This letter focuses on the success of Buffett’s decade-long bet that an S&P 500 index fund would outperform a basket of hedge funds. He critiques the high fees of active management and emphasizes the power of low-cost indexing. Buffett also discusses the massive share repurchases at Apple and their impact on increasing Berkshire’s ownership stake without spending additional capital.

Buffett introduces his new investment managers, Todd Combs and Ted Weschler, praising their performance and cultural fit. He expresses disappointment in failing to make a major acquisition despite a large cash pile. The letter emphasizes the importance of the 'Big Four' investments and the continued growth of Berkshire’s insurance float as a source of low-cost capital for the conglomerate.

This letter introduces a formal share buyback policy, set at 110% of book value, as a tool for capital allocation. Buffett explains the distinction between price and intrinsic value while detailing the acquisition of Lubrizol. He also defends his large investment in IBM, focusing on the company's ability to generate cash and repurchase its own shares to benefit long-term holders.