10 Things I Learned from Warren Buffett’s 2015 Annual Letter to Berkshire Shareholders

Warren Buffett just released his annual letter to Berkshire Hathaway shareholders on Saturday and every year investors await what the Oracle of Omaha has to say about the market, economy and Berkshire’s past year’s performance.

Buffett has been writing his annual letters for the last 50 years (since 1965) and you can read many of his past letters here. His annual letters are usually laced with funny anecdotes and one-liners as he imparts his investment wisdom and insight gleaned from decades of being arguably the world’s greatest investor.

So without further ado, here are 10 things I learned from Warren Buffett’s 2015 annual letter to Berkshire shareholders:

  1. Berkshire Hathaway has grown by a compounded annual growth rate of 20.8% over the last 50 years – or by 1,598,284%. This means every $1,000 you invested in Berkshire in 1965 is now worth $15,982,840. Recently, however, Berkshire’s performance has lagged the S&P 500 — between 2009 and 2015, the S&P gained about 163 percent; Berkshire, just 105 percent.
  2. Berkshire’s net profit rose 21% in 2015 to $24 billion boosted by a one-time investment gain in its stake in Kraft Heinz. Excluding the one-time gain, Berkshire’s operating profit rose 5% to $17.4 billion. Berkshire’s book value rose 6.4% in 2015.
  3. Buffett can’t tell precisely what Berkshire’s (or any stock’s) intrinsic value is but he uses three elements to estimate intrinsic value. One of the elements is qualitative (which he discusses in pg. 113-114 in Berkshire’s annual report) and the other two are quantitative: cash and investments per share and earnings per share.

    “Since 1970, our per-share investments have increased at a rate of 18.9% compounded annually, and our earnings (including the underwriting results in both the initial and terminal year) have grown at a 23.7% clip. It is no coincidence that the price of Berkshire stock over the ensuing 45 years has increased at a rate very similar to that of our two measures of value.”

  1. Buffett believes Berkshire’s intrinsic value far exceeds its book value. He has stated that Berkshire would repurchase shares if prices fall as low as 120% of book value.

    “…we would be delighted to repurchase our shares should they sell as low as 120% of book value. At that level, purchases would instantly and meaningfully increase per-share intrinsic value for Berkshire’s continuing shareholders.”

    As at Feb 29 2016, Berkshire’s price-to-book ratio is 1.33.

  1. Berkshire’s group of insurance companies grew its float to $88 billion in 2015. Float is cash that an insurance company collects from its premiums; the money doesn’t belong to the insurance company but it can be used for investments to generate gains and income. In other words, insurance companies get paid to hold other’s money and insurers are sometimes willing to operate at an underwriting loss in order to hold its (very attractive) float. Berkshire’s insurance operation, though, earned $1.8 billion in 2015 and has operated at an underwriting profit for the last 13 years in a row — and significantly grown its float during that period.

    “Though neither that gain nor the size of our float is reflected in Berkshire’s earnings, float generates significant investment income because of the assets it allows us to hold… Without a doubt, Berkshire’s largest unrecorded wealth lies in its insurance business. We’ve spent 48 years building this multi-faceted operation, and it can’t be replicated.”

  1. Berkshire has a group of companies called the “Powerhouse Five” which includes Burlington Northern Sante Fe Railway, Berkshire Hathaway Energy, Marmon, Lubrizol and IMC. They are Berkshire’s five most profitable non-insurance businesses and earned a combined $13.1 billion in 2015, an increase of $650 million over 2014. BNSF Railway is the industry leader among the seven large American railroads, carrying 45% more ton-miles of freight than its closest competitor. Berkshire Hathaway Energy owns 7% of the U.S.’s wind generation and 6% of its solar generation. Together, BSNF and BHE accounted for 37% of Berkshire’s after-tax operating earnings.
  2. Berkshire owns approximately 27% of Kraft Heinz – the fifth largest food and beverage company in the world with annual sales of $27 billion. Berkshire also owns preferred shares in the food conglomerate that pay $720 million in dividends annually. The stake is worth $7.7 billion on Berkshire’s balance sheet and Buffett expects Kraft Heinz to redeem the shares for $8.32 billion in June. Buffett joked that his favorite meal is Oscar Mayer hot dogs from Kraft with Heinz ketchup or mustard and a Coke. (If you didn’t get it, he owns sizeable stakes in Kraft Heinz and Coca-Cola.)
  3. Berkshire increased its ownership last year in each of its “Big Four’ investments: American Express, Coca-Cola, IBM and Wells Fargo. Berkshire purchased additional shares of IBM and Wells Fargo and stock repurchases increased Berkshire’s ownership percentage in American Express and Coca-Cola.

    “These four investees possess excellent businesses and are run by managers who are both talented and shareholder-oriented. Their returns on tangible equity range from excellent to staggering. At Berkshire, we much prefer owning a non-controlling but substantial portion of a wonderful company to owning 100% of a so-so business. It’s better to have a partial interest in the Hope Diamond than to own all of a rhinestone.

    Buffett further elaborated:

    Our flexibility in capital allocation – our willingness to invest large sums passively in non-controlled businesses – gives us a significant edge over companies that limit themselves to acquisitions they will operate. Woody Allen once explained that the advantage of being bi-sexual is that it doubles your chance of finding a date on Saturday night. In like manner – well, not exactly like manner – our appetite for either operating businesses or passive investments doubles our chances of finding sensible uses for Berkshire’s endless gusher of cash.”

  1. Berkshire has the option to buy 700 million shares of Bank of America for $5 billion. At end 2015, that stake was worth $11.8 billion but the share price has dropped 25% since. The option expires September 2021 and Buffett is likely to exercise it just before expiration.
  2. Buffett is bullish on the future of America. American GDP per capita is $56,000 – in real terms, six times the amount in 1930, the year Buffett was born. According to Buffett, U.S. GDP per capita will continue to grow at 1.2% per year and, at that rate, will increase by 34.4% to $75,000 in just 25 years – one generation.

    “For 240 years it’s been a terrible mistake to bet against America, and now is no time to start. America’s golden goose of commerce and innovation will continue to lay more and larger eggs. America’s social security promises will be honored and perhaps made more generous. And, yes, America’s kids will live far better than their parents did.”

And one final bonus point: Buffett has decided to webcast Berkshire’s annual meeting worldwide in its entirety for the very first time this year. To view the meeting, simply go to at 9 a.m. Central Daylight Time (GMT-6) on Saturday, April 30th.

So whether you’re a Berkshire Hathaway shareholder or someone who simply admires or respects Buffett for what he has achieved as a lifelong investor (and as a human being), we no longer have to travel all the way to Nebraska to pay homage to the Oracle of Omaha.

Adam Wong

Adam Wong is the editor-in-chief of The Fifth Person and author of the national bestseller Lucky Bastard! which made the Sunday Times Top 10 Bestseller's List in 2009 and Value Investing Made Easy which made the Kinokuniya Business Bestseller's List in 2013. In 2010, he appeared on U.S. national television on the morning show The Balancing Act. An avid investor himself, Adam shares his personal thoughts and opinions as he journals his investing journey online.


  1. WB has shown how to manage investments to grow in value over the years.

    Now can he give some advise on how to use the profits to give maximum good to those in need. Remember there are millions in US who are homeless and go hungry every night. Giving millions to museums do not fill an empty stomach or protect a homeless during the rain or from cold during winter.

    People would like to remember people like him for the good he did and not the billions he has accumulated during his lifetime and he is still doing without realizing that life on this world is mortal and his days may be coming to end.

  2. Berkshire Hathaway has been a great investment, but I found that there are some conservatively managed ETF’s that look like actually better bets. My own choice has been the Vanguard Russell 1000 Value ETF (VONV). It’s price seems to track or outperform Berkshire’s, but unlike Berkshire Hathaway it also pays a nice dividend. What concerns me is what happens when Warren Buffett passes on.

    1. That’s the big question, eh?

      Buffett has been so successful for so long that no one knows how Berkshire will perform once he passes. Buffett is 85 and Munger is even older!

      Buffett has said many times that he’s built a strong culture and long-term structure at Berkshire that will outlast him when he eventually goes, but of course, everyone still wonders if it’ll be the same without him. We can only wait and see.

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