The first page of the shareholder letter shows a comparison of Berkshire's earnings with the S & P 500 over the years. Berkshire grew at a compound growth rate of 20.0% from 1965 to 2020, of which 2.4% in 2020:
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 known as "GAAP"), Berkshire has revenues of $42.5 billion in 2020. The four components of this figure are 21.9 billion of operating income, 4.9 billion of realized capital gains, an unrealized capital gain of $26.7 billion on our equity holdings, and finally a 11 billion impairment loss on several subsidiaries and affiliates we own. All items are described on an after-tax basis.
Operating income is the most important, even if they are not the largest item in our GAAP total. Berkshire has two priorities: one is to increase this part of our revenue, and the other is to acquire large enterprises that are suitable for us.
However, we failed to meet our goal last year: Berkshire did not make a sizeable acquisition and revenue fell 9 per cent. However, we have increased Berkshire's intrinsic value per share by retaining profits and buying back about 5% of the shares.
The two GAAP subjects related to capital gains and losses (whether realized or unrealized) fluctuate from year to year, reflecting volatility in the stock market. Regardless of today's data, my long-time partner Charlie Munger (CharlieMunger) and I firmly believe that Berkshire's return on investment will be substantial over time.
As I have stressed many times, Charlie and I see Berkshire's $281 billion worth of shares as an as a collection of businesses. We don't control the operations of these companies, but we do share their long-term prosperity proportionally.
However, from an accounting point of view, some of their income is not included in Berkshire's revenue. On the contrary, only the dividends paid by these investors will be recorded in our books. According to the GAAP principle, the benefits retained by the companies we invest in for Berkshire cannot be realized.
However, it is those unrecorded retained earnings that usually create a lot of value for Berkshire. They use retained earnings to expand their business, make acquisitions, repay debts, and often buy back their shares (which increases our share of their future earnings). As we pointed out in our shareholder letter last year, retained earnings have driven the development of American companies. Over the years, retained earnings have brought compound interest magic to Carnegie and Rockefeller, as well as to us.
Of course, some of our investors will be disappointed that the value of their companies has hardly increased their retained earnings. But other companies will overdo their tasks, and a few of them have done well. Overall, we expect that the large amount of earnings retained in Berkshire's non-holding business (as others will label our stock portfolio) will eventually bring us the same or more capital gains. This expectation has been realized throughout our 56-year career.
The last component-the $11 billion impairment loss-is almost entirely the result of the mistakes I made in 2016. That year, Berkshire bought Precision Custer ("PCC"), and I paid too much for it.
No one misled me in any way-I was too optimistic about PCC's normal profit potential. Last year, my mistake was exposed by the adverse development of the aviation industry as a whole, which is the most important source of customers for PCC.
At the time of its acquisition of PCC, Berkshire acquired a good company-the best in the aviation industry. Mark Donegan, the CEO of PCC, is a passionate manager who always puts the same energy into the business as he did before we bought it. We are lucky to have him in charge.
I think my conclusion is correct that PCC will make a good return on the net tangible assets deployed in its business over time. However, I was wrong in judging the average amount of future revenue, so I miscalculated the right price that should be paid to the company.
PCC is far from the first time I have made such a mistake. But it was a big mistake.
We have two strings on our bow.
Berkshire Hathaway is often labeled as a "conglomerate", a derogatory term for a holding company with a large number of unrelated businesses. Yes, that's a description of Berkshire-but it's only partially true. To understand how and why we are different from conglomerates, let's look back at history.
For a long time, integrated enterprise groups are usually limited to the acquisition of the whole enterprise. However, this strategy poses two major problems. One problem is insurmountable: most really great companies have no intention of letting anyone take over them. As a result, acquisition-hungry conglomerates have to focus on general companies that lack an important and lasting competitive advantage. It's not a big pond worth fishing.
In addition, when conglomerates get stuck in this mediocre area of business, they often find themselves paying a staggering "control" premium to trap their prey. Aspiring conglomerates know how to solve the problem of "overpayment": they just need to create their own overvalued stocks as a "currency" for expensive acquisitions. ("I'm willing to pay $10, 000 for your dog and give you my two cats worth $5000. ")
Often, ways to promote overvaluation of conglomerate shares include sales promotion and "imaginative" accounting practices, which are at best deceptive and sometimes cross boundaries into fraud. When these moves are "successful", the conglomerate will push its share price to three times its value in order to pay a premium of up to twice as much as the target company.
This kind of investment fantasy can last for a long time. Wall Street likes the fees generated by trading, while the media likes the stories provided by wonderful promoters. Similarly, at one point, the soaring price of a marketed stock can itself become an illusion and become "evidence" of reality.
Of course, in the end, the party was over, and many commercial "emperors" were found naked. Financial history is full of the names of famous conglomerates, who were initially regarded as business geniuses by journalists, analysts and investment bankers, but their works turned out to be commercial garbage dumps.
The conglomerate has won their terrible reputation.
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Charlie and I want our enterprise group to have all or part of a diversified enterprise group with good economic characteristics and good managers. However, it doesn't matter to us whether Berkshire controls these businesses or not.
It took me a long time to figure it out. But Charlie-- coupled with my 20 years of taking over the textile business at Berkshire-- finally convinced me that having the uncontrolled part of a good business is more profitable and enjoyable than having 100% control of a marginal business. and much less work.
For these reasons, our enterprise group will continue to be made up of controlled and non-controlled businesses. Charlie and I will allocate your money to what we think is the most reasonable place based on a company's lasting competitive advantage, management capabilities and characteristics, as well as price.
If this strategy does not require much effort, so much the better. Unlike the scoring system used in diving competitions, you don't score "difficulty" in business activities. Moreover, as Ronald Reagan warned: "it is said that hard work does not lead to death, but I would say why take the risk?"
Our rights family and how we can increase your share.
On page A-1, we list Berkshire subsidiaries, a large company that employs 360000 people at the end of the year.
You can read more about this in 10murk in the second half of this report. Page 7 of this letter lists the companies we partially own but are not controlled. There is a wide variety of companies in the portfolio.
But most of Berkshire Hathaway's value comes from four businesses, three of which are controlled, one of which has only a 5.4% interest. All four are good business.
The most valuable is our property / casualty insurance business, which has been at the heart of Berkshire for 53 years. Our insurance company family is unique in the insurance field. The same is true of its manager Ajit Jain, who joined Berkshire in 1986.
Overall, the operating capital of the insurance business far exceeds that of any of its competitors in the world. This financial strength, coupled with Berkshire's huge annual cash flow from its non-insurance businesses, enables our insurers to safely follow an equity-focused investment strategy that is not feasible for the vast majority of insurers. For regulatory and credit rating reasons, these competitors must focus on bonds.
Bonds are not a good investment these days. Can you believe that the yield on the 10-year Treasury note-which was 0.93% in the same period last year-has fallen 94% from 15.8% in September 1981? In some large and important countries, such as Germany and Japan, trillions of dollars of sovereign debt investors have received negative returns. Global fixed-income investors-whether pension funds, insurance companies or retirees-face a bleak future.
Some insurers, as well as other bond investors, may try to increase current pitiful returns by transferring their purchases to riskier borrowers. However, risky loans are not the answer to insufficient interest rates. Thirty years ago, many banks failed to ignore this maxim.
Berkshire now has 138 billion of the insurance "float"-funds that don't belong to us, but are at our disposal, whether they exist in the form of bonds, stocks, cash equivalents or U.S. Treasuries. Floating deposits have some similarities with bank deposits: insurance companies have little change in their total holdings of cash inflows and outflows every day. The huge amount of money held by Berkshire is likely to remain at its current level for many years and accumulate at no cost to us. Of course, the outcome of this happiness may change-as time goes by, but I don't think there is much chance.
I explained our insurance business repeatedly in my annual letter to you-some people may talk endlessly. Therefore, this year I will ask new shareholders who want to know more about our insurance business and float to read the relevant section of the 2019 report, which is reproduced on page 2 of Amure. It is important for you to understand the risks and opportunities in our insurance activities.
Our second and third most valuable assets-- it's worth emphasizing-- are Berkshire's 100% ownership of BNSF, the largest rail company in the United States (by freight volume), and our 5.4% ownership of Apple Inc. The fourth is that we own 91% of Berkshire Hathaway Energy. We have a very unusual utility company here that has grown its annual revenue from 122 million to 3.4 billion in the 21 years we have owned it.
There will be more about BNSF and BHE at the end of this letter. For now, though, I'd like to focus on an approach that Berkshire will use on a regular basis to increase your interest in its Big four and many other assets Berkshire owns.
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Last year, we bought back 80998 Berkshire Class A shares (at a cost of $24.7 billion). This action increases your ownership of all Berkshire's businesses by 5.2% without requiring you to spend extra money.
By the standards that Charlie and I have been practicing for a long time, we have made these buybacks because we believe they can both increase the intrinsic value per share of continuing shareholders and leave sufficient money for any opportunities or problems Berkshire may encounter.
We do not believe that Berkshire shares should be bought back at any price. I emphasize this because US chief executives have an embarrassing record of spending more of their company's money on buybacks when prices rise, rather than when prices plummet. Our approach is just the opposite.
Berkshire's investment in Apple Inc vividly illustrates the power of buybacks. We started buying Apple Inc shares at the end of 2016, and by early July 2018, we had slightly more than 1 billion Apple Inc shares (adjusted proportionally). By which I mean investments held in Berkshire's general account, excluding a very small, separately managed Apple Inc stock that was later sold. When we completed the purchase in mid-2018, Berkshire's general account owned 5.2 per cent of Apple Inc.
The cost for us to buy this share is 36 billion dollars. Since then, we have all enjoyed normal dividends, averaging about $775 million a year, and-- in 2020-- $11 billion by selling a small portion of our positions.
Still, Berkshire currently owns 5.4% of Apple Inc (wow). This growth has no cost for us, because Apple Inc has been buying back its shares, thus greatly reducing its current total number of shares.
But this is far from all the good news. Because we have also bought back Berkshire shares in the past two and a half years, you now indirectly own 10% more Apple Inc assets and future income than you did in July 2018.
This delightful dynamic continues. Berkshire has bought back more shares since the end of last year and is likely to further reduce its shares in the future. Apple Inc also publicly expressed his intention to buy back his shares. As these buybacks occur, Berkshire shareholders will not only have a greater interest in our insurance group and BNSF and BHE, but will also find their indirect ownership of Apple Inc increasing.
Buybacks are taking place slowly, but they may become stronger over time. This process provides an easy way for investors to have a growing share of special companies.
As May West assured us: "too many good things may be." Wonderful. "
Investment
Here's a list of 15 investments with the largest market capitalization at the end of 2020. We excluded Kraft Heinz's stake-325442152 shares-because Berkshire is a conglomerate, so the "equity" method must be used to calculate the investment. On Berkshire's balance sheet, Berkshire holds $13.3 billion of Kraft Heinz assets under GAAP, representing Berkshire's share of audited Kraft Heinz assets on December 31, 2020. Note, however, that Kraft Heinz shares had a market capitalization of only $11.3 billion that day.
Apple Inc, the market value of his position is 120.4 billion US dollars.
Bank of America Corporation, the market value of his position is 31.3 billion US dollars.
Coca-Cola Company, the market value of his position is 21.9 billion US dollars.
American Express Co, the market value of his position is 18.3 billion US dollars.
Verizon, with a market capitalization of $8.6 billion.
Moody's Corporation, the market value of his position is 7.6 billion US dollars.
U.S. Bancorp, the market value of his position is 6.9 billion US dollars.
BYD has a market capitalization of $5.9 billion.
Chevron Corp, the market value of his position is 4.1 billion US dollars.
Chartered Communications, with a market capitalization of $3.4 billion.
A Tale of two cities
There are success stories everywhere in America. Since the founding of the United States, people with ideals, ambitions and often meagre capital have achieved more success than they imagined by creating new things or improving the customer experience.
Charlie and I traveled the country to be reunited with these people or their families. On the West Coast, we started this practice by buying Candy Candy in 1972. A century ago, Mary See began to launch an ancient product, which she modified with a special formula. In addition to her business plan, she also opened some antique shops and hired friendly salespeople. She opened her first small store in Los Angeles and then opened hundreds of stores all over the west.
Today, Mary See candy continues to delight and enjoy consumers, while providing lifetime employment opportunities for thousands of men and women. Berkshire does not interfere with Xi Shi candy. When a company produces and distributes a non-essential consumer product, the customer is the boss. A hundred years later, the customer's message to Berkshire is still clear: "Don't mess with my candy." (the website of Xi Shi Candy is https://www.sees.com/; try peanut candy.)
Let's cross the continent to Washington, D.C. In 1936, Leo Goodwin and his wife Lillian began to believe that car insurance, a standardized product usually purchased from dealers, could be sold directly at much lower prices. The two men took $100000 to compete with large insurers with 1000 times or more capital. The government employee insurance company (later referred to as GEICO) is also in the process of developing.
Fortunately, I realized the potential of this company exactly 70 years ago. It immediately became my first love (investment type). The rest of the story is well known: Berkshire eventually became a 100% owner of GEICO, an 84-year-old company that has been adjusting-but not changing-Leo and Lillian's vision.
However, the size of the company has changed. In 1937, in its first year of operation, GEICO did $238288 in business. Last year's figure was $35 billion.
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Today, many financial companies, media, governments and technology companies are located in coastal areas, and it is easy to overlook many of the miracles that have taken place in the central United States. Let's focus on two communities that provide amazing examples of our talent and ambition across the country.
I started in Omaha. Don't be surprised.
In 1940, when Jack Ringwater (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), he decided to start a property / accident insurance company with a capital of $125000.
Jack's dream is absurd, which requires his small company-somewhat ostentatiously named "national indemnity" (National Indemnity)-to compete with large insurance companies, all of which are well capitalized. In addition, these competitors have firmly established themselves with a network of well-funded and historic local agents all over the country. According to Jack's plan, unlike GEICO, National Indemnity itself will use any agency designated to accept it, so it does not enjoy a cost advantage in the acquisition business. To overcome these formidable obstacles, National Indemnity focused on "weird" risks that were considered unimportant by "big companies". The strategy was an unexpected success.
Jack is honest, shrewd, likable and a little eccentric. He dislikes regulators in particular. When he is tired of their supervision, he has the impulse to sell the company.
Fortunately, we happened to meet. Jack agreed with the idea of joining Berkshire, so we made a deal in 1967, which took only 15 minutes. I never asked for an audit.
Today, National Indemnity is the only company in the world that is prepared to insure against some significant risks. Yes, it is still headquartered in Omaha, only a few miles from Berkshire's headquarters.
Over the years, we have acquired four more companies from the Omaha family, the most famous of which is the Nebraska Furniture Market (NFM). The company's founder, Ross Bloomkin, who came to Seattle in 1915, is a Russian immigrant who can neither read nor speak English. A few years later, she settled in Omaha, and by 1936, she had saved $2500 to open a furniture store.
Competitors and suppliers ignored her, and their judgment seemed correct for some time: the second World War brought her business to a standstill. At the end of 1946, the company's net worth grew to only $72264. The total cash, whether at the cashier or in the deposit, is $50 (not typos).
However, one priceless fortune was not recorded in the 1946 figures: Rose Blumkin's only son, Louie Blumkin, rejoined the store after four years in the US military. After landing in Normandy, Louis fought at Omaha Beach in Normandy, received a Purple Heart for his injuries at the Battle of Bulge, and finally sailed home in November 1945.
Once Rose Blumkin and Louis are reunited, nothing can stop NFM. Driven by dreams, mother and son work day and night. The result is a miracle of retailing.
By 1983, the two had created $60 million worth of business. That year, on my birthday, Berkshire bought an 80 per cent stake in NFM and still did not audit it. I count on Blumkin's family members to run the business; today's third and fourth generations have done the same. It is important to note that Rose Blumkin works every day until he is 103-a ridiculous early retirement age for Charlie and me.
NFM currently owns the three largest household goods stores in the United States, and although NFM stores were closed for more than six weeks due to the epidemic, all three stores recorded record sales in 2020.
The postscript to the story says it all: when Rose Blumkin's family get together for the holiday and have dinner, she always asks them to sing a song before dinner. Her choice has never changed: Irving Berlin's "God Bless America" (God Bless America).
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Let's look east at Knoxville, the third largest city in Tennessee. There, Berkshire has two high-profile companies, Clayton Homes (100 per cent) and Pilot Travel Centers (currently 38 per cent, but will reach 80 per cent by 2023).
Each company was founded by a young man who graduated from the University of Tennessee and stayed in Knoxville. Neither of them has enough money, and their parents are not rich.
But so what? Today, both Clayton and Pilot have annual pre-tax profits of more than $1 billion. Together, the two companies employ about 47000 people.
After several business ventures, Jim Clayton (Jim Clayton) founded Clayton House (Clayton Homes) on a shoestring basis in 1956. In 1958, "Big Man" Big Jim Haslam bought a service station for $6000, creating a later pilot travel center (Pilot Travel Centers). These people later brought a son into the industry, who had the same passion, values and mind as his father. Sometimes genes have magic.
Jim, 90, recently wrote an self-help book about how Jim Clayton's son Kevin encouraged the Haslam family to sell a majority stake in Pilot to Berkshire. Every retailer knows that satisfied customers are the best salespeople in the store. The same is true when companies change hands.
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The next time you fly over Knoxville or Omaha, pay tribute to the Clayton, Haslam and Bloomkins families and successful entrepreneurs across the United States. These builders need American prosperity-a unique experiment established in 1789-to realize their potential. In turn, America needs citizens like them to achieve the miracles pursued by our founding fathers.
Today, many people around the world have created similar miracles and created a wide range of prosperity that benefits all mankind. However, in its short 232-year history, there is no incubator that unleashes human potential like the United States. Despite some serious interruptions, the economic development of our country is amazing.
In addition, we retain the desire given to us by the Constitution to be "a more perfect federation". "Progress in this area is slow, uneven and often frustrating. However, we have moved forward and will continue to do so.
Our unwavering conclusion is that we should never short the United States.
Berkshire Partnership
Berkshire is a Delaware company and our directors must abide by 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.
In addition, of course, Berkshire Hathaway directors want the company to satisfy its customers, to develop and repay the talents of its 360000 employees, to behave decently with lenders, and to be seen as good citizens in the cities and states we operate. We value these four aspects.
However, none of these groups has the right to vote on matters such as dividends, strategic direction, CEO selection, acquisitions and divestitures. Responsibility like this belongs entirely to Berkshire's directors, who must faithfully represent the long-term interests of the company and its owners.
In addition to the legal requirements, Charlie and I feel a special obligation to many of Berkshire's individual shareholders. Some personal history can help you understand our unusual attachment and how it shapes our behavior.
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Before Berkshire, I worked for 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 Partnership Co., Ltd. (BPL).
In that year, almost all of my own and my wife's money was invested with the funds of many of my limited partners. I didn't receive any salary or fee. On the contrary, as a general partner, I get paid only after my limited partners have exceeded the annual threshold of 6%. If the return does not reach this level, the gap will be carried over by my share of future profits. Fortunately, this has never happened: partnership returns are always more than 6 per cent. Over time, most of the resources of my parents, siblings, aunts, uncles, cousins and in-laws were invested in the partnership.
Charlie established his partnership in 1962 and operated like me. Neither of us has institutional investors, and few of our partners are financially mature. People who join our business just believe that we regard their money as our own money. These people-both intuitively and on the advice of friends-have correctly concluded that Charlie and I have an extreme aversion to permanent capital losses unless we expect their money to do quite well. Otherwise, we won't accept their money.
After BPL acquired control of Berkshire in 1965, I was stuck in business management. Then, in 1969, we decided to dissolve BPL. A few years later, the partnership distributed all cash and three stocks pro rata, with the largest by value being BPL's 70.5 per cent interest in Berkshire.
Meanwhile, Charlie ended his operations in 1977. One of the main assets he allocated to his partners was Blue Chip Stamps, his partnership, a company that Berkshire and I jointly controlled. Blue Chip Stamps was also one of the three stocks allocated when my partnership was dissolved.
In 1983, Berkshire and Blue Chip Stamps merged, expanding Berkshire's registered shareholder base from 1900 to 2900. Charlie and I want everyone-old shareholders, new shareholders and potential shareholders-to be on the same side.
As a result, the 1983 annual report-above-listed Berkshire's "key business principles". The first principle begins with: "although our form is corporate, our attitude is partnership." "this defines our relationship in 1983; it defines the relationship we have today. Charlie and I-- and our directors-- believe that this maxim will benefit Berkshire for decades to come.
Berkshire's ownership now exists in five parts, one of which is occupied by me as a "founder".
The shares I own are distributed to various charities every year, and eventually this part will disappear.
Two of the remaining four parts are filled by institutional investors, who manage other people's money. However, this is the similarity between the two parts: their investment procedures are unlikely to be much different.
Index funds account for only one category of institutions, which is a large and booming part of the investment community. These funds just mimic the indices they track. The favorite for index investors is the S & P 500, and Berkshire Hathaway is one of them.
It should be emphasized that index funds own Berkshire shares simply because they have to.
They are in an automatic configuration state and buy and sell only for "weighted" purposes.
The other is professionals who manage clients' money, no matter how much it belongs to wealthy people, universities, retirees or anyone else. The task of these professional managers is to transfer money from one investment to another based on their judgment of valuations and prospects. It is an honorable profession, despite all the difficulties.
We are happy to work for this "active" group, and at the same time, they are looking for a better place to deploy customer funds. To be sure, some fund managers are long-term and rarely trade. Others use algorithmic computers to direct the trading of stocks in one nanosecond. Some professional investors will come and go based on their macroeconomic judgment.
Our fourth category of participants are individual shareholders who operate in a similar manner to the institutional managers I have just described. Understandably, these people think their stake in Berkshire Hathaway is a possible source of funding when they see another investment that attracts them. We have no problem with this attitude, similar to the way we look at some of Berkshire Hathaway's shares.
In addition to the above, Charlie and I have a special relationship with the fifth equity owners; millions of individual investors simply believe that we represent their interests, no matter what the future may bring. When they joined us, they had no intention of leaving and adopted a mentality similar to that of our original partners. In fact, many of the investors and / or their descendants we have partnered with for many years are still the main owners of Berkshire.
The veterans are based on Stan Trusson, a cheerful Omaha ophthalmologist and personal friend who turns 100 on November 13, 2020. In 1959, Stan and 10 other young Omaha doctors formed a partnership with me who creatively named their company Emdee Ltd. Every year, they have a celebration dinner at our house with my wife and me.
In 1969, when our partnership issued Berkshire shares, all the doctors kept the shares they received. They may not know the content of investment or accounting, but they do know that at Berkshire they will be seen as partners.
Two of Stein's partners are now in their 90s and continue to own shares in Berkshire. The team's surprising durability-plus Charlie and I are 97 and 90 respectively-raises an interesting question: will Berkshire ownership promote longevity?
Berkshire's unusual and valuable family of individual shareholders may increase your understanding of our reluctance to turn to Wall Street analysts and institutional investors. We already have the investors we want and don't think they will be replaced.
Berkshire has only so many seats-that is, stocks. We like people who have occupied them very much.
Of course, there will be some changes in the "partner". But Charlie and I hope it's not too serious. After all, who would seek a rapid change in friends, neighbors or marriage?
In 1958, Phil Fisher wrote an excellent book about investment. In this article, he compares running a listed company to managing a restaurant. 'If you're looking for diners, you can attract some customers and feature any one of them to get a successful hamburger with Coca-Cola Company, or French food with wine,'he said. But you can't, Fisher warns, casually switching from one to another: the information you give to potential customers must be consistent with what they want to find when they enter your home.
At Berkshire, we have been serving hamburgers and colas for 56 years. We cherish the customers attracted by this ticket price.
Tens of millions of other investors and speculators in the United States and elsewhere have a variety of stock options to suit their tastes. They will find that CEOs and market gurus have tempting ideas. If they want price targets, management earnings and "stories", they will have no shortage of suitors. The "technician" will confidently tell them that some of the fluctuations on the chart indicate the next move for a stock. The call for action will never stop.
I should add that many of these investors will do well. After all, stock ownership is largely a positive sum game. In fact, a patient and cool-headed monkey builds a portfolio by throwing 50 darts at a board that lists all the S & P 500, as long as it is never tempted to change its original "choice". Enjoy dividends and capital gains. "
Productive assets, such as farms, real estate and, of course, corporate ownership, can generate wealth-a lot of wealth. Most of the people who own the property will get a profit. All that is needed is the passage of time, peace of mind, full diversification and minimized transaction costs. Still, investors should never forget that their spending is expensive Wall Street income. And, unlike my monkey, people on Wall Street don't work for peanuts.
When Berkshire's seats are open-and we want them to be few-we want them to be occupied by newcomers who understand and yearn for what we have to offer. After decades of management, Charlie and I are still unable to guarantee the outcome. However, we can and do guarantee that we regard you as partners.
The same goes for our successors.
A piece of data from Berkshire will shock you.
Recently, I learned from Berkshire that I had never doubted that Berkshire Hathaway's property, plant and equipment make up the "business infrastructure" of the United States-more than any other American company under GAAP. Berkshire's depreciation cost on these domestic "fixed assets" is $154 billion. It was followed by AT & T (AT&T Inc) with $127 billion.
I should add that our leadership in fixed asset ownership does not in itself mean a victory in investment. The best results come from companies that can do high-margin businesses with few assets, and products or services that need little extra capital to expand sales. In fact, we have some of these outstanding companies, but they are relatively small and slow to develop.
However, companies with heavy assets can be a good investment. In fact, we are happy to see our two giants, BNSF and BHE: in 2011, Berkshire owned BNSF's first full year, and the two companies' combined profits were $4.2 billion. 2020 was a tough year for many businesses, but the couple made $8.3 billion.
BNSF and BHE will need a lot of capital expenditure in the coming decades. The good news is that both investments are likely to bring appropriate incremental investment returns.
Let's take a look at BNSF, which carries 15% of all non-local goods in the United States, whether by rail, truck, pipeline, barge or plane. In a significant difference, the load of BNSF exceeds that of any other carrier.
The history of American railways is interesting. After 150 years or so of frenzied construction, fraud, overconstruction, bankruptcy, restructuring and consolidation, the railway industry finally matured and rationalized decades ago.
BNSF began operation in 1850 and built a 12-mile line in northeastern Illinois. Today, 390 railway companies have been acquired or merged. The company's extensive system is available at http://www.bnsf.com/bnsf-resources/pdf/about-bnsf/History_and_Legacy.pdf.
Berkshire acquired BNSF in early 2010. Since our acquisition, the railway company has invested $41 billion in fixed assets, exceeding depreciation expenses by $20 billion. Rail transport is an open-air business, and trains must travel reliably in extremely cold and hot conditions, because they always encounter all kinds of terrain from deserts to mountains. Large-scale floods occur periodically. BNSF, which has 23000 miles of railways in 28 states, must provide security services in its vast system at all costs.
Nonetheless, BNSF paid Berkshire Hathaway a large dividend-a total of $41.8 billion. However, the railway company will only pay us the rest of the money 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 Berkshire guarantee for its debt.
One more thing about BNSF: last year, CEO Carl Ice and his number two, Katie Farmer, did an excellent job of controlling spending while avoiding a severe downturn in the business. Although shipments fell by 7%, the two companies actually increased BNSF's profit margins by 2.9%. Carl retired at the end of the year as planned, and Katie took over as CEO. Your railway business is well managed.
Unlike BNSF, BHE does not pay common stock dividends, which is very unusual in the power industry. This Spartan policy runs through our 21 years of holding. Unlike railways, our country's power facilities need to be renovated on a large scale, and the final cost will be staggering. This effort will consume all of BHE's revenue in the coming decades. We welcome the challenge and believe that the increased investment will receive an appropriate return.
Let me tell you about one of BHE's efforts-it has pledged $18 billion to rework and expand outdated power grids that are now delivering power to the entire west. BHE started the project in 2006 and is expected to complete it by 2030-yes, 2030.
The emergence of renewable energy has made our projects a social necessity. Historically, coal-fired power generation, which has long been popular, is 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 to invest heavily in western transmission lines. However, few companies or government agencies have the financial resources to invest after calculating the cost of the project.
It should be noted that BHE's decision is based on its trust in the US political, economic and judicial system. Billions of dollars are needed to make a decent income. Transmission lines must cross the boundaries of states and other jurisdictions, each with its own rules and constituencies. BHE also has to deal with hundreds of landowners and sign complex contracts with suppliers that produce renewable energy and distant utilities that deliver electricity to customers. Competitors for profit and defenders of the old order, as well as unrealistic dreamers eager for an immediate new world, must join in.
Surprise and delay are certain. However, it is also certain that BHE has the management skills, institutions and financial resources to meet its commitments. Although our western transmission project will take many years to complete, we are looking for other projects of similar size today.
Whatever the obstacles, BHE will be the leader in providing cleaner energy.
The general meeting of shareholders
On February 22 last year, I wrote to tell you that we plan to hold a grand annual meeting. In less than a month, the plan was abandoned.
The team led by Melissa Shapiro and Berkshire's chief financial officer Mark Hamberg quickly rescheduled. Their impromptu performance worked miraculously. Greg Abel, one of Berkshire's vice-chairmen, took the stage with me, facing a dark stage, 18000 empty seats and a camera. There was no rehearsal: Greg and I arrived 45 minutes before "show time" began.
Debbie Debbie Bosanek, my excellent assistant, joined Berkshire Hathaway 47 years ago at the age of 17. She made 25 slides showing the facts and data I compiled at home. An anonymous but capable team of computer and camera staff projected the slides onto the screen in the proper order.
Yahoo broadcast the whole process live to a record international audience. CNBC's Betsy Quick (Becky Quick), who works from her home in New Jersey, chose not only questions submitted earlier by thousands of shareholders, but also questions emailed to her by viewers during the four hours that Greg and I were on stage. Xishi candy peanut candy and fudge, plus Coca-Cola Company, provide us with energy.
This year, May 1st, we plan to do better. Third, we will rely on the perfect performance of Yahoo and CNBC. Yahoo will start at 1 p.m. Eastern Daylight time (EDT). Just go to https://finance.yahoo.com/brklivestream.
Our formal meeting will begin at 5 p.m. Est and end at 05:30 EDT. Earlier, between 1:30 and 5:00, we will answer the questions conveyed by Becky. As always, we cannot predict what questions will be asked. Please send your question to BerkshireQuestions@cnbc.com. Yahoo will close the deal after 5: 30.
Now-- please hit the drum-- a surprise. Our meeting will be held in Los Angeles this year. Charlie will be onstage with me in the question and answer session for three and a half hours. I missed him very much last year, and more importantly, you missed him, too. Our other valuable vice-chairmen, Ajit Jain and Greg Abel, will join us in answering questions about their areas.
Join us through Yahoo. Ask Charlie directly about your problem. We will have a good time, and I hope you will do the same.
Of course, it's even better that we can see you face to face one day. I hope and look forward to seeing you like that in 2022. Citizens of Omaha, our participating subsidiaries and everyone at our headquarters can't wait for you to come back to Berkshire's full shareholders' meeting.
Warren E. Buffett
Chairman of the Board
Buffett's original letter to shareholders
Edit / Ray Kian