the largest item in our GAAP totals. Berkshire's business focuses on two things. One is to increase this portion of our revenue, and the other is to acquire large ones that are suitable for our company.

However, we didn't meet our goals last year: Berkshire did not make a sizable acquisition, and revenue fell 9%. However, we increased the intrinsic value of each Berkshire share by retaining profits and buying back approximately 5% of the stock.

The two GAAP accounts (whether realized or unrealized) relating to capital gains and losses fluctuate from year to year, reflecting fluctuations in the stock market. Regardless of today's data, my long-time partner CharlieMunger (CharlieMunger) and I are convinced that over time, the return on Berkshire's investment will be significant.

As I have emphasized many times, Charlie and I regard Berkshire's shares worth $281 billion as a collection of businesses (as a collection of securities). We don't control the operations of these companies, but we do have a proportionate share in their future long-term prosperity.

However, from an accounting perspective, part of their revenue is not included in Berkshire's revenue. Instead, it's only when these investors pay us dividends that are recorded in our books. According to GAAP principles, the interests left for Berkshire by the companies we invest in cannot be reflected.

However, it is those unrecorded retained earnings that usually create a great deal of value for Berkshire. They use retained earnings to expand their business, make acquisitions, pay off debts, and often buy back their shares (an act that increases our share of their future earnings). As we pointed out in our shareholder letter last year, retained earnings drive the development of American businesses. Over the years, retained earnings have brought the magic of compound interest to Carnegie and Rockefeller, and so have we.

Of course, some of our investors will be disappointed; their company's value has barely increased retained earnings. But other companies will exceed the task, and a small number of them have performed well. Overall, we expect that the substantial revenue retained by our sizeable share of Berkshire's non-holding business (others would label our stock portfolios with this label) will eventually give us the same amount or more of capital gain. Throughout our 56-year career, this expectation has always been realized.

As for the last component — that $11 billion in impairment losses — it's almost entirely the result of mistakes I made in 2016. Berkshire bought Precision Caster (“PCC”) that year, and I paid too high a bid for it.

No one misled me in any way—I'm too optimistic about PCC's normal profit potential. Last year, my mistakes were exposed by unfavorable developments in the airline industry as a whole, which is PCC's most important source of customers.

When it acquired PCC, Berkshire bought an excellent company — the best company in the aviation industry. PCC CEO Mark Donegan is a passionate executive who always puts the same effort into the business as we did before we bought it. We're so lucky to have him manage things.

I think I'm right in my conclusion that PCC will reap good returns over time on the net tangible assets deployed in its business. However, I was wrong in judging the average amount of future revenue, so I miscalculated the right price I should have paid this company.

PCC is far from the first time I've made this kind of mistake. But it was a big mistake.

We have two strings on our bow

Berkshire Hathaway is often labeled a “comprehensive enterprise group,” a derogatory term that refers to a holding company with a large number of unrelated businesses. Yes, that's a description of Berkshire — but only partially true. To understand how and why we differ from integrated enterprise groups, let's take a look back at history.

For a long time, integrated enterprise groups have generally been limited to the acquisition of entire businesses. However, this strategy poses two major problems. There's one problem that can't be solved: most really great businesses have no intention of letting anyone take over them. As a result, acquisition-hungry enterprise groups have to focus on general companies that lack significant and lasting competitive advantages. It's not a big pond worth fishing.

In addition to this, when joint ventures fall into this mediocre field of business, they often find themselves required to pay an astonishing “control” premium in order to lure their prey. Aspiring business groups know how to solve this “overpayment” problem: they only need to create their own overvalued stocks as “currency” for expensive acquisitions. (“I'd pay $10,000 to buy your dog and give you my two cats worth $5,000.”)

Generally, methods that promote the overvaluation of enterprise group stocks include sales promotion and “imaginative” accounting operations. These methods are deceptive at best, and sometimes even cross the border into fraud. When these tricks are “successful,” the conglomerate will push its stock price to three times the corporate value in order to pay up to twice the premium for the acquisition of the target company.

This type of investment fantasy can last for quite some time. Wall Street loves the fees associated with transactions, while the media loves stories provided by brilliant promoters. Similarly, at some point, the soaring price of a sold stock can itself be an illusion, and thus “proof” of reality.

Of course, in the end, the party was over, and many commercial “emperors” were found unclothed. Financial history is full of names of famous corporate groups. They were initially hailed as business geniuses by journalists, analysts, and investment bankers, but their work eventually became a commercial junkyard.

The conglomerate has earned them a terrible reputation.

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Charlie and I want our corporate group to have all or part of a diversified business group with good economic characteristics and excellent managers. However, it doesn't matter to us whether Berkshire controls these businesses.

It took me a long time to figure it out. But Charlie — plus my 20 years of experience taking over the textile business at Berkshire — ultimately convinced me that owning the uncontrolled part of a great business is more profitable, more enjoyable, and much less work than 100% control of an edge business.

For these reasons, our corporate group will continue to be comprised of controlled and uncontrolled businesses. Charlie and I will allocate your capital where we think is most reasonable based on a company's enduring competitive advantage, management ability and characteristics, and price.

If this strategy doesn't require much effort on our part, all the better. Unlike the scoring system used in diving competitions, the “difficulty” component of your commercial activities is not scored. Also, as Ronald Reagan cautioned: “It's said hard work doesn't lead to death, but I'm going to say why take that risk?”

Our equity family and how we can increase your share

On page A-1, we list Berkshire's subsidiaries, a large enterprise that employed 360,000 employees at the end of the year.

You can read more about this in 10-K in the latter half of this report, which lists some of our owned but uncontrolled companies on page 7. The companies in the portfolio have a large number of businesses and a wide variety of businesses.

However, most of Berkshire Hathaway's value comes from four businesses, three controlled, and only 5.4% equity in one of them. All four are great businesses.

The greatest value is our property/casualty insurance business, which has been at the core of Berkshire for 53 years. Our family of insurers is unique in the insurance sector. So is its manager, Ajit Jain, who joined Berkshire in 1986.

Overall, the insurance business far exceeds that of any of its competitors worldwide. This financial strength, combined with the huge amount of cash flow Berkshire receives each year from its uninsured business, enables our insurers to safely follow an equity-focused investment strategy that is not viable for the vast majority of insurers. For regulatory and credit rating reasons, these competitors must focus on bonds.

Bonds aren't a good investment these days. Can you believe that the yield on 10-year US Treasury bonds — which had a yield of 0.93% in the same period last year — has declined 94% from the 15.8% yield in September 1981? In some big and important countries, such as Germany and Japan, investors with trillions of dollars in sovereign debt have received negative returns. Global fixed income investors — whether pension funds, insurers, or retirees — face a bleak future.

Some insurers, as well as other bond investors, may try to increase the current poor returns by shifting their purchases to riskier borrowers. However, venture loans are not the answer to insufficient interest rates. Thirty years ago, many banks failed to ignore this adage.

Berkshire now has 138 billion dollars in insurance “floating deposit funds” — these funds do not belong to us, but are at our disposal, whether they exist in the form of bonds, stocks, cash equivalent, or US Treasury bonds. Floating deposits have some similarities to bank deposits: insurers have daily cash inflows and outflows, and the total amount they hold changes very little. The huge amount of money held by Berkshire is likely to remain at its current level for many years, and when accumulated, it is at no cost to us. Of course, the results of this happiness may change — over time, but I don't think the chances are great.

I've explained our insurance business over and over in my annual letter to you—some might say it's endless. Therefore, this year I will be inviting new shareholders who wish to learn more about our insurance business and “floating deposits” to read the relevant section of the 2019 report, which is reproduced on page A-2. It's important that you understand the risks and opportunities that exist in our insurance activities.

Our second and third most valuable assets—and it's important to emphasize—is that Berkshire owns 100% of BNSF, America's largest railroad company (measured by freight volume), and 5.4% of our ownership of Apple. The fourth is that we own 91% of Berkshire Hathaway Energy”). We have a very unusual utility company here. In the 21 years we have owned it, its annual revenue has grown from 122 million to 3.4 billion.

More on BNSF and BHE will follow this letter. But for now, I'd like to focus on an approach that Berkshire will use regularly to raise your interest in its “Big Four” and the many other assets Berkshire owns.

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Last year, we bought back 80,998 Berkshire Class A shares (at a cost of $24.7 billion). This action increased your ownership of all Berkshire businesses by 5.2% at no additional cost to you.

In accordance with the standards that Charlie and I have been practicing for a long time, we have carried out these repurchases because we believe they will both enhance the intrinsic value of each share for continuing shareholders and leave sufficient capital for any opportunities or issues Berkshire may encounter.

We never think Berkshire stock should be bought back at any price. I'm stressing this because US CEOs have an awkward record of spending more of their company money on buybacks when prices rise rather than when prices plummet. Our approach is just the opposite.

Berkshire's investment in Apple vividly illustrates the power of buybacks. We began buying Apple shares at the end of 2016, and by the beginning of July 2018, we owned just over 1 billion Apple shares (prorated). Speaking of this, I'm referring to investments held in Berkshire's regular account. I'm not including a very small, separately managed Apple stock, which was later sold. When we completed the purchase in mid-2018, Berkshire's regular account owned 5.2% of Apple's shares.

Our cost to buy this share was $36 billion. Since then, we've all enjoyed normal dividends, averaging around $775 million per year, and — in 2020 — also earned $11 billion by selling a small portion of our positions.

Despite this, Berkshire currently owns 5.4% of Apple's shares (wow). This growth has cost us nothing because Apple has been buying back its shares, greatly reducing its current total number of shares.

But that's far from all the good news. Because we've also bought back Berkshire shares for the past two and a half years, you now indirectly own 10% more Apple assets and future earnings than you did in July 2018.

This delightful dynamic continues. Since the end of last year, Berkshire has bought back more shares and is likely to further reduce the number of its shares in the future. Apple has also publicly stated its intention to buy back its shares. As these buybacks take place, Berkshire shareholders will not only have greater interest in our insurance group and BNSF and BHE, but will also find their indirect ownership of Apple is increasing.

The buyback is slowly progressing, but is likely to get stronger over time. This process provides an easy way for investors to own ever-expanding shares of special businesses.

As May West assures us: “Too many good things can be... wonderful.”

invests

Below we have listed the 15 largest investments by market capitalization at the end of 2020. We excluded Kraft Heinz's holdings — 325,442,152 shares — because Berkshire is an integrated enterprise group, so the “equity” method must be used to calculate this investment. On Berkshire's balance sheet, the Kraft Heinz assets held by Berkshire are calculated at US$13.3 billion according to GAAP. This figure represents Berkshire's share in the audited net asset value of Kraft Heinz on December 31, 2020. Note, however, that Kraft Heinz shares had a market value of only $11.3 billion that day.

• Apple holds a market value of US$120.4 billion;

• Bank of America, with a market value of US$31.3 billion;

• Coca Cola, with a market value of 21.9 billion US dollars in holdings;

• American Express, with a market value of 18.3 billion US dollars;

• Verizon, with a market value of 8.6 billion US dollars in holdings;

• Moody's has a market value of 7.6 billion US dollars in holdings;

• United States Bank of America, with a market value of 6.9 billion US dollars;

• BYD holds a market value of 5.9 billion US dollars;

• Chevron, with a market value of 4.1 billion US dollars;

• Franchised Communications, with a market value of 3.4 billion US dollars.

A Tale of Two Cities

There are success stories everywhere in America. Since the founding of the US, people with ideals, ambitions, and often minimal capital have achieved success beyond their imagination by creating something new or improving the customer experience.

Charlie and I traveled all over the country to be reunited with these people or their families. On the West Coast, we began this practice with the purchase of Heishi Candy in 1972. A century ago, Mary See began introducing an ancient product, which she modified with a special recipe. In addition to her business plans, she has opened a few quaint stores and hired friendly sales staff. She opened her first small specialty store in Los Angeles, then several hundred stores all over the West.

Today, Mary See's candy continues to delight and enjoy consumers while providing lifelong employment for thousands of men and women. Berkshire does not interfere with Heesee Candy. When a company produces and distributes a non-essential consumer product, the customer is the boss. 100 years later, the customer's message to Berkshire is still clear: “Don't mess with my candy.” (The website of Heishi Candy is https://www.sees.com/；试试花生糖.)

Let's cross the continent and come to Washington, D.C. In 1936, Leo Goodwin and his wife Lillian began to believe that car insurance—a standardized product usually purchased from an agent—could be sold directly at a much lower price. The two held 100,000 US dollars and competed with large insurance companies with 1,000 times or more capital. Government employee insurance companies (later GEICO for short) are also developing.

Fortunately, I realized the potential of this company 70 years ago. It instantly became my first love (investment type). Everyone knows the next story: Berkshire eventually became 100% owner of GEICO, and the 84-year-old company has been adapting — but not changing — Leo and Lilian's vision.

However, the company's size has changed. In 1937, which was GEICO's first year of operation, it did $238,288 in business. Last year's figure was $35 billion.

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Today, with many financial firms, media, government, and technology companies located in coastal regions, it is easy to ignore the many miracles that have occurred in central America. Let's focus on two communities that provide amazing examples of talent and ambition from around the country.

I'm starting with Omaha, don't be surprised.

In 1940, Jack Ringwalt (Jack Ringwalt) graduated from Omaha Central High School (also the alma mater of Charlie, my father, my first wife, our three children, and two grandchildren) and decided to start a property/casualty insurance company with capital of $125,000.

Jack's dream was absurd, requiring his small company — which is somewhat exaggerately named “National Indemnity” (National Indemnity) — to compete with large insurance companies, all of which have sufficient capital. Additionally, these competitors have firmly established themselves with a nationwide, well-funded, and long-standing network of local agents. According to Jack's plan, unlike GEICO, National Indemnity (National Indemnity) itself will use any agency designated to accept it, so it will not enjoy a cost advantage in the acquisition business. To overcome these dreadful barriers, National Indemnity has focused on “weird” risks that are deemed unimportant by “big companies.” This strategy has unexpectedly succeeded.

Jack is honest, savvy, likeable, and a bit eccentric. He particularly dislikes regulators. When he gets tired of their supervision, he has the urge to sell the company.

Fortunately, we just happened to run into it. Jack agreed with the idea to join Berkshire, so we reached a deal in 1967, and it only took 15 minutes to reach an agreement. I've never asked for an audit.

Today, National Indemnity is the only company in the world prepared to insure against some of the biggest risks. Yes, its headquarters are still in Omaha, just a few miles from its headquarters in Berkshire.

Over the years, we've acquired four more businesses from the Omaha family, the most famous of which is the Nebraska Furniture Market (“NFM”). The company's founder, Rose Blumkin (Rose Blumkin), came to Seattle in 1915 and was a Russian immigrant who could neither read nor speak English. A few years later, she settled in Omaha, and by 1936, she had saved $2,500 and used that money to open a furniture store.

Her rivals and suppliers ignored her, and their judgment seemed right for some time: World War II brought her business to a standstill. At the end of 1946, the company's net worth only grew to $72,264. Cash, whether in the cashier or deposit, totals $50 (not a typo).

However, there is a priceless fortune not recorded in 1946 numbers: Rose Blumkin's only son, Louie Blumkin (Louie Blumkin), rejoined the store after serving in the US military for four years. After landing in Normandy, Louis participated in the battle of Omaha Beach in Normandy and received a Purple Heart for his injuries during the Battle of Bulge, and eventually returned home by boat in November 1945.

Once Rose Blumkin and Louis get back together, nothing can stop NFM. Driven by dreams, mother and son work day and night. The result was a miracle for retail.

By 1983, the two had created a business worth 60 million dollars. That year, on my birthday, Berkshire bought 80% of NFM's shares, and there was still no audit. I'm counting on members of the Bloomkin family to run the business; today's 3rd and 4th generations do the same. It's important to note that Rose Blumkin worked every day until she was 103 — a ridiculously early retirement age in Charlie and my mind.

NFM currently has the three largest household goods stores in the US. Although NFM stores have been closed for more than six weeks due to the pandemic, all three stores set sales records in 2020.

The afterword of this story explains it all: when Rose Blumkin's family gets together for a holiday meal, she always asks them to sing a song before they eat. Her choice never changed: “God Bless America” (God Bless America) by Irving Berlin (Irving Berlin).

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Let's head east to Knoxville, Tennessee's third-largest city. There, Berkshire owns two notable companies — Clayton Homes (100% owned) and Pilot Travel Centers (currently 38%, but will reach 80% by 2023).

Each company was founded by a young man who graduated from the University of Tennessee and stayed in Knoxville. They both don't have enough money, and their parents aren't well-off.

But then what? Today, both Clayton and Pilot have made over $1 billion in annual profits before taxes. Together, the two companies employ around 47,000 people.

Jim Clayton (Jim Clayton) founded Clayton Homes (Clayton Homes) in 1956 as a small-scale operation after several business adventures. In 1958, “Big Jim Haslam” (Big Jim Haslam) bought a service station at a price of 6,000 US dollars and created the later Pilot Travel Centers (Pilot Travel Centers). All of these people later brought a son into the industry. This son had the same passion, values, and mentality as his father. Sometimes genes have magic too.

Jim, 90, recently wrote an inspirational book about how Jim Clayton's son Kevin encouraged the Haslam family to sell most of their shares in Pilot to Berkshire. Every retailer knows that happy customers are the store's best sellers. This is also true when businesses change hands.

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When you fly over Knoxville or Omaha next time, pay homage to the Clayton, Haslam, and Bloomkins families and successful entrepreneurs from all over America. These builders needed America's prosperity — a unique experiment founded in 1789 — to realize their potential. America, in turn, needs citizens like them to achieve the miracles our nation's fathers sought.

Today, many people around the world have performed similar miracles, creating widespread prosperity that benefits all of humanity. However, in its short history of 232 years, there has not been an incubator that has unleashed human potential like the US. Despite some serious disruptions, the country's economic development has been amazing.

In addition to that, we still retain the desire given to us by the Constitution to become “a more perfect federation.” “Progress in this area has been slow, uneven, and often discouraging. However, we have moved forward and will continue to do so.

Our unwavering conclusion is: Never short the US.

Berkshire partnership

Berkshire is a Delaware corporation and our directors are required to comply with national laws. One of the requirements is that board members must act in the best interests of the company and its shareholders. Our directors accept this principle.

Additionally, of course, Berkshire Hathaway's directors want the company to satisfy customers, use and reward the talents of its 360,000 employees, be decent in dealing with lenders, and be treated as good citizens in the cities and states where we operate. We value these four aspects.

However, none of these groups have voting rights when deciding on matters such as dividends, strategic direction, CEO selection, acquisitions, and divestments. Responsibilities such as these belong entirely to Berkshire directors, who must faithfully represent the long-term interests of the company and its owners.

In addition to what is required by law, Charlie and I feel special obligations to many individual shareholders of Berkshire. Some personal history can help you understand our unusual attachment relationships and how it shapes our behavior.

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Prior to Berkshire, I managed many personal finances through a series of partnerships, the first three of which were founded in 1956. Over time, this became inconvenient, and in 1962, we merged 12 partnerships into a single entity, Buffett Partnerships Limited (BPL).

By that year, almost all of my own money and my wife had been invested along with funds from many of my limited partners. I haven't received my wages or expenses. By contrast, as a general partner, I only get paid after my limited partners have received more than 6% of the annual threshold return. If returns don't reach this level, the gap will be carried over by my share of future profits. Fortunately, this has never happened: partnerships always return more than 6%. Over time, most of the resources of my parents, siblings, aunts, uncles, cousins, and in-laws have been invested in partnerships.

Charlie formed his partnership in 1962 and operates just like me. Neither of us have institutional investors, and few of our partners are financially mature. The people who join our business just believe we treat their money as our own. These people — whether intuitively or on advice from friends — have correctly concluded that Charlie and I are extremely averse to permanent capital losses, and we wouldn't accept their money unless we expected them to do pretty well with it.

In 1965, BPL bought control of Berkshire, and after that, I was in trouble managing the business. Later, in 1969, we decided to disband the BPL. A few years later, the partnership distributed all cash and three shares in proportion. The largest by value was BPL's 70.5% interest in Berkshire.

Meanwhile, Charlie ended his operations in 1977. Among the assets he has distributed to his partners, one of the main interests is Blue Chip Stamps, which is his partner company, a company that Berkshire and I jointly control. Blue Chip Stamps was also one of the three shares distributed when my partnership was dissolved.

In 1983, Berkshire merged with Blue Chip Stamps, thereby expanding Berkshire's registered shareholder base from 1,900 to 2,900. Charlie and I want everyone — old shareholders, new shareholders, and potential shareholders — to be on the same front.

Thus, the 1983 Annual Report - above - listed Berkshire's “Key Business Principles.” The first principle begins: “Although our form is corporate, our attitude is partnership.” This defined our relationship in 1983; it defined today's relationship. Charlie and I — and our directors — believe this maxim will benefit Berkshire for decades to come.

Ownership of Berkshire now exists in five parts, one of which is occupied by me as the “founder.”

The shares I own are distributed to various charities every year, and eventually this part will disappear.

Two of the remaining four sections are filled by institutional investors, who manage other people's money. However, the similarity between these two parts lies here: their investment procedures cannot be more different.

Index funds account for only one institutional category, and they are a large and thriving part of the investment community. These funds simply mimic the indices they track. Index investors' favorite is the S&P 500, and Berkshire Hathaway is one of them.

It should be emphasized that the reason index funds own Berkshire shares is simply because they have to do so.

They are automatically configured to buy and sell for “weighting” purposes only.

Another agency is professionals who manage clients' funds, no matter how much of those funds belong to wealthy people, universities, retirees, or anyone else. These professional managers are tasked with moving capital from one investment to another based on their judgment on valuation and prospects. It was a glorious career, despite all the difficulties.

We'd love to work for this “active” group while at the same time they're looking for a better place to deploy our clients' funds. What is certain is that some fund managers focus on the long term and rarely trade. Other computers using algorithms can guide the buying and selling of stocks within a nanosecond. Some professional investors will come and go based on their macroeconomic judgments.

Our fourth type of participant is an individual shareholder, which operates in a similar way to the institutional manager I just described. Understandably, these people thought their shares in Berkshire Hathaway were a possible source of funding when they saw another type of investment that attracted them. We have no problem with this attitude, similar to how we view some of the shares Berkshire Hathaway owns.

Other than what I said above, Charlie and I have a special kinship with Part 5 equity owners; millions of individual investors who just believe we represent their interests, no matter what the future brings. They joined us with no intention of leaving and adopted a mentality similar to that of our original partner. In fact, many of the investors we have partnered with for many years and/or their descendants are still major owners of Berkshire.

The prototype for these veterans is Stan Truelson, a cheerful and generous Omaha ophthalmologist and personal friend who turned 100 on November 13, 2020. In 1959, Stan and 10 other young Omaha physicians formed a partnership with me and they creatively named their company Emdee, Ltd. Every year, they have a celebration dinner with my wife and me at our house.

When our partnership issued Berkshire shares in 1969, all physicians kept the shares they received. They may not know what the investment or accounting is about, but they do know that at Berkshire they will be treated as partners.

Stan's two partners are now in their 90s and continue to hold shares in Berkshire. The team's astonishing persistence — plus Charlie and I are 97 and 90, respectively — raises an interesting question: will ownership of Berkshire promote longevity?

Berkshire's unusual and valuable individual shareholder family may add to your understanding of our reluctance to seek help from Wall Street analysts and institutional investors. We already have the investors we want and don't think they'll be replaced.

Berkshire only has that many seats — that is, stocks. We really like the people who have taken over them.

Of course, there will also be some changes in “partners”. Charlie and I hope this isn't too serious, though. After all, who would be looking for a friend, neighbor, or quick change in marriage?

In 1958, Phil Fisher wrote an excellent book about investing. In this post, he compared running a publicly traded company to managing a restaurant. He said if you're looking for diners, you can attract some customers and feature any of them to get a successful burger with Coca Cola, or French cuisine with wine. But you can't, Fisher warns, and switch from one to another at will: the information you give prospects must match what they want to find when they enter your home.

At Berkshire, we've been serving hamburgers and Coke for 56 years. We cherish the customers this fare attracts.

Tens of millions of other investors and speculators in the US and elsewhere have a variety of stock options to suit their tastes. They'll find CEOs and market gurus tempting ideas. If they want price targets, management benefits, and “stories,” they won't lack suitors. “Technicians” will confidently tell them that some fluctuations on the chart indicate the next trend of a stock. The cries for action will never stop.

I should add that many of these investors will do a great job. After all, stock ownership is largely a “positive sum” game. In fact, a patient and level-headed monkey, constructs an investment portfolio by throwing 50 darts at a board that lists all of the S&P 500 indices. As long as it has never been tempted to change its initial “choices,” it will enjoy dividends and capital gains over time.”

Productive assets, such as farms, real estate, and of course business ownership, can generate wealth — vast amounts of wealth. Most people who own these properties will reap the benefits. All it takes is the passage of time, peace of mind, plenty of variety, and minimal transaction fees. Still, investors must never forget that their expenses are expensive Wall Street revenues. Also, unlike my monkey, Wall Street people don't work for peanuts.

When Berkshire's seats open up — we hope they are few — we want them to be occupied by newcomers who understand and desire what we have to offer. After decades of management, Charlie and I still can't guarantee results. However, we can and do guarantee that we will treat you as partners.

So did our successors.

A Berkshire statistic will shock you

Recently, I learned from Berkshire a fact I had never doubted before: Berkshire's property, plant, and equipment make up America's “commercial infrastructure” — more than any other US company under GAAP. Berkshire's depreciation cost of these domestic “fixed assets” is 154 billion US dollars. It was followed by the American Telephone and Telegraph Company (AT&T) with $127 billion.

I should add that our leadership in fixed asset ownership does not by itself mean that the investment has won. The best results are in companies that require few assets to start a highly profitable business, and those that require only a small amount of additional capital to expand their products or services. In fact, we have some of these outstanding companies, but they are relatively small and growing slowly.

However, an asset-heavy company can be a good investment. In fact, we're excited to see our two giants — BNSF and BHE: In 2011, Berkshire owned BNSF for the first full year, and the combined profits of these two companies were $4.2 billion. 2020 was a tough year for many businesses, yet the couple made $8.3 billion.

BNSF and BHE will require significant capital expenditure over the next few decades. The good news is that both of these investments are likely to provide an appropriate incremental return on investment.

Let's start by looking at BNSF, which transports 15% of all non-local goods within the US by rail, truck, pipe, barge, or plane. At a significant difference, BNSF was more loaded than any other carrier.

The history of American railroads is interesting. After around 150 years of frantic construction, fraud, overconstruction, bankruptcy, restructuring, and mergers, the railway industry finally matured and rationalized decades ago.

BNSF began operations in 1850 and built a 12-mile line in northeastern Illinois. Today, 390 railway companies have been acquired or merged by it. The company's extensive system is available at https://www.bnsf.com/bnsf-resources/pdf/about-bnsf/History_and_Legacy.pdf查阅.

Berkshire bought BNSF in early 2010. Since we were acquired, the railroad company has invested 41 billion dollars in fixed assets, exceeding 20 billion dollars in depreciation expenses. Rail transportation is an open air business, and trains must operate reliably in extremely cold and hot environments, as they will always encounter a variety of terrain, from deserts to mountains. Large-scale floods occur periodically. With 23,000 miles of railroad in 28 states, BNSF must do whatever it takes to provide safety services in its vast system.

Despite this, BNSF paid Berkshire Hathaway a significant amount of dividend—a total of $41.8 billion. However, the railroad will pay us the rest of the money only after meeting its business needs and maintaining a cash balance of $2 billion. This conservative policy allows BNSF to borrow at lower interest rates without relying on any guarantees from Berkshire for its debts.

One more thing about BNSF: Last year, the company's CEO Carl Ice and his No. 2 figure, Katie Farmer, did an excellent job of controlling expenses while escaping a serious downturn in the business. Despite a 7% drop in cargo volume, these two companies actually increased BNSF's profit margin by 2.9 percentage points. Carl retired at the end of the year, as planned, and Katie took over as CEO. Your rail business is well-managed.

Unlike BNSF, BHE does not pay dividends on common shares, which is a very unusual practice in the power industry. This spartan policy continued throughout our 21-year holding period. Unlike railways, our nation's power facilities require extensive modifications, and the final cost will be astounding. This effort will consume all of BHE's revenue for decades to come. We welcome the challenge and believe the increased investment will pay off appropriately.

Let me tell you about one of BHE's efforts — it promised to invest $18 billion to rework and expand outdated grids that are now delivering electricity all over the West. BHE began this project in 2006 and is expected to be completed in 2030 — yes, 2030.

The advent of renewable energy has made our projects a necessity for society. Historically, coal-fired power generation, which has been popular for a long time, has been located in densely populated areas. However, the best locations for wind and solar power in the New World are often in remote areas. When BHE assessed the situation in 2006, it was no secret that it had invested heavily in western transmission lines. However, few companies or government agencies have the financial resources to invest once they have calculated the cost of the project.

It should be noted that BHE's decision was based on its trust in America's political, economic, and judicial systems. It takes billions of dollars to generate significant revenue. Transmission lines must cross the borders of states and other jurisdictions, and each state has its own rules and constituencies. BHE also has to deal with hundreds of landowners and enter into complex contracts with suppliers that produce renewable energy and remote utilities that deliver electricity to customers. Competitors of interest and defenders of the old order, as well as unrealistic dreamers who desire the immediate emergence of a new world, must join in.

The surprises and delays are certain. What is also certain, however, is that BHE has the management skills, institutions, and financial resources to deliver on its commitments. While our western transmission project will take years to complete, we are looking for other projects of a similar scale today.

Regardless of the hurdles, BHE will be a leader in providing cleaner energy.

Shareholders' meeting

On February 22 of last year, I wrote to let you know that we are planning to hold a grand annual meeting. In less than a month, this plan was scrapped.

The team, led by Melissa Shapiro and Berkshire CFO Mark Hamberg, quickly rearranged. Their improvisation worked miraculously. Greg Abel (Greg Abel), one of Berkshire's vice presidents, joined me on stage, facing a dark stage, 18,000 empty seats, and a camera. No rehearsals: Greg and I arrived 45 minutes before “show time” began.

Debbie Bosanek (Debbie Bosanek) is my amazing assistant. 47 years ago, at age 17, she joined Berkshire Hathaway. She made 25 slides showing all the facts and figures I've compiled at home. An anonymous yet highly competent team of computer and camera workers projects the slides to the screen in the proper order.

Yahoo livestreamed the entire process to a record international audience. CNBC's Becky Quick (Becky Quick) works from her home in New Jersey. Not only did she select questions from thousands of shareholders submitted earlier, but she also picked from questions that viewers emailed to her during the four hours I and Greg were on the stage. Heisey's peanut candy and gummies, plus Coca Cola, provide us with energy.

This year, May 1, we plan to do even better. Once again, we will be relying on the perfect performance of Yahoo and CNBC. Yahoo will begin at 1 p.m. Eastern Daylight Time (EDT). Just go to https://finance.yahoo.com/brklivestream.

Our formal session will begin at 5 p.m. EST and end at 5:30 p.m. EST. Earlier, between 1:30-5:00, we would answer questions relayed by Becky. As always, we can't predict what questions will be asked. 请将你的问题发送到BerkshireQuestions@cnbc.com Yahoo will close the deal after 5:30

Now — play the drums, please — a surprise. Our conference will be held in Los Angeles this year. Charlie will join me on stage for a three-and-a-half-hour question and answer session. I missed him last year, and more importantly, you missed him too. Our other valuable vice-chairs, Ajit Jain and Greg Abel, will join us in answering questions about their field.

Join us through Yahoo. Ask Charlie your difficult questions directly! We're going to have a lot of fun and hope you guys are too.

Of course, it would be better if we could meet you face to face one day. I hope and look forward to seeing you all like that in 2022. The citizens of Omaha, our participating subsidiaries, and everyone at our headquarters can't wait to have you back for Berkshire's uncompromising shareholders' meeting.

Warren E. Buffett

Sentence of the Board

Attached:The original text of Buffett's letter to shareholders

Edit/Ray Kian