Berkshire earned $4.0 billion in 2018 utilizing generally accepted accounting principles (commonly called “GAAP”).
The components of that figure are:
$24.8 billion in operating earnings;
$3.0 billion non-cash loss from animpairment of intangible assets (arising almost entirely from our equity interest in Kraft Heinz);
$2.8 billion in realizedcapital gains from the sale of investment securities $20.6 billion loss from a reduction in the amount of unrealized capital gains that existed in our investment holdings.
Long-time readers of our annual reports will have spotted the different way in which I opened this letter. Fornearly three decades, the initial paragraph featured the percentage change in Berkshire’s per-share book value. It’snow time to abandon that practice.
The fact is that the annual change in Berkshire’s book value is a metric that has lost the relevance it once had. Three circumstances have made that so:
1) Berkshire hasgradually morphed from a company whose assets are concentrated in marketable stocks into one whose major valueresides in operating businesses;
2) while our equity holdings are valued at market prices, accounting rules require our collection ofoperating companiesto beincluded in book value at an amount far below their current value, a mismark that has grown in recent years;
3) it is likely that – over time – Berkshire will be a significant repurchaser of its shares, transactions that will take place atprices above book value but below our estimate of intrinsic value. The math of such purchases is simple: Eachtransaction makes per-share intrinsic value go up, while per-share book value goes down. That combination causesthe book-value scorecard to become increasingly out of touch with economic reality.
Our investees paid us dividends of $3.8 billion last year, a sum that will increase in 2019.
Continues...
http://www.berkshirehathaway.com/letters/2018ltr.pdf
