Berkshire’s Peculiar Accounting

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One seeks a fortress, a bastion against the whims of fortune, and often finds instead a most curious counting house. Berkshire Hathaway, you see, is not merely a company; it is a labyrinth of ledgers, a testament to the peculiar habits of capital. To observe its returns – a figure exceeding a quarter of a million percent over forty years, a sum so vast it threatens to swallow the very notion of percentage – is to glimpse a phenomenon bordering on the… improbable. One might suspect a clerical error, a rogue abacus, or perhaps the subtle intervention of some forgotten deity of compound interest. But no, the numbers, however unsettling, persist. Even now, with the venerable Mr. Buffett having relinquished the reins, a strange confidence clings to the shares, a phantom echo of his former authority.

Yesterday, we commenced a modest exploration of this behemoth, tracing its origins and the early acquisitions that laid the foundation for its prosperity. Today, we turn our attention to the financial statements themselves, a realm where clarity is often obscured by a fog of accounting practices. Beware, dear reader, for within these reports lurk pitfalls for the unwary, illusions that can lead one to draw entirely incorrect conclusions about the underlying strength of the enterprise.

The Conundrum of Berkshire’s Figures

A cursory glance at Berkshire’s financials reveals a revenue stream that, while respectable, is not entirely remarkable. It ascends, yes, but with a measured, almost reluctant pace. It is the net income, however, that truly captivates – and confounds. One year, a sum approaching one hundred billion dollars appears as if by magic; the next, a loss of twenty-three billion, as if a mischievous imp had reversed the digits. Such volatility is rarely observed, even among companies of comparable magnitude. It is as if the very principles of arithmetic are suspended within the walls of Berkshire’s headquarters.

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The key to unraveling this enigma lies in understanding how Berkshire deploys its capital. Sometimes, it acquires a business outright, absorbing it into the conglomerate like a diligent collector adding a rare specimen to his cabinet. Berkshire Hathaway Energy and the BNSF railroad are prime examples. In such cases, the revenue and net income of the acquired entity are seamlessly integrated into the overall financial results, appearing as one might expect. But there is another, more peculiar practice at play.

Berkshire also maintains a substantial portfolio of minority interests in publicly traded companies. Apple, American Express, Bank of America, Coca-Cola, and Chevron – these are the names that grace the ledgers, representing a staggering one hundred and eighty-five billion dollars in value. But here is where the accounting becomes truly Byzantine. Unlike the wholly owned subsidiaries, Berkshire does not include its proportional share of the financial results of these minority holdings. Instead, it reports a separate gain or loss each quarter, based solely on the fluctuations in the fair market value of its investment portfolio. Thus, a surge in Apple’s revenue and profits remains conspicuously absent from Berkshire’s numbers. And conversely, a decline in Apple’s stock price, even amidst robust performance, necessitates a corresponding loss. It was, in fact, the bear market of 2022 that cast a pall over Berkshire’s financials, resulting in an overall loss for the year – a testament to the capricious nature of the market and the peculiar accounting practices that govern it.

The Two Pillars of Berkshire’s Success

Therefore, when one examines Berkshire’s financial statements, it becomes clear that the positive impact on the company’s stock price stems from two primary sources. The wholly owned subsidiaries generally perform well, humming along with a quiet, industrious efficiency. And Mr. Buffett, along with his successors, possesses a knack for selecting investments that, while subject to the vagaries of the market, have generally yielded favorable results. It is a combination of prudent management and a touch of… well, let us call it informed speculation.

The question that now hangs in the air, however, is whether Berkshire Hathaway will maintain its momentum now that Mr. Buffett has stepped down. In the final installment of this series, we shall delve into the future of this extraordinary enterprise, exploring the challenges and opportunities that lie ahead. For even the most formidable of fortresses is not immune to the ravages of time – or the whims of a capricious market.

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2026-02-06 20:13