For example, the latest remarks on the issue of successors, the logic of buying Apple's stocks, how much money Berkshire made in 2017, and what plans it has for its cash reserves of over $100 billion.

shares god Buffett announced the 2017 shareholder open letter on the Berkshire Hathaway website. In this letter, Buffett answered many questions that are generally concerned by the market, such as the latest remarks on the issue of successors, the logic of buying Apple's stock, how much money Berkshire made in 2017, and what plans it has for its cash reserves of over $100 billion. Investors around the world want to learn about the legendary investor’s investment mentality from the letter as a prediction of the future economy and market.

The following is a summary of Buffett's letter to shareholders

Apple has become Berkshire's second largest holding

The letter lists 15 common stock investments with the largest market value held by the end of 2017, but based on accounting rules, 325 million shares of Kraft Heinz were excluded. As of the end of last year, American Express, Apple and Bank of America were the top three positions held by Berkshire.

The letter stated that the growth of Berkshire's floating deposit is already extraordinary. However, the disadvantage of floating deposits is that the long-tail business is accompanied by risks, bringing floating deposits "like a tide".

For example, in September last year, three major hurricanes hit southern U.S. Texas, Florida and Puerto Rico. Buffett said he now speculates that the insurance losses caused by the hurricane are about $100 billion, and may be much higher than that.

If these two numbers are estimated to be close to the exact value, our share of losses in the industry is about 3%.

Before 2017, Berkshire has achieved underwriting profits for 14 consecutive years, with a total pre-tax amount of US$28.3 billion, but Buffett had previously warned that there are some years that will inevitably lead to losses. The warning became a reality in 2017: The loss before bonded was $3.2 billion.

Buffett: The bolder others are, the more cautious we are.

The letter pointed out that when looking for independent companies to acquire, we mainly focus on the following traits: long-term competitiveness, high-level management, good returns on tangible assets, attractive inherent growth opportunities, and reasonable prices.

However, when the entire market started a merger and acquisition frenzy in 2017, Berkshire Hathaway could not find a suitable acquisition target. He said in the letter: "We follow a simple principle in mergers and acquisitions: the bolder others are, the more cautious we are."

The letter stated that as of December 30, 2017, Berkshire's cash and US debt holdings were US$116 billion, US$7 billion higher than on September 30 last year. It can be seen that the rate of cash growth is slowing down, but it is still more than twice that of the end of 2006.

talks about the company's successor: Leave the most important part in the final appearance

Buffett said in the letter: "I leave the most important part in the final appearance. Fortunately, Berkshire welcomes new vice chairman Ajit Jain and Greg Abel. They are both company veterans, with Berkshire's blood flowing. Everyone's personality is in line with their talents, which says it all.

In the 52nd annual letter to shareholders, Buffett not only talked about the company's performance and investment strategies, but also expressed his views on many hot topics, including the US economy and immigration issues.

talked about the ten-year bet: optimistic about passive investment

"The Letter" specifically mentioned Buffett and the well-known consulting company Protégé in Wall Street Partners’ bet ten years ago, which tracks the S&P 500’s ETF performance, will be better than Protégé Partners selected five FoFs better. These FoFs cover more than 200 actively managed hedge funds in the industry and can invest in companies they think they have potential at any time.

found that these five FoFs, founded in 2008, only outperformed the S&P 500 index in the year they were founded. In the next nine years, the performance of these funds has declined, and their performance is not as impressive as the S&P 500 index. The bet officially ended in 2017.

Buffett emphasized in the letter that there was nothing unusual in stock market behavior over the past 10 years. If some investment "experts" were asked about their long-term stock return forecasts later in 2007, they would say that the S&P 500 is expected to return close to 8.5%. In such an environment, making money is very easy, but in fact, investors of these experts have experienced many investment failures.

This gives us a lesson: stick to "simple" decisions and avoid activities. Almost certainly, these 200 hedge fund managers will almost certainly have thousands of deals over a decade, and most of them are undoubtedly serious about their decisions, researching 10 companies, interviewing management, and negotiating with Wall Street analysts. They all believe in their decisions, but they still don’t have the benefits of long-term holdings.

The final result of Buffett's ten-year bet: the S&P 500 index earnings reached 21 percentage points, far ahead of other funds earnings

The following is the full text translation

to Berkshire Hathaway shareholders:

Berkshire's net assets increased by US$65.3 billion in 2017, and the book value of each share of Class A and Class B shares increased by 23%. Over the past 53 years (that is, since management took over), the book value per share has increased from $19 to $211,750, with a compound annual growth rate of 19.1%.

The table in the starting paragraph of this article has been a standard practice for 30 years. But 2017's performance is far from the general standard: most of our earnings are not from anything we accomplished at Berkshire. The gains of

65 billion US dollars are still true and credible - please rest assured. But only $36 billion of that comes from Berkshire's daily operations, and the remaining $29 billion is brought to us by Congress' amendment to the U.S. tax law in December.

After stating the above financial facts, I would rather turn to discuss Berkshire's business immediately. But, one more thing has to be said, I must first tell you a new accounting rule: the US General Accounting Standards (GAAP) will seriously distort Berkshire's net income figures in future quarterly and annual reports, and will often mislead commentators and investors.

New rules provide that the net change in unrealized investment income and losses of the shares we hold must be included in all net income data we report to you. This requirement will lead to very dramatic and capricious fluctuations in our GAAP profits. Berkshire owns $170 billion in saleable shares (not including our Kraft Heinz shares), and the value of these holdings may easily change by $10 billion or more during each quarter reporting period.

Including such a large volatility in reported net income will flood the real important figures that can describe our operating results. If it is for analysis purposes, Berkshire's "profit" will be useless.

new rules exacerbate our long-standing communication problems in dealing with realized gains (or losses) as accounting standards have forced us to include these gains and losses into our net gains. In past quarterly and annual reports, we often warn you not to focus on these realized gains because they - like our unrealized gains - are randomly volatile.

This is mainly because we will sell securities when it seems wise, not because we strive to affect earnings in any way. Therefore, we sometimes report substantial gains during a certain period of time (and the same is true for better performance).

*All per share data used in this report applies to Berkshire's A-shares. The B-share figure is 1/1500 of the A-share data.

As new rules on unrealized gains aggravate the distortions caused by the existing implemented gains rules, we need to work hard to explain these adjustments every quarter so that you can better understand our data. But TV comments about financial reports are usually instantly received, while newspaper headlines are almost always concerned with changes in net earnings per year calculated in accordance with GAAP. Therefore, media reports sometimes emphasize numbers that make readers or viewers need not panic or excitement.

We try to alleviate this problem by continuing our practice and posting earnings on Friday night after the stock market closes, or on Saturday morning. That will give you plenty of time to analyze and give professional investors the opportunity to make insightful comments before the market opens on Monday. However, I expect that shareholders who do not understand accounting will still be very confused.

At Berkshire, the most important thing is to enhance our normalized EPS. This measure is something that my long-term partner, Charlie Munger and I are paying attention to, and we hope you guys pay attention to it too. Our 2017 report card is as follows:

Acquisition of

There are four major sectors that have increased the value of Berkshire: (1) huge independent acquisitions; (2) reinforced acquisitions suitable for our existing businesses; (3) internal sales growth and profit margin improvements in many of our different business units; (4) investment returns from our huge stock and bond portfolios. In this section, we will review the acquisitions in 2017.

When we search for new independent businesses, the key qualities we look for are lasting competitiveness, competent and high-quality management teams, good returns on the NTV required to run the business, opportunities for internal growth to bring considerable returns, and lastly, reasonable acquisition prices.

When we look back on the merger and acquisition deal in 2017, the last one formed a barrier to almost all transactions, because the prices of a not bad but far from impressive business reached an all-time high. Indeed, price seems irrelevant in the face of a group of optimistic buyers. Why are there crazy acquisitions in

? Part of the reason is that the CEO position has chosen the "courageous attempt" type. If Wall Street analysts or board members urge such CEOs to consider possible acquisitions, it's like telling you that the growing young people must have a normal sex life.

Once a CEO is eager to make a deal, he/she will never lack a legitimate reason to make an acquisition. The subordinates will cheer, looking forward to expanding their business areas, and expecting the increase in salary that usually increases as the company scales. Investment bankers who smell the scent of huge profits will also applaud. (Don't ask the barber if you need a haircut!) If the target's historical performance is not enough to prove that the acquisition is correct, someone will also predict a great "synergy". The trial balance never disappoints.

There is sufficient, extremely low financing available in 2017, which further promotes M&A activities. After all, even a high-priced acquisition transaction can usually drive digital growth in earnings per share if it is made through debt financing. In contrast, at Berkshire, we evaluate acquisition transactions in an all-stock manner because we need to know that our interest in overall liabilities is low, and that we know that it is generally wrong to allocate a large amount of our debt to any independent business (not to mention certain exceptions, such as debt specifically for Clayton’s company loan portfolios, or debt for fixed asset investments in our heavily regulated utility companies.) And we never take "synergy" into account, and we usually don't find any "synergy".

Our dislike of leverage has affected the earnings over the past years. But Charlie and I both slept soundly. We all think it's crazy to take risks with what you have to get what you don't need. What we thought 50 years ago when we each ran an investment partnership invested by a few friends and trusted relatives. Even though millions of "partners" have joined our Berkshire now, we still think so today.

Although we have few acquisitions recently, Charlie and I believe that Berkshire will still conduct large-scale procurements in due course. At the same time, we will still stick to the simplest guiding principle: the less cautious others are in handling affairs, the more we should be cautious.

Last year, the wise and independent decision we made was to acquire 38.6% of the partners' interests in Pilot Flying J. The company has annual sales of approximately $20 billion and has become the leading travel operator in the United States.

PFJ is run by the outstanding Haslam family. The Haslam family began to dream of and open a gas station 60 years ago. His son Jimmy now manages 27,000 employees across 750 regions of North America.Berkshire has a contract agreement with PFJ, which stipulates that PFJ's partnership interests will increase to 80% by 2023; members of the Haslam family will own the remaining 20%. Berkshire is happy to be their partner.

If you are driving on the interstate, choose the gasoline and diesel sold by PFJ, and at the same time, her food is delicious. If you are driving for a long distance, remember that we have 5200 rooms to choose from with shower.

Now let’s take a look at the reinforcement acquisition. Some of these are small deals that I won't elaborate on. However, there are also some larger acquisitions that were completed between the end of 2016 and early 2018.

Clayton Homes acquired two traditional home builders in 2017, a move more than doubled the share of existence in this field we entered three years ago. By acquiring Oakwood Homes in Colorado and Harris Doyle in Birmingham, I expect home completion to exceed $1 billion in 2018. Clayton's focus remains on building homes, both in terms of construction and financing.

In 2017, Clayton sold 19,168 homes through its retail business and wholesales 26,706 homes to independent retailers. All in all, Clayton accounted for 49% of the home construction market last year. Taking over the leading share of the industry – about three times the competitor – Clayton has achieved far more than 13% when he first joined Berkshire in 2003.

Clayton Homes and PFJ are both located in Knoxville, and the Clayton and Haslam families have always been family friends. Kevin Clayton's evaluation of Haslams's strengths in Berkshire's affiliates and his appreciation for the Haslams family led to the conclusion of the PFJ acquisition deal.

Before the end of 2016, our flooring business Shaw Industries acquired the U.S. Flooring Company, a fast-growing luxury vinyl brick distributor. USF managers Piet Dossche and Philippe Erramuzpe have increased the company's sales by 40% in 2017, during which time their business has been integrated with Shaw's. Obviously, we acquired huge human and commercial assets when buying USF.

Shaw CEO Vance Bell initially proposed and negotiated to complete the acquisition, which increased Shaw's sales to $5.7 billion in 2017 and increased its employment to 22,000. After the acquisition of USF, Shaw greatly strengthened its position as an important and lasting source of income for Berkshire.

I have introduced you to Home Services, our growing real estate brokerage business several times. Berkshire entered the field in 2000 by acquiring a majority stake in MidAmerican Energy. At that time, MidAmerican's main business scope was in the power field, and I rarely paid attention to Home Services at first.

However, the company adds brokers every year, and by the end of 2016 HomeServices already had the second largest brokerage business unit in the United States, and it still lags far behind leader Realology. However, in 2017, HomeServices exploded. We acquired Long and Foster, the third largest operator in the industry, as well as Houlihan Lawrence, the 12th largest, and Gloria Nilson.

Through these procurements, we added 12,300 agents, increasing the total to 40,950. HomeServices is now close to leading the country's home sales, and is participating in a $127 billion "bilateral" sale (including our trial calculations for the three acquisitions mentioned above). It is necessary to explain this term, there are two parties in each transaction. If we represent both the buyer and the seller, the dollar value of the transaction will be calculated twice.

Despite several recent acquisitions, HomeServices is still only likely to complete about 3% of the U.S. homeservices' home brokerage business in 2018. This made 97% slip away. Given reasonable prices, we will continue to add brokers, who are fundamental to the business.

Finally, through the acquisition of the established company Precision Castparts, it acquired Wilhelm Schulz GmbH, a German manufacturer of corrosion-resistant accessories, piping systems and components, allowing me to skip further explanation. I don’t know about manufacturing, the activities of real estate agents, nor about house construction or truck rest stops.

Luckily, in this case, I don't need to devote my knowledge: Mark Donegan, CEO of Precision Castparts, is an excellent manufacturing executive who knows the field and any business is running well. Betting on people can sometimes bring greater certainty than betting on physical assets.

Now let's discuss company operations, first of all, property-personal casualty insurance, which is the business I know and the engine that has driven Berkshire's development over the past 51 years.

Insurance

Before I discuss insurance performance in 2017, let me tell you how and why we are entering this field. We initially acquired National Indemnity and a smaller sister company for $8.6 million in early 1967. Through the acquisition, we have earned $6.7 million in tangible net assets, which we can invest in securities due to the natural characteristics of the insurance business. Redeploying this portfolio to securities is much easier than Berkshire owns them. In fact, we are "trading the net value part of the cost" in "dollars".

The $1.9 million premium above the net worth paid by Berkshire brings us an insurance business that will usually generate underwriting income. More importantly, the insurance business brought in $19.4 million in "float money", that is, money that belongs to others but is held by our two insurance companies.

Float money has been very important to Berkshire since then. When we invest these funds, all dividends, interest and income we invest in belong to Berkshire. (Of course, if we experience investment losses, it will be recorded in our books.) The floating properties of

Property and casualty insurance are reflected in several aspects: (1) The premium is usually paid to the company first, and the losses occur during the policy’s validity period, usually a six-month or one-year period; (2) Although some claims, such as car repairs, are paid soon, others, such as the harm caused by asbestos exposure, may take many years to emerge, and longer to assess and resolve; (3) Insurance claims are sometimes distributed over decades, such as a worker employed by one of our workers’ policy holders, who is permanently injured and then require expensive lifelong care.

Floating deposits usually increase with the increase in insurance premiums. In addition, certain P/C insurers focused on businesses such as medical malpractice or product liability—businesses called “long tails” in the jargon—received more floating deposits, such as car accident insurance and residential comprehensive insurance, which require insurers to pay repairs almost immediately to claimants.

Berkshire has been a leader in the long-tail business for many years. What is particularly special is that we are specializing in the large-scale reinsurance business, which allows us to bear the long-tail losses that have been generated by other P/C insurers. As a result of our focus on such businesses, Berkshire's floating gold growth has been outstanding. By the amount of insurance, we are now the second largest P/C insurance company in the United States; and by the amount of floating deposit, we are far ahead of the second place.

In 2017, a large transaction caused the above figure to rise sharply. This transaction puts us incurred a reinsurance of $20 billion in losses arising from AIG. Our insurance premium is $10.2 billion, a world record, and it is almost impossible for us to replicate this transaction. Therefore, the total insurance premiums in 2018 may decline.

Floating gold growth may slow in at least the next few years. When we finally experience a decline, the decline will be moderate, at most about 3% in any year. Unlike bank deposit insurance or life insurance that includes surrender rights, P/C floating deposits are irrevocable. This means that P/C insurance companies will not experience large-scale "flights" during financial tensions. This is the most important feature of Berkshire, and we include it in consideration of investment decisions.

Charlie and I will never rely on the kindness of strangers to operate Berkshire, and even the kindness of friends is not good, because they will also face their own liquidity problems. During the 2008-2009 crisis, we liked to hold short-term treasury bonds, a large number of short-term treasury bonds, so that we did not have to rely on financing sources such as banks or commercial paper.We have purposely built Berkshire to be able to calmly deal with economic instability, including this extreme situation of long-term market closures.

The negative side of floating gold is risky, sometimes with huge risks. Things that look predictable in insurance will appear in case. Take the famous Lloyds insurance market as an example. The company has created brilliant achievements in 300 years. But in the 1980s, several Lloyds' long-tail insurance businesses experienced huge hidden problems, which once left the legendary company almost at a loss. (I should add that it has indeed fully recovered.)

Berkshire's insurance managers are conservative and meticulous underwriters who operate in a culture of long-term quality-oriented focus. Disciplined behavior creates insurance profits in most years, in which case our floating deposit costs are even lower than zero. In fact, we gained profits from holding the huge amount of funds in the above forms.

However, I want to warn you that we have been lucky in recent years, but the insurance industry has experienced fewer disasters and is not the new normal. It was defeated back to its original form in September last year, when three huge storms hit , Texas, , Florida and Puerto Rico.

I guess the insurance loss caused by the hurricane is about $100 billion. However, this number may not be enough. The initial loss estimate for each huge disaster is always low. Just like the famous analyst V. J. Dowling pointed out that insurance companies' loss reserves are similar to self-evaluation. Ignore, wishful thinking or occasional outright fraud can produce inaccurate data on the financial status of an insurer for a long time.

We currently estimate that the three hurricanes will suffer about $3 billion to Berkshire (or about $2 billion after tax). If this estimate is close to my estimate of $100 billion in the industry's losses, then our share of industry losses is about 3%. I believe this proportion is also our reasonable expectation of our loss share in major disasters in the future.

It is worth noting that the $2 billion net loss caused by three hurricanes only reduced Berkshire's GAAP net worth by less than 1%. In other areas of the reinsurance industry, many companies have net asset losses ranging from 7% to over 15%. The losses these companies might have suffered could have been greater: If Hurricane Irma traveled a little further eastward, the insurance losses would likely be an additional $100 billion.

We believe that the probability of a huge disaster that can cause $400 billion or more insurance compensation each year is about 2%. Of course, no one can know the correct probability accurately. However, we should understand that over time, risks increase with the number and value of homes in disaster-vulnerable areas.

No company can be financially prepared for a major disaster of $400 billion in losses like Berkshire. Our share of this loss could reach around $12 billion, much lower than the annual revenue we expect from non-insurance businesses. At the same time, most property and casualty insurance companies may go bankrupt. Our unparalleled financial strength explains why other insurers choose to go to Berkshire – and only Berkshire – to buy large reinsurance in order to deal with the large compensation they may have to pay for in the long future.

Before 2017, Berkshire recorded 14 consecutive years of underwriting profits, totaling $28.3 billion before tax. I often say that I hope Berkshire will earn underwriting profits in most years, but will also suffer losses from time to time. My warning became a fact in 2017, with insurance underwriting losing $3.2 billion before tax in 2017.

The 10-K section after this report contains a lot of additional information about our various insurance businesses. The only thing I add here is that there are some extraordinary managers working for you in our various property insurance/care insurance businesses. This is an industry without trade secrets, patents or geographical advantages.

What is important is talent and capital. Managers of our various insurance companies provide ingenuity, while Berkshire provides funding.

As a group (excluding investment income), our pre-tax profit from operations outside of our insurance business was US$20 billion in 2017, an increase of US$950 million from 2016. About 44% of the profits in 2017 came from the two subsidiaries. BNSF (Burlington North Santa Fe Company) and Berkshire Hathaway Energy Company (we own 90.2% of the latter). You can check out more information about these businesses on pages K-5 to K-10 and K-40 to K-44.

At the forefront of Berkshire's long list of subsidiaries based on profits, are the five largest companies outside our insurance sector (but they are in alphabetical order): Clayton Homes, International Metalworking, Lubrizol, Marmon and Precision Castparts, which achieved a total pre-tax profit of $5.5 billion in 2017, with little change from the $5.4 billion in total pre-tax profits earned by these companies in 2016.

The next five companies are Forest River, Johns Manville, MiTek, Shaw and TTI, which are arranged in a similar manner to the top five, with total profits last year at $2.1 billion, up from $1.7 billion in 2016.

The rest of Berkshire owns other businesses - and there are many - but the pre-tax profits are not much change, with $3.7 billion in 2017 and $3.5 billion in 2016.

Depreciation expenses for all these non-insurance businesses totaled $7.6 billion and capital expenditures were $11.5 billion. Berkshire has been looking for ways to expand its business and regularly incur capital expenditures that far exceed depreciation expenses. Nearly 90% of our investments are made in the United States. The economic soil of the United States remains fertile.

amortization fee is an additional $1.3 billion. I believe this project is not a real economic cost to a large extent. Partially offsetting the good news is that the depreciation fees identified by BNSF (Burlington North Santa Fe Company) are significantly below the levels required to maintain the best-in-class specifications of the railway.

Berkshire's goal is to significantly increase profits in non-insurance businesses. To achieve this, we will need to make one or more massive acquisitions. We certainly have the resources to do so. Berkshire held $116 billion in cash and U.S. short-term Treasury bonds as of the end of last year (the average maturity date is 88 days), up from $86.4 billion as of the end of 2016. This extraordinary liquidity has only a meager gain, far beyond what Charlie and I hope Berkshire has. If we can deploy too much of Berkshire’s money into more growing assets, we will laugh more happily.

Investing in

Below we list the 15 most common stock investments with the highest market value as of the end of last year. We exclude Kraft Heinz's holdings, because Berkshire is only part of the holding group, so this investment must be considered in the "equity method". On Kraft Heinz's balance sheet, Berkshire's GAAP value of Kraft Heinz shares is $17.6 billion. The stocks have an annual market value of $25.3 billion and a cost basis of $9.8 billion.

** This is our actual purchase price and our tax calculation basis. The GAAP "cost" will vary in a few cases because of the write-down required under the GAAP rules. Some of the stocks in the

form are either handled by Todd Combs or Ted Weschler, who are working with me to manage Berkshire's investments. Both are independent of me, and each manages more than $12 billion in funds. I usually know the decisions they make when I look at the monthly portfolio summary. Among the $25 billion in funding managed by the duo, it includes more than $8 billion in pension trust assets in certain Berkshire affiliates. As mentioned above, pension investments are not included in the previous financial statements of Berkshire Holdings.

Charlie and I think the tradable common stock held by Berkshire is a commercial interest, rather than a stock code that buys and sells based on its "chart" mentality, the analyst's "target" price, or the opinions of media experts. On the contrary, we simply believe that if the investment target’s business is successful (we believe that most investment targets will be successful), our investment will be successful too. Sometimes our investment returns are meager, occasionally our investments will be huge, and sometimes I make some expensive mistakes. Overall, in the long run, we will get decent results. In the United States, stock market investors are all happy.

From our stock portfolio—the stocks we hold can be described as "minority equity" in diversified listed corporate groups—Berkshire received a dividend of US$3.7 billion in 2017. This figure is counted in our GAAP data and is recorded in our quarterly and annual reports on the "Operational Profitability" items.

However, the dividend figure is far underestimated by the "real" profits derived from the stocks we hold. For decades, we have stated in our Owner-Related Business Principles (Page 19) Article 6 (Page 19): We hope that the undistributed profits of our investment objects can at least provide us with equivalents through subsequent capital gains.

Our recognition of capital gains (or losses) will be rough, especially when we comply with the new GAAP rules that require us to continually count unrealized gains or losses in profits. But I am sure that if our investment targets - if we regard all investment targets as a group, their retained profits will be converted into Berkshire's equal capital gains over time.

The relationship between value growth and retained profits I just described is impossible to detect in the short term. The stock surge is exciting and seems to be out of the potential value growth year after year. But in the long run, the popular motto of Ben Graham (Ben Graham) is indeed the truth: "In the short term, the market is a voting machine, but in the long term it becomes a weighing machine."

Berkshire itself is a good example of the short term random price fluctuations that may conceal long-term value growth. Over the past 53 years, Berkshire has done miracles by reinvesting profits and compounding them. Year after year, we forge ahead. However, Berkshire stock has still experienced four sharp drops.

This provides the most powerful argument for me to oppose borrowing money to trade stocks. Because it is completely impossible to predict how much stocks will fall in the short term. Even if you borrow very little and your position is not directly threatened by a market decline, your mind may be panicked by the terrifying media headlines and suffocating comments. Once you have no peace of mind, it will be difficult for you to make good decisions.

Over the next 53 years, our stocks (and other company stocks) will also experience similar plunges in the table. But no one can tell you when this will happen. Just like traffic lights sometimes change from green to red without a yellow light transition.

However, if there is a significant decline, they will provide extraordinary opportunities for those without a debt burden. Now it's time to listen to Kipling's If song:

"If everyone loses their minds, you can still keep your mind clear;

If you can wait, don't get bored by it,

If you are a person who loves to think—just think will not achieve your goal;

If everyone doubts you, you can still believe in yourself and let all doubts shake;

You can have a world, everything in this world is yours."

"bet" has ended, and we were given a very valuable investment course

Last year, the ten-year bet was reached 90%. On pages 24-26 of last year's annual report I have given a detailed introduction to gambling that began on December 19, 2007. Now, gambling is over. I got my final conclusion, and in some ways, it opened my eyes.

I bet for two reasons: (1) delivering a larger return on my $318,250 spending - if things go as I expected - will be distributed to Omaha's Girls in early 2018; (2) promoting my belief that my choice - the near-no-fee S&P 500 index fund for investment - will achieve better returns over time than most investment professionals. The issue of

is very important. American investors pay an astonishing amount of money to investment managers every year, which often incurs a lot of follow-up fees. In general, can these investors make their funds worth it? Can investors really get any returns from spending?

As my investment bet opponent, Protégé Partners selected five "funds in funds" and expected it to surpass the S&P 500. This is not an exception. The funds of these five funds cover more than 200 hedge funds.

Essentially, as a consulting firm that is very familiar with Wall Street, Protégé chose five investment experts, who in turn hired hundreds of investment experts, each managing his or her own hedge fund. This group is an elite team full of talent, passion and confidence.

The managers of the five funds also have another advantage: they can - and do - restructure their hedge fund portfolios within a decade, invest in new "star funds", while exiting those underperforming hedge funds.

Protégé every manager gets a lot of incentives: both the fund manager and the hedge fund manager can get a lot of benefits, even if these are the benefits obtained by the overall upward market. (The S&P 500 has risen more than it has fallen years in the 43 years since we took over Berkshire.)

should be emphasized that these performance incentives are a huge and delicious cake: even if these funds have caused investors’ capital losses in the past decade, their managers will still become very rich. Because these funds charge investors a fixed handling fee of about 2.5% every year, part of which is given to the five managers of the funds in the fund, and the rest is given to the more than 200 managers of the hedge fund.

The following is the final result of this gambling:

Note: According to my agreement with Protégé Partners, the names of funds in these funds cannot be disclosed to the public. I received an annual audit of these funds from Protégé. The 2016 data of funds A, B and C were slightly revised. Fund D was liquidated in 2017, and its annual growth rate was calculated based on the nine-year operating time.

The funds of these five funds started well, outperforming index funds in 2008, and then the house collapsed. In the next nine years, these five funds, as a whole, lag behind index funds every year.

I want to emphasize that during this decade, there was nothing unusual in market behavior.

If you survey the investment "experts" at the end of 2007 and ask them what the long-term return on common stocks is, their answer is likely to be close to 8.5%, which is the actual performance of the S&P 500. In the environment at that time, it should be easy to make money. In fact, Wall Street experts make huge profits. Although this group made money, the people who invested in them had gone through a "lost decade".

performance is good and bad, but the handling fee will never change.

This bet has taught us another important lesson. While the market is usually rational, it can occasionally become crazy. Seizing market opportunities does not require great wisdom, no degree in economics or familiarity with Wall Street terms such as alpha and beta. What investors really need is to ignore the fear and greed of the masses, but focus on several simple fundamentals. It is necessary to be willing to be considered by others for a long time without imagination and even stupidity.

Initially, Protégé and I both bought zero-interest treasury bonds worth $500,000, because they broke up 6.4, which means that each of us only spent $318,250. Over the past ten years, these treasury bonds will be cashed at $500,000.

These treasury bonds have no interest, but they were sold at a discount at the time. If held matures, the annual return rate is equivalent to 4.56%. Protégé and I didn't think much about it at the time, just wanted to hand over the $1 million to the winning charity after it expired at the end of 2017.

However, after we purchased, something very strange happened to the bond market. By November 2012, our bonds - which still take about five years to mature - were sold at 95.7% of the face value. At this price, their annual rate of return on maturity is less than 1%. Or, to be precise, 0.88%.

Considering the pitiful returns, especially when compared to U.S. stocks, our bonds have become a kind of stupid - a truly stupid investment. Over time, the S&P 500, which reflects the direction of U.S. businesses, is properly weighted by market value, and its annual yield per share (net value) is far more than 10%.

In November 2012, we considered that the cash return on the S&P 500 dividend was 2.5% per year, about three times the yield on the Treasury bond. And these dividends will almost certainly grow. In addition, many S&P 500 companies have retained huge amounts of funds. These businesses can use their retained cash to expand their business or buy back their shares. EPS will be significantly improved over time. And - from the situation after 1776 - no matter what the current problem is, the US economy will move forward.

Later in 2012 Due to a mismatch of valuation between bonds and stocks, Protégé and I agreed to sell the bonds we purchased five years ago and use the proceeds to purchase 11,200 Berkshire "B" shares. The result is that Omaha’s Girls received $2.222279 last month, rather than the $1 million it initially hoped to receive.

It is worth emphasizing that Berkshire has not performed very well since 2012. But that doesn't need to be very good: after all, Berkshire's profit only needs to beat a bond with a yield of only 0.88%, which is almost not a huge achievement.

The only risk of selling Treasury bonds and buying Berkshire stocks is that the stock market may experience a sharp drop before the end of 2017. But Protégé and I think this possibility (always exist) is very low. Two factors determine this conclusion: Berkshire's price at the end of 2012 is relatively reasonable and Berkshire will almost certainly have large-scale asset accumulation within five years, and these investments have been determined before betting. Even so, to eliminate all the risks brought by the conversion, if 11,200 shares of Berkshire stock were sold at the end of 2017 did not generate at least $1 million, I agree to make up for any losses.

Investing is an activity that gives up spending today and tries to consume more in the future. "Risk" is that this goal may not be achieved.

According to this standard, the "risk-free" long-term bonds in 2012 are an investment with a long-term investment risk much higher than that of common stocks. At that time, even if the annual inflation rate was 1% between 2012 and 2017 was reduced, Protégé and the government bonds I sold.

I think I will admit soon that stocks will have greater risks than short-term U.S. bonds in the next day, week or even year. However, as investors' investment maturity extends, assuming stocks are purchased at a more reasonable price-to-earnings ratio relative to market interest rates, the level of risk for diversified portfolios of U.S. stocks will gradually fall below bonds.

For long-term investors, including pension funds, university endowment funds and savings funds, it is a terrible misunderstanding that comparing the bond-to-stock ratio in the portfolio to measure the "risk level" of their investment. Typically, high-grade bonds in a portfolio increase risk.

The last lesson of our gambling is: stick to making major and “easy” decisions and avoid overtrading. Over 200 hedge fund managers have almost certainly made tens of thousands of buying and selling decisions over the past decade. Most of these managers undoubtedly seriously consider their decisions and they believe they are all favorable. During the investment process, they studied Form 10-K, interviewed management, read trade journals, and spoke with Wall Street analysts.

Meanwhile, Protégé and I are neither inclined to research nor rely on insight and talent, and we have made only one investment decision in the past decade. We simply decided to sell our bond investments at a price of over 100 times the yield (selling at 95.7/return at 0.88%), i.e. those bonds that “yields” are unlikely to increase in the next five years. We sell bonds to transfer our funds to a single securities – Berkshire stock, which has a solid portfolio of diversified businesses. Berkshire's annual value growth is unlikely to be less than 8%, driven by retained earnings, even in a mediocre economic environment.

We sell bonds to transfer our funds to a single securities - Berkshire stock, which has a solid portfolio of diversified businesses. Berkshire's annual value growth is unlikely to be less than 8%, driven by retained earnings, even in a mediocre economic environment.

After completing this kindergarten-style analysis, Protégé and I made the above conversion and relaxed. We believe that over time, 8% will definitely beat 0.88%, with an extremely obvious advantage.

Chairman of the Board Warren-Buffett

February 24, 2018