Letter to Shareholders
“Buffett's 2010 letter reflecting on the post-crisis recovery, why Berkshire's long-term approach proved superior to crisis-driven strategies, and the importance of owning businesses with durable moats.”
Key Points
- →Berkshire earned $13 billion in 2010 demonstrating post-crisis resilience
- →Burlington Northern acquisition completed providing decades of predictable returns
- →Explained why short-term survival strategies often destroy long-term value
- →American Express and Coca-Cola positions continued to compound
2010 Letter to Shareholders
To the Shareholders of Berkshire Hathaway Inc.
In 2010, the American economy continued its recovery from the deepest recession in 70 years. Berkshire participated fully in this recovery, earning $13 billion and increasing our book value by 13%.
"The crash of 2008-2009 gave us a once-in-a-generation opportunity to buy excellent businesses at distressed prices. We took advantage of that opportunity, and our shareholders will benefit for decades."
The Berkshire Approach Works
The 2008-2009 crisis taught many investors a painful lesson: strategies that work in normal times often fail precisely when you need them most. Leverage amplifies both gains and losses. Complexity hides risks that become obvious only when it's too late.
Berkshire's approach proved its worth during the crisis. We had no margin calls, no forced selling, no need to raise capital at the worst possible time. Our financial strength—maintained at all times, not just when we need it—was our greatest competitive advantage.
Burlington Northern
Our acquisition of Burlington Northern Santa Fe Railway in 2010 completed a major strategic initiative. For $34 billion, we acquired the backbone of American commerce: a railroad that moves 25% of all rail freight in the United States.
Carl Ice and his team have run BNSF exceptionally well. The railroad's competitive position is extraordinary: it serves the western two-thirds of America, and for many routes it is the only practical option. This is a true toll road.
Our Investment Holdings
American Express and Coca-Cola continued to compound shareholder wealth in 2010. Both companies have widened their moats since we first invested. Amex's network effects grow stronger with every merchant that accepts the card. Coca-Cola's brand remains the most valuable in consumer products.
These investments illustrate our approach: buy excellent businesses and hold them forever. We paid fair prices for both companies, and both have far exceeded our original expectations.
Insurance: The Engine of Returns
Our insurance operations generated float that now exceeds $70 billion. This float is permanent capital that costs us nothing as long as we maintain underwriting discipline.
Ajit Jain again delivered extraordinary results. His ability to underwrite risks that others cannot even comprehend generates float at margins that would be impossible for less-capitalized competitors.
Looking Forward
Our approach is unchanged and will remain unchanged:
- Own wonderful businesses — Durability of competitive advantage is paramount
- Hold forever — Time is the investor's best friend
- Think independently — Consensus thinking leads to mediocre results
- Maintain strength — Never be in a position where you must sell
Warren E. Buffett February 2011
Concepts in This Letter
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