Shaw Industries was the dominant player in tufted broadloom carpet with roughly 30% market share when we acquired it in 2001. Three things made this deal compelling. First, Shaw had durable economics—vertical integration (processing 95% of yarn in-house), a massive dealer network, and the cost advantages of being the largest producer. Those are the ingredients of a wide moat. Second, Bob Shaw had built the company from scratch and ran it with an owner's mentality—low overhead, relentless focus on efficiency. That's exactly the kind of manager I want running a Berkshire subsidiary. Third, the flooring industry itself is enormous and essential—people always need carpet and flooring, through booms and busts. Shaw could generate strong owner earnings with modest reinvestment, which meant excess cash flowed to Omaha for redeployment. That's the Berkshire model at its best: buy a dominant business with durable advantages, keep the founder-manager, and redeploy the free cash.


We paid $1.045 billion for 2.12%, which implies a total valuation of roughly $49 billion for BHE—a company with over $100 billion in assets, regulated utility operations across multiple states, and massive renewable energy investments. The significance is straightforward: 100% ownership eliminates any friction in capital allocation. BHE needs to invest tens of billions in grid modernization, renewable generation, and transmission infrastructure over the next decade. With full ownership, we can move capital where it's needed without worrying about minority shareholder approval or competing interests. BHE is also a cornerstone of Berkshire's non-insurance operations—it generates predictable, regulated returns and has reinvested virtually all its earnings since we first invested. Going from 97.88% to 100% wasn't about the 2.12%—it was about removing the last bit of complexity in a business that's central to Berkshire's future.


I wrote an op-ed in the New York Times in October 2008 titled 'Buy American. I Am.' People thought I'd lost my mind. But the Wilshire 5000 gained roughly $2.5 trillion in market value within the first 11 months of 2009, rising about 2,105 points from its low. That's what happens when fear creates opportunity. During the crisis, Berkshire put $5 billion into Goldman Sachs preferred stock at 10% dividend plus warrants, $3 billion into GE on similar terms, and $3 billion into Dow Chemical at 8.5%. Every one of those investments worked out spectacularly because we bought when others were panicking. The fundamentals of American business hadn't changed—what changed was the price people were willing to pay. Be fearful when others are greedy, and greedy when others are fearful. The 2009 recovery was the most vivid demonstration of that principle in my lifetime.


That negative $1,646 million is an accounting entry, not an economic event. When the U.S. dollar strengthens against the euro, yen, or pound, the dollar-reported value of our foreign subsidiaries' earnings and assets declines—but the actual businesses haven't changed at all. A Lubrizol plant in Germany still produces the same specialty chemicals, serves the same customers, and earns the same euros. I've never made an investment decision based on currency forecasts, and I never will. Over decades, currency effects wash out. What matters is whether our foreign businesses have durable competitive advantages in their local markets. They do. Precision Castparts' aerospace components are sold globally, Lubrizol's additives have dominant market share worldwide—these businesses generate real earning power regardless of what the dollar does against the euro in any given quarter.


The drop from $3,955 million to $1,363 million simply reflects our opportunity set, not our performance. We don't sell investments to hit quarterly targets or smooth earnings. We sell when the price exceeds intrinsic value, or when we find a better use for the capital. In 2001, the market was down and we were net buyers—which is exactly what you want from a long-term investor. Lower realized gains meant we were finding bargains to buy rather than overpriced positions to sell. I've been telling shareholders for decades to ignore realized gains as a performance measure. The real metric is the change in per-share intrinsic value, which includes unrealized appreciation, look-through earnings, and the earning power of our operating businesses. A year with zero realized gains could be our best year if we deployed capital at wonderful prices.


I've always told people that a low-cost S&P 500 index fund is the best investment for most Americans, and I still believe that. But for Berkshire, the calculus is different. When the S&P 500 trades at historically elevated multiples—above 20x forward earnings with a Buffett Indicator (market cap to GDP) well above 190%—the expected return doesn't compensate for the risk. Meanwhile, we had $286 billion in Treasury bills earning over 5% with zero risk. That's a perfectly acceptable return for zero risk. Sometimes the best investment is the one you don't make. I'd rather sit on cash earning 5% safely than own an overvalued market just because everyone else is. The cash isn't a burden—it's optionality. When the next crisis comes, and it will, Berkshire will be the one writing the checks.


Ralph Schey was extraordinary. We bought Scott Fetzer for about $230 million in 1986, and over the next 15 years Ralph generated $1.03 billion in cash that he sent to Omaha for redeployment. That's a 4.5x return on our money, and he did it without acquisitions, without financial engineering, and without asking for additional capital. He simply ran the business superbly—controlling costs, maintaining product quality at World Book and Kirby, and treating customers fairly. Ralph was 61 when we bought Scott Fetzer, and he kept performing brilliantly well into his 70s. This is why I never judge managers by age—I judge them by results and by whether they think like owners. Ralph thought like an owner every single day. His track record is proof that great management plus a decent business can produce extraordinary returns over time.


People ask me why we're sitting on $286 billion in T-bills, and my answer is simple: we haven't found anything better to do with it. T-bills yield over 5%, which is a perfectly acceptable return with zero credit risk and zero duration risk. Compare that to the S&P 500 earning maybe 4-5% in earnings yield at current multiples, plus volatility. The math doesn't favor equities at these prices. Meanwhile, most acquisition targets are priced by private equity firms using cheap leverage to justify high multiples—that's not a game we play. I'd rather earn 5% safely than overpay for a business and earn 6% with significant risk. This cash position is optionality. In 2008-2009, having cash let us invest $15+ billion in Goldman, GE, Dow Chemical, and others on extremely favorable terms. When the next dislocation comes, we'll be ready.


That $31,500 house is the third-best investment I ever made—after my two wedding rings. I've lived there for over 65 years, and it has everything I need: five bedrooms, a comfortable study, and a short drive to the office. People find it strange that someone worth $130+ billion lives in a house that cost $31,500, but I'd find it strange to move. Why would I spend $100 million on a mansion? That money invested in Berkshire at our historical compound rate would be worth billions by now. The opportunity cost of consumption is what most people don't understand. I eat the same breakfast at McDonald's—$3.17 when the market is down, $2.95 when I'm feeling really bearish. The money I didn't spend on mansions and yachts went into Berkshire stock, where it compounded at roughly 20% annually for decades. Living below your means isn't sacrifice—it's the most rational financial decision you can make.


After 60 years at the helm, I felt the time was right to hand the reins to Greg Abel. Greg has been running all of our non-insurance operations—everything from BNSF to BHE to our manufacturing businesses—and he's done it brilliantly. He understands Berkshire's culture of decentralized management and rational capital allocation, which are the two things that matter most. Berkshire was designed to outlast any single person, including me. The incentive structure, the quality of our businesses, and the caliber of our subsidiary managers ensure the machine keeps running. I'd rather step aside while I can still help with the transition than wait until I can't. Ajit Jain continues to run our insurance operations with the same brilliance he's shown for 40 years. The bench is deep. I'll stay on as Chairman to offer my two cents—whether anyone wants it or not.


That was embarrassing. We were fined $896,000 in August 2014 for failing to file a required Hart-Scott-Rodino report after purchasing USG Corporation shares on December 9, 2013. It was a compliance oversight—not intentional, but that's no excuse. I've always said that reputation takes 20 years to build and five minutes to destroy. This was a five-minute moment. The fine was pocket change relative to Berkshire's size, but the principle matters enormously. We tightened our reporting procedures immediately. If you're going to preach transparency and integrity—and I do, loudly and often—you'd better practice it flawlessly. The embarrassment of the headline was worth more than $896,000 in teaching value for our compliance team.


The Forbes list is flattering but irrelevant to how I live or think about my work. My net worth—whatever Forbes says it is—is almost entirely in Berkshire stock, and I've pledged 99% of it to philanthropy through the Gates Foundation and my children's foundations. I'll give away virtually everything. Meanwhile, I live in the same house since 1958, eat the same breakfast at McDonald's, drink five Cherry Cokes a day, and drive myself to work at Kiewit Plaza. The wealth is a scorecard that says I've allocated capital well, not a measure of my happiness or worth as a person. What gives me satisfaction is that Berkshire employs over 390,000 people, our businesses serve millions of customers, and the charitable giving will eventually total over $100 billion. That matters infinitely more than a number on a magazine list.


The jump from $1,782 million in 2006 to $5,308 million in 2007 looks dramatic, but I'd caution against reading anything meaningful into it. We don't manage our portfolio to produce smooth gains—we sell when the price exceeds our estimate of intrinsic value, and we hold when it doesn't. In 2007, several positions reached prices where selling made sense. In 2006, fewer did. The year-to-year variation tells you about market conditions, not investment skill. What matters is the long-term trajectory of our portfolio's intrinsic value—and on that score, 2007 was excellent. Of course, 2008 was about to provide the ultimate test of everyone's convictions. Those who panicked and sold in the crash gave back all their 2007 gains and more. We used our 2007 proceeds to fund the incredible opportunities that appeared in 2008-2009.


The $281 million increase came from two main sources. First, we got a full year of earnings from IMC, which we'd acquired mid-2006—so 2007 was the first complete calendar year of contribution. Second, CTB International, our agricultural equipment business, had an excellent year driven by strong demand from farmers benefiting from high crop prices. But I should be candid: our building products businesses—Johns Manville, Acme Brick, and others tied to housing—saw earnings drop about 22% as the housing bubble started deflating. That's the reality of owning a diversified collection of businesses—some zig when others zag. The aggregate kept growing because IMC and CTB had genuine competitive advantages in their niches. I always tell people that Berkshire's diversification isn't about avoiding losses—it's about ensuring the overall machine keeps generating growing owner earnings even when individual sectors stumble.


Insurance loss reserves are the biggest guessing game in our business, and I use 'guessing' deliberately. We employ excellent actuaries who build sophisticated models, but ultimately you're predicting the future—and the future doesn't cooperate. Our approach has three elements. First, conservatism: I'd rather over-reserve by $500 million and announce a pleasant surprise than under-reserve and face a nasty shock. Second, continuous review: as new claims data emerges, we adjust estimates rigorously—we don't cling to original assumptions. Third, exceptional people: Ajit Jain, who has run our reinsurance operations for decades, has an extraordinary track record of reserving accuracy that borders on clairvoyance. The aggregate result speaks for itself: over the past 20+ years, Berkshire's insurance operations have generated over $100 billion in float—money we hold and invest before paying claims—and we've earned an underwriting profit in most of those years. That combination is nearly unprecedented in insurance.


The Buffett Indicator—total stock market capitalization divided by GDP—is a rough gauge, and I've always said that. It's like a thermometer: it tells you the patient has a fever, but not what's causing it or how to treat it. The limitations are real. It doesn't account for the growing share of S&P 500 profits earned overseas. It doesn't adjust for interest rates—when 10-year Treasuries yield 2%, stocks should trade at higher multiples than when they yield 6%. And it treats all market caps equally regardless of business quality. But when the indicator hits extreme levels—say 190%+ of GDP as it did recently—it's sending a clear signal that overall market expectations are elevated. I use it as one input among many, alongside Shiller P/E, corporate profit margins relative to history, and the spread between earnings yield and bond yields. No single metric captures market complexity, but this one is a useful sanity check.


Competition in index construction is healthy for investors. Whether you use the Wilshire 5000 or the Dow Jones Total Stock Market Index, the core principle is identical: own a slice of all American business at the lowest possible cost. That's what I've recommended for decades—a low-cost S&P 500 or total market index fund will outperform 90% of professional money managers over any 20-year period. The specific index methodology matters far less than three things: keeping costs below 0.10%, staying invested through thick and thin, and never trying to time the market. When Dow Jones created their own total market index, it gave investors another good option and put competitive pressure on fees across the industry. I view that as unambiguously positive.


A stock split doesn't create one penny of value—it just slices the pie into smaller pieces. But it does change who shows up at the table. A $700,000+ share price acts as a natural filter: it keeps out day traders, momentum chasers, and people looking for a quick flip. I want Berkshire shareholders to be long-term partners who understand our business model and share our multi-decade time horizon. When unit trusts started repackaging A shares into affordable chunks in the mid-1990s—taking fees from small investors—we created Class B shares ourselves at 1/30th the price (later split to 1/1500th) so anyone could invest directly without paying a middleman. But the A shares stay intact as a signal: if you're buying Berkshire, you're making a commitment, not a trade. Our shareholder base is the most patient in corporate America, and the share price structure is a big reason why.


Look-through earnings are the single most important metric for understanding Berkshire's true economic performance. Here's why: GAAP only lets us report dividends received from investees as income. If we own 8% of Coca-Cola and they earn $5 billion, our proportional share is $400 million—but we might only receive $150 million in dividends. The remaining $250 million stays at Coke, where it's reinvested in the business, growing future earnings and making our stake more valuable. Look-through earnings capture that full $400 million. Across our entire portfolio—Coke, American Express, Gillette, Washington Post, and dozens of others—the gap between dividends received and our share of actual earnings was enormous. Ignoring retained earnings would be like a farmer measuring his wealth only by crops sold, while ignoring the ones he replants. Over time, the retained portion compounds and becomes the biggest driver of our intrinsic value growth.


Prudential California Realty, led by Ron Peltier, was the dominant residential real estate brokerage in a major California market. Real estate brokerage is cyclical—it booms with housing and suffers when housing stalls—but a dominant local franchise with excellent management can thrive through the cycles. Our strategy was to build a national real estate brokerage platform, HomeServices of America, through selective acquisitions of the best local operators. We'd provide permanent capital and autonomy; they'd keep running their businesses with their local expertise. The revenue impact grows with each market we enter, and the referral network effect strengthens as the platform expands. Ron was exactly the kind of operator-manager we look for: he'd built something excellent and wanted to keep running it, but he also wanted the stability of a permanent, well-capitalized owner. That's the Berkshire proposition.


Realized gains are the most misleading line item in our financial statements. In any given year, we might sell a stock that's tripled and book a $2 billion gain, or we might sell nothing and book zero. Neither tells you anything about how our portfolio or Berkshire is performing. The real measure is look-through earnings—our proportional share of the total earnings of our investees, not just the dividends they pay us. If we own 8% of Coca-Cola and they earn $5 billion, our share is $400 million—regardless of whether we received $200 million in dividends or sold any shares. GAAP accounting only captures the dividends and realized gains, which is like judging a farmer's wealth by the crops he sells while ignoring the ones he replants. I've been making this point for 40 years and Wall Street still focuses on the wrong number.


Charlie Munger said it best: there's no realistic possibility that I'm front-running Berkshire for personal gain. My personal portfolio is trivial compared to my Berkshire holdings—virtually all of my $130+ billion net worth is in Berkshire stock. I report every personal trade to the board, and the math makes my incentives obvious: a 1% gain on my Berkshire holdings is worth more than a 100% gain on my entire personal portfolio. I eat my own cooking. When Berkshire's stock drops 30%, as it did in 2008, my net worth drops 30%. When it compounds at 20% for decades, I compound with it. That alignment—having essentially your entire net worth in the company you manage—is the most powerful governance mechanism ever devised. It's more effective than any audit committee, compensation consultant, or regulatory framework.


The $2.75 billion estimate is based on a complex analysis of pending and settled litigation across thousands of individual plaintiff claims related to PacifiCorp's wildfire liability. The inputs include: property damage assessments from fire investigators, personal injury and wrongful death claims, business interruption losses, fire suppression costs reimbursement to agencies, and punitive damages awarded by juries. Each case has its own trajectory—some settle, some go to trial, and jury awards have ranged from modest to very large. The James case alone resulted in an $84 million judgment for nine plaintiffs. These estimates are reviewed quarterly and adjusted as new information emerges from investigations and court proceedings. I won't minimize this: it's a serious liability. But Berkshire's fortress balance sheet exists precisely for situations like this. With over $300 billion in total assets, $2.75 billion is absorbable—painful but not threatening to the enterprise.


The $14,271 million in accumulated other comprehensive income was primarily unrealized gains on our equity portfolio—the gap between purchase price and current market value. For sophisticated investors, this signals massive embedded value that doesn't appear in reported earnings. If we sold everything tomorrow, we'd report $14 billion in pre-tax gains. But we have no intention of selling—we own businesses, not trading positions. The cautionary note is that this number fluctuates with market sentiment. In a bear market, it can shrink dramatically without any change in the underlying businesses' earning power. I've seen Berkshire's stock drop 50% in market value while the businesses underneath kept generating growing cash flows. The accumulated OCI is a snapshot of Mr. Market's mood, not a measure of Berkshire's economic reality. Focus on the earning power; the market price will follow over time.


I'll be candid—IBM was a mistake. I was attracted by their massive recurring revenue from enterprise IT services, a huge share buyback program that was reducing shares outstanding by 5-6% annually, and what I believed were high switching costs. I thought IBM's installed base of enterprise customers was a moat. But I underestimated how rapidly cloud computing—led by Amazon Web Services—would erode their position. IBM's revenue declined year after year while we held the stock, and the buybacks were just masking the deterioration by propping up EPS. We eventually sold our entire position at roughly break-even after accounting for dividends, but the opportunity cost was enormous—that $11 billion in Apple instead would have been worth multiples. The lesson: even when a tech company looks like it has a moat, the competitive landscape can shift faster than I can analyze it. We did much better with Apple, but that's really a consumer products company with an incredible ecosystem.


Post-mortems on acquisitions are essential, and most companies are terrible at doing them honestly. Human nature makes us rationalize past decisions, but that's how you repeat mistakes. I publicly discuss our failures in the annual letter—the Dexter Shoe acquisition (paid with Berkshire stock, the most expensive currency imaginable), the slow response on General Re's derivatives book, the ConocoPhillips timing at peak oil prices. Each one made us a smarter buyer next time. For GEICO specifically, reviewing our journey—the initial investment in 1976 when the company was nearly bankrupt, our gradual accumulation of shares, and the full acquisition in 1995 for $2.3 billion—taught us invaluable lessons about the power of low-cost operators in insurance. Tony Nicely showed us that a structural cost advantage, relentlessly maintained and reinvested in growth, is the most durable moat in insurance. That insight shaped how we evaluate every insurance opportunity since.


I made a huge, costly mistake. I spent about $7 billion buying ConocoPhillips stock when oil was near $140 a barrel in 2008, and when oil crashed to $40, we lost several billion dollars in market value. The error wasn't in evaluating ConocoPhillips as a company—it's a fine business. The error was making an implicit bet on oil prices staying high, which is exactly the kind of commodity price bet I've always told people I can't make. I violated my own principles. It was a $2 billion-plus mistake measured in opportunity cost, and I took full responsibility in the 2008 annual letter. The silver lining, if you can call losing billions a silver lining, is that the lesson stuck permanently. I haven't made a commodity-price-dependent investment since. When you lose that much money on a single mistake, you tend not to repeat it.


Charlie and I had virtually all of our net worth in Berkshire stock, and that alignment is the most powerful governance mechanism in existence. When Berkshire's stock dropped 50% in 2008, my net worth dropped from $62 billion to $37 billion. I felt that in my bones—same as every other shareholder. That's the way it should be. When the CEO's wealth rises and falls with shareholders' wealth, you can trust that decisions are being made with long-term value in mind, not short-term stock price manipulation. I've never sold a share of Berkshire except for charitable giving—never a single share for personal spending. Compare that to the typical CEO who gets millions in options, exercises them, and sells immediately. That tells you everything about their time horizon. Eating your own cooking isn't just a slogan at Berkshire—it's the foundation of our governance structure.


Each of these businesses contributes something specific and valuable. See's Candies is the best illustration: we bought it for $25 million in 1972 when it earned $5 million pre-tax. Since then, it's generated over $2 billion in cumulative pre-tax earnings with minimal reinvestment—the brand commands premium pricing on relatively small capital. Nebraska Furniture Mart, founded by Mrs. B, does more sales per square foot than any furniture retailer in America. Borsheim's is the largest single-store jewelry operation in the country. Dairy Queen generates reliable owner earnings across thousands of franchise locations with minimal capital requirements. What they all share is a durable competitive advantage in their niche, excellent management that we don't interfere with, and the ability to send excess cash to Omaha for redeployment into higher-returning opportunities. That's the Berkshire model: buy wonderful businesses, keep the managers who built them, let them run autonomously, and centrally allocate the capital they generate.


GEICO's rising per-policy acquisition cost reflected diminishing returns on advertising and tighter underwriting standards. The first $100 million in advertising reaches the most receptive prospects—people actively shopping for auto insurance who are likely to be good risks. Each additional $100 million reaches people who are less motivated to switch or less likely to meet our underwriting criteria. We were also rejecting more applicants to maintain underwriting discipline, which mathematically raised the cost per acquired policy. This is a natural tension in insurance: growth versus profitability. We chose profitability. I'd rather add 500,000 well-priced policies than 800,000 policies that include bad risks at inadequate premiums. Tony Nicely understood this perfectly—he'd slow growth before he'd compromise underwriting. That discipline is why GEICO has earned an underwriting profit in most years while growing its market share from 2% to over 14%.


My $100,000 salary hasn't changed in decades because I don't need it to be higher. My economic interest in Berkshire comes from owning roughly 38% of the Class A shares—when Berkshire's intrinsic value grows by $30 billion in a year, my share of that growth is about $11 billion. A $20 million salary on top of that would be meaningless financially but harmful symbolically. The problem with CEO compensation in America is that it's designed by compensation consultants who benchmark against other overpaid CEOs, creating a ratchet effect that only goes up. Boards rubber-stamp packages that reward executives regardless of performance. I think CEOs should have a significant—ideally most—of their net worth in company stock with long holding requirements. When your wealth depends entirely on the company's long-term success, you make different decisions than when you're collecting $50 million in annual guaranteed compensation.


The 8.9% increase in underwriting expenses was driven by two things: higher advertising spending to acquire new policyholders, and increased personnel costs to service our rapidly growing book of business. We were adding hundreds of thousands of new GEICO policyholders per year, and each one requires customer service representatives, claims adjusters, and IT infrastructure. I view these costs as investments in future earning power, not expenses to be minimized. The critical metric isn't whether expenses are rising—it's the combined ratio. If we spend an extra $200 million on advertising and acquire 500,000 profitable new policyholders, the payback period is roughly 2-3 years, and the lifetime value of those customers is enormous. In 2007, GEICO's combined ratio was well under 100%, meaning we earned an underwriting profit while growing rapidly. That combination—profitable growth—is extremely rare in insurance and extremely valuable.


Forbes estimated my net worth at about $62 billion in early 2008—richest person in the world. By March 2009, it had dropped to roughly $37 billion, a loss of $25 billion in 12 months. But here's what I want people to understand: I didn't sell a single share of Berkshire. Instead, we went on a buying spree—$5 billion into Goldman Sachs at 10% preferred plus warrants, $3 billion into GE on similar terms, $3 billion into Dow Chemical at 8.5%, and eventually $5 billion into Bank of America. We also bought the entire BNSF railroad for $34 billion. My net worth on paper went down, but the intrinsic value of what we owned went up because we were deploying capital at once-in-a-generation prices. By 2010, much of the paper loss had reversed, and the crisis investments generated billions in profits. Volatility is the friend of the long-term investor and the enemy of the short-term trader.