2009 Letter to Shareholders

To the Shareholders of Berkshire Hathaway Inc.

In 2009, the American financial system came closer to collapse than at any time since the Great Depression. It was a harrowing year, and yet Berkshire earned $8 billion and increased our book value by 19.8%.

"Panic is natural; what matters is how you respond to panic. Those who maintained their composure—and had the capital to act—were rewarded many times over."

What Happened

The crisis of 2008-2009 was fundamentally a crisis of confidence. Financial institutions had taken on enormous leverage, believing that the good times would last forever. When losses began, leverage amplified the damage, and confidence evaporated.

The contagion spread from subprime mortgages to the entire financial system. Money market funds broke the buck. Commercial paper froze. Short-term funding markets ceased to function.

How Berkshire Responded

We responded by doing what we have always done: maintaining financial strength and looking for opportunities. While others were desperate for capital, we had it in abundance.

In the fourth quarter of 2008, I invested $15 billion in preferred shares of Goldman Sachs and General Electric, earning 10% interest and warrants. These investments were not exciting, but they were safe, and they demonstrated that capital was available for those who could wait.

By March 2009, markets had reached lows that reflected complete despair. We began buying. By the end of 2009, our equity portfolio had recovered substantially, contributing to our 19.8% book value growth.

MidAmerican Energy Holdings

In 2009, we acquired a 73% stake in MidAmerican Energy Holdings for $5 billion. MidAmerican is a regulated utility company serving 5 million customers in eight states.

This acquisition fits our criteria perfectly: essential services, high barriers to entry, honest management, and a reasonable price. Regulated utilities don't have exciting growth, but they have something better: stability that allows compounding over decades.

GEICO

Our GEICO subsidiary gained market share throughout the crisis. While competitors struggled with solvency concerns, GEICO maintained its financial strength and continued to advertise.

The combination of our financial strength and our direct sales model gave GEICO advantages that competitors could not match. In 2009, GEICO policies in force grew by 200,000—the largest increase in years.

Insurance Float

Our insurance float grew to $62 billion in 2009. This float—generated by our insurance operations and available for investment at no cost—is the foundation of Berkshire's investment returns.

Ajit Jain and GEICO's leadership deserve enormous credit for maintaining discipline when others were cutting prices indiscriminately. Their underwriting judgment protected Berkshire from losses that devastated competitors.

Looking Forward

The American economy will recover. It always has, and it always will. Our task is to maintain our position—ready to act when opportunities arise and patient enough to wait when they don't.

1. We will not panic — Financial strength allows us to think clearly
2. We will be greedy when others are fearful — Opportunities emerge from crisis
3. We will own essential businesses — What we own serves needs that don't disappear
4. We will trust America — Our entire system depends on continued American prosperity

Warren E. Buffett February 2010