2005 Shareholder Letter

Date: February 28, 2006 Author: Warren Buffett Company: Berkshire Hathaway

Overview

2005 net worth increased $5.6 billion or 6.4% (S&P 4.9%), with per-share book value reaching $59,377 — a 21.5% compound annual return over 41 years.

Key Points

Hurricane Katrina Impact

Katrina inflicted record losses:

• Katrina: $2.5 billion loss
• Rita and Wilma: additional $900 million
• Total: $3.4 billion from three hurricanes

Despite this, Berkshire had a "decent year" overall.

GEICO's Productivity Revolution

In just two years, GEICO improved productivity by 32%:

• Policy count grew 26%
• Employment fell 4%
• Market share gained
• Brand strengthened

"When we drive unit costs down in such a dramatic manner, we can offer ever-greater value to our customers."

Buffett joke: "If you have a new son or grandson in 2006, name him Tony."

Four-Group Business Classification

Buffett introduced a new way to understand Berkshire's businesses:

1. Insurance operations (with float)
2. Finance-type businesses
3. Manufacturing, retailing, and service businesses
4. Utilities and energy businesses

Intrinsic Value

"Berkshire's intrinsic value can be more precisely calculated than can the intrinsic value of most companies" due to:

• Wide variety of relatively-stable earnings streams
• Great liquidity
• Minimum debt

Famous Quotes

"We have attempted to ease this problem by clustering our businesses into four logical groups... The value of Berkshire may be either greater or less than the sum of these four parts."

Related

• letter-2004 — Previous year
• letter-2006 — Following year
• warren-buffett
• compounding