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**BERKSHIRE HATHAWAY INC.**
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```
*```
To the Stockholders of Berkshire Hathaway Inc.:
```*
```
Operating earnings in 1977 of $21,904,000, or $22.54 per
share, were moderately better than anticipated a year ago. Of
these earnings, $1.43 per share resulted from substantial
realized capital gains by Blue Chip S... | [
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Most companies define "record" earnings as a new high in
earnings per share. Since businesses customarily add from year
to year to their equity base, we find nothing particularly
noteworthy in a management performance combining, say, a 10%
increase in equity capital and a 5% increase in earnings per
sha... | [
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We expect difficulty in matching our 1977 rate of return
during the forthcoming year. Beginning equity capital is up 23%
from a year ago, and we expect the trend of insurance
underwriting profit margins to turn down well before the end of
the year. Nevertheless, we expect a reasonably good year and our
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A few shareholders have questioned the wisdom of remaining
in the textile business which, over the longer term, is unlikely
to produce returns on capital comparable to those available in
many other businesses. Our reasons are several: (1) Our mills in
both New Bedford and Manchester are among the largest ... | [
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```
Our insurance operation continued to grow significantly in
1977. It was early in 1967 that we made our entry into this
industry through the purchase of National Indemnity Company and
National Fire and Marine Insurance Company (sister companies) for
approximately $8.6 million. In that year their premium vo... | [
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In aggregate, the insurance business has worked out very
well. But it hasn't been a one-way street. Some major mistakes
have been made during the decade, both in products and personnel.
We experienced significant problems from (1) a surety operation
initiated in 1969, (2) the 1973 expansion of Home and ... | [
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In 1977 the winds in insurance underwriting were squarely
behind us. Very large rate increases were effected throughout
the industry in 1976 to offset the disastrous underwriting
results of 1974 and 1975. But, because insurance policies
typically are written for one-year periods, with pricing mistakes
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We must again give credit to Phil Liesche, greatly assisted
by Roland Miller in Underwriting and Bill Lyons in Claims, for an
extraordinary underwriting achievement in National Indemnity's
traditional auto and general liability business during 1977.
Large volume gains have been accompanied by excellent
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At Home and Auto, John Seward continued to make progress on
all fronts. John was a battlefield promotion several years ago
when Home and Auto's underwriting was awash in red ink and the
company faced possible extinction. Under his management it
currently is sound, profitable, and growing. | [
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John Ringwalt's homestate operation now consists of five
companies, with Kansas Fire and Casualty Company becoming
operational late in 1977 under the direction of Floyd Taylor.
The homestate companies had net premium volume of $23 million, up
from $5.5 million just three years ago. All four companies tha... | [
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The newest addition to our insurance group is Cypress
Insurance Company of South Pasadena, California. This Worker's
Compensation insurer was purchased for cash in the final days of
1977 and, therefore, its approximate $12.5 million of volume for
that year was not included in our results. Cypress and Nat... | [
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Insurance companies offer standardized policies which can be
copied by anyone. Their only products are promises. It is not
difficult to be licensed, and rates are an open book. There are
no important advantages from trademarks, patents, location,
corporate longevity, raw material sources, etc., and very... | [
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In addition to this income from dividends and interest, we
realized capital gains of $6.9 million before tax, about one-
quarter from bonds and the balance from stocks. Our unrealized
gain in stocks at yearend 1977 was approximately $74 million but
this figure, like any other figure of a single date (we ha... | [
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A little digression illustrating this point may be
interesting. Berkshire Fine Spinning Associates and Hathaway
Manufacturing were merged in 1955 to form Berkshire Hathaway Inc.
In 1948, on a pro forma combined basis, they had earnings after
tax of almost $18 million and employed 10,000 people at a dozen... | [
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*```
No. of Shares Company Cost Market
------------- ------- -------- --------
(000's omitted)
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```
220,000 Capital Cities Communications, Inc. ..... $ 10,909 $ 13,228
1,986,953 Government Employees Insurance
Company Convertible Preferred ........ 19,417 33,033
1,294,308 Government Employees Insurance
Company Common Stock ................. 4,11... | [
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Total ................................... $ 71,893 $139,081
All Other Holdings ...................... 34,996 41,992
-------- --------
Total Equities .......................... $106,889 $181,073
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We select our marketable equity securities in much the same
way we would evaluate a business for acquisition in its entirety.
We want the business to be (1) one that we can understand, (2)
with favorable long-term prospects, (3) operated by honest and
competent people, and (4) available at a very attracti... | [
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Our experience has been that pro-rata portions of truly
outstanding businesses sometimes sell in the securities markets
at very large discounts from the prices they would command in
negotiated transactions involving entire companies.
Consequently, bargains in business ownership, which simply are
not ava... | [
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Capital Cities possesses both extraordinary properties and
extraordinary management. And these management skills extend
equally to operations and employment of corporate capital. To
purchase, directly, properties such as Capital Cities owns would
cost in the area of twice our cost of purchase via the sto... | [
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In 1977 the Illinois National Bank continued to achieve a
rate of earnings on assets about three times that of most large
banks. As usual, this record was achieved while the bank paid
maximum rates to savers and maintained an asset position
combining low risk and exceptional liquidity. Gene Abegg formed ... | [
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