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2018 Shareholder Letter

Buffett's 2018 letter explains the $20.6 billion unrealized loss under new GAAP rules, shows quarterly swings from $25.4B loss to $18.5B profit, and emphasizes operating earnings grew 41%.

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2018 Shareholder Letter

Date: February 23, 2019 Author: Warren Buffett Company: Berkshire Hathaway

Overview

2018 per-share book value increased 0.4% (S&P -4.4%), with book value reaching approximately $212,500 — an 18.7% compound annual return over 54 years.

Key Points

Massive GAAP Volatility

2018 GAAP results showed extreme swings:

  • Q1: $1.1B loss
  • Q2: $12.0B profit
  • Q3: $18.5B profit
  • Q4: $25.4B loss

Total GAAP earnings: $4.0 billion — but this included:

  • $24.8B operating earnings
  • $3.0B non-cash loss (Kraft Heinz intangible impairment)
  • $2.8B realized capital gains
  • $20.6B loss from unrealized gains reduction

Operating Earnings Up 41%

Despite the GAAP chaos, "operating earnings exceeded their 2016 high of $17.6 billion by 41%."

Criticism of GAAP Rule

"Neither Berkshire's Vice Chairman, Charlie Munger, nor I believe that rule to be sensible."

The mark-to-market requirement produces "wild and capricious swings in our bottom line."

Kraft Heinz Impairment

Significant impairment charges related to Kraft Heinz investment affected results.

Famous Quotes

"A new GAAP rule requires us to include that last item in earnings... we both have consistently thought that at Berkshire this mark-to-market change would produce 'wild and capricious swings in our bottom line.'"

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