Berkshire Hathaway's 2005 letter to shareholders

About this letter

Warren E. Buffett, chairman of Berkshire Hathaway, wrote this letter to shareholders about 2005. It is dated 28 February 2006 and opens the company's 2005 annual report. Berkshire's per-share book value rose 6.4% in the year, and Hurricane Katrina cost it an estimated $2.5 billion, though Buffett credits GEICO with stellar insurance results in a disaster-ridden year.

Buffett says his goal is to give owners the information they need to estimate Berkshire's intrinsic value, so the letter walks through the company's businesses in four logical groups, its new purchases, insurance and investments. Around that core sit several essays: on winding down General Re's derivatives business, on executive pay, on America's trade imbalances, and on how investors reduce their own returns. It ends with the arrangements for the annual meeting in Omaha.

What to notice

1. 1

   The Gotrocks parable: a family that owns all of corporate America grows poorer as it hires broker, manager, consultant and finally hedge fund and private equity Helpers, and Buffett estimates such frictional costs may amount to 20% of American business earnings.

“When a problem exists, whether in personnel or in business operations, the time to act is now.”