ANNUAL

REPORT
2021

TABLE OF
CONTENTS
02 A N N UA L P E RC E N TAG E A P P R E C I AT I O N

03 MANAGEMENT’S LETTER TO PARTNERS

09 PERFORMANCE RELATIVE TO THE S&P

500 INDEX

14 ASSETS UNDER MANAGEMENT

24 INVESTING PRINCIPLES

F I N A N C I A L S TAT E M E N T S
53 AQ UA M A R I NE M A S TE R F UND, L . P.
75 AQ UA M A R I NE F UND, I NC .
95 AQ UA M A R I NE VA L UE F UND, L . P.

109 T E A M AQ UA MA R I NE

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 ANNUAL REPORT 2021 Aquamarine

Annual Percentage Appreciation

Year Aquamarine Fund S&P 500 with Relative Results
Class A Shares¹ Dividends Included¹
(1) (2) (1) - (2)

2021 23.8% 28.7% -4.9%

2020 11.3% 18.4% -7.0%
2019 24.6% 31.5% -6.9%
2018 -13.3% -4.4% -8.9%
2017 34.9% 21.8% 13.1%
2016 8.5% 11.9% -3.4%
2015 -16.0% 1.4% -17.4%
2014 5.5% 13.7% -8.2%
2013 34.9% 32.4% 2.5%
2012 27.9% 16.0% 11.9%
2011 -3.1% 2.1% -5.2%
2010 19.2% 14.8% 4.4%
2009 39.3% 25.9% 13.4%
2008 -46.7% -36.6% -10.1%
2007 17.0% 5.5% 11.5%
2006 37.1% 15.6% 21.5%
2005 7.2% 4.8% 2.4%
2004 11.2% 10.7% 0.5%
2003 29.6% 28.4% 1.2%
2002 -1.7% -22.0% 20.3%
2001 1.9% -11.9% 13.8%
2000 21.4% -9.0% 30.4%
1999 -6.7% 20.9% -27.6%
1998 26.1% 28.3% -2.2%
1997¹ 2.5% 3.6% -1.1%

Notes:
¹ 1997 is based on September 15-December 31 performance.
We have selected the S&P 500 Index because it is a widely-known benchmark of performance. The vast
majority of professional investors underperform the S&P 500 over the long run. We could just as easily
have used the Dow Jones Industrial Average or the MSCI World Index. The Aquamarine Fund’s returns
are calculated net of all fees. The S&P 500’s returns include dividends, ensuring that this is an apples-to-
apples comparison.

2
MANAGEMENT’S LETTER
TO PARTNERS

Dear Partner,
I hope that you and your family
are well, that the pandemic has
not disrupted your life any more
than it needed to, and that you’re
managing to regain some degree
of normality in these extraordinary
and tumultuous times.
In 2021, the Aquamarine Fund
returned 23.8%. This compares
with 28.7% for the S&P 500. Since
the fund’s inception in September
1997, our capital has compounded
at a rate of 10.1% annually, versus
8.9% for the S&P 500, 8.9% for
the Dow Jones Industrial Average,
and 3.8% for the FTSE 100. The
Aquamarine Fund’s total return ¹ These figures
are net of all
from inception is 938.9%, versus management
expenses, incentive
690.1% for the S&P 500 1 fees, and brokerage
expenses, so these
are actual returns.
The figures for the
S&P 500 include
dividends, making
this an apples-to-
apples comparison.

3
 ANNUAL REPORT 2021 Aquamarine

The Game We’re Playing immensely profitable business. Beyond that,

we’ve not had any exposure to the raciest realms
On an absolute basis, our return in 2021 was more of the market, not because these aren’t excellent
than decent. I’ll happily take any year in which our businesses, but because their heady valuations
capital grows by almost a quarter. That said, this created too much risk of loss.
return wasn’t enough to match the S&P 500, let
alone beat it. This is the third year in a row in which Over the last year or two, I saw more and more
we’ve trailed the index. investors (including many professionals) throwing
caution to the wind as they jumped on the high-
I’m never particularly thrilled to report these periods growth bandwagon. They piled into hot stocks
of relative underperformance, but I regard them as like Tesla, Zoom, Peloton, Spotify, Netflix, Roku,
an inevitable part of our long-distance investment Cloudflare, and others at multiples that made no
journey. Since the fund’s inception in 1997, we’ve rational sense to me.
lagged the S&P 500 in 11 out of 25 years. Yet we’ve
beaten the index by 248.8 percentage points during In some cases, these investors would argue that it
the life of the fund—a healthy margin of long-term was perfectly reasonable to pay 20 times revenues—
outperformance. or even 100 times revenues—for the privilege of
owning a money-losing business that might one day
As I explain in Aquamarine’s Investing Principles dominate its market and make a killing. At times,
(which you can find on page 24), “My goal you got the distinct impression that they thought
is to compound wealth at a high rate, while you were too dumb or old-fashioned or closed-
minimizing the risk of permanent losses of minded to understand why it was so smart to pay
capital. In order to keep my sights on the horizon, these vertigo-inducing prices.
I frame the investing challenge as follows: I seek
to double the Aquamarine Fund’s price per share For the most part, I do believe that many of these
as many times as possible over the course of my rapidly-growing companies have genuinely fantastic
investing lifetime.” To achieve this goal, I aim to futures. But I’ve struggled mightily with the sort of
“compound my investors’ wealth at the highest investment analysis that allowed investors to claim
possible rate but in a manner that minimizes the that they were getting a bargain when they bought
probability of a loss.” into them.

Part of the challenge in a year like 2021 is that As long as the market kept soaring and the tech
the S&P 500 became increasingly skewed and darlings maintained their upward momentum,
unrepresentative. Its returns came primarily from this type of risky investment behavior was richly
an ever-narrowing group of stocks—mainly the rewarded. It was also supported and fomented by
FAANGs and a few other market darlings, including Silicon Valley, which is full of brilliant people who
cloud computing companies, software-as-a- are equally brilliant promoters. And, of course,
service companies, and some other new economy many of these companies are run by talented and
businesses. In fact, 34.5% of the S&P 500’s return charismatic CEOs who are masters at selling blue-
came from just five stocks: Microsoft (+52.5%), sky dreams.
Apple (34.7%), Nvidia (125.5%), Alphabet (65.3%),
and Tesla (49.8%). Robert Shiller talks about “narrative economics,”
and the narratives spun by these companies
As long-time shareholders in Berkshire Hathaway, and their boosters in Silicon Valley often sound
we have some exposure to Apple, which is an incredibly compelling. But when I looked under the

4
 MANAGEMENT’S LETTER TO PARTNERS

OVER THE LAST YEAR

OR TWO, I SAW MORE
AND MORE INVESTORS
THROWING CAUTION about anything so quaint as profitable growth at
the enterprise level or the virtues of a healthy income
TO THE WIND AS THEY and cashflow statement?
JUMPED ON THE HIGH- To justify their enthusiasm, these analysts like to
GROWTH BANDWAGON. focus on their own favorite measures of corporate
well-being. They talk about unit economics,
THEY PILED INTO HOT customer acquisition cost (CAC), and lifetime value
STOCKS LIKE TESLA, of the customer (LTV). These metrics allow them
to claim that a company is, indeed, profitable—on
ZOOM, PELOTON, a unit basis—and they then predict what a steady
state would look like.
SPOTIFY, NETFLIX, ROKU,
CLOUDFLARE, AND If the ratio of LTV to CAC is high and the total
addressable market (TAM) is large, this will justify
OTHERS AT MULTIPLES spending all of the company’s free cash on acquiring
new customers in what might well be a never-
THAT MADE NO ending cycle of profitless growth. Then, at some
RATIONAL SENSE TO ME. unspecified future date, the cash-guzzling caterpillar
of a company will transform, butterfly-like, into a
cash-cow monster behemoth. Just like Amazon did
under Jeff Bezos. And so, whatever we pay for the
company today will be worth it. No matter what
the valuation. Because the company will be worth
so much more down the road. The unit economics
show it. Or so this breathless reasoning goes.
hood and studied the most popular growth stocks,
I typically came away with an impression that the As you may have gathered, I’m not exactly convinced
narrative had become disconnected from economic by this way of thinking. Of course, it turned out to be
reality. It reminded me a little of WeWork, where emphatically correct and valid in the case of Amazon
the popular narrative was once that this was a new and, perhaps, in a few other cases. But this all seems
type of business, yet it turned out that it was really so ethereal and ungrounded to me. Estimating CAC,
just another real estate company rooted in the LTV, and TAM seems to be an exercise in forecasting
unexciting economics of shared office space. an unknown and unknowable future. You need to
make all these heroic assumptions that are hard to
Typically, I would glance at the financial statements pin down and connect to actual economic reality.
of all these hot growth companies and see much the It all reminds me of Charlie Munger’s reply to a
same pattern repeated: revenues would be growing question about alternative measures of profitability
rapidly, but the company would either be losing like EBITDA (earnings before interest, taxes,
substantial amounts of money or, at best, breaking depreciation, and amortization). His advice: every
even. For the cheerleading analysts touting these time you see that word, “just substitute the phrase
stocks, none of this was a problem. Their way of ‘bullshit earnings.’”
thinking has been simply to ignore the losses and
claim that the companies are spending in order It used to be that successful investment analysts
to grow to the maximum possible size. Why worry were expected to do serious scuttlebutt research.

5
 ANNUAL REPORT 2021 Aquamarine

This would involve visiting the company, doing the short run, the market is a voting machine, but in
channel checks, talking to people with valuable the long run, it’s a weighing machine. Valuation still
insights into that business. Today, it feels like matters. It always matters.
much of that arduous work has been replaced by
listening to podcasts. Pundits on these shows offer I’m not writing this to be defensive about
their firmly held views, often with little more than Aquamarine’s period of relative underperformance,
anecdotal evidence to support their claims. but to clarify what type of game we’re playing—
and, equally important, what type of game we’re
In recent months, many of the hot growth stocks not playing. We’re not in the game of fixating on
that had dominated the market for years have come fanciful narratives of infinite growth. We’re not in
crashing back to Earth, losing half of their value or the game of ignoring valuations. We’re in the game
more. It’s a timely reminder that economic reality of investing in profitable, durable businesses with
still matters, not just narratives about blue-sky the potential to compound for decades. We’re in
dreams. Venture capitalists are great at promoting the game of maintaining our discipline to invest in
the hell out of money-losing businesses. But if you these companies that are rooted very tangibly in
ignore the hype, why is it so bad for a company to economic reality. This isn’t dreamy or visionary, but
make an actual profit on its (purported) way to it works well over time.
global domination?
This mindset helps to explain why the bulk of our
As I see it, the key for us here at Aquamarine is to assets are invested in mature businesses that generate
remain firmly focused on economic reality—on current cash earnings and that trade at undemanding
what’s tangible, reasonable, and rational. Inevitably, valuations: companies like Berkshire Hathaway,
there are periods when financial metrics don’t seem Nestlé, American Express, Bank of America, and
to matter and when discipline is penalized—at least, Moody’s, to name a few. The good news is that
for a while. It’s not pleasant when your investment businesses like these tend to be unusually resilient,
approach is out of favor. Still, it all comes back to grinding out a solid result even in times of geopolitical
the timeless insight from Benjamin Graham that, in turmoil and heightened economic uncertainty.

WE’RE NOT IN THE GAME OF FIXATING

ON FANCIFUL NARRATIVES OF INFINITE
GROWTH. WE’RE NOT IN THE GAME OF
IGNORING VALUATIONS. WE’RE IN THE GAME
OF INVESTING IN PROFITABLE, DURABLE
BUSINESSES WITH THE POTENTIAL TO
COMPOUND FOR DECADES.
6
 MANAGEMENT’S LETTER TO PARTNERS

Our emphasis on resilience and durability was close attention to VC firms like Sequoia Capital,
out of fashion in 2021, but its benefits are much Andreessen Horowitz, NFX, Index Ventures, and a
more apparent in an increasingly volatile period of few others. I’ve initiated an internal research project
global conflict, economic sanctions, high inflation, to study their investments so that I can glean as
and expectations of rising interest rates. Financial many insights as possible.
firms, including those mentioned above, are likely to
fare relatively well in a period like this. By contrast, I’m not looking to ape their investment moves, even
companies like Zoom, Roku, Tesla, Peloton, if I were capable of doing so, and I’m as wary as ever
Cloudflare, and Netflix have swooned. of all the hype. But I need to continue challenging
and updating my thinking. Not long ago, I read
In the current environment, it makes sense that a tweet by Bill Brewster, a private investor who
rational investors are now focusing more keenly on hosts the Business Brew podcast. He wrote, “The
the value of near-term earnings—whereas earnings single biggest mistake I made in my life was using
that may (or may not) appear in the distant future high valuations as a reason to dismiss and/or not
take on diminished significance. deeply study something. Don’t be like me.” I agree,
and I will try to keep learning and expanding my
It’s tempting for me to declare victory and to feel knowledge, despite my habitual skepticism.
some sense of vindication. I’m relieved that virtues
like commonsense, discipline, and prudence are The truth is, there are many good ideas in the
now prized again, after all! But the situation is portfolios of aggressive growth investors like Cathie
not that simple. I’m certainly glad that I didn’t Wood. Good ideas can be taken too far, especially
make the mistake of buying into these businesses in a bubble. But if the prices come down further, I
at overstretched valuations. Still, in earlier years, would look to invest in some of these exceptional
their valuations were not nearly as unreasonable. businesses. One characteristic of 100-bagger
Had I been more astute, we might have been able companies is that they rarely look cheap. Still, I’m
to participate. not going to throw valuation out the window, and
I can’t foresee ever paying 100 times revenues for a
I also recognize that many of the businesses money-losing company. The math simply doesn’t
emerging from the tech world (including some of work. For me, at least, the challenge is not only to
those mentioned above) are extraordinary and identify superior businesses, but to pay a reasonable
deserve to be studied carefully. While it’s true price for them. There’s the rub.
that Silicon Valley, like Wall Street, is a powerful
promotion machine, it’s also filled with some of the Two Stocks We Own And
brightest minds on Earth. I can’t afford to remain One We Don’t
locked into a traditional, Norman Rockwell mode Looking back on 2021, I think it’s also worth pointing
of seeing the world. I’ve been too slow to update my out that much of our performance for the year was
frameworks to understand the impact of some of driven by two of our lesser-known investments,
these newer business models. one in China, one in India: BYD Co (1211.HK)
and Indian Energy Exchange (IEX). Why does this
One way to remedy this is by closely studying the matter? Well, for one thing, it shows you that the
methods of the best venture capital firms. They S&P 500 is not a particularly useful benchmark
are intensely competitive and meritocratic, have for the Aquamarine Fund. It’s perfectly reasonable
generated some of the highest returns in the history to compare the fund to a benchmark like this as
of capitalism, and have thought through so many it gives you a way to gauge our performance. But
things so well. These days, I’m paying particularly our relatively concentrated portfolio of high-quality

7
 ANNUAL REPORT 2021 Aquamarine

businesses from around the world is significantly or electric cars. I might never truly understand those
different from the index. businesses with the level of granular detail I would
want. But the price had dipped, and I knew that I
In order to illustrate the game that we’re playing, it needed to pay attention to this opportunity.
might be helpful to discuss these two investments in
more depth because they reflect a gradual evolution I had met many of the key players, starting with Li
in my style of investing. Then I’ll discuss a third Lu, Charlie Munger, and Warren Buffett, and I had
company that I decided not to buy—a decision that studied them all closely. But I barely knew Wang.
also reveals something about the way that I manage Nor did I feel equipped to evaluate him or Stella Li,
the Aquamarine Fund. the president of BYD in the U.S.

The first stock is BYD, a Chinese electric car and All I had to go on were BYD’s annual report, the
battery company, which we’ve owned since 2011. views of some people I highly respected, and some
What first piqued my curiosity was the fact it had personal anecdotes and impressions. For example,
passed through the filters of three of the smartest I was very impressed with Wang’s demeanor at
investors in the business. Li Lu, a Chinese former Berkshire’s annual meeting, where I saw him sitting
dissident who subsequently became a protégé of in the middle of his entourage of BYD executives,
Charlie Munger, had invested heavily in BYD and listening with rapt attention. He was genuinely and
brought it to the attention of Charlie and Warren. In deeply curious to learn as much as he could from
2008, Berkshire bought about 10% of the company Warren and Charlie. And the one time I introduced
for $232 million—a stake that’s now worth billions. Stella Li to someone in my network, she was
Munger has described BYD’s founder, Wang extraordinarily responsive. My interactions with
Chuanfu, as “a combination of Thomas Edison both Li and Wang had been fleeting and limited.
and Jack Welch—something like Edison in solving But they both impressed me in the same way that
technical problems, and something like Welch in Jack Byrne (a former CEO of GEICO) and Don
getting done what he needs to do…. I have never Keough (a former director of Berkshire and Coca-
seen anything like it.” Cola) had impressed me when I met them.

Founded in 1995, BYD had started out as a In the early years of my career, my disillusioning
rechargeable battery maker. It then entered the experience of working at a failed investment bank,
automobile business and later diversified into cell DH Blair, had dented my confidence and made
phone assembly and solar cell manufacturing. me pretty wary of human nature. I tended to
Leveraging its strength as a battery maker, the assume that the businesspeople I met had to be
company transformed itself into a leading developer mediocre because the very best people would not
and manufacturer of electric and plug-in hybrid be in my circle—and if they behaved well, perhaps
vehicles. BYD’s outstanding results may have it was an aberration. As a result, I was typically
originated with Wang’s remarkable abilities, but willing only to trust the hard numbers in an annual
the firm now also has the advantage of being able report, instead of relying on my assessment of
to deploy more than 10,000 engineers at a fraction the management. But by the time BYD came
of the cost that an American or Western European along, my attitude had started to change, and I
competitor would have to pay. was more willing to venture out of this comfort
zone. Wang Chuanfu and Stella Li struck me as
At the time that I made the investment, BYD was not hugely accomplished executives who were likely to
at the center of my circle of competence—certainly continue delivering the type of performance they
not based on my technical knowledge of batteries had produced in the past.

8
 MANAGEMENT’S LETTER TO PARTNERS

Aquamarine Fund Performance Relative to the S&P 500 Index

Comparison of changes in $1,000,000 invested in Aquamarine Fund vs S&P 500

$12,000,000

$10,388,921

$10,000,000

Aquamarine Fund
S&P 500
$8,000,000 $7,267,096

$6,000,000

$4,000,000

$2,000,000

$0
1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021

Cumulative Returns for the 24 Year Period 1997-2021

1000

900
Aquamarine Fund
S&P 500
800

700

600

500

400

300

200

100

0
(trailing %) 1 yr 2 yr 3 yr 4 yr 5 yr 6 yr 7 yr 8 yr 9 yr 10 yr 11 yr 12 yr 13 yr 14 yr 15 yr 16 yr 17 yr 18 yr 19 yr 20 yr 21 yr 22 yr 23 yr Since
Inception

9
 ANNUAL REPORT 2021 Aquamarine

I’M A HUGE
BELIEVER IN FREE
MARKETS AND THE
INVISIBLE HAND. Instead of doing a forensic, spreadsheet-style
analysis of BYD’s current operating performance,
STILL, INVESTING I looked at the company as a growing organism.
IN CIGARETTE I asked myself whether, based on past results and
achievements, it was likely to succeed in entering
COMPANIES, adjacent markets and continue to deliver a great
return on its engineering, research, and development
CASINOS, AND spending. I was also comforted by two more
LOTTERY COMPANIES things: the company had a history of being highly
profitable, and it seemed central and strategic to
ISN’T THE PATH I China’s future—unlike a gaming company or even
Kweichow Moutai, the Chinese beverage brand we
WANT TO TAKE. IF used to own. The fact that the Chinese government
YOU ARE ALREADY recognized BYD’s strategic importance seemed to
reduce the political risk of this investment.
REASONABLY WELL-
Still, I wasn’t sure if I had ventured too far outside
OFF, WHY GET my circle of competence. So I sized the position
RICHER BY DANCING appropriately, committing around 5% of our
capital base at the time. This position was big
ON THE GRAVES OF enough so that it would have a significant impact
CIGARETTE SMOKERS on the portfolio if it worked out. But it was small
enough so that I didn’t have to think about it all
OR EXPLOITING the time. I felt comfortable ignoring the stock
price and only checking in on the operating
THE CREDULITY results from time to time.
OF VULNERABLE As I’d hoped, BYD continued to deliver strong
LOTTERY-TICKET operational results. But its stock went nowhere for
several years. Meanwhile, one of its competitors,
BUYERS? Tesla, was on a tear. Still, none of this bothered
me, given my appropriate position sizing, so I just
sat there quietly and waited. In time, the market
recognized BYD’s value and the stock has risen
963%, growing to be almost 15% of the Aquamarine
Fund’s assets.

What’s the moral? In part, it’s about the benefits

of partnering with world-class management
and operating in an environment filled with
exceptional people like Warren Buffett, Charlie
Munger, Li Lu, and Wang Chuanfu. In part, it’s
about having the patience to remain invested in a
superior business that’s well-positioned to benefit
its entire ecosystem. In part, it’s about looking

10
 MANAGEMENT’S LETTER TO PARTNERS

beyond the numbers in a company’s financial to other market participants. This liquid market
statements and seeing the business instead as an provides a reliable price-discovery mechanism, so
unfolding organism that’s delivering value to all of that participants in India’s energy market have the
its stakeholders. When you find a great business confidence required to make huge investments in
that’s developing like this, it’s a wonderful thing power infrastructure, which India needs in order to
to own a piece of it and to hold onto it for dear grow efficiently. IEX delivers immeasurable value for
life. Inspired by Mohnish Pabrai, I used to think India by providing this rational pricing.
that I shouldn’t sell a stock within two years of
buying it. Nowadays, I’d be inclined to extend This also happens to be an excellent business in
that to five years. which an established and dominant player like IEX
continues to win because it’s trusted to provide
The second company that I’d like to discuss is Indian reliable liquidity and execution. I also liked the
Energy Exchange. My interest in IEX was sparked fact that the company is highly regulated and
during a trip to India in 2018 when I attended that the vast majority of its counterparties are
a couple of investment conferences and visited state-regulated organizations, including power
dozens of Indian companies. Amongst all of them, suppliers, distributors, and large consumers.
IEX stood out as a company with some very rare This was important to me because, despite the
characteristics. Like BYD, it’s strategically important. enticing opportunities in Indian stocks, it can be
IEX is essential to India’s development, so it occupies a treacherous place, especially for naive foreign
what I regard as the economic high ground. investors. By some estimates, more than half of listed
Indian companies are frauds in one way or another.
IEX runs an electricity exchange that’s not Having the company embedded in this network of
dissimilar to a stock exchange—except that it’s regulated entities reduces the risks of fraud.
much more critical and central to a country’s
infrastructure than a stock exchange. Instead What also attracted me to IEX was that it has
of dealing in stocks, a power exchange deals in an extremely long runway. There’s an immense
power flows, which are traded in time slots. A amount of work to be done in the Indian power
country’s electricity grid has to remain in balance industry over the coming decades. Electricity
from second to second, minute to minute, hour production per capita will need to more than
to hour. Otherwise, the whole system can go triple for India to reach the levels of developed
down. Also, in an era when more and more of countries—and we can also expect a much higher
our energy comes from renewable sources like proportion of India’s electricity to be traded in
wind and solar, it’s increasingly critical to match the future than it is today.
supply and demand efficiently. In Europe, where
power trading is the most advanced, as much as One concern was that IEX wasn’t cheap. But
70% of the market is traded. In India, less than my thinking has gradually evolved on this front.
10% is traded. If I want to buy the best businesses, it’s often
necessary—within reason—to pay up. I believed that
Electric power is absolutely central to India’s IEX was worth a premium price, given all of the
economic development. A key element of this forces working in its favor. As with BYD, I initially
development is that participants in the energy invested about 5% of our assets in IEX—enough so
market—from power producers to consumers—must that it would have a significant impact if it worked
be able to trust the market-clearing price for power. out, but not so much that I needed to worry unduly
IEX plays a crucial role. It provides an exchange about the risks or be in a particular hurry for the
on which an excess of energy can be offloaded investment to pay off.

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 ANNUAL REPORT 2021 Aquamarine

After I bought IEX in March 2019, the stock did little I’m a huge believer in free markets and the invisible
for a couple of years, but the business continued to hand. Still, investing in cigarette companies,
advance. Then, in 2021, the stock quadrupled. As casinos, and lottery companies isn’t the path that I
with BYD, I expect that there’s still a long way to want to take. I don’t want to pass moral judgment
go, and I intend to hold onto both stocks for years on the companies themselves or their investors.
to come. In February 2022, I returned to India But I do believe that investing, which involves
with Mohnish to meet with Satyanarayan Goel, allocating our surplus resources, has a moral
the chairman and managing director of IEX. This dimension. If you are already reasonably well-off,
visit reaffirmed my sense that IEX stands at the very why get richer by dancing on the graves of cigarette
center of India’s developing power infrastructure—a smokers or exploiting the credulity of vulnerable
position of prime economic importance. The value lottery-ticket buyers?
it can bring to the country is immense, and I’m
excited to be a partner in its growth. There’s also a very practical reason for this stance.
It’s extremely difficult to do a detailed risk analysis
The third company I’d like to discuss is one that of any business—one that takes into account all
I evaluated at around the same time as IEX, but of the possible calamities that might befall it.
ultimately decided not to buy: Française des Jeux. None of us can predict the future. But I believe
As the national lottery company in France, it was that companies that benefit society tend to be
a protected monopoly with very high returns on more resilient than companies that harm it. The
invested capital and strong current income. It’s a well- latter, I suspect, are far more likely to be hit with
run and attractive business, and the valuation was nasty surprises. I discuss this idea in more depth in
very reasonable. But when I asked myself whether the Aquamarine’s Investing Principles, which I revised
company advances the public good, the answer was this year to include several new principles. As
obvious. Some see lotteries as a relatively harmless you’ll see, one of them is principle 21: “Look For
form of entertainment. But lotteries can also be Companies That Have A Noble Mission.”
seen as a regressive tax that disproportionately
takes money out of the pockets of the people who I’ve also learned to be wary of dominant companies
can least afford it. Overwhelmingly, it’s the poorer that have achieved this enviable position not
and less educated segments of society that fall for through business performance, but through the
the dream of winning the lottery, even though the help of a state—through the granting of licenses,
odds of that actually happening are vanishingly contracts, or (in the case of Française des Jeux) a
small. Personally, I don’t want to make money off state-granted monopoly.
businesses that don’t improve their customers’
lives—and, arguably, make their lives worse. With all of this in mind, I declined to invest. I later
learned that the European Commission recently
In the past, I’ve come to a similar conclusion about opened an investigation into Française des Jeux
tobacco companies and their suppliers, which are and the French government for operating an
lucrative businesses that are morally compromised. unjustified monopoly and for anti-competitive
Some investors argue quite reasonably and defensibly practices. This has placed a dark cloud over the
that it’s fine to invest in regulated companies that company and its share price. I certainly didn’t
make legal products. It’s a classic Milton Friedman foresee this, but I’m glad to have dodged the
argument that the only real responsibility for bullet. The truth is, I’m much happier partnering
businesspeople is to maximize their profits in a legal with companies like BYD and IEX, which are
manner. Politics, government, and the law should benefiting society in vital ways. Of course, these
take care of the rest. I’m not convinced. companies may also face serious challenges in the

12
 MANAGEMENT’S LETTER TO PARTNERS

years to come. Still, on the whole, it’s less risky in the United States. It seems that the era of low
to invest in businesses like these that are truly interest rates and low inflation has come to an end.
aligned with the best interests of society. So I want to take a moment to update you on my
thinking about this topic. If you’re not interested in
How We’re Positioned To Handle economics, feel free to skip ahead!
Inflation And Geopolitical Turmoil
When you follow the news these days, it’s natural This is not the first time in history in which a crisis (in
to feel unsettled and upset. As I write this in early this case, a pandemic) has been dealt with through
March 2022, Russia has invaded Ukraine, causing a vast surge in government debt. But where does the
unimaginable suffering and destruction; inflation world go from here?
has reached levels that we haven’t seen in 40 years;
energy prices have soared; and the COVID-19 Some expect an era of stagflation (in other words,
pandemic continues to have profound effects on the a combination of high inflation and stagnant
way we live and work. There are so many complexities growth) that would be reminiscent of the 1970s
involved that it’s impossible for any of us to foresee during the oil shocks. While we certainly shouldn’t
where this is heading, geopolitically or economically, rule that out, I don’t see it as inevitable—especially
or what the impact on financial markets will be. not in the rich, developed economies of North
Nonetheless, it’s fair to ask how I’m thinking about America and Western Europe, which are the
this broader context and how the fund is positioned Aquamarine Fund’s core markets.
to navigate these tumultuous times.
Without going into too much detail, there are a
First of all, let’s look at the challenge posed by myriad of paths out of the apparent debt overhang
inflation, which was recently estimated at 7.9% that is spurring such worries. With the help of the

To give you a clearer sense of how your money is invested, here’s a snapshot of our largest positions—at
cost and at their current market value—as of December 31, 2021:

Holding Market Value $ Percentage of Original Cost $ Gain/(Loss) $ Gain/(Loss) %

Partners’ Capital

Berkshire Hathaway 55,559,260 15.87% 13,381,800 42,177,460 315%

BYD Auto 53,001,308 15.14% 4,986,800 48,014,508 963%
Indian Energy Exchange 44,782,934 12.79% 10,557,400 34,225,534 324%
American Express 34,356,000 9.82% 10,906,129 23,449,871 215%
Bank of America 34,161,424 9.76% 5,181,863 28,979,561 559%
Mastercard 23,625,290 6.75% 1,019,194 22,606,096 2218%
Cash 8,613,478 2.46%

13
 ANNUAL REPORT 2021 Aquamarine

Assets Under Management

As of December 31, 2021
($ in millions) 358

$350

$300

278

251
$250
243

208
$200
189

178
172
164

$150

118

$100
92 91 91

80
77

60
56
$50 50
43

30 30
27
20 20
15

$0
1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021

14
 MANAGEMENT’S LETTER TO PARTNERS

economists Carmen Reinhart and Kenneth Rogoff, 6. Inflation: This is the silent, stealth tax that
we can categorize them—in decreasing order of insidiously affects everyone. Inflation and default
attractiveness—as follows: are the two most unattractive of all six paths.

1. Growth: We might simply grow our way out. If Which combination of the above will take us out
the economic growth rate exceeds the interest on of the current debt overhang? Unfortunately,
the debt, then it will subside as a proportion of inflation is the easiest to implement. It doesn’t
GDP. This would be the most benign path, and require legislators to pass budgets, raise taxes,
it’s happened before—for example, it’s part of cut expenditures, privatize assets, or engage in a
what happened in the U.S. in the 1950s in the discrete default of any kind. They don’t have to
aftermath of World War II. bother with irksome political discourse or the
painful process of reaching an agreement. They can
2. Privatization: The government could also sell simply print more money. Moreover, our politics
off assets, privatizing state-owned companies are so polarized that it’s hard to imagine reaching
and other state-owned resources to help pay the kind of consensus required to take difficult
down debt. actions that would reduce the debt overhang.
So this leaves inflation as the easiest option to
3. Austerity: The government could tighten its belt implement—even if (with the possible exception of
by reducing expenditure on non-essentials and by default) it’s the most destructive.
raising taxes.
To understand the broad impact of inflation, I
4. Financial repression: This is where the invite you to join me in a thought experiment.
government forces lower-than-market interest Imagine that society is divided into two classes of
rates on local savers. Think of the Japanese savings people: savers and borrowers. Savers tend to be
bank system, which has paid below-market older, richer, and retired. They own assets—perhaps
interest rates on savings accounts for decades, a business, an investment portfolio of bonds and
depriving the Japanese of a market return on their equities, or pension assets. The mortgages on their
hard-earned cash. Or think of rules in the U.S. real estate tend to have been paid off. Broadly
forbidding banks from paying interest on deposits speaking, the Aquamarine Fund’s investors fall
and requiring banks to hold non-interest-bearing into this general category.
reserves on those deposits. Reinhart and Rogoff
have shown that financial repression has been a By contrast, borrowers tend to be young and
pervasive and widespread mechanism for reducing working. They own few (or no) assets—and, if they
government debts. It’s not pleasant, but it’s easily do own assets, they are likely to have mortgages and
preferable to the last two options, which are both other liabilities against them.
profoundly unpleasant.
In order to place this artificial but meaningful
5. Default: This might be a full default or it might divide in a historical perspective, we can use other
be a one-off, forced reduction in interest rates. It terms to describe it. A Marxist would talk about
might also be a default on the government’s non- the workers versus the owners of the means of
financial obligations—for example, by reducing production. A historian of feudal times would
the effective payout on social security, which refer to the nobility versus the serfs. In the period
provides medical support and supplemental of nation states, we would talk about the rulers—
income to retirees, people with disabilities, and along with their bankers and courtiers—versus
survivors of deceased workers. their subjects.

15
 ANNUAL REPORT 2021 Aquamarine

Broadly speaking, this division between the haves today (rather than money you earned in the past),
and have-nots is relevant across all human societies, then consider yourself lucky. Rather than having
even if it’s blurred today. And while it was starker in a previous generation’s debts passed on to you,
older times, it can easily be discerned in our modern you will see them vaporized instead. The claims of
economies as well. In the U.S., think of the East and society are depreciated against the savers’ current
West coast elites versus the coal miners of Ohio, wealth and income, instead of being dumped on
or think of the well-established residents versus you to work off yourself.
the new immigrants. In the U.K., think of the rich
Southeast versus the red-wall North. As savers and investors, this situation doesn’t
bode particularly well for people like you and me.
If the inequalities between these two groups Inflation can be likened to a storm. The best we can
widens, as it has in recent years, pressure arises to do is find shelter in areas where the least damage
reset society and restore some balance—hence the possible is done to our savings. But we can’t get rid
popularity of books like Thomas Piketty’s Capital of the storm. If sustained and high inflation stays
and the increasing appeals to populism by our with us, it will affect us all.
political leaders.
Given this slightly gloomy prognosis, what should
But achieving a reset using one of the first five we, the investors in the Aquamarine Fund, do?
options we listed is difficult. In a polarized What should I, as the manager of the fund, do?
world, which is unlikely to achieve consensus and Where can we, as prudent long-term investors,
compromise, those five options become much invest in order to preserve and actually grow our
less likely than the sixth option: inflation, which wealth over time?
doesn’t require anybody’s explicit buy-in and
which inflicts harm on its victims in an indirect I’ve thought about this for much of my investing
way that’s more surreptitious. life, but never more intensively than in the last few
years, and I have an increasing sense of clarity about
What’s the effect of inflation? Well, it drastically what I believe we should do. It’s impossible to have
resets the relationship between borrowers and certainty about this, but I hope my perspective will
lenders by erasing—or severely eroding—what is be helpful to you.
owned by savers. By contrast, it wipes the slate
clean for the other side: borrowers. Inflation may One popular view holds that staying in equities is too
not seem so obviously disruptive, dramatic, and dangerous in this type of environment. In a world of
extreme as the social revolutions of times past, but rising interest rates, multiples can only contract, and
its effect is not dissimilar: social upheaval and a prices might come tumbling down. This conclusion
great reset in who owns what. would suggest that you should redeem from the
fund with alacrity and that, similarly, I should sell
If you are a saver, if you are old and rich, if you our investments and raise our cash levels.
have paid off your mortgage and have saved up
for a rainy day, then inflation means that you are But if we dig deeper, it becomes quite clear that
potentially in for a financial bath. It’s a disaster— these are not the best options. Indeed, they are
because, by stealth and without warning, the value quite probably the worst—by a wide margin.
of your hard-earned claims on society might just Here’s why:
melt away. By contrast, if you’re a borrower, if
you’re young, if you don’t own much, if most of When it comes to inflation and higher interest
your well-being comes from money that you earn rates, these two forces work against each other in

16
 MANAGEMENT’S LETTER TO PARTNERS

the stock market. While higher interest rates do,

indeed, tend to drive asset prices down, inflation
will have the opposite effect and drive asset prices
up. That’s why stock markets around the world
typically do so well in inflationary economies—at
least, nominally. Under inflation, asset prices tend
to rise at a high nominal rate—even if, because of
inflation, purchasing power is not improving by
much. So the stock market is actually not a bad
place to park money during an inflationary period.
Indeed, I believe that a well-selected portfolio of
equities is by far the safest and best place to protect
our savings in an inflationary environment—with the
possible exception of high-quality real estate.
GIVEN THE POTENTIAL What are the alternatives to owning stocks? Let’s
FOR GLOBAL start with cash. Over the long run, cash is a lousy
bet because it depreciates in value. That’s what
INSTABILITY, I FEEL inflation does. So holding cash—unless it’s to meet
MOST COMFORTABLE a near-term and necessary spending purpose—is
not a smart or viable alternative to stocks. What
INVESTING HEAVILY IN about other stores of value, such as precious
THE U.S. AND WESTERN metals like gold and silver? Like equities, their price
may fluctuate a lot—and, in the long run, they will
EUROPE, FOLLOWED BY almost certainly underperform good businesses.
What about cryptocurrencies, such as Bitcoin? Like
THE VAST EMERGING gold, cryptocurrencies won’t generate a current
ECONOMIES OF CHINA income. Personally, I consider them too volatile,
too unseasoned, and too uncertain to provide a
AND INDIA. ALTHOUGH dependable alternative to stocks. By contrast, real
estate may be a good option. As a real asset, it will
THEY ARE NOT AS get repriced up, along with inflation.
WELL-ENDOWED AS Thus, in my view, the wisest and safest places
THE U.S., CHINA AND to hide from inflation over the long run are real
estate and equities. All other assets seem likely to
INDIA HAVE GREAT underperform. But which equities? Under inflation,
STRATEGIC DEPTH AND not all companies will perform equally well.

SEEM LESS VULNERABLE To understand how different businesses will perform

amid inflation requires a careful examination of
TO DISRUPTION THAN their economic characteristics. I won’t bore you
MANY PARTS OF THE here with all the reasoning, but what we are looking
for is companies with pricing power, that are capital
WORLD. efficient, and that have a high return on their

17
 ANNUAL REPORT 2021 Aquamarine

THE BEST WAY TO PROTECT OURSELVES FROM

ECONOMIC AND GEOPOLITICAL TURMOIL IS TO
INVEST FOR THE LONG TERM IN GOOD, CASH-
GENERATIVE BUSINESSES THAT DELIVER REAL
VALUE TO THE SOCIETIES WHERE THEY OPERATE.

invested capital. Ideally, they should have made reminder that we want to own good businesses
much of their investment into the business in the that are built to last.
past and require limited investment going forward.
This is particularly true now that we find ourselves
Which businesses meet those criteria? Certainly in an intensely volatile geopolitical environment.
not those vaunted tech and new economy firms This is a time when it’s all the more important to
that are spending vast and increasing amounts own companies with the strength to survive through
of money in the hopes of eventually capturing a thick and thin. I also think that we’re seeing the
profitable share of their total addressable market. great benefits of investing primarily in countries that
By contrast, businesses that will do better than are geopolitically stable, while staying away from
most include banks (many of which borrow at those that are particularly vulnerable.
fixed interest rates and lend out at floating rates),
financial services firms, and all of the companies The war in Ukraine is the most obvious and
that are able to price as a percentage of nominal shocking example of how dramatically the
prices. That includes credit card networks, stock geopolitical landscape is changing. With liberal
exchanges, and credit rating agencies. Branded democracies in retreat and the U.S. losing its
and luxury goods companies should also do pretty luster as leader of the free world, non-democratic
well. capitalist autocracies like Russia and China have
seen an opportunity to exploit the weakness of the
In this regard, I’m happy to report that these are West, where we are increasingly divided and where
exactly the types of company that we’re invested both sides of the political spectrum are now in the
in. This is not to say that we will win big if high thrall of populists.
inflation becomes more than a transitory problem.
But I’m confident that our businesses will prove Yuval Harari has written that the liberal West was
much more resilient than most and will provide a built on a quaint 18th-century Enlightenment
more dependable store of wealth than almost any fiction that humans possess autonomy and free
other type of asset that we might choose to own. choice. While it was never entirely true (think of the
Church or mass advertising), it was a useful idea
For what it’s worth, it was striking that many of the that helped to convince people in the West to live
racier and more speculative tech stocks that had together harmoniously. But today it is patently not
soared in 2021 plummeted in the first two months true. Humans are now a hackable species. Through
of 2022. By comparison, sturdier companies like vast computing power, enhanced by artificial
Berkshire Hathaway have held up well in this intelligence, it’s now possible to manipulate people
tempestuous period. For me, it’s yet another on a mass scale—in quite precise ways—as Russia,

18
 MANAGEMENT’S LETTER TO PARTNERS

China, Cambridge Analytica, Donald Trump, Given the potential for global instability, I feel
and Dominic Cummings have all demonstrated. most comfortable investing heavily in the U.S. and
This is deeply troubling and doesn’t bode well for Western Europe, followed by the vast emerging
our freedom and prosperity. But I hardly need to economies of China and India. Although they are
theorize here about these uncertainties. I have no not as well-endowed as the U.S., China and India
answers. All I can say is that all of this gives me have great strategic depth and seem less vulnerable
pause for thought and makes me feel doubly and to disruption than many parts of the world.
triply responsible for the task of responsibly and
prudently protecting your life savings. When it comes to smaller countries, I’m far more
wary. Switzerland, the headquarters of Nestlé,
I’m doing this not only by investing in unusually is likely to be fine as a small country at the
strong and durable businesses, but by investing center of Western Europe. In the past, I’ve also
in parts of the world that are particularly resilient. invested in a variety of smaller, non-traditional
Geographically, the bulk of Aquamarine’s assets— markets—including Oman, Jordan, Zimbabwe,
around 56%—are invested in the United States. Brazil, and the Philippines. Today, I’m much
I’ve written in the past about how miraculously more reluctant to invest in such countries, which
benign the U.S. is for the sort of capitalism that we I view as potentially or actually perilous. One day,
practice. Sitting between two great oceans and two you think you own something. The next day, you
friendly neighbors, the country’s strategic location might not—for reasons that have nothing to do
is unparalleled. So are the country’s natural with the business, and everything to do with local
resources—the agricultural breadbasket of the or global politics.
Great Plains, the waterways, the vast mineral and
oil wealth, and the sheer size of the land. Not too long ago, I came across an excellent
Ukrainian company called Motor Sich—a kind
Equally important, the U.S. has a remarkable political of Eastern European Airbus or Boeing Corp that
system that has—so far—succeeded miraculously was a major aerospace supplier to the former
in bringing out the best in its people in ways that Eastern Bloc. In the end, I passed—even though
no other country in history has surpassed. It has it was a good business and the stock was cheap—
taken in immigrants in massive numbers and turned because I had no idea how the political and
them into some of the most industrious, inventive, economic situation in Ukraine would unfold.
and productive people on the planet. Out of this Today, the stock is no longer publicly traded. I’m
cauldron, we’ve seen the emergence of companies not entirely clear what happened, but I heard that
like Apple and Tesla, universities like Harvard and the company was taken back by the Ukrainian
Stanford, the technological innovations of Silicon state. And who knows what will happen to this
Valley, and so much more. once-healthy business now that war has broken
out with Russia? Ukraine, like Turkey, used to be
Of course, we all worry now that this might be described as a bridge between East and West. But
broken. But the American Civil War demonstrates as my friend Hossam Shobokshi recently opined,
the extraordinary capacity that the U.S. has to “In good times, bridges get stepped on. In bad
rejuvenate and reboot, despite terrible setbacks. times, they get blown up.”
And I’m confident that it will do so again. When I
look around the world, I have no doubt that the U.S. I find it telling that companies like South African
is still the most favorable investment destination of Breweries and Anglo American re-domiciled
all. Despite all of the country’s problems, it’s still the from Johannesburg to London when they got the
place where our capital seems to be most secure. chance. Likewise, HSBC, which was founded in

19
 ANNUAL REPORT 2021 Aquamarine

Hong Kong in 1865, moved its headquarters to the 30 best days over those 20 years? Your annual
London in 1993. Similarly, when Russian oligarchs return sank to 0.21%.
and Chinese tycoons wanted to move their money
somewhere safe, they invariably favored places The moral is really simple and really important.
like London and New York. Why should I think Do not try to time the market. Do not sell. Do not
any differently? I want to invest in stable places trade. Do not delude yourself into thinking that
that are governed by the rule of law, where our you’ll know when it’s time to get back in. Simply
property rights and other social arrangements are ride out the stressful times, endure the volatility, and
likely to be respected. benefit from the long-term upward trajectory of
high-quality businesses that compound over time.
Over and above these geopolitical considerations, I hope this is clear.
the best way to protect ourselves from economic
and geopolitical turmoil is to invest for the long The reason I feel so strongly about this is that I’ve
term in good, cash-generative businesses that deliver seen this movie before. During the global financial
real value to the societies where they operate— crisis of 2008-09, several investors in the fund got
companies like Berkshire Hathaway, Moody’s, Bank rattled and cashed out, locking in significant losses
of America, BYD, and Indian Energy Exchange. In during that period of extreme volatility and then
my experience, there’s no benefit to trading in and failing to benefit from the immensely profitable
out of long-term holdings like these in the vain hope rebound that followed over the next decade. Let
that you can time the market. It’s simply better to that person not be you.
stay put and ride it out.
Perhaps I can also illustrate my way of thinking
In times of turmoil, fearful or irrational investors by sharing a conversation that I recently had with
often decide to cash out of the stock market until a relative and friend, Itai Spier. His grandparents,
the dust settles, or they sell individual stocks that like mine, came from pre-war Germany. Like me,
they hope to buy back one day at a lower price. he’d been thinking hard about how to invest in the
This may seem like a smart precaution, but it tends face of potentially enormous disruptions. I wanted
to be a fantastically reliable way to destroy your to explain why I was staying put, not going to cash
investment returns. One reason is that it’s all but or moving my investments around. Rather than
impossible to time your exit from the market and talk about the highly resilient companies in our
your return to the market. If you get lucky and portfolio, I used the following analogy:
make a well-timed choice on the way out, chances
are that you’ll fail to get back in at the right time. Imagine that I own some excellent downtown
properties in major cities like London, Paris,
Why does this matter? One reason is that the worst Berlin, New York, Chicago, and San Francisco—
days in the stock market are often followed quickly unlevered, class-A office blocks, hotels, and
by the best days—and you don’t want to miss out on tower residences in prime locations. Imagine
those sharp upward rebounds, which can account now a terrible scenario in which a world war is
for a lot of the market’s overall return. Please look at coming and three of these cities will be carpet-
the chart on page 22, which shows that you would bombed. What should I do? Should I sell the
have earned 9.4% a year by investing in the S&P world’s best real estate, go to cash, and keep
500 for the last 20 years and simply staying put. If the proceeds hidden away in a vault? Should I
you had missed just ten of the best single days in sell some of my prime real estate and buy non-
the market over those 20 years, your annual return prime properties on the edge of these cities or in
would have fallen to 5.09%. What if you had missed a less desirable city that might also be bombed?

20
 MANAGEMENT’S LETTER TO PARTNERS

Or should I stick around with the best assets and ƒ Low or zero management fees.
take the hits if and when they come—safe and ƒ Alignment of your interests and mine, with the
secure in the knowledge that I’ll still own some fund genuinely structured as a partnership.
of the world’s best real estate on the other side
ƒ A conservative, long-term, value-oriented
of this extreme turmoil?
approach in which we partner with the very best
enterprises we can find, compounding wealth in
My point is this: if you already own some of the
a disciplined and durable manner.
world’s best, highest-quality assets, then why
dance around? You’re unlikely to gain much, and Assets Under Management,
you’re very likely to lose by straying off course. As Subscriptions, And Redemptions
it is, we own a set of very high-quality assets in
In 2021, we received $12 million in new capital
unusually robust locations. I trust these businesses
and received redemption requests for $12.7
to continue compounding our wealth over the long
million. I regard this as part of the normal ebb and
run much more than I trust my own ability to dance
flow of assets as our investors’ life circumstances
in, out, and around. This is why our portfolio did
change. We ended 2021 with $358 million in
not change much in 2021 and might not change
assets, which gives us sufficient scale to run the
much in 2022.
fund comfortably, but still allows us the flexibility
to react nimbly when necessary.
Aquamarine’s Value Proposition
As I write to you each year, I remind myself While I may be sad to see investors leave the
constantly that my principal obligation is to build Aquamarine Fund, it gives me intense satisfaction
wealth prudently and judiciously for all of the to see friends and family benefiting from the
partners of Aquamarine. I take great pleasure in the appreciation of their holdings over the years. My
fact that you and I are on the same side, and that only concern was in a couple of recent cases when
I’m rewarded only if I perform well on your behalf. I wondered if the investor in question may have
I continue to believe that the Aquamarine Fund redeemed their shares not because they needed
offers exceptional value to its investors. Our value the money—for example, to buy a new home
proposition is built on three pillars: or to fund their retirement—but because they

I REMIND MYSELF CONSTANTLY THAT MY

PRINCIPAL OBLIGATION IS TO BUILD WEALTH
PRUDENTLY AND JUDICIOUSLY FOR ALL OF THE
PARTNERS OF AQUAMARINE. I TAKE GREAT
PLEASURE IN THE FACT THAT YOU AND I ARE ON
THE SAME SIDE, AND THAT I’M REWARDED ONLY
IF I PERFORM WELL ON YOUR BEHALF.
21
 ANNUAL REPORT 2021 Aquamarine

It’s Always Darkest Before Dawn

Seven of the ten best days occurred within 15 days of the ten worst days.

$70,000

$60,000 9.28%
Annualized performance of a $10,000
$50,000 investment between October 2001 and
October 2021, S&P 500 returns
$40,000

$30,000 5.09%
$20,000
2.04%
0.21%
$10,000

$0
Fully Missed Missed Missed
invested 10 best days 20 best days 30 best days

Source: J.P. Morgan Asset Management analysis using data from Morningstar Direct.
Data is as of October 31, 2021. Analysis is based on the J.P. Morgan Guide to Retirement.

were anxious to take their money off the table stock market.” I couldn’t agree more. Time in the
in the face of inflation, rising interest rates, and market, not timing the market, is the key to long-
geopolitical uncertainty. As I explained above, term investment success.
I strongly believe this is a mistake, given the
benefits of staying in the market for the long run Location
and the impossibility of timing the market with As many of you know, I moved from New York
any consistency. to Zurich in 2009, having realized that this new
environment was calmer and more conducive
To emphasize this once more, let me quote Bill to my style of investing. As I wrote in my book,
Miller, who recently explained why he shares this The Education of a Value Investor, being based in
belief: “In the post-war period the U.S. stock Manhattan had a destabilizing effect on me:
market has gone up in around 70% of the years... “Moving to Zurich allowed me to cut through the
Odds much less favorable than that have made whole Gordian knot of my unhealthy relationships
casino owners very rich, yet most investors try with fund marketers, equity analysts, and other
to guess the 30% of the time stocks decline, or professional ‘helpers’ who had unhelpfully
even worse spend time trying to surf, to no avail, oriented me toward a standard, New-York-hedgie
the quarterly up and down waves in the market. model of life.”
Most of the returns in stocks are concentrated
in sharp bursts beginning in periods of great Thirteen years later, in 2022, I finally made the
pessimism or fear, as we saw most recently in decision to complete the last part of this transition
the 2020 pandemic decline. We believe time, by formally moving Aquamarine’s head office
not timing, is the key to building wealth in the from New York to Zurich. In reality, this is simply

22
 MANAGEMENT’S LETTER TO PARTNERS

a formal recognition of the fact that our core I’m particularly fortunate to partner with investors
team at Aquamarine is based in Zurich, where who have valuable experiences, insights, and
they work closely with me every day. They are a networks of their own. I’ve enjoyed an ongoing
talented, driven, and deeply committed group dialogue with many of our partners about different
who provide the structure and stability required industries and companies and have found their views
so that I can concentrate on our investments. extremely thoughtful and enlightening. Whenever
We still have a few people in the U.S., London, we can welcome such people into the Aquamarine
and the British Virgin Islands, but I realized earlier fold, I regard them as a very valuable addition.
this year that it was a no-brainer to centralize our
operations in Zurich—the city that I chose in 2009 Thank you for joining me on this journey. I
for efficiency, peace, and tranquility. would like to think that I’m now approximately
halfway through my career as the manager of the
From a practical perspective, nothing will change. Aquamarine Fund. If the next 24 years match the
But this formal move means that we will need to last 24, Aquamarine’s original investors will make
update our fund documents in 2022, so they about 96 times their money over 48 years. I will be
reflect the presence of the investment manager working hard over the next 24 years to be worthy
and our investor relations team in Zurich, with of, and to reward, the faith you have placed in me.
support from our other locations.

Thanks
I feel extremely fortunate to have such a
remarkable group of shareholders. The Warm regards,
Aquamarine Fund’s base of sophisticated and
loyal partners has stood firm over many years,
enabling us to take advantage of the great
buying opportunities that arise during times of
heightened uncertainty and volatility.
Guy Spier
Most of the partners in our fund came to us through Managing Partner
recommendations from existing shareholders who
were pleased with our performance and our culture.
If you know of someone who might benefit from
investing in the Aquamarine Fund, please don’t be
shy about introducing them. Feel free to contact
me about referrals or anything else by calling +41
44 210 1900 or +1 212 716 1350 or via email at
investorservices@aquamarinefund.com.

I’m happy with the current size of the fund and

have no interest in promoting it merely in the hope
of growing bigger. Naturally, I’m always pleased to
partner with the right shareholders: that is to say,
patient, value-oriented, long-term investors who’d
like to join us in compounding wealth over many
years, without unnecessary risk.

23
 ANNUAL REPORT 2021 Aquamarine

Pay Attention
To Incentives
29

Harness The
Miracle Of Work With
Compounding Great
27 Partners
30

Buy Better
Avoid Businesses
Leverage At Bargain
Don’t Lose 28 Prices 33
Money 27

Play
Center
Court
28

Don’t Just
Predict
Rain: Build
An Ark 41

Be Careful
In Talking
About Current Construct
Investments 39 The Right
Environment 40 Keep Life
Simple
44

Be The Last
Man Standing 42

24
 OUR MISSION, GOALS,
PRINCIPLES, AND VALUES
Make The
Market My
Servant, Not
My Master
34

Rub My
Nose In My
Tread Mistakes 39
Carefully
Around
Salespeople Use A
37 Checklist
Act Counter- 38
Cyclically 35

Deliver
Value To
Others
46

Learn From
The Best, But Look For
Think For Companies That
Myself Have A Noble
Embrace 45 Mission 47
Adversity 44

Everything Be Look For

Changes Honest Companies
50 50 With Ecosystem
Control
49

25
 ANNUAL REPORT 2021 Aquamarine

OUR MISSION AND GOALS

O
ur mission is to compound financial wealth for our investors. We
want to do this in a prudent and patient way that is sustainable,
honest, honorable, and fair. This ethos allows our investors to sleep
well at night. We do this by aligning ourselves with great businesses
and great people—great CEOs and management teams, great investors and
clients, as well as our broader community of great suppliers and others.

This therefore also means that we are in the business of building businesses
that improve the world. This therefore also means that we are working on
creating an environment in which some of the world’s best businesses—ones
that serve society as a whole—can flourish. I and the entire team at Aquamarine
want to create such an exceptional home for these high-quality businesses that
their leaders will be proud that we have invested with them.

And in doing so we want to help the people involved—all of the stakeholders—

to improve their lives. To help build fantastic futures for us all.

When we look to the societies that we are a part of, we want to make them
places that are full of opportunity, with a good safety net, and in which people
are treated fairly. Not only is this a moral and a laudable goal. It’s also the
best way to help ensure that the sorts of calamities that come from social
instability and inequality don’t hurt us—the way the rise of Nazism in response
to injustices in Germany hurt my grandparents or the way that the injustices of
apartheid uprooted members of my mother’s family in South Africa.

We are more likely to achieve these goals by affirming a well-defined set of

principles and values. The goal here is not to be comprehensive. Rather, it is
to emphasize some important lessons that I’ve learned over the last quarter
of a century that seem especially relevant to me and the fund’s investors
at this point. Based on what we know from Robert Cialdini about the
“commitment and consistency principle,” it’s particularly helpful to write
down our principles and values, to commit to them in this public manner,
and to review them regularly. Another way to see this is that it’s a valuable
intention-setting exercise.

I will do all that I can to live up to these principles and values, and I invite you
to hold me to them.
26
 INVESTING PRINCIPLES

Harness The
Miracle Of
Compounding
 When it comes to
investment results, many
investors focus on what
happened in the past month,
quarter, or year. They might Don’t Lose Money
compare quarterly or annual
results to an index or to
 Another way to frame the investment
the results of other funds.
challenge is to ask the following question:
Financially sophisticated investors may talk
How can I compound my investors’ wealth
about the search for alpha (a fancy way of
at the highest possible rate but in a manner
referring to above-average returns) or the
that minimizes the probability of a loss?
pursuit of superior risk-adjusted returns. I pay
As the chart here illustrates, the more you
as little attention as possible to these metrics
lose, the harder it is even to get back to
because they distract me from the true task
where you started. Big losses are a real
at hand.
killer. Or, as Warren Buffett has said: “Rule
The only metric I find useful is thinking of No. 1: Never lose money. Rule No. 2: Never
long-term increases in net worth, or getting forget rule No. 1.” 
the miracle of compound interest to work
in our favor. The table below illustrates the Initial Gain Required to
Loss Be Whole
point that seemingly modest differences
in the annual rate of return can generate 10% 11%
profound differences in the ultimate gain 25% 33%
over long periods of time. My goal is to 40% 67%
compound wealth at a high rate, while 50% 100%

minimizing the risk of permanent losses of

capital. In order to keep my sights on the
horizon, I frame the investing challenge as
follows: I seek to double the Aquamarine
Fund’s price per share as many times as
possible over the course of my investing
lifetime. 

Investment Result—As a Multiple of

Original Investment
Years of Rate of
Operation Return
8 % 10 % 12 %
20 5 7 10
40 22 45 93
60 101 304 898

27
 ANNUAL REPORT 2021 Aquamarine

Avoid Leverage
 The fastest and most effective
way to violate Buffett’s “never
lose money” rule is to take risks
with capital that I don’t already
own. Thus, I don’t lever my
portfolio, and I also seek to avoid
overly leveraged investments.
There’s nothing wrong with
getting rich slowly—especially if
trying to do it rapidly could end
badly, which it often does. I’m
reminded of Buffett’s comments about
the implosion of Long-Term Capital
Management: “Whenever a really bright Play Center
person who has a lot of money goes Court
broke, it’s because of leverage… It’s
almost impossible to go broke without
 Donald Keough, who was president of Coca-Cola and
borrowed money being in the equation.”
a board member at Berkshire Hathaway, provided a great
However, as I’ve come to realize, there is discussion of ethics in his book The Ten Commandments for
also the risk that leverage can seep slowly Business Failure. One problem with playing the game close
and insidiously into my portfolio without to the foul line, he explained, is that the foul line moves
my taking sufficient notice—for example, around. AIG and the Greenberg family discovered this in
when a company that has performed the realm of insurance. When the foul line was moved by
well gradually increases its debt levels. Eliot Spitzer, they found themselves on the wrong side of
Charlie Munger warns of “boiling frog it. Due to the uncertainty as to where the foul line actually
syndrome,” which is the tendency not to is, playing close to it is a perfect example of how you
recognize tiny, incremental changes until can expose yourself to the possibility of low-probability
it’s too late. Given the vicious nature of outcomes with extreme consequences.
leverage, I need to monitor such changes
Another benefit of playing center court is that it usually
closely and be ready to exit a stock in a
doesn’t require huge amounts of expensive input from
hurry if the risk level has escalated. On
lawyers, accountants, and other high-priced advisers.
the whole, I look to hold stocks for many
Accountants and lawyers often don’t like it when their
years, avoiding the temptation to trim
clients play center court, since people who push the
my winners. But when leverage has risen
boundaries tend to generate higher fees.
within a company, I have to be more
willing to sell.  Keough passed away in 2015, but his wisdom will no
doubt remain as relevant and timely as ever. “There is no
such thing as business ethics,” he wrote. “Just ethics. It’s
not separated from the rest of your life.” 

28
 INVESTING PRINCIPLES

 Charlie Munger once said that while he has certainly

understood the paramount importance of incentives in human
behavior, even he has grossly underestimated their importance.
Many investment partnerships are run by managers who Pay
don’t have a substantial personal investment in their own
partnership and who work primarily with other people’s
Attention
money. This creates an incentive to maximize short-term To
performance, and it ultimately leads to increased risk. Incentives
An important component of the set-up at Aquamarine is to
make sure that my incentives are appropriately aligned with
the interests of my shareholders. The overwhelming majority
of my family’s wealth is invested in the Aquamarine Fund,
and virtually all of my own money is in the fund. This creates
a powerful incentive to minimize the risk of loss. It’s also
important to note that my family—including my mother and
father, my uncle and aunt, my sister and I—are all invested
in exactly the same vehicle as the fund’s other shareholders. It’s easy to identify the most egregious
Whatever the investment returns might be, we’re partners in ways in which ignoring incentives can be
this venture, and we’re all invested alongside one another in damaging. For example, I can take with
the same vehicle. a pinch of salt a barber’s comment that I
need a haircut. Similarly, I can steer clear of
This is also my only fund, and I can focus on it without
the sell-side broker who wants to churn my
distractions. I don’t intend ever to launch another fund, since
account. However, here’s something harder
I like the idea of having one investment record for my entire
to spot: consider an adviser who is honest,
career. That way, it will be easy to see whether or not I’ve
hard-working, and truly desires the best for
truly added value. Another key component of our alignment
our fund. While the course of action that
of interests is the fund’s zero-management-fee share class in
he counsels is generally sound, it contains
which I make money only if my shareholders make money.
complications that could lead to problems
in extreme circumstances. He will naturally
tend to discount the downside (hey, it’s not
his downside, and it might even lead to more
work down the road). My job is to recognize
that downside. The adviser would certainly
survive the hidden but fatal flaw, but I might
not. Indeed, someone with good intentions

29
 ANNUAL REPORT 2021 Aquamarine

and deep knowledge can still give dangerously flawed advice. While I might
catch the egregiously imperfect advice, I also need to be on guard for this kind
of subtly imperfect advice.

Over the years, a number of peers on the buy side have become a source of
invaluable insights on important business and investment decisions. We often
discuss particular companies, pooling our knowledge and exchanging opinions.
But even with these trusted friends, I need to be conscious of the subtle ways in
which incentives work. For example, a friend who wants to convince me to buy
a stock might gain something psychologically from the validation this provides.
Likewise, I might be vulnerable to the fact that I have a strong tendency to want
to be liked. In other words, incentives are not just financial but psychological.

It’s important to maintain a balance here: I have to remain open to the insights
of my peers while never losing sight of the need to do my own due diligence and
to retain my independence of mind. Cloning the best insights and practices of
the most brilliant people is a smart move—but groupthink is not so smart. 

Work With Great Partners

 During the global financial crisis of 2008-09, several of the
Aquamarine Fund’s shareholders redeemed their partnership interests
at the worst possible time, thereby locking in their own losses and
reducing my ability to buy stocks at extraordinarily cheap prices. This
experience taught me a lot about the importance of having the right
partners. One way to achieve this is to create the best possible structure
for the fund, since this affects the quality of investors we attract. In my
case, this means:

1. Providing share classes in which we charge no management fee.

2. Allowing only annual redemptions from the fund.
3. Communicating infrequently, but substantively, rather than
communicating often but with little more than rewarmed market
commentary.
4. Avoiding roadshows and beauty contests designed to attract
more assets.

30
 INVESTING PRINCIPLES

Warren Buffett

31
 ANNUAL REPORT 2021 Aquamarine

Why are these rules important? With no management fee and only annual
redemptions, the fund attracts a group of sophisticated investors who have thought
carefully about equities and about what they are looking for in a money manager.
These investors tend to understand that I need to be able to think long term to do
my job well; my wondering who might want to redeem each and every quarter would
be a needless distraction. These investors also recognize that our fee structure (zero
management fee, and only a performance fee) is a substantial boon to good long-
term results—and that it’s fair. This fee structure reflects the fact that I want to make
money with my partners, not off them.

As for my preference for communicating infrequently but substantively, this is driven

by a recognition that I need to focus on investing, without the regular pressure of
having to look smart on roadshows or in other fundraising activities. Those activities
are a distraction and are inimical to good investment returns.

When it comes to investment research, I also work hard to develop great relationships
with a broad range of people who can help me to evaluate investment ideas. As with
attracting great partners, there are a few key rules:

1. Keep confidential the investment ideas that are shared with me.
2. Do not trade investment ideas sourced elsewhere until there is clear permission
to do so from the originator.
3. Never tell anyone what to do, but give thoughtful and value-added feedback
on ideas.
4. Always give credit when and where possible.

These are really just applications of Hillel’s advice: “What is hateful to you, do not do
to your neighbor.” The benefits of behaving decently are cumulative. Charlie Munger,
who is famously determined to act honorably at all times, has said: “How you behave
in one place will help in surprising ways later.”

One of the great lessons I’ve learned throughout my career is that all business is
personal. The vast majority of the time, whenever I have gone beyond the call of
duty regarding someone’s well-being, it has resulted in all sorts of remarkable,
unexpected and fortuitous results for me. As Michael Eisner makes clear in his
book Working Together: Why Great Partnerships Succeed, perhaps the best way to find
a great partner is to be a great partner. That has been true for me in all areas of
my life, and it has been true of the people I admire most. Indeed, writing about
Munger, Warren Buffett once declared: “In 41 years, I have never seen Charlie try
to take advantage of anyone.” 

32
 INVESTING PRINCIPLES

Buy Better Businesses

At Bargain Prices
 One of the hardest things for me to learn and truly internalize has been to see
the market as a pari-mutuel system, much like betting on a horse race. At the
races, it’s not that hard to identify the fastest horse that will most likely win the
race on any given day. However, that horse is unlikely to be the best bet, since the
probability of its winning will typically already be factored into the odds offered by
the bookmakers. The real skill is to find the mispriced bet—the horse whose chances
of winning are much greater than the odds suggest. This is much harder, and the
opportunities to place such bets are much rarer than most people think.

One benefit of extreme volatility is that it occasionally makes it possible to buy great
businesses when they are dramatically mispriced. Think of Buffett loading up on
American Express during the Salad Oil scandal of the 1960s or Munger piling into
Wells Fargo during the financial crisis when he saw what he later described as “a
once-in-40-year opportunity.”

Time is the friend of a great business. But if the business was purchased when it was
priced to perfection, it has as much potential to impair returns as a much weaker
business. Thus, the focus of my investment research is largely oriented toward
finding businesses that are mispriced, rather than identifying great businesses and
trying to justify paying a high price for them.

Whenever I can acquire them for an attractive price, my preference is to buy the
best businesses and then hold them indefinitely. As Munger has said, “If you live
in a small town and if you own a good car dealership, McDonald’s franchise, the
best apartment building in town, the highest quality office building in town, you
are done.” Investing is hard and there are many things I can miss in my analysis.
But when I own better companies, life is more forgiving, and I can prosper while
paying a little less attention. When I occupy this economic high ground, my
portfolio is less vulnerable to market downturns and to my own misjudgments.
My long-term goal is to upgrade my portfolio whenever the opportunities arise to
invest in superior businesses. 

33
 ANNUAL REPORT 2021 Aquamarine

 The constant movement of stock prices is a call

to action. The brain also experiences an emotional
storm when we see that stocks or the market are
falling. I try to detach myself as much as possible
from the market’s short-term gyrations, so that I can
invest in a more rational, measured, and patient way, Make The
buying stakes in companies that I can hold for years. I Market My
typically check the price of my holdings no more than
once a week; I leave my Bloomberg terminal switched
Servant, Not
off for extended periods (sometimes for weeks on My Master
end); and I don’t have a TV in my office. Simple rules
and practices like these make it easier not to waste my
willpower trying to resist the market’s short-term calls
to action.

As Ben Graham taught, we need to make the market

our servant, not our master. That means using it to
our advantage by buying bargains when pessimism
reaches extreme levels and by reducing our risk
my emotions and cloud my judgment.
exposure when the crowd is overly exuberant. The key
Likewise, I have a rule that I can’t buy
is not to be swept up in the crowd’s bipolar mood
or sell stocks while the market is open.
swings. If I avoid checking stock prices on a regular
This serves as a circuit breaker, so
basis, it’s easier for me to detach myself from the
that I don’t act precipitously. In my
price action of the market, which is liable to stir up
early days as a fund manager, I had an
in-house trading desk, which brought
the market right into the heart of my
office in a way that was distracting
and disruptive. Now, I place orders by
emailing a broker after trading hours,
so that we don’t even need to speak
with one another directly. These simple
strategies make it somewhat easier to
keep market noise at a safe distance. 

34
 INVESTING PRINCIPLES

Act Counter-Cyclically
 The stock market—and much else in life—is highly cyclical. When times are
tough, it’s important to remember that they will get better again; when they’re
great, it’s important to remember that they will get tough again. As an investor,
I strive to be counter-cyclical. Broadly speaking, I want to buy when others are
fearful and sell (or, at least, reduce my risk exposure) when others are greedy.

This is easier said than done because the psychological forces at play are so
powerful. The fact that you’re intellectually aware of these forces doesn’t protect
you from them. For example, when the market is falling dramatically, self-
reinforcing thoughts kick in that tell you that the world may come to an end. Fear
is contagious, and it’s easy to get swamped by these intense emotions. Then,
when everything is going well and you’ve made handsome profits for years, it’s
easy to start believing that you’re brilliant and to slip into a state of hubris and
overconfidence. There’s a terrible vanity that can get into your head merely as
a result of all this positive price action. I’ve experienced this on more than one
occasion, proving to myself that I’m far from immune to these perils.

In the good times, the key is to reduce my risk, my leverage, my concentration,

and my bets on more aggressive industries. During bull markets, we tend to
become more concentrated in our favorite investment ideas. If I can’t bring
myself to sell them, I should at least force myself to become more diversified,
since a diversified portfolio will be less vulnerable when the cycle changes.

I’m increasingly focused on the idea of building counter-cyclicality into my life.

Certain investments—for example, Berkshire Hathaway—are counter-cyclical,
which helps. Berkshire is designed to be an anti-fragile business that is likely to
prosper in good times and bad, not least by buying undervalued assets amid
the tumult. Another aspect of being counter-cyclical is to surround myself with
people who think and act this way—and to be aware that certain relationships
are pro-cyclical and therefore more likely to be hazardous. If, say, a contrarian,
risk-averse partner in my fund sells a significant portion of his shares after years
of strong returns, I need to take notice and ask myself if this is a useful sign that
things are becoming irrationally exuberant.

Likewise, it’s helpful to pay close attention to the words and actions of
investors like Warren Buffett, Charlie Munger, Howard Marks, Francis Chou,
and Seth Klarman, who have a long and successful history of operating
counter-cyclically. Part of the gift of these investors is that they keep their
egos in check and remain rational during periods of euphoria. One safeguard
against my own vulnerability to hubris and overconfidence is to make sure that
I take slightly less risk than the people I respect and admire. 

35
 ANNUAL REPORT 2021 Aquamarine

Charlie Munger

36
 INVESTING PRINCIPLES

Tread
Carefully
Around
Salespeople
 The investment business is full of
people trying to hawk ideas that serve
their own interests—bankers, brokers,
sell-side analysts, CEOs, TV pundits,
and others. In the past, I found that I
made lousy decisions when I bought what people were trying to sell me, since our
brains are not wired to make rational decisions when we are confronted with a
well-argued pitch from a gifted salesperson. So I adopted a simple rule: I don’t let
myself buy anything that’s being sold to me.

This is one reason why I never participate in IPOs. When a company goes public,
Wall Street puts all of its mind-bending sales power behind it, creating a situation
that promotes poor decision-making. It’s also why I seldom read research produced
by sell-side analysts. As a long-term investor, my interests are in stark opposition
to the interests of Wall Street. What I need to do is invest in a few great but
undervalued businesses and then stay put, resisting the urge to trade. Wall Street is
rewarded for activity; my shareholders and I are typically rewarded for inactivity.

For similar reasons, I explained in my book, The Education of a Value Investor, that
I had stopped speaking with corporate management because these are skilled
salespeople who accentuate the positive and discount the negative. In retrospect, I
think that was a mistake. For me, it’s mostly beneficial to meet with management,
given that they are a critical piece of the overall puzzle that I need to understand.

That said, the order in which I gather information matters because the first idea
that enters the brain tends to have an outsized impact on our thinking. With this
in mind, I try to gather the most objective and unbiased data first (for example, by
reading the company’s 10-K and 10-Q), so I can form my own ideas independently
before speaking with management. Once I have a clear understanding of the
company, it makes sense to visit its facilities and meet the management. On one
occasion, a top executive was unenthusiastic about my visiting his company’s new
plant: I would have done well to see this as a warning signal. In any case, the key
isn’t to avoid management but to structure the relationship correctly, so that it adds
insight, not noise. 

37
 ANNUAL REPORT 2021 Aquamarine

Use A Checklist
 This subject is discussed in Atul Gawande’s excellent
book The Checklist Manifesto. Our minds are filled with
all sorts of evolutionary quirks that seriously degrade
the rational decision-making ability of even the most
intelligent investors. I try to counter these tendencies by
using checklists.

Before making any investment, I run the idea through a checklist that
summarizes as many known investment mistakes as possible—mistakes made
in the past either by me or by other money managers. I ask myself whether I
might be committing the same mistakes again. Using a checklist as a circuit
breaker has prevented me from making a number of bad investments. This
method isn’t foolproof, but my experience is that it has reduced my error rate
dramatically. Most of the work on the checklist was done by my great friend
Mohnish Pabrai, and I am deeply grateful to him for the collaboration.

My understanding of the power of checklists continues to grow. In the past,

I primarily used a checklist before making an investment in order to see what
factors I might be missing. More recently, I’ve also turned my attention to
building an “in-flight” checklist to help me monitor growing risks that may
be developing within companies that I already own. I believe this process of
reappraising companies that I own needs to be done in a regular, formalized
manner. Otherwise, there is a psychological tendency to overlook these
mounting risks, particularly in companies that have performed well for me. My
in-flight checklist includes questions such as these: Has this company I own
taken on any new debt, have any of its leverage ratios changed significantly,
and has the price of a key raw material changed significantly? 

38
 INVESTING PRINCIPLES

 Even with a checklist, I’m still going to make my share of

mistakes—partly because investing is hard and the world is complex
and partly because of flaws in my own idiosyncratic wiring. As Sir
John Templeton observed, even the best investors are wrong about
a third of the time. This is a humbling business, and there are times
when I will inevitably look foolish.

When I do make mistakes, I’m committed to admitting them,

analyzing them, and learning from them. As Charlie Munger has Rub My
said: “I like people admitting they were complete stupid horses’ Nose
asses. I know I’ll perform better if I rub my nose in my mistakes. This
is a wonderful trick to learn.” At the same time, it’s not helpful to be
In My
paralyzed by regret over mistakes. I need to understand what went Mistakes
wrong, be honest about it, and then move on. 

 As the psychologist Robert Cialdini explains, we need to be careful

about taking public positions. Once we’ve made a public statement, the
“commitment and consistency principle” makes it difficult for us to back
away from our position, even if we have come to regret that opinion. With
this in mind, I try to avoid walking into the trap of making statements
Be Careful about any stocks that I currently own, since the situation might later
change or I might discover that I was wrong. This is why I prefer not to
In Talking discuss my current investments in public settings such as annual meetings,
About shareholder letters, and media interviews.

Current Occasionally, I’ve violated this rule when I thought it was particularly
Investments important to be candid with my fund’s partners about a particular
situation. For example, during the financial crisis, I made it clear that I was
finding extraordinary opportunities to buy cheap stocks like Cresud and
London Mining. Then, in early 2016, I wrote to shareholders to explain my
thinking about how we were positioned to take advantage of an unusually
turbulent market; I mentioned one company by name and alluded to
our investment in two unnamed car companies. One partner in the fund
responded by firing off an emotional email telling me that I should stick
with “nice staple goods companies” and “rest in peace.” I can understand
any investor being upset when I’ve lost some of their hard-earned savings.
But discussions like these can be counterproductive, creating psychological
conditions in which it’s harder to make dispassionate decisions. Overall,
the Aquamarine Fund will do better if I try to exercise my best judgment in a
state of quiet, calm detachment. 

39
 ANNUAL REPORT 2021 Aquamarine

 After the financial crisis, I moved from New York to Zurich, where I set about
constructing an environment in which I could think and invest more rationally. The goal
wasn’t to become smarter: it was to build an environment in which my brain wouldn’t
be subjected to such an extreme barrage of distractions, expectations, greed, envy, and
other destabilizing forces that were likely to exacerbate my irrational tendencies. This
reflects my belief that managing the non-rational part of my brain is an integral part of
managing my investment portfolio.

It helps me to work in an environment that is serene and even slightly boring. The
fact that Zurich is physically detached from Wall Street also makes it easier to think
for myself and go against the crowd. It’s no coincidence that some of the greatest
contrarian value investors located themselves far from Wall Street: Sir John Templeton
settled in the Bahamas; Warren Buffett works out of a nondescript office building in
Construct Omaha; Seth Klarman works out of an unflashy office in Boston.
The Right As I discussed in my book, I’ve also tried to tilt the odds of success in my favor by
Environment constructing my immediate work surroundings in ways that encourage me to think and
act calmly, instead of reacting impulsively to the short-term movements of the market.
My office has a “busy” room with several computer screens; I placed my Bloomberg
terminal there on an adjustable-height desk and positioned it so that I’d have to stand
to use it—a practical way of ensuring that I wouldn’t spend hours subjecting myself to
a fire hose of information that might lead me to act too frequently or too emotionally.
Instead, I spend as much time as possible in my library down the hall, where it’s easier
to shut out the noise, without any access to flashing screens.

I still believe that it’s extremely helpful to create the right physical environment. But
I’ve come to realize that it’s even more important to nurture the right relationships as
a means of constructing a stable emotional environment. Nothing matters more than
having a happy relationship with my wife, my kids, my parents, my closest friends, and
my colleagues. They play a crucial role in supporting me during difficult times, and
they can also help me to see when my moods might be getting out of kilter. I’m not
impervious to the emotional swings of the market. So it’s important to have people in
my life who can tell me if I’m at risk of getting overconfident when everything is on the
rise or if I’m becoming too fearful and despondent in times of extreme volatility.

There are immeasurable benefits to structuring my life so that the right people are in my
inner circle. To cite just one example, Aquamarine’s director, Mark Chapman, has taken
on a formal responsibility for helping me to create better risk-management procedures.
Investors often complain about companies that have weak governance. But what
about my own governance? I’m committed to improving it by ensuring that I have the
right people in my environment. Nurturing these relationships is a vital component of
building a successful business and a successful life. 

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 INVESTING PRINCIPLES

Don’t Just Predict Rain:

Build An Ark
 Warren Buffett once quipped: “Predicting
rain doesn’t count. Building arks does.” There
are various ways in which I’m working to
strengthen my investment process to protect
the Aquamarine Fund from floods. As I to keep myself on track by writing out a formal explanation of
mentioned above, part of this is a matter of why I’m buying a particular stock. But for me, the discipline of
making investments that are counter-cyclical, having to do this is useful because it forces me to think through
using checklists to avoid recurring mistakes, certain issues that I might otherwise gloss over. Strange as it
building the right relationships, and detaching might sound, I’m actually trying to reduce my own freedom, to
myself from the mood swings of the market. restrict my range of motion—not in a way that hobbles me, but
in a way that acknowledges how easy it can be for me to miss
As part of the process of registering with
something. There’s so much that I can learn by studying and
Switzerland’s Financial Market Supervisory
replicating investors like Buffett and Munger, but my wiring is
Authority, we’ve also instituted more formal
different. So I have to set up an environment and a process that
procedures for controlling risk. For example,
works for me, helping me to become the best version of myself—
before buying a stock, I now have to produce
not a lesser version of them.
a signed document explaining exactly why I’m
making the purchase. In addition, we perform In analyzing companies, there are also important ways of
a quarterly review within Aquamarine in which safeguarding ourselves from certain negative outcomes. For
we discuss questions such as which companies example, it’s critical to focus on the worst-case scenario. I need
in the portfolio have taken on more leverage. to ask myself unpleasant questions, such as what will happen
to Berkshire Hathaway when Buffett dies, just as I should have
This shift towards a more formal structure is
asked myself what would happen to Horsehead Holdings (a
helpful in regularly focusing my attention on
major holding of mine that declared bankruptcy) if the price of
risk. If I were Warren Buffett, I wouldn’t need
zinc were to halve. I didn’t have a game plan for that eventuality.
This was a useful but expensive reminder that I need to rehearse
my moves before taking them.

Another insurance policy against mistakes in analyzing

individual companies is to look more carefully at the quality of
earnings—a focus that has largely gone out of style. It’s not just
a matter of judging the absolute quality of earnings, but also of
recognizing the direction in which they’re headed. The question
needs to be: Is the quality of earnings deteriorating? It’s striking
that Berkshire Hathaway socks away so much more cash than
it reports, whereas many companies dress up their accounts to
mask the fact that the business is actually getting weaker. If the
quality of earnings is deteriorating, it’s a clear sign that I need to
take risk off the table. 

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 ANNUAL REPORT 2021 Aquamarine

Be The Last Man Standing

 One of my overriding concerns should be to assume less risk than others. I need to
look carefully at where everyone else is on the risk curve and then make sure that I’m
not going out as far on it as they are. That way, when floods do occur, I won’t suffer as
badly and will be in a better position than others to act opportunistically. My in-flight
checklist can help on this front by specifying that, whatever I’m doing, I need to make
sure that I’m doing less of it than other people. Berkshire Hathaway takes this approach
to insurance by maintaining about ten times more capital than anyone else and resisting
the temptation to underwrite too much risk. Buffett has structured the company in such a
way that, in extremis, he’s the last man standing. This must be a defining characteristic of
my own investing approach.

Buffett once remarked: “When you build a bridge, you insist it can carry 30,000 pounds,
but you only drive 10,000 pound trucks across it. And that same principle works in
investing.” But how do I establish the appropriate margin of safety when I don’t know

42
 INVESTING PRINCIPLES

what’s going to roll across my bridge? I can imagine what’s going to roll across it, but
I can’t be precise about it. What I can do is to make sure that my bridge is better than,
say, 99% of all the other bridges. That way, I’ll be in the least-worst situation if things
go wrong—and I’ll be able to make hay when other people’s bridges begin to break.

To put it another way, I may still be left holding the bag, but I’ll be holding less of it
than anyone else. This is a simple but hugely important concept. If I can successfully
execute on this idea—not least, by reducing risk when many other investors are
assuming risk in an increasingly complacent manner—it will make a tremendous
difference over the coming decades.

There’s a part of my personality that yearns to operate like an engineer, gauging with
absolute precision how much risk is out there. But it’s impossible to get absolute
measures of risk. So, it’s more useful to measure where I stand in relative terms
compared to everyone else. My question should be: “Is the environment fearful or
greedy, and where do I stand on that spectrum?” When the environment is greedy,
my objective is to be less greedy than everyone else. 

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 ANNUAL REPORT 2021 Aquamarine

 Occasionally, we can find ourselves in extreme situations where there’s

a risk of becoming emotionally flooded—where the stress is so intense
that the mind virtually shuts down and we feel temporarily unable to
make smart decisions. One aspect of building an ark is to set up my life in
such a way that I have a good deal of emotional resilience to draw upon
if extreme circumstances arise. It helps to invest real effort in building
a happy family life. It also helps to have no debt and to live within my
means. I believe it’s also important to keep my life simple.
Keep Life It’s tempting to take on too much in times when all is well, acting on the
Simple assumption that the economy will keep expanding and our own fortunes
will continue to grow. We also assume that we will be able to handle
the volatility when it comes. But it’s worth remembering that it might be
accompanied by other factors that could push us beyond what we can
handle. In a perfect storm, an investor might simultaneously be faced with
a market meltdown, marital problems, multiple businesses to run, health
concerns, philanthropic obligations, and financial pressure to lay people
off. The details are unpredictable. But the point is that there can be a
negative lollapalooza in which multiple pressures occur simultaneously.
I’m wary of taking on too much during the good times—of overreaching or
overcomplicating my life. Having one fund to run is hard enough. 

Embrace Adversity
 Adversity in investing, as in life, is a certainty. The writings of
Marcus Aurelius taught me that the real question is how we handle
this adversity when we eventually encounter it. Amid the turmoil
of the financial crisis, his writings were a constant companion,
teaching me that until adversity comes along, our virtues are
theoretical. It’s only when we actually have to act courageously and
honorably that we get to prove that we have those virtues in reality,
instead of merely aspiring to have them. We would all prefer not
to deal with adversity. But if and when it comes, it’s an important
opportunity. As much as possible, I need to embrace it.

It helps to have powerful role models. For example, Sir Ernest Shackleton
succeeded in getting all of his men home safely from the Antarctic—
despite horrendous conditions and his own grievous misjudgments and
mistakes. Misjudgments and mistakes, like adversity, are inevitable. If I
handle them the way that Shackleton did on his great voyage, my partners
and I will be much better off.

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 INVESTING PRINCIPLES

Likewise, Thomas Edison made a virtue of his setbacks, famously

stating, “I have not failed 700 times. I’ve succeeded in proving 700 ways
how not to build a lightbulb.” Nobody likes to fail, any more than they
like to be tested by adversity. But people who learn their lessons, who
pick themselves up and keep going, have earned the right to consider
themselves truly successful.

Charlie Munger said it best: “Even for the most successful people,
adversity is inevitable. But we should use the opportunity to behave well,
and thus to deserve the success that will eventually come.” 

 I’ve long been fascinated by the strategy of borrowing smart ideas

from the best investors. In many ways, I’ve built my career on an
intellectual foundation provided by Warren Buffett and Charlie Munger.
I’ve tried to follow their general approach to investing, with its emphasis
on making a small number of big bets on high-quality companies that
have a sustainable competitive advantage, without overpaying for the
privilege. I’ve also consciously replicated the fee structure that Buffett
used in his 1950s limited partnerships. And I’ve bought several stocks Learn
that Berkshire owned, having worked hard to figure out why Buffett had
invested in them.
From The
Best, But
The idea of cloning great ideas from role models like Buffett and
Munger makes abundant sense. It’s a smart way to benefit from
Think For
another person’s depth of knowledge and experience. For example, no Myself
investment firm has a better understanding of the banking industry than
Berkshire, so it was revealing when Buffett and Munger invested in Wells
Fargo during the financial crisis. Whenever I’m stepping into an area
where my own knowledge is lacking, it’s helpful to get up to speed by
studying the thinking of the people who know the field best.

But in recent years, I’ve become more acutely aware of the dangers
of cloning. Unconsciously, I think I was less open to investing in great
companies like Apple and Amazon because I wondered why these
investment masters hadn’t seen fit to buy them. Somehow, I closed
my mind, instead of taking the trouble to reach my own conclusions.
Likewise, I lost my independence of mind when analyzing Horsehead
Holdings, which is one reason why I wasn’t sensitive enough to the
gradual deterioration in its finances. My conclusion: Cloning is a
valuable part of my toolkit, but I need to handle it with care, recognizing
that there’s a fine line between intelligent cloning and slavishly following
others. It’s smart to learn from the best in the business, but never at the
expense of thinking critically for myself. 

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 ANNUAL REPORT 2021 Aquamarine

Deliver Value To Others

 Many people in business and finance approach life
as a kind of gladiatorial fight to the death, convinced
that there must always be a winner and a loser. The
assumption that this model is the most viable strategy
for success was reinforced in our school years: Students
were graded on a curve, and there was intense pressure to
scramble to the top so we could win one of a limited number of places at an elite
university and could then land the most desirable jobs.

There’s no question that the business world is fiercely competitive. But that doesn’t
mean that we should approach business as a zero-sum game in which everyone else
must be vanquished or trodden on for us to succeed. On the contrary, the greatest
success tends to come from being part of larger teams and tribes that seek to help
one another. Many of the world’s most successful and admirable businesses got
that way by creating win-win situations for all of their stakeholders. Just think of
companies like Berkshire Hathaway, Costco, Ikea, and Amazon.

As I’ve come to understand this better, I realize how often I’ve neglected to see the
world from the perspective of my clients and suppliers. For example, an investor
might complain that a private bank was charging exorbitant fees to hold an
account in the Aquamarine Fund, and I didn’t stop to ask myself: Is there any way
that I can help to reduce those indirect costs? This realization led me to think about
where else our shareholders could house their assets at an attractively low cost.

Personally, it gives me great pleasure to know that our fee structure has increasingly
tilted the balance in favor of our investors, helping them to build more wealth
over time instead of maximizing my wealth at their expense. But as we’ve seen
from companies like Costco, GEICO, and Amazon, it’s also smart business to
deliver more and more value to others. The point is, it’s not naïve to do the right
thing. When you treat other people well, it builds good will, loyalty, and trust.
It’s impossible to measure these intangibles, but they are essential ingredients
of enduring success. What’s more, this non-gladiatorial approach makes for an
infinitely happier life. With this in mind, I’m committed to building an ecosystem in
which everyone can win. 

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 INVESTING PRINCIPLES

Look For
Companies
 Having a noble mission reduces
That Have
risk. I’m never going to understand A Noble
or foresee all of the risks and Mission
potential calamities that might
confront a company. I certainly
won’t understand these threats by
reading through the risk factors so enamored of Milton Friedman,
dutifully listed in annual reports Adam Smith, and the invisible hand
(although doing so won’t hurt). that I failed to see that a business
But whatever uncertainty the future can be much more than just a player
holds, a company is likely to weather on the field. Businesses can shape When you start to look at companies
it much better if it’s pursuing a noble the field or move the goalposts. through this lens, it’s not hard to
mission to improve humanity. Businesses can—and increasingly place them on a kind of moral
should—be a powerful moral force, spectrum. At one end, you have
When a company’s mission is not helping to build a better, fairer, more companies that get rich off tobacco,
in the best interests of the society gentle society. gambling, and prostitution (yes,
it serves, it’s setting itself against there is at least one publicly-traded
that society in important ways that Today, I no longer think it’s good
brothel company). At the other end,
will ultimately make the business enough to look at a company like
you have companies like Tesla and
more fragile. At some point, the Philip Morris without taking into
SpaceX, whose high-minded mission
company’s shareholders are liable to account its potential future legal
is to launch humanity into a more
pay the price. responsibility for the health issues
compelling future. It took me a
that its products cause. Similarly,
Having studied economics at college, long while to understand Tesla in a
we can’t rule out the risk that a
I initially bought into the misguided dynamic context as a company that
gunmaker might eventually be
belief that the goal for anyone aligns itself with political sentiment
held liable for the deaths that its
running a business was simply to in moving us toward a carbon-free
weapons cause. By contrast, I want
maximize shareholder wealth within economy.
to own businesses that are not
the constraints of that society’s only a win-win for their immediate But a mission-driven company
legal and ethical framework. I was ecosystem: Customers, suppliers, doesn’t need to have such lofty
employees, and others. I want to goals in order to serve a valuable
invest in businesses whose mission social purpose. Costco, for one, has
is, in the broadest sense, to make a more simple and basic mission,
civilization better. which it describes like this: “To
continually provide our members
with quality goods and services at
the lowest possible price.” Similarly,
companies like Berkshire Hathaway,

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 ANNUAL REPORT 2021 Aquamarine

Care Ratings, and Aquamarine interests of the society in which it

Capital all have worthy missions. is embedded. All good investing
For Aquamarine, it starts with the is sustainable investing. All value
goal of compounding our partners’ investing is sustainable investing. All
wealth in a prudent way, while intelligent investing is value investing
always operating in an honest, is sustainable investing. The best way
ethical, and transparent manner, so to reduce our fragility is to invest
that investors in the fund can sleep sustainably. Sustainable investing is
well at night. the lowest-risk approach. There is
a margin of safety, an anti-fragility,
As I’ve come to realize, sustainable
in this emphasis on service and
investing is a recognition that,
sustainability. 
sooner or later, a company will
have to align itself with the best

48
 INVESTING PRINCIPLES

 Many companies operate in a world that

resembles perfect competition. Trapped in a
Darwinian struggle for survival, they have to
work hard to eke out a relatively modest return.
But a small number of superior companies
succeed on a much grander scale by delivering
truly exceptional value to their stakeholders.
Some companies do this to such a degree that
the stakeholders voluntarily lock their business
into the company in question.

Dennis Hong, a hedge fund manager at

Look For ShawSpring Partners, describes such dominant
Companies companies as having “ecosystem control.”
With Amazon Cloud, for example, has clients like
Netflix that have voluntarily locked their
Ecosystem business into Amazon’s because they trust the
Control company as a reliable, innovative, low-cost
partner. Similarly, Indian power suppliers and
distributors have increasingly allowed their
businesses to be locked into India Energy
Exchange because they rely on and trust the company to provide them with
the liquidity they need.

Companies with ecosystem control get to set the rules of the game and have
enormous influence on the evolution of the marketplace. To the extent that
anybody can, they control their own destiny. Needless to say, they can be
excellent long-term investments.

Ecosystem control is a powerful idea. Going forward, I will seek to use this
framework as part of my analytical toolkit. I am certain that it will pay dividends.

It’s worth noting that I might never have learned about this concept if I
hadn’t attended the inaugural VALUEx Middle East event, which is where I
heard Dennis speak. This is a testament to the cumulative benefits of building
a rich and dense network of friends and allies who are happy to share their
insights and knowledge—something I’ve cultivated over many years, not least
by hosting my own VALUEx event in Switzerland. 

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 ANNUAL REPORT 2021 Aquamarine

Be Honest
 The most sensible thing to do in the face of the unknown and
unknowable is to be honest. Brutally honest. If we’re not honest,
we set ourselves against reality in ways that are ultimately self-defeating. As the Canadian
psychologist and author Jordan Peterson puts it, if we tell a lie or mis-truth, it’s as if we
grabbed at the fabric of reality and sought to twist it. But if we do that, it’s only a matter of
time before that fabric snaps back to its original, untwisted shape.

Jewish Kabbalists point out that the Hebrew word for “to lie”—sheker—is made up of three
letters that have pointed bases. So, if they were physical objects, they would be unstable. By
contrast, the word for “truth”—emet—is made up of three Hebrew letters that have a long,
stable base. So, if they were physical objects, they would stand firm.

When we make honesty our practice, we are setting ourselves in alignment with reality—even
if we don’t know exactly what reality is. Over the long run, things work out better that way. 

 Even things that look perfectly safe may turn out to be utterly
insecure. Everything changes. Shiva Nataraja, the Hindu god of creation
and destruction, is everywhere. In 1934, my grandfather, Selmar Spier,
had married his sweetheart, Marlene, and was embarking confidently on
Everything his career as a young lawyer in Frankfurt. Three short years later, his right

Changes to practice law was taken away by the Nazi regime, and he found himself
building a house in Israel with the £1,000 that he’d been able to take
out of Germany when he fled.

These things happen far more frequently than we imagine. Only a few
years ago, the U.K. was part of the European Union. But then suddenly
it wasn’t, and the country now finds itself in the grip of populism and
nationalism. I and my family lost the automatic right to live there.

In 2011, I met the CEO of a leading Syrian bank that was doing very

50
 INVESTING PRINCIPLES

well, racking up record profits. Today, the bank is no more. He and his family feel lucky
to have been able to make it to the United States.

My friend Hossam Shobokshi is no stranger to this phenomenon. He recently gave a

talk titled “Investing in Times of Crisis,” which covered periods of tremendous turmoil,
such as the Lebanese civil war, the Iranian revolution, and the Egyptian revolution of
2011. As I write this, the world is looking on in horror at scenes of terrible devastation
and suffering in war-torn Ukraine. Not long ago, before Vladimir Putin launched his
invasion, Ukraine had seemed to be a land of opportunity, a bridge between East and
West. During the good times, says Hossam, bridges get stepped on. But in bad times,
bridges get blown up.

During World War II, the chaos began in Germany, swept through Europe, and
ultimately ravaged much of the world. But the list of countries and regions where
economic and political calamity has struck is long: Argentina, Venezuela, Syria, South
Africa, Peru, and now Ukraine. The list goes on and on. Any country or region can
change almost unimaginably.

When I began to write about this principle, I was inspired by Hossam’s talk. I used
the phrase “Everything Changes” as a title, not realizing that I had subconsciously
borrowed the title of the third chapter in William Green’s book, Richer, Wiser, Happier.
In that chapter, William (an old friend and a long-time investor in the Aquamarine
Fund) profiles Howard Marks, who is rightly wary of periods of irrational exuberance
when investors lose sight of the danger that things can rapidly change for the worse. As
William writes, “everything is impermanent,” and we should “never bet the farm against
the inexorable forces of change.”

I think that part of the key is to be keenly aware of the type of environment in which
you’re investing. In the United States, there have been some vicious cycles in which
investors have lost a lot of money—especially those who took excessive risks by loading
themselves up with too much debt and leverage. Still, broadly speaking, the U.S.
has been a relatively stable and benign environment (so far) over the last couple of
centuries. By comparison, many parts of the world have been much more vulnerable to
extreme disasters, such as wars and revolutions, which can completely overturn things
for a generation or more.

In general, I’m much more comfortable investing in the U.S. than in most other parts
of the world. But the truth is, even investors in the U.S. need to respect uncertainty and
be aware that everything can change. Even the safest place may not be safe enough for
you. What we thought was impossible can become possible.

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 ANNUAL REPORT 2021 Aquamarine

Hossam’s answer? Be vigilant. Be prepared—psychologically and financially. Be ready to

turn your thinking upside down. Take a global view. Have connections and relationships
everywhere. Diversify your assets. Don’t assume that everything will be okay. Have
options, backup plans, and escape hatches that you and I hope we will never need to
use. This applies to your family, your business, and your investments. At Aquamarine,
we’re singularly focused on the goal of compounding wealth over the long term.
Along the way, we should never forget the importance of protecting what we have and
ensuring that we are as resilient as possible. 

AFTERWORD
You may have noticed that many of these principles
overlap and are clearly getting at the same ideas
from different angles. But that’s okay. My goal here
is not to write a concise or precise treatise or some
grand unified theory of good behavior for investing
and life. Rather, it is to do an intention-setting
exercise—to set out a series of affirmations as to how
I want to behave, and to commit to them publicly.

WARREN BUFFETT: PHOTO BY CARLO ALLEGRI (REUTERS / ALAMY);

CHARLIE MUNGER: PHOTO BY KENT SIEVERS (SHUTTERSTOCK);
TREES: PHOTO BY POLARPX (SHUTTERSTOCK);
ROAD BIKING ON THE SWISS ALPS GROSSE SCHEIDEGG: PHOTO BY PATITUCCIPHOTO

52
 AUDITOR’S REPORT &
FINANCIAL STATEMENTS

Aquamarine
Master Fund, L.P.
(A BRITISH VIRGIN ISLANDS INTERNATIONAL
LIMITED PARTNERSHIP)

54 Independent Auditor’s Report

Financial Statements
For The Year Ended December 31, 2021

56 Statement of Assets and Liabilities

57 Condensed Schedule of Investments
60 Statement of Operations
61 Statement of Changes in Partners’ Capital
62 Statement of Cash Flows
63 Notes to the Financial Statements

53
 ANNUAL REPORT 2021 Aquamarine

Deloitte Ltd.
Corner House
20 Parliament Street
P.O. Box HM 1556
Hamilton HM FX
Bermuda

Tel: + 1 (441) 292 1500

Fax: + 1 (441) 292 0961
www.deloitte.com

INDEPENDENT AUDITOR’S REPORT

To the General Partner and Limited Partners of

Aquamarine Master Fund, L.P.

Opinion
We have audited the financial statements of Aquamarine Master Fund, L.P. (the “Master Fund”),
which comprise the statement of assets and liabilities, including the condensed schedule of
investments, as of December 31, 2021 and the related statements of operations, changes in
partners’ capital, and cash flows, for the year then ended, and the related notes to the financial
statements (collectively referred to as the “financial statements”).
In our opinion, the accompanying financial statements present fairly, in all material respects, the
financial position of the Master Fund as of December 31, 2021 and the results of its operations,
changes in partners’ capital and its cash flows for the year then ended in accordance with
accounting principles generally accepted in the United States of America.

Basis for Opinion

We conducted our audit in accordance with auditing standards generally accepted in the United
States of America (GAAS). Our responsibilities under those standards are further described in the
Auditor’s Responsibilities for the Audit of the Financial Statements section of our report. We are
required to be independent of the Master Fund and to meet our other ethical responsibilities, in
accordance with the relevant ethical requirements relating to our audit. We believe that the audit
evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

Responsibilities of Management for the Financial Statements

Management is responsible for the preparation and fair presentation of the financial statements
in accordance with accounting principles generally accepted in the United States of America, and
for the design, implementation, and maintenance of internal control relevant to the preparation
and fair presentation of financial statements that are free from material misstatement, whether
due to fraud or error.
In preparing the financial statements, management is required to evaluate whether there are
conditions or events, considered in the aggregate, that raise substantial doubt about the Master
Fund’s ability to continue as a going concern for a period of one year after the date that the finan-
cial statements are issued.

54
Aquamarine Master Fund, L.P. AUDITOR’S REPORT

Auditor’s Responsibilities for the Audit of the Financial Statements

Our objectives are to obtain reasonable assurance about whether the financial statements as
a whole are free from material misstatement, whether due to fraud or error, and to issue an
auditor’s report that includes our opinion.
Reasonable assurance is a high level of assurance but is not absolute assurance and therefore is
not a guarantee that an audit conducted in accordance with GAAS will always detect a material
misstatement when it exists. The risk of not detecting a material misstatement resulting
from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery,
intentional omissions, misrepresentations, or the override of internal control. Misstatements are
considered material if there is a substantial likelihood that, individually or in the aggregate, they
would influence the judgment made by a reasonable user based on the financial statements.
In performing an audit in accordance with GAAS, we:
• Exercise professional judgment and maintain professional skepticism throughout the audit.
• Identify and assess the risks of material misstatement of the financial statements,
whether due to fraud or error, and design and perform audit procedures responsive to
those risks. Such procedures include examining, on a test basis, evidence regarding the
amounts and disclosures in the financial statements.
• Obtain an understanding of internal control relevant to the audit in order to design audit
procedures that are appropriate in the circumstances, but not for the purpose of
expressing an opinion on the effectiveness of the Master Fund’s internal control.
Accordingly, no such opinion is expressed.
• Evaluate the appropriateness of accounting policies used and the reasonableness of
significant accounting estimates made by management, as well as evaluate the overall
presentation of the financial statements.
• Conclude whether, in our judgment, there are conditions or events, considered in the
aggregate, that raise substantial doubt about the Master Fund’s ability to continue as
a going concern for a reasonable period of time.
We are required to communicate with those charged with governance regarding, among other
matters, the planned scope and timing of the audit, significant audit findings, and certain
internal control-related matters that we identified during the audit.

March 3, 2022

Deloitte refers to one or more of Deloitte Touche Tohmatsu Limited (“DTTL”), its global network of member firms, and their related entities
(collectively, the “Deloitte organization”). DTTL (also referred to as “Deloitte Global”) and each of its member firms and related entities are
legally separate and independent entities, which cannot obligate or bind each other in respect of third parties. DTTL and each DTTL member firm
and related entity is liable only for its own acts and omissions, and not those of each other. DTTL does not provide services to clients. Please see
www.deloitte.com/about to learn more. Deloitte Ltd. is an affiliate of DCB Holding Ltd., a member firm of Deloitte Touche Tohmatsu Limited.

55
 ANNUAL REPORT 2021 Aquamarine

Statement of Assets and Liabilities

At December 31, 2021 (Expressed in United States dollars)

Note

 ASSETS
Investments in securities, at fair value (cost: $120,524,186) 4 $352,398,201
Cash and cash equivalents 3 6,058,390
Receivables and prepayments 20,000

Total assets 358,476,591

 LIABILITIES
Capital withdrawals payable 4,606,512
Management fee payable 6 293,439
Accrued expenses and other payables 3,563,845

Total liabilities 8,463,796

 PARTNERS’ CAPITAL 5 $350,012,795

See notes to the financial statements

56
Aquamarine Master Fund, L.P. FINANCIAL STATEMENTS

Condensed Schedule of Investments

At December 31, 2021 (Expressed in United States dollars)

Amount Description Percentage Fair Value

of Shares of Partners’ Capital

 INVESTMENTS IN SECURITIES, AT FAIR VALUE

C OMMON STOCKS
United States of America
>Commercial Services
65,750 Mastercard Inc, (cost: $1,019,194) 6.75% $23,625,290
Other, (cost: $2,518,385) 3.01 10,545,660
Total Commercial Services (cost: $3,537,579) 9.76 34,170,950

>Consumer Finance
767,845 Bank of America Corp., (cost: $5,181,863) 9.76 34,161,424

>Application Software, (cost: $3,862,732) 1.17 4,102,394

>Insurance
140,600 Berkshire Hathaway Inc. Class B, 12.01 42,039,400
(cost: $10,112,100)
30 Berkshire Hathaway Inc. Class A, 3.86 13,519,860
(cost: $3,269,700)

Total Insurance (cost: $13,381,800) 15.87 55,559,260

>Diversified Financial Services

210,000 American Express Company, 9.82 34,356,000
(cost: $10,906,129)

>Semiconductor Devices
200,000 Micron Technology Inc., (cost: $11,199,203) 5.32 18,630,000

>REITS, (cost: $19,620,221) 1.90 6,635,000

>Internet Media & Services, (cost: $2,127,123)

1.03 3,614,233

Total United States, (cost: $69,816,650)

54.63% $191,229,261

See notes to the financial statements

57
 ANNUAL REPORT 2021 Aquamarine

Condensed Schedule of Investments

At December 31, 2021 (Expressed in United States dollars)

Amount Description Percentage Fair Value

of Shares of Partners’ Capital

 INVESTMENTS IN SECURITIES, AT FAIR VALUE (continued)

COMMON STOCKS (continued)

China
>Auto Manufacturers
1,550,000 BYD Co Ltd, (cost: $4,986,800) 15.14% $53,001,308

Total China, (cost: $4,986,800) 15.14% $53,001,308

India
>Electricity & Gas Marketing & Trading
13,200,000 Indian Energy Exchange Ltd, 12.79% $44,782,934
(cost: $10,557,400)

>Information Services, (cost: $3,314,694)

0.83 2,908,678

Total India, (cost: $13,872,094) 13.62% $47,691,612

Italy
>Auto Manufacturers
80,000 Ferrari N.V., (cost: $332,807) 5.91 $20,693,400
>Internet Media & Services,
2.32 8,109,550
(cost: $10,131,466)
>Investment Companies, (cost: $7,752,890) 3.85 13,466,628

Total Italy, (cost: $18,217,163) 12.08% $42,269,578

Switzerland
>Food, (cost: $3,503,681) 3.59% $12,563,917

Zimbabwe
>Building Materials, (cost: $2,342)
0.00% $0

TOTAL COMMON STOCKS,

AT FAIR VALUE (cost: $110,398,730) 99.06% $346,755,676

See notes to the financial statements

58
Aquamarine Master Fund, L.P. FINANCIAL STATEMENTS

Amount Description Percentage Fair Value

of Shares of Partners’ Capital

 INVESTMENTS IN SECURITIES, AT FAIR VALUE (continued)

AMERICAN DEPOSITORY RECEIPT (ADR)

United States of America
Online Marketplace, (cost: $10,125,456) 1.61% $5,642,525

TOTAL AMERICAN DEPOSITORY RECEIPT (ADR)
AT FAIR VALUE (COST: $10,125,456) 1.61% $5,642,525


TOTAL INVESTMENTS IN SECURITIES,
AT FAIR VALUE (COST: $120,524,186) 100.67% $352,398,201

See notes to the financial statements

59
 ANNUAL REPORT 2021 Aquamarine

Statement of Operations
For the year ended December 31, 2021 (Expressed in United States dollars)

Note

 INVESTMENT INCOME
Dividends (net of withholding taxes of $503,906) $1,519,779

1,519,779

 EXPENSES
Management fee 6 3,208,621
Administration fee 7 338,061
Brokerage and bank expenses 107,087
Professional fees 58,684
Other expenses 3,596

3,716,049

 NET INVESTMENT LOSS

(2,196,270)

 NET REALIZED GAIN AND NET CHANGE IN UNREALIZED

APPRECIATION FROM INVESTMENTS
AND FOREIGN CURRENCIES:
Net realized gain (loss) from:
Investments in securities 3,942,481
Foreign currency transactions (51,936)

3,890,545
Net change in unrealized appreciation (depreciation) on:
Investments in securities (including tax of $3,147,830) 79,601,949
Foreign currency transactions (1,820,169)

77,781,780

 NET REALIZED GAIN AND NET CHANGE IN UNREALIZED

APPRECIATION FROM INVESTMENTS AND FOREIGN
CURRENCIES 81,672,325

 NET INCREASE IN PARTNERS’ CAPITAL RESULTING

FROM OPERATIONS $79,476,055

See notes to the financial statements

60
Aquamarine Master Fund, L.P. FINANCIAL STATEMENTS

Statement of Changes in Partners’ Capital

For the year ended December 31, 2021 (Expressed in United States dollars)

General Special Limited Limited

Partner Partner Partners Total

 PARTNERS’ CAPITAL,
DECEMBER 31, 2020 $ - $18,917,571 $253,990,683 $272,908,254

 INCREASE/(DECREASE) IN
PARTNERS’ CAPITAL:

From operations
Net increase in partners’
capital - 6,316,347 73,159,708 79,476,055
Incentive allocation 3,656,511 8,780,774 (12,437,285) -

From capital transactions

Capital contributions - - 11,981,798 11,981,798
Capital withdrawals (3,656,511) (350,000) (10,346,801) (14,353,312)

 PARTNERS’ CAPITAL,
DECEMBER 31, 2021 $ - $33,664,692 $316,348,103 $350,012,795

See notes to the financial statements

61
 ANNUAL REPORT 2021 Aquamarine

Statement of Cash Flows

For the year ended December 31, 2021 (Expressed in United States dollars)

 CASH FLOWS PROVIDED BY/(USED IN):

 OPERATING ACTIVITIES:
Net increase in partners’ capital resulting from operations $79,476,055
Adjustments to reconcile net increase in partners’ capital resulting
from operations to net cash used in operating activities:
- Net realized gain from investments (3,941,885)
- Net change in unrealized appreciation on investments (81,017,544)
- Payments for investments purchased (24,119,654)
- Proceeds from investments sold 7,932,325
- Change in receivables and prepayments (16,830)
- Change in due to related parties 53,473
- Change in accrued expenses and other payables 3,131,841

Net cash used in operating activities (18,502,219)

 FINANCING ACTIVITIES
Capital contributions received 11,981,798
Capital withdrawals paid, net of changes in capital withdrawals payable (13,926,116)

Net cash used in financing activities (1,944,318)

 NET CHANGE IN CASH AND CASH EQUIVALENTS (20,446,537)

 CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 26,504,927

 CASH AND CASH EQUIVALENTS, END OF YEAR $6,058,390

See notes to the financial statements

62
Aquamarine Master Fund, L.P. FINANCIAL STATEMENTS

Notes to the Financial Statements

For the year ended December 31, 2021 (Expressed in United States dollars)

1. ORGANIZATION AND BUSINESS ACTIVITY

Aquamarine Master Fund, L.P. (the “Master Fund”) was formed as an International Limited
Partnership in the Territory of the British Virgin Islands (“BVI”) on February 7, 2007 in accordance
with the Partnership Act, 1996, and commenced trading on April 1, 2007. The Master Fund
is recognised under the BVI Securities and Investment Business Act 2010, as a “professional”
mutual fund.
The Master Fund operates under a “master/feeder” structure where its investors invest substantially
all of their investable assets in the Master Fund. The Master Fund’s feeders are Aquamarine Fund,
Inc., a BVI Business Company (the “Offshore Feeder”), and Aquamarine Value Fund, L.P., a
Delaware Limited Partnership (the “Onshore Feeder”), (collectively the “Feeder Funds”).
The investment objective of the Master Fund is to compound wealth for investors over the
long term. Entirely consistent with this goal is a strict focus on the potential downside for any
investment. Conceptually, the objective is to “double” investors’ wealth several times over the
course of a lifetime. Practically, this translates into the goal of outperforming most equity indices
by 5-15% annually.
Aquamarine Capital Management, LLC (the “Investment Manager”), a New York limited liability
company serves as the investment manager to the Master Fund and is responsible for certain
administrative and investment advisory services for the Master Fund. The Investment Manager is
a registered adviser with the U.S. Securities and Exchange Commission and its principal decision
maker is Guy Spier.
Aquamarine Zürich AG (the “Asset Manager”), a Swiss company limited by shares, which is
affiliated to the Investment Manager through common ownership, is sub-contracted by the
Investment Manager to provide asset management services in Switzerland to the Master Fund.
The Asset Manager is licensed with the Swiss Financial Market Supervisory Authority (“FINMA”)
as an Asset Manager for Collective Investment Schemes.

2. SIGNIFICANT ACCOUNTING POLICIES

Basis of preparation
The financial statements have been prepared in conformity with accounting principles generally
accepted in the United States of America (“US GAAP”) and are stated in the United States (“US”)
dollars. The following is a summary of the significant accounting and reporting policies used in
preparing the financial statements.
Investment Company
The Master Fund is considered an investment company pursuant to Accounting Standards
Update No. 2013-08, Financial Services - Investment Companies (Topic 946): Amendments to the Scope,
Measurement and Disclosure Requirements ("ASU 2013-08"), and therefore follows the accounting
and reporting guidance for investment companies.

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 ANNUAL REPORT 2021 Aquamarine

Notes to the Financial Statements

For the year ended December 31, 2021 (Expressed in United States dollars)

2. SIGNIFICANT ACCOUNTING POLICIES (continued)

Use of estimates
The preparation of financial statements in conformity with US GAAP requires management to
make estimates and assumptions that affect the reported amounts in the financial statements
and accompanying notes. Actual results could differ from those estimates and the differences
could be material.
Investments valuation
The Master Fund values its investments in accordance with Financial Accounting Standards Board
(the “FASB”) Accounting Standards Codification (“ASC”) Topic 820, Fair Value Measurements and
Disclosures (“ASC 820”) which defines fair value, establishes a framework for measuring value,
and requires certain disclosures about fair value measurements.
Fair value is the amount that would be received to sell an asset or paid to transfer a liability, in an
orderly transaction between market participants at the measurement date. See note 4, Fair Value
Measurements, for further discussion relating to the Master Fund’s investments.
Securities listed on national securities exchanges are valued at their last sales price on the day
of valuation. If no sales occurred on that day, such securities shall be valued at the last closing
bid prices for investments if held long and their last closing asked prices for securities sold short.
If no bid or asked prices are quoted on such date, the security shall be fair valued by certain
methods as the Investment Manager shall determine in good faith to reflect its fair market value.
The change in unrealized appreciation on investments in securities is reflected in the statement
of operations.
Geographical and industry classifications
The geographical and industry classifications included in the condensed schedule of investments
represent the Investment Manager’s belief as to the most meaningful presentation of the
classification of the Master Fund’s investments.
Fair value of financial instruments
The fair value of the Master Fund’s assets and liabilities which qualify as financial instruments
under ASC 825, Financial Instruments: Disclosure about Fair Value of Financial Instruments, approximates
the carrying amounts presented in the statement of assets and liabilities.
Cash and cash equivalents
The Master Fund considers cash at bank, short-term deposits and other short-term highly liquid
investments with original maturities of three months or less to be cash and cash equivalents.
Capital withdrawals payable
The Master Fund recognizes capital withdrawals payable in accordance with ASC 480,
Distinguishing Liabilities from Equity (“ASC 480”). Capital withdrawals are recognized as liabilities
when the amount requested in the capital withdrawal notice becomes fixed.

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Aquamarine Master Fund, L.P. FINANCIAL STATEMENTS

2. SIGNIFICANT ACCOUNTING POLICIES (continued)

Revenue and expense recognition
The Master Fund records its transactions in securities, including short sale of securities, on a
trade date basis. Realized gains and losses on investment transactions are determined based on
the first-in, first-out cost basis. Interest income is recorded on the accrual basis. Dividend income
is recognized on the ex-dividend date and is recorded net of withholding taxes, where applicable.
Interest expense and other operating expenses are recorded on the accrual basis.
Foreign currency
Investments in securities and other assets and liabilities denominated in foreign currencies are
translated into U.S. dollar amounts at the date of valuation. Purchases and sales of investment
securities and income and expense items denominated in foreign currencies are translated into
US dollar amounts on the respective dates of such transactions.
The Master Fund does not isolate that portion of the results of operations resulting from changes
in foreign exchange rates on investments from the fluctuations arising from changes in market
prices of securities held when the securities are sold. Such fluctuations are included with the net
realized gain or loss from investments in the statement of operations.
Reported net realized foreign exchange gains or losses arise from sales of foreign currencies,
currency gains or losses realized between the trade and settlement dates on securities transactions,
and the difference between the amounts of dividends, interest and foreign withholding taxes
recorded on the Master Fund’s books and the US dollar equivalent of the amounts actually
received or paid. Net unrealized foreign exchange gain and loss arise from changes in the fair
values of assets and liabilities, other than investments in securities at fiscal year end, resulting
from changes in exchange rates.
Income taxes
Under the current laws of the BVI, the Master Fund is not subject to income taxes. The Master
Fund intends to conduct its affairs such that it will not be subject to taxation in any jurisdiction,
other than withholding taxes on investment income and capital gains, where applicable.
The Master Fund reviews and evaluates tax positions in its major jurisdictions and determines
whether or not there are uncertain tax positions that require financial statement recognition.
In determining the major tax jurisdictions, the Master Fund considers where it is organized and
where it makes investments. The Master Fund’s US Federal and state tax returns for 2018 to 2021
remain open for examination by tax authorities and tax positions associated with foreign tax
jurisdictions remain subject to examination based on varying statutes of limitations.
The Master Fund is not aware of any other tax positions for which it is reasonably possible that
the total amounts of unrecognized tax benefits will change materially in the next twelve months.
The determination of income taxes is based on complex analyses of many factors, including
matters that are subject to interpretation.
Individual partners of the Onshore Feeder, General Partner and Special Limited Partner of the
Master Fund are taxed on their proportionate share of the Master Fund’s income.

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 ANNUAL REPORT 2021 Aquamarine

Notes to the Financial Statements

For the year ended December 31, 2021 (Expressed in United States dollars)

3. CASH AND CASH EQUIVALENTS

The “Cash and cash equivalents” balance in the statement of assets and liabilities includes the
net cash and cash equivalents at December 31, 2021. This amount includes cash denominated in
foreign currencies with a fair value of $27,191 (cost $59,665) at December 31, 2021.

4. FAIR VALUE MEASUREMENT

The Master Fund selects an appropriate valuation technique for the market conditions and
for which sufficient, reliable data inputs are available. The Master Fund distinguishes between
inputs that are based on market data obtained from independent sources and inputs that
reflect assumptions from one market participant as to actions of other market participants and
emphasizes those valuation inputs based on market data. A determination of what constitutes
“observable market data” requires significant judgment.
Market price observability is affected by a number of factors, including the type of investment
and the characteristics specific to the investment. Investments with readily available active quoted
prices or for which fair value can be measured from actively quoted prices, generally will have a
higher degree of market price observability and a lesser degree of judgment used in measuring
fair value.
Inputs to valuation techniques used by the Master Fund to determine the fair value of an asset or
a liability are prioritized based upon a hierarchy, which gives priority to observable inputs in the
marketplace that are more objective, rather than inputs that are more subjective because they
have been derived through extrapolation or interpolation from market data. In certain cases,
the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In
such cases, an investment’s level within the fair value hierarchy is based on the lowest level of
input that is significant to the fair value measurement. The following describes the three levels
of the fair value hierarchy, provides general characteristics and examples of measurement inputs
associated with each hierarchical level as well as valuation techniques used by the Master Fund
for components of its financial instrument inventory.
Investments measured and reported at fair value are classified and disclosed in one of the
following categories:
Level 1 Inputs are unadjusted quoted prices in active markets that are accessible at the
measurement date for identical and unrestricted assets or liabilities. The types of investments
included in Level 1 are exchange traded equities and derivatives. Level 1 investments are primarily
securities that are listed or traded on a national or global exchange.
Level 2 Inputs are observable, either directly or indirectly, but do not qualify as Level 1 inputs and
may include:
• Quoted prices in markets that are not considered to be active for identical or similar assets or
liabilities, quoted prices in active markets for similar assets or liabilities, and inputs other than
quoted prices that are observable or can be corroborated by observable market data, or price
quotations vary substantially either over time or among market makers (e.g., some brokered
markets), or in which little information is released publicly (e.g., a principal-to-principal market)

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Aquamarine Master Fund, L.P. FINANCIAL STATEMENTS

4. FAIR VALUE MEASUREMENT (continued)

• Inputs other than quoted prices that are observable for the asset or liability (e.g., interest rates
and yield curves observable at commonly quoted intervals, volatilities, prepayment speeds, loss
severities, credit risks, and default rates)
• Inputs that are derived principally from or corroborated by observable market data through
correlation or by other means (market-corroborated inputs)
Level 3 Inputs are both significant to the fair value measurement and unobservable, including
inputs that are not derived from market data or cannot be corroborated by market data. The
inputs into the determination of fair value require significant management judgment or estimation.
Level 3 inputs reflect the Master Fund’s assumptions that it believes market participants would
use in pricing the asset or liability.
Level 3 inputs are based on the best information available in the circumstances, which may
include indirect correlation to a market value, combinations of market values or proprietary data.
At December 31, 2021, all of the Master Fund’s investments were valued using Level 1 inputs.

5. PARTNERS’ CAPITAL
Capital contributions
The Master Fund GP may admit new limited partners and permit limited partners to make
additional capital contributions on the first business day of each calendar month or at any other
time in the Master Fund GP’s sole discretion. The minimum initial and additional contribution
to the Master Fund by each investor shall be such minimum as determined by the Master Fund
GP from time to time.
Capital withdrawals
A limited partner has the right upon five (5) days prior written notice to the Master Fund GP to
make a partial or total withdrawal from its capital account as of the last business day of each
calendar quarter or such other date as determined by the Master Fund GP.
Allocation of net profits and net losses
Net profits or net losses during any fiscal period shall be allocated as of the end of such fiscal
period to the capital accounts of all the partners in the proportion that the balance of each
partner’s capital account as of the beginning of such fiscal period bore to the aggregate of the
capital accounts of all the partners as of the beginning of such fiscal period.
Special Limited Partner
The Special LP is entitled to receive a portion of the incentive allocation with respect to the
Offshore Feeder’s capital account in the Master Fund. At December 31, 2021, the Special LP’s
proportionate interest in the partners’ capital of the Master Fund is 9.62%.

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 ANNUAL REPORT 2021 Aquamarine

Notes to the Financial Statements

For the year ended December 31, 2021 (Expressed in United States dollars)

6. RELATED PARTY TRANSACTIONS AND BALANCES

Management fees
Under the terms of an investment management agreement dated April 1, 2007 the Investment
Manager has agreed to render investment management services to the Master Fund.
The Investment Manager receives a monthly management fee in arrears of an amount equal to
approximately 0.0833% (1% per annum) of the capital account for applicable non-related party
investors and approximately 0.1667% (2% per annum) of the capital account for related parties,
as of the last business day of each calendar month.
Management fee is payable by Class A limited partners of the Onshore Feeder, and Class A and
Class B shareholders of the Offshore Feeder. No management fees are paid by the Special LP,
Class B, Class E and Class F limited partners of the Onshore Feeder and Class C, Class D, Class E
and Class F shareholders of the Offshore Feeder.
For the year ended December 31, 2021, the Investment Manager earned $18,147 from the
Onshore Feeder and $3,190,474 from the Offshore Feeder, of which $293,439 is payable at the
reporting date.
Incentive allocation
Offshore Feeder
Incentive allocation is calculated on the Offshore Feeder in accordance with the confidential
information memorandum dated October 1, 2008 as amended in September 2021.
Subject to the “loss recovery account provisions” discussed below, the following amounts will
be reallocated (in the aggregate) from the Offshore Feeder’s capital account in the Master Fund
collectively to the Master Fund GP’s and Special LP’s capital accounts in the Master Fund:
(i) at the end of each calendar quarter of the Master Fund, 20% of the Class A and Class B
aggregate net increase, in excess of the Class A and Class B hurdle return;
(ii) at the end of each calendar year of the Master Fund, 25% of the Class C aggregate net
increase in excess of the Class C hurdle return.
(iii) at the end of each calendar year of the Master Fund, 25% of the Class D aggregate net
increase in excess of the Class D hurdle return.
(iv) at the end of each calendar year of the Master Fund, 25% of the Class E aggregate net
increase in excess of the Class E hurdle return.
(v) the end of each calendar year of the Master Fund, 15% of the Class F aggregate net increase
in excess of the Class F hurdle return.

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Aquamarine Master Fund, L.P. FINANCIAL STATEMENTS

6. RELATED PARTY TRANSACTIONS AND BALANCES (continued)

The incentive allocation shall be allocated as follows: 15% will be allocated to the capital account
of the Master Fund GP, and 85% will be allocated to the capital account of the Special LP.
Class A and Class B hurdle return means an amount equal to one percent (1%) of the portion of
the Offshore Feeder’s capital account balance in the Master Fund which is attributable to Class
A and Class B shareholders, calculated as of the beginning of each calendar quarter. The Class A
and Class B hurdle return will be adjusted throughout the applicable period to reflect additional
contributions and withdrawals by the Class A and Class B shareholders of the Offshore Feeder in
the Master Fund. The Class A and Class B hurdle return is cumulative with respect to each quarter
during a calendar year but not from year to year.
Class C/D hurdle return means an amount equal to six percent (6%) of the portion of the
Offshore Feeder capital account balance in the Master Fund which is attributable to Class C/D
shareholders, calculated as of the beginning of each calendar year.
The Class C/D hurdle return will be adjusted throughout the applicable period to reflect additional
contributions and withdrawals by the Class C/D shareholders of the Offshore Feeder in the
Master Fund. The Class C/D hurdle return is non-cumulative with respect to each calendar year.
Class E and Class F hurdle return means an amount equal to six percent (6%) of the portion of
the Offshore Feeder capital account balance in the Master Fund which is attributable to Class E
and Class F shareholders, calculated as of the beginning of each calendar year.
The Class E and Class F hurdle return will be adjusted throughout the applicable period to reflect
additional contributions and withdrawals by the Class E and Class F shareholders of the Offshore
Feeder in the Master Fund. The Class E and Class F hurdle return is cumulative with respect to
each calendar year.
Under a loss carry forward recovery account, no incentive allocation is made from the sub-capital
account of a particular shareholder of the Offshore Feeder until any net loss previously allocated
to the sub-capital account of such shareholder has been offset by subsequent net profits. Any
such loss carry forward will be subject to reduction for redemptions on a pro rata basis.
The incentive allocation shall be allocated as of the end of the performance period to the capital
account of the Master Fund GP and Special LP. The Master Fund GP and Special LP may, at their
sole discretion, waive or reduce the incentive allocation with respect to any shareholder.
For the year ended December 31, 2021, $8,780,774 and $1,549,548 were allocated from the
Offshore Feeder to the Special LP and the Master Fund GP, respectively.

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 ANNUAL REPORT 2021 Aquamarine

Notes to the Financial Statements

For the year ended December 31, 2021 (Expressed in United States dollars)

6. RELATED PARTY TRANSACTIONS AND BALANCES (continued)

Onshore Feeder
Incentive allocation is calculated on the Onshore Feeder in accordance with the amended and
restated confidential private placement memorandum dated January 1, 2008 as amended in
January 2019.
Subject to the “loss recovery account provisions” discussed below, the following amounts will be
reallocated (in the aggregate) from the Onshore Feeder’s capital account in the Master Fund to
the Master Fund GP’s capital account in the Master Fund:
(i) at the end of each calendar quarter, 20% of the Class A aggregate net increase, in excess
of the Class A hurdle return;
(ii) at the end of each calendar year of the Master Fund, 25% of the Class B aggregate net
increase in excess of the Class B hurdle return.
(iii) at the end of each calendar year of the Master Fund, 25% of the Class E aggregate net
increase in excess of the Class E hurdle return.
(iv) at the end of each calendar year of the Master Fund, 15% of the Class F aggregate net
increase in excess of the Class F hurdle return.
Class A hurdle return means an amount equal to one percent (1%) of the portion of the Onshore
Feeder’s capital account balance in the Master Fund which is attributable to Class A limited
partners, as of the beginning of each calendar quarter. The Class A hurdle return will be adjusted
throughout the applicable period to reflect additional capital contributions and withdrawals by
the Class A limited partners in the Master Fund. The Class A hurdle return is cumulative with
respect to each quarter during a calendar year but not from year to year.
Class B hurdle return means an amount equal to six percent (6%) of the portion of the Onshore
Feeder’s capital account balance in the Master Fund which is attributable to Class B limited
partners, calculated as of the beginning of each calendar year. The Class B hurdle return will
be adjusted throughout the applicable period to reflect additional capital contributions and
withdrawals by the Class B limited partners in the Master Fund. The Class B hurdle return is non-
cumulative with respect to each calendar year.
Class E hurdle return means an amount equal to six percent (6%) of the portion of the Onshore
Feeder’s capital account balance in the Master Fund which is attributable to Class E limited
partners, calculated as of the beginning of each calendar year. The Class E hurdle return will
be adjusted throughout the applicable period to reflect additional capital contributions and
withdrawals by the Class E limited partners in the Master Fund. The Class E hurdle return is
cumulative with respect to each calendar year.

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Aquamarine Master Fund, L.P. FINANCIAL STATEMENTS

6. RELATED PARTY TRANSACTIONS AND BALANCES (continued)

Class F hurdle return means an amount equal to six percent (6%) of the portion of the Onshore
Feeder’s capital account balance in the Master Fund which is attributable to Class F limited
partners, calculated as of the beginning of each calendar year. The Class F hurdle return will
be adjusted throughout the applicable period to reflect additional capital contributions and
withdrawals by the Class F limited partners in the Master Fund. The Class F hurdle return is
cumulative with respect to each calendar year.
Under a loss carry forward recovery account, no incentive allocation is made from the sub-capital
account of a limited partner of the Onshore Feeder until any net loss previously allocated to the
sub-capital account of such limited partner has been offset by subsequent net profits. Any such
loss carry forward will be subject to reduction for withdrawals on a pro rata basis.
The incentive allocation shall be allocated as of the end of the performance period to the capital
account of the Master Fund GP. The Master Fund GP may, at its sole discretion, waive or reduce
the incentive allocation with respect to any partners. For the year ended December 31, 2021,
$2,106,963 was allocated to the Master Fund GP from the Onshore Feeder.

7. ADMINISTRATION AGREEMENT
The Master Fund and the Feeder Funds entered into an administration agreement with SS&C
Fund Services (Bermuda) Ltd. (the “Administrator”) a subsidiary of SS&C Globe Op for the
provision of certain accounting, administrative and investor services. The Master Fund pays the
Administrator an annual fee calculated and payable on a monthly basis. The fee is calculated
based on certain percentages of the partners’ capital of the Master Fund at the beginning of each
month and is subject to a monthly minimum of $5,000.
For the year ended December 31, 2021, total administration fees of $338,061 were incurred of
which $31,194 was payable at the reporting date.

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 ANNUAL REPORT 2021 Aquamarine

Notes to the Financial Statements

For the year ended December 31, 2021 (Expressed in United States dollars)

8. RISK FACTORS
Investment in the Master Fund involves significant risk factors and is suitable only for persons who
can bear the economic risk of the loss of their investment, who have limited need for liquidity in
their investment and who meet the conditions set forth in the private placement memorandum.
There can be no assurances that the Master Fund will achieve its investment objective.
Investment in the Master Fund carries with it the inherent risks associated with investments in
securities, as well as additional risks including, but not limited to, the following:
Borrowings and leverage
The Master Fund may utilize leverage in its investment program by entering into short sales,
options and other similar techniques.
The concept of leverage is based on the premise that the Master Fund’s cost of borrowing will be
at rates that normally will be lower than the rate of return earned on the longer term investments
it holds.
While the use of leverage may increase the returns on capital invested in the Master Fund, the use
of leverage also increases the risk of loss of such capital, because the claims of lenders on assets
and income of the Master Fund will be senior to the claims of the investors.
Financial instruments and associated risks
The Master Fund maintains active trading positions in a variety of instruments as directed by its
investment management strategy. The investing activities of the Master Fund expose it to various
types of risk, which are associated with the financial instruments and markets in which it invests.
Such risks include, but are not limited to, market risk, credit risk and liquidity risk.
Market risk
Market risk is the risk that future changes in equity and commodity prices, interest rates and
foreign exchange rates may make an instrument less valuable or more onerous. Market risk
includes price risk, interest rate risk and currency risk. All investments held are subject to market
risk, are recognized at fair value, and all changes in market condition directly affect net increase/
decrease in partners’ capital resulting from operations.
The Master Fund manages its exposure to market risk in accordance with risk management
principles set by the Investment Manager for buying or selling instruments.

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Aquamarine Master Fund, L.P. FINANCIAL STATEMENTS

8. RISK FACTORS (continued)

Price risk – The Master Fund is exposed to market risk on financial instruments that are valued at
market prices. Specifically, a risk exists that the ultimate selling price of such financial instruments
may differ from their estimated fair values at December 31, 2021.
Interest rate risk – Certain of the Master Fund’s financial assets and liabilities are interest bearing
and as a result the Master Fund is subject to risk due to fluctuations in the prevailing levels of
market interest rates.
Currency risk – The functional currency of the Master Fund is the US dollar. The Master Fund
invests in financial instruments denominated in currencies other than its functional currency.
Consequently, the Master Fund is exposed to risks that the exchange rate of its currency relative
to other currencies may change in a manner that has an adverse effect on the value of the portion
of the Master Fund’s assets or liabilities denominated in currencies other than US dollars.
Credit risk
Credit risk is the risk that the counterparty to a financial instrument will fail to discharge an
obligation or commitment that it has entered into with the Master Fund. Credit risk is generally
higher when a non-exchange traded financial instrument is involved because the counterparty for
non-exchange traded financial instruments is not backed by an exchange clearing house.
Substantially all financial instruments are cleared through and held in custody primarily by two
major international institutions. The Master Fund is subject to credit risk to the extent that these
institutions may be unable to fulfill their obligations either to return the Master Fund’s securities
or repay amounts owed.
The risk that counterparties to both derivative and other instruments might default on their
obligations is monitored on an ongoing basis. To manage the level of credit risk, the Master Fund
seeks to conduct business with counterparties of good credit standing.
Liquidity risk
Liquidity risk is the risk that the Master Fund may have difficulty in liquidating its positions due to
existing or unforeseen market constraints. The Master Fund’s financial instruments may include
investments that are traded over-the-counter, which are not traded in an organized public market
and may generally be illiquid. As a result, the Master Fund may not be able to quickly liquidate
investments or respond to specific events such as deterioration in the creditworthiness of any
particular issuer.
At December 31, 2021, the Master Fund’s listed securities are considered to be readily realizable
as they are listed on major United States and international stock exchanges.
These risks are monitored on an ongoing basis and the composition of the portfolio is amended
accordingly while adhering to the investment guidelines set forth in the Master Fund’s confidential
information memorandum.

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 ANNUAL REPORT 2021 Aquamarine

Notes to the Financial Statements

For the year ended December 31, 2021 (Expressed in United States dollars)

9. FINANCIAL HIGHLIGHTS
The following financial highlights are calculated for the limited partners taken as a whole and
exclude data for the Master Fund GP and Special LP.
Individual limited partner’s returns will vary due to the timing of capital contributions and
withdrawals, and different management fees and incentive allocation arrangements.
Total return
Total return before incentive allocation 28.68%
Incentive allocation (4.87)  
Total return after incentive allocation 23.81%

Ratio to average limited partners’ capital*

Operating expenses before incentive allocation 1.23%
Incentive allocation 4.15
Operating expenses after incentive allocation 5.38%

Net investment loss before incentive allocation (1.73)%

*Ratios of operating expenses and net investment gain (loss) are computed based on the monthly average
of the partners’ capital of all limited partners excluding the Special LP for the year.

10. SUBSEQUENT EVENTS

Management has evaluated subsequent events occurring through March 3, 2022, the date that
these financial statements were available for issue, and found that there were no significant events
which would have a material bearing on these financial statements.

74
 AUDITOR’S REPORT &
FINANCIAL STATEMENTS

Aquamarine
Fund, Inc.
(A BRITISH VIRGIN ISLANDS
BUSINESS COMPANY)

76 Independent Auditor’s Report

Financial Statements
For The Year Ended December 31, 2021

78 Statement of Assets and Liabilities

79 Statement of Operations
80 Statement of Changes in Net Assets
81 Statement of Cash Flows
82 Notes to the Financial Statements

75
 ANNUAL REPORT 2021 Aquamarine

Deloitte Ltd.
Corner House
20 Parliament Street
P.O. Box HM 1556
Hamilton HM FX
Bermuda

Tel: + 1 (441) 292 1500

Fax: + 1 (441) 292 0961
www.deloitte.com

INDEPENDENT AUDITOR’S REPORT

To the General Partner and Limited Partners of

Aquamarine Fund, Inc.

Opinion
We have audited the financial statements of Aquamarine Fund, Inc. (the “Offshore Feeder”),
which comprise the statement of assets and liabilities, as of December 31, 2021 and the related
statements of operations, changes in net assets, and cash flows, for the year then ended, and the
related notes to the financial statements (collectively referred to as the “financial statements”).
In our opinion, the accompanying financial statements present fairly, in all material respects,
the financial position of the Offshore Feeder as of December 31, 2021 and the results of its
operations, changes in net assets and its cash flows for the year then ended in accordance with
accounting principles generally accepted in the United States of America.

Basis for Opinion

We conducted our audit in accordance with auditing standards generally accepted in the United
States of America (GAAS). Our responsibilities under those standards are further described in
the Auditor’s Responsibilities for the Audit of the Financial Statements section of our report.
We are required to be independent of the Offshore Feeder and to meet our other ethical
responsibilities, in accordance with the relevant ethical requirements relating to our audit. We
believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis
for our audit opinion.

Responsibilities of Management for the Financial Statements

Management is responsible for the preparation and fair presentation of the financial statements
in accordance with accounting principles generally accepted in the United States of America, and
for the design, implementation, and maintenance of internal control relevant to the preparation
and fair presentation of financial statements that are free from material misstatement, whether
due to fraud or error.
In preparing the financial statements, management is required to evaluate whether there are
conditions or events, considered in the aggregate, that raise substantial doubt about the Off-
shore Feeders ability to continue as a going concern for a period of one year after the date that
the financial statements are issued.

76
Aquamarine Fund, Inc. AUDITOR’S REPORT

Auditor’s Responsibilities for the Audit of the Financial Statements

Our objectives are to obtain reasonable assurance about whether the financial statements as
a whole are free from material misstatement, whether due to fraud or error, and to issue an
auditor’s report that includes our opinion.
Reasonable assurance is a high level of assurance but is not absolute assurance and therefore is
not a guarantee that an audit conducted in accordance with GAAS will always detect a material
misstatement when it exists. The risk of not detecting a material misstatement resulting
from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery,
intentional omissions, misrepresentations, or the override of internal control. Misstatements are
considered material if there is a substantial likelihood that, individually or in the aggregate, they
would influence the judgment made by a reasonable user based on the financial statements.
In performing an audit in accordance with GAAS, we:
• Exercise professional judgment and maintain professional skepticism throughout the audit.
• Identify and assess the risks of material misstatement of the financial statements,
whether due to fraud or error, and design and perform audit procedures responsive
to those risks. Such procedures include examining, on a test basis, evidence regarding the
amounts and disclosures in the financial statements.
• Obtain an understanding of internal control relevant to the audit in order to design audit
procedures that are appropriate in the circumstances, but not for the purpose of
expressing an opinion on the effectiveness of the Offshore Feeder’s internal
control. Accordingly, no such opinion is expressed.
• Evaluate the appropriateness of accounting policies used and the reasonableness of
significant accounting estimates made by management, as well as evaluate the overall
presentation of the financial statements.
• Conclude whether, in our judgment, there are conditions or events, considered in the
aggregate, that raise substantial doubt about the Offshore Feeder’s ability to continue as a
going concern for a reasonable period of time.
We are required to communicate with those charged with governance regarding, among other
matters, the planned scope and timing of the audit, significant audit findings, and certain
internal control-related matters that we identified during the audit.

March 3, 2022

Deloitte refers to one or more of Deloitte Touche Tohmatsu Limited (“DTTL”), its global network of member firms, and their related entities
(collectively, the “Deloitte organization”). DTTL (also referred to as “Deloitte Global”) and each of its member firms and related entities are
legally separate and independent entities, which cannot obligate or bind each other in respect of third parties. DTTL and each DTTL member firm
and related entity is liable only for its own acts and omissions, and not those of each other. DTTL does not provide services to clients. Please see
www.deloitte.com/about to learn more. Deloitte Ltd. is an affiliate of DCB Holding Ltd., a member firm of Deloitte Touche Tohmatsu Limited.

77
 ANNUAL REPORT 2021 Aquamarine

Statement of Assets and Liabilities

At December 31, 2021 (Expressed in United States dollars)

Note

 ASSETS
Investment in Aquamarine Master Fund, L.P., at fair value $258,970,536
Receivable from Aquamarine Master Fund, L.P. 3,238,219
Cash and cash equivalents 2,041,736
Other assets 10,000

Total assets 264,260,491

 LIABILITIES
Redemptions payable 3,238,219
Subscriptions received in advance 2,000,000
Accrued expenses and other payables 47,093

Total liabilities 5,285,312

 NET ASSETS 3 $258,975,179

See notes to the financial statements

78
Aquamarine Fund, Inc. FINANCIAL STATEMENTS

Statement of Operations
For the year ended December 31, 2021 (Expressed in United States dollars)

Note

 NET INVESTMENT LOSS ALLOCATED FROM

AQUAMARINE MASTER FUND, L.P.
Income $ 1,119,347
Expenses 4 (13,908,255)

(12,788,908)

 EXPENSES
Administration fee 5 76,348
Professional fees 84,589
Office expenses 5,548
Director’s fees and expenses 10,000

176,485

 NET INVESTMENT LOSS (12,965,393)

 NET REALIZED GAIN AND NET CHANGE IN UNREALIZED

APPRECIATION FROM INVESTMENTS AND FOREIGN CURRENCIES
ALLOCATED FROM AQUAMARINE MASTER FUND, L.P.
Net realized gain from investments and foreign currencies 2,979,600
Net change in unrealized appreciation from investments
and foreign currencies 59,487,838

 NET REALIZED GAIN AND CHANGE IN UNREALIZED
APPRECIATION 62,467,438

 NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $49,502,045

See notes to the financial statements

79
 ANNUAL REPORT 2021 Aquamarine

Statement of Changes in Net Assets

For the year ended December 31, 2021 (Expressed in United States dollars)

 NET ASSETS, DECEMBER 31, 2020
$212,144,974

 INCREASE/(DECREASE) IN NET ASSETS

From operations
Net investment loss (12,965,393)
Net realized gain from investments and foreign currencies 2,979,600
Net change in unrealized appreciation from investments
and foreign currencies 59,487,838

Net increase in net assets resulting from operations 49,502,045

From capital transactions

Issuance of shares
Class B - Series 11 230,000
Class B - Series 12 1,400,000
Class B - Series 13 1,000,000
Class B - Series 15 230,000
Class B - Series 16 500,000
Class B - Series 17 500,000
Class E - Series 7 500,000
Class E - Series 8 250,000
Class F - Series 15 300,000
Class F - Series 16 150,000
Class F - Series 17 1,091,798
Class F - Series 18 1,000,000

7,151,798

Redemption of shares
Class A - Initial Series (62,837)
Class C - Series 1 (9,660,801)
Class E - Series 4 (100,000)

(9,823,638)

Net decrease in net assets from capital transactions (2,671,840)

 NET ASSETS, DECEMBER 31, 2021

$258,975,179

See notes to the financial statements

80
Aquamarine Fund, Inc. FINANCIAL STATEMENTS

Statement of Cash Flows

For the year ended December 31, 2021 (Expressed in United States dollars)

 CASH FLOWS PROVIDED BY/(USED IN):

 OPERATING ACTIVITIES:
Net increase in net assets resulting from operations $49,502,045
Adjustments to reconcile net increase in net assets resulting
from operations to net cash provided by operating activities:
- Net realized gain from investments and foreign currencies allocated
from Aquamarine Master Fund, L.P. (2,979,600)
- Net change in unrealized appreciation from investments and
foreign currencies allocated from Aquamarine Master Fund, L.P. (59,487,839)
- Net investment loss allocated from Aquamarine Master Fund, L.P. 12,788,908
- Payments for purchases of Aquamarine Master Fund, L.P. (7,141,798)
- Proceeds from sales of Aquamarine Master Fund, L.P. 9,356,000
- Change in other assets (5,680)
- Change in accrued expenses and other payables 14,114

Net cash provided by operating activities 2,046,150

 FINANCING ACTIVITIES
Proceeds from issuance of shares, net of changes in subscriptions
received in advance 9,151,798
Payments on redemption of shares, net of changes in redemptions
payable (9,236,098)

Net cash used in financing activities (84,300)

 NET INCREASE IN CASH AND CASH EQUIVALENTS 1,961,850

 CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 79,886

 CASH AND CASH EQUIVALENTS, END OF YEAR $2,041,736

See notes to the financial statements

81
 ANNUAL REPORT 2021 Aquamarine

Notes to the Financial Statements

For the year ended December 31, 2021 (Expressed in United States dollars)

1. ORGANIZATION AND BUSINESS ACTIVITY

Aquamarine Fund, Inc. (the “Offshore Feeder”) was incorporated in the British Virgin Islands on
June 26, 1997 under the International Business Companies Act and commenced operations on
June 26, 1997. On January 1, 2007, the Offshore Feeder was automatically re-registered under the
BVI Business Companies Act, 2004. The Offshore Feeder is also recognised under the Securities
and Investment Business Act, 2010 as a “professional” mutual fund.
The Offshore Feeder operates under a “master/feeder” structure, where Aquamarine Master
Fund, L.P. (the “Master Fund”), a BVI International Limited Partnership, is the master fund.
The Offshore Feeder invests substantially all of its investable assets in the Master Fund, together
with Aquamarine Value Fund, L.P. (the “Onshore Feeder”), a Delaware Limited Partnership
(collectively, the “Feeder Funds”). As at December 31, 2021, the Offshore Feeder’s proportionate
interest in the partners’ capital of the Master Fund is approximately 75%.
The investment objective of the Offshore Feeder is to compound wealth for shareholders over the
long term. The Offshore Feeder intends to achieve its investment objectives through its investment
in the Master Fund, which has the same investment objectives as the Offshore Feeder.
Aquamarine Capital Management, LLC (the “Investment Manager”), a New York limited liability
company serves as the investment manager to the Feeder Funds and the Master Fund and is
responsible for certain administrative and investment advisory services for the Feeder Funds and
the Master Fund. The Investment Manager is a registered adviser with the Security Exchange
Commission (“SEC”) and its principal decision maker is Guy Spier.
Aquamarine Zürich AG (the “Asset Manager”), a Swiss company limited by shares, which is
affiliated to the Investment Manager through common ownership, is sub-contracted by the
Investment Manager to provide asset management services in Switzerland to the Master Fund.
The Asset Manager is licensed with the Swiss Financial Market Supervisory Authority (“FINMA”)
as an Asset Manager for Collective Investment Schemes.
The performance of the Offshore Feeder is directly affected by the performance of the Master
Fund. The Master Fund utilizes the services of the Investment Manager to invest the assets of the
Offshore Feeder, together with the assets of the Onshore Feeder.
The financial statements of the Master Fund, including the condensed schedule of investments,
are included at the end of this report and should be read in conjunction with the Offshore
Feeder’s financial statements.

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Aquamarine Fund, Inc. FINANCIAL STATEMENTS

2. SIGNIFICANT ACCOUNTING POLICIES

Basis of preparation
The financial statements have been prepared in conformity with accounting principles generally
accepted in the United States of America (“US GAAP”) and are stated in United States (“US”)
dollars. The following is a summary of the significant accounting and reporting policies used in
preparing the financial statements.
Investment Company
The Offshore Feeder is considered an investment company pursuant to Accounting Standards
Update No. 2013-08, Financial Services - Investment Companies (Topic 946): Amendments to the Scope,
Measurement and Disclosure Requirements (“ASU 2013-08”), and therefore follows the accounting
and reporting guidance for investment companies.
Use of estimates
The preparation of financial statements in conformity with US GAAP requires management to
make estimates and assumptions that affect the reported amounts in the financial statements
and accompanying notes. Actual results could differ from those estimates and the differences
could be material.
Valuation of investment in the Master Fund
The Offshore Feeder records its investment in the Master Fund at fair value based on its respective
percentage of the Master Fund’s partners’ capital. Valuation of securities held by the Master
Fund is disclosed in Note 2 of the Master Fund’s notes to the financial statements (the “Master
Fund’s Notes”).
ASC 820, Fair Value Measurement and Disclosures (“ASC 820”) defines fair value, establishes a
framework for measuring fair value and requires certain disclosures about fair value measurements.
Additional disclosures due to the impact of ASC 820 on the Offshore Feeder’s underlying
investments held within the Master Fund are included in Note 4 of the Master Fund’s Notes.
Cash and cash equivalents
The Offshore Feeder classifies cash at bank, and short-term deposits with original maturities of
three months or less as cash and cash equivalents.

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 ANNUAL REPORT 2021 Aquamarine

Notes to the Financial Statements

For the year ended December 31, 2021 (Expressed in United States dollars)

2. SIGNIFICANT ACCOUNTING POLICES (continued)

Revenue and expense recognition
The Offshore Feeder records its proportionate share of the Master Fund’s income, expenses, and
realized and unrealized gains and losses. The Master Fund’s income and expenses recognition
policies and allocation are discussed in Note 2 of the Master Fund’s Notes.
Income and expenses that are directly attributable to the Offshore Feeder are recorded on the
accrual basis as incurred.
Redemptions payable
The Offshore Feeder recognizes redemptions payable in accordance with ASC 480, Distinguishing
Liabilities from Equity (“ASC 480”). Redemptions are recognized as liabilities when the amount
requested in the redemption notice becomes fixed. Prior to December 31, 2021, the Offshore
Feeder received redemption notices to be paid after year end but based on December 31, 2021 net
asset value. Within the context of ASC 480, such redemption notices represent an unconditional
obligation of the Offshore Feeder at December 31, 2021. The liability to such shareholders is
presented in the statement of assets and liabilities as “redemptions payable”.
Foreign currency
The books and records of the Offshore Feeder and the Master Fund are maintained in US dollars.
The foreign currency translation policy is discussed in Note 2 of the Master Fund’s Notes.
Income taxes
Under current BVI law, the Offshore Feeder is not required to pay taxes in the BVI on either
income or capital gains. Accordingly, no provision for taxation has been made in these financial
statements for the Offshore Feeder. The Offshore Feeder intends to conduct its affairs such that
it will not be subject to taxation in any jurisdiction, other than withholding taxes on investment
income and capital gains allocated from the Master Fund, where applicable.
The Offshore Feeder reviews and evaluates tax positions in its major jurisdictions and determines
whether or not there are uncertain tax positions that require financial statement recognition. In
determining the major tax jurisdictions, the Offshore Feeder considers where it is organized and
where it makes investments. The Offshore Feeder is filing a protective return in the United States.
The tax returns for 2018 to 2021 remain open for examination by tax authorities. Tax positions
associated with foreign tax jurisdictions remain subject to examination based on varying statutes
of limitations. The Offshore Feeder is also not aware of any other tax positions for which it is
reasonably possible that the total amounts of unrecognized tax benefits will change materially in
the next twelve months. The determination of income taxes is based on complex analyses of many
factors, including matters that are subject to interpretation.

84
Aquamarine Fund, Inc. FINANCIAL STATEMENTS

3. SHARE CAPITAL
Authorized share capital of the Offshore Feeder
As of April 1, 2007, the Offshore Feeder no longer offers Class A shares. Instead, the Offshore
Feeder offers the Class B shares, which have the same rights, privileges and terms as the Class A
shares, except for the terms of redemption as noted below. As of January 1, 2008, the Offshore
Feeder offers Class C shares. As of November 2016, the Offshore Feeder offers Class D shares. As
of October 2, 2017, the Offshore Feeder offers Class E and Class F shares.
The Offshore Feeder is authorized to issue a maximum of 10,000,000 shares consisting of
1,000 voting non-participating, non-redeemable shares of par value $0.01 each (the “Ordinary
shares”) and 9,999,000 non-voting, participating redeemable shares of par value $0.01 each
(the “Participating shares”). The authorized capital of the Offshore Feeder may be divided into
different classes with varying rights attached to each class. The Participating shares are divided
into Class A, Class B, Class C, Class D, Class E and Class F Participating shares (respectively, the
“Class A shares”, the “Class B shares”, the “Class C shares”, the “Class D shares”, the “Class E
shares”, “Class F shares”, each a “Class” collectively, the “Shares”).
The Ordinary shares of the Offshore Feeder are held by the Master Fund Special LP (the “Special
LP”). The Articles of Association of the Offshore Feeder empowers the Board of Directors (the
“Board”) to create different classes of shares.
The Shares are issued in series with a new series being issued on each date that the Offshore Feeder
permits subscription for shares. The series are issued consecutively per class (i.e. commencing
with A1, B1, C1 etc.). Each of the outstanding series of shares participates rateably with all other
outstanding series of the same class in the Offshore Feeder’s fees, expenses, assets and earnings
with respect to such series.
The Shares are issued in various series to reflect equitably the differing incentive expense
attributable to each series.
At the end of each quarter or year as applicable, all series that do not have a loss carry forward
available to them will be converted into the initial series of the applicable class of Participating
shares unless the initial series has a loss carry forward, then the next available series that does
not have a loss carry forward shall be used in its place. Certain series may not be subject to the
conversion at the discretion of the Board of Directors.

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 ANNUAL REPORT 2021 Aquamarine

Notes to the Financial Statements

For the year ended December 31, 2021 (Expressed in United States dollars)

3. SHARE CAPITAL (continued)

Issued share capital
Ordinary shares
1,000 shares at $0.01 par value issued and fully paid.
Participating shares
17,011.74 Class A shares at a $0.01 par value issued and fully paid.
14,613.47 Class B shares at a $0.01 par value issued and fully paid.
9,895.95 Class C shares at a $0.01 par value issued and fully paid.
7,137.91 Class E shares at a $0.01 par value issued and fully paid.
12,454.57 Class F shares at a $0.01 par value issued and fully paid.
Dividends and distribution
The offshore feeder has never declared a dividend and it is anticipated that it will not declare any
dividends or make any distributions going forward.
Subscriptions
Shares may generally be subscribed to on the first business day of each month by giving two days
written notice, or such other days approved by the Board of Directors in its sole discretion. The
initial purchase price per share for each series of shares is $1,000. The minimum initial subscription
for shareholders in the Offshore Feeder is $500,000 for Class A and B shares and $1,000,000 for
Class C, D, E and F shares. These amounts are subject to reduction at the discretion of the Board
of Directors.
Redemptions
Shares will be redeemed at the redemption price equal to such shares’ net asset value (the “NAV”)
as of the close of business on the redemption date.
Class A shareholders have the right upon 20 days prior written notice to request a partial or total
redemption of its Class A shares as of the last business day of each calendar month or such other
day as determined by the Board of Directors.
Class B shareholders have the right upon 60 days prior written notice to request a partial or total
redemption of its Class B shares as of the last business day of each calendar quarter or such other
date as determined by the Board of Directors.
Class A and B shareholders may be subject to a redemption fee of up to five percent (5%) of the
redemption proceeds for redemptions made by a shareholder. In no event will any Class A or B
shareholder be charged redemption fees in excess of five percent (5%). Redemption fees will be
deducted from the amount otherwise payable to a redeeming shareholder and will be payable to
the Fund. The Board of Directors may, in its sole discretion, waive or reduce the redemption fees.

86
Aquamarine Fund, Inc. FINANCIAL STATEMENTS

3. SHARE CAPITAL (continued)

Class C/D shareholders have the right upon 60 days prior written notice to request a partial or total
redemption of its Class C/D shares as of the last business day of the calendar month on which the
Class C/D lock-up period (defined below) expires, and thereafter, on the last business day of the
calendar month on each 12-month anniversary of the expiration of the Class C/D lock-up period,
or such other date as determined by the Board of Directors.
A shareholder may not redeem any series of its Class C/D shares until the expiration of the 12-month
period following the purchase of such series of Class C/D shares, (the Class C/D lock-up period),
without the prior written consent of the Board of Directors.
Class E shareholders have the right upon 90 days prior written notice to request a partial or total
redemption of its Class E shares as of the last business day of the calendar month on which the Class
E lock-up period (defined below) expires, and thereafter, on the last business day of the calendar
month on each 2- year anniversary of the expiration of the rolling Class E lock-up period, or such
other date as determined by the Board of Directors.
A shareholder may not redeem any series of its Class E shares until the expiration of the rolling
2-years following the purchase of such series of Class E shares, (the Class E lock-up period), without
the prior written consent of the Board of Directors.
Class F shareholders have the right upon 90 days prior written notice to request a partial or total
redemption of its Class F shares as of the last business day of the calendar month on which the Class
E lock-up period (defined below) expires, and thereafter, on the last business day of the calendar
month on each 5- year anniversary of the expiration of the rolling Class F lock-up period, or such
other date as determined by the Board of Directors.
A shareholder may not redeem any series of its Class F shares until the expiration of the rolling
5-years following the purchase of such series of Class F shares, (the Class F lock-up period), without
the prior written consent of the Board of Directors.
Allocation of net profits and losses
As the Offshore Feeder is made up of more than one class and series of shares, the NAV per share
of each class and series is calculated by determining that part of the NAV of the Offshore Feeder
attributable to each class and series and dividing this value by the number of shares of that class and
series in issue and rounding the result to two decimal places. Any increase or decrease in the NAV of
the Offshore Feeder will be allocated between the classes and series based on their pro rata NAVs at
the previous valuation date adjusted for any subscriptions and redemptions in the relevant period.

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 ANNUAL REPORT 2021 Aquamarine

Notes to the Financial Statements

For the year ended December 31, 2021 (Expressed in United States dollars)

3. SHARE CAPITAL (continued)

Net asset value per share
The following table summarizes the shares outstanding, the NAV per share and the net asset
value for each class of shares and series at the reporting date.
Net asset Number of Net asset value
value $ shares per share $
Ordinary shares 1,000 1,000.00 1.00

Participating shares
Class A
Class A Initial Series 17,949,694 1,727.77 10,388.92
Class A Series 1 142,862,699 15,283.97 9,347.23
160,812,393 17,011.74

Class B
Series 1 6,799,119 2,149.36 3,163.33
Series 2 36,738 25.00 1,469.51
Series 3 933,225 642.08 1,453.45
Series 9 12,791,555 4,669.45 2,739.41
Series 10 1,946,392 1,500.00 1,297.59
Series 11 283,717 230.00 1,233.55
Series 12 1,668,259 1,400.00 1,191.61
Series 13 1,176,750 1,000.00 1,176.75
Series 14 1,963,205 1,767.58 1,110.67
Series 15 248,488 230.00 1,080.38
Series 16 532,629 500.00 1,065.26
Series 17 496,231 500.00 992.46
28,876,308 14,613.47

Class C
Series 1 36,978,073 9,540.80 4,158.78
Series 2 111,783 80.15 1,394.73
Series 3 415,168 275.00 1,509.70
40,205,024 9,895.95 

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Aquamarine Fund, Inc. FINANCIAL STATEMENTS

3. SHARE CAPITAL (continued)

Net asset Number of Net asset value
value $ shares per share $

Class E
Series 1 1,673,697 1,067.72 1,567.55
Series 2 2,344,079 1,508.45 1,553.97
Series 3 2,892,058 1,834.29 1,576.66
Series 4 708,863 454.98 1,558.01
Series 5 763,392 522.47 1,461.14
Series 6 1,565,736 1,000.00 1,565.74
Series 7 597,535 500.00 1,195.07
Series 8 294,828 250.00 1,179.31
10,840,188 7,137.91

Class F
Series 1 807,914 500.00 1,615.83
Series 2 399,115 250.00 1,596.46
Series 3 2,033,649 1,401.31 1,451.25
Series 4 696,515 445.01 1,565.19
Series 5 3,062,927 2,000.10 1,531.39
Series 6 2,069,690 1,299.95 1,592.14
Series 7 782,012 500.02 1,563.96
Series 9 1,955,922 1,100.00 1,778.11
Series 10 139,276 86.38 1,612.37
Series 11 3,053,180 2,000.00 1,526.59
Series 12 370,610 250.00 1,482.44
Series 13 43,030 30.00 1,434.32
Series 14 94,583 50.00 1,891.67
Series 15 380,208 300.00 1,267.36
Series 16 179,583 150.00 1,197.22
Series 17 1,160,052 1,091.80 1,062.51
Series 18 1,011,999 1,000.00 1,012.00
18,240,265 12,454.57

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 ANNUAL REPORT 2021 Aquamarine

Notes to the Financial Statements

For the year ended December 31, 2021 (Expressed in United States dollars)

3. SHARE CAPITAL (continued)

Share transaction summary
Shares Shares
Shares Shares issued/ redeemed/ Shares
outstanding converted transferred transferred outstanding
January 1, during during during December 31,
2021 the year the year the year 2021 
Class A Initial Series 1,734.98 - - (7.21) 1,727.77
Class A Series 1 15,283.97 - - - 15,283.97

Class B Series 1 2,149.36 - - - 2,149.36

Class B Series 2 25.00 - - - 25.00
Class B Series 3 642.08 - - - 642.08
Class B Series 9 4,669.45 - - - 4,669.45
Class B Series 10 1,500.00 - - - 1,500.00
Class B Series 11 - - 230.00 - 230.00
Class B Series 12 - - 1,400.00 - 1,400.00
Class B Series 13 - - 1,000.00 - 1,000.00
Class B Series 14 - - 1,767.58 - 1,767.58
Class B Series 15 - - 230.00 - 230.00
Class B Series 16 - - 500.00 - 500.00
Class B Series 17 - - 500.00 - 500.00

Class C Series 1 12,148.96 - - (2,608.16) 9,540.79

Class C Series 2 80.15 - - - 80.15
Class C Series 3 275.00 - - - 275.00
Class C Series 20 1,000.00 - - (1,000.00) -
Class C Series 21 280.00 - - (280.00) -

Class E Series 1 1,067.72 - - - 1,067.72

Class E Series 2 1,508.45 - - - 1,508.45
Class E Series 3 1,834.29 - - - 1,834.29
Class E Series 4 528.36 - - (73.38) 454.98
Class E Series 5 522.46 - - - 522.46
Class E Series 6 1,000.00 - - - 1,000.00
Class E Series 7 - - 500.00 - 500.00
Class E Series 8 - - 250.00 - 250.00

90
Aquamarine Fund, Inc. FINANCIAL STATEMENTS

3. SHARE CAPITAL (continued)

Shares Shares
Shares Shares issued/ redeemed/ Shares
outstanding converted transferred transferred outstanding
January 1, during during during December 31,
2021 the year the year the year 2021 
Class F Series 1 500.00 - - - 500.00
Class F Series 2 250.00 - - - 250.00
Class F Series 3 1,401.31 - - - 1,401.31
Class F Series 4 445.00 - - - 445.00
Class F Series 5 2,000.10 - - - 2,000.10
Class F Series 6 1,299.95 - - - 1,299.95
Class F Series 7 500.02 - - - 500.02
Class F Series 9 1,100.00 - - - 1,100.00
Class F Series 10 86.38 - - - 86.38
Class F Series 11 2,000.00 - - - 2,000.00
Class F Series 12 250.00 - - - 250.00
Class F Series 13 30.00 - - - 30.00
Class F Series 14 50.00 - - - 50.00
Class F Series 15 - - 300.00 - 300.00
Class F Series 16 - - 150.00 - 150.00
Class F Series 17 - - 1,091.80 - 1,091.80
Class F Series 18 - - 1,000.00 - 1,000.00

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 ANNUAL REPORT 2021 Aquamarine

Notes to the Financial Statements

For the year ended December 31, 2021 (Expressed in United States dollars)

4. RELATED PARTY TRANSACTIONS AND BALANCES

Management fees
The Offshore Feeder, as a limited partner in the Master Fund, pays a monthly management fee
to the Investment Manager who provides the Offshore Feeder with continuous supervision of
the Master Fund’s assets, including the composition of its portfolio and furnishes advice and
recommendations with respect to investments, investment policies and the purchase and sales of
investments in securities and derivatives.
The Management fee due to the Investment Manager is recorded in the financial statements of the
Master Fund. The amount has been charged to each of the Feeder Funds’ capital accounts in the
Master Fund. Management fee is discussed in Note 6 of the Master Fund’s Notes.
For the year ended December 31, 2021, a total management fee of $3,190,475 was incurred and
$291,850 is payable at the reporting date by the Master Fund on behalf of the Offshore Feeder.
The fee is included in the expenses allocated from the Master Fund in the Statement of Operations.
Incentive allocation
Incentive allocation to the Master Fund GP and the Special LP are recorded in the financial statements
of the Master Fund. The amount is allocated to each of the Feeder Funds’ capital accounts in the
Master Fund. Incentive allocation is discussed in Note 6 of the Master Fund’s Notes.
For the year ended December 31, 2021, the incentive allocations to the Master Fund GP and the
Special LP from the Offshore Feeder were $1,549,548 and $8,780,774, respectively.
Share capital
The Offshore Feeder has related party shareholders inclusive of the Special LP. The shareholdings
of these related parties total $160,150,317 and represent approximately 62% of net assets at
December 31, 2021.

5. ADMINISTRATION AGREEMENT
The Master Fund and the Feeder Funds entered into an administration agreement with SS&C Fund
Services (Bermuda) Ltd. (the “Administrator”) a subsidiary of SS&C GlobeOp for the provision of
certain accounting, administrative and investor services. Refer to Note 7 in the Master Fund Notes
for further information regarding the administration agreement.
A flat fee of $1,250 per month, annual exchange of information services fee and audit assistance
fee are charged for the Feeder Funds.
For the year ended December 31, 2021, total administration fees of $76,348 were incurred of
which $12,191 was payable at the reporting date.

92
Aquamarine Fund, Inc. FINANCIAL STATEMENTS

6. RISK FACTORS
Due to the nature of the “master/feeder” structure, the Offshore Feeder may be materially affected
by the risk factors affecting the Master Fund as discussed in Note 8 of the Master Fund’s Notes.

7. FINANCIAL HIGHLIGHTS
The per share operating performance, total return and ratios to average net assets are calculated
for the initial series of each share class. An individual investor’s per share operating performance,
total return and ratios to average net assets may vary from these amounts and ratios based on
different management fee and incentive allocation arrangements and the timing and amount of
capital transactions.
he following represents the per share information, total return and ratios to average net assets for
T
the year ended December 31, 2021:

Class A Class B Class C

Per share operating performance Initial Series Series 1 Series 1

Net asset value, beginning of the year $8,391.54 $2,555.15 $3,345.85

Income from investment operations
Net investment gain/(loss) (576.99) (175.68) (234.00)
Net realized and unrealized gain/(loss)
from investments 2,574.37 783.87 1,046.93
Total gain/(loss) from investment operations 1,997.38 608.18 812.93
Net asset value, end of the year $10,388.92 $3,163.33 $4,158.78

Total return before incentive fee 28.66 % 28.66 % 30.40 %

Incentive fee (4.86)% (4.86)% (6.10)%
Total return after incentive fee 23.80 % 23.80 % 24.30 %

Ratios to average net assets *

Operating expenses before incentive fee 2.27 % 2.27 % 1.24 %
Incentive fee 4.33 % 4.33 % 5.30 %
Operating expenses after incentive fee 6.60 % 6.60 % 6.54 %

Net investment income/(loss) before incentive fee (1.80)% (1.80)% (0.77)%

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 ANNUAL REPORT 2021 Aquamarine

Notes to the Financial Statements

For the year ended December 31, 2021 (Expressed in United States dollars)

7. FINANCIAL HIGHLIGHTS (continued)

Class E Class F
Per share operating performance Series 1 Series 1

Net asset value, beginning of the year $1,261.14 $1,274.96

Income from investment operations
Net investment gain/(loss) (88.20) (58.06)
Net realized and unrealized gain/(loss)
from investments 394.61 398.94
Total gain/(loss) from investment operations 306.41 340.87
Net asset value, end of the year $1,567.55 $1,615.83

Total return before incentive fee 30.40 % 30.40 %

Incentive fee (6.10)% (3.66)%
Total return after incentive fee 24.30 % 26.74 %

Ratios to average net assets *
Operating expenses before incentive fee 1.25 % 1.25 %
Incentive fee 5.32 % 3.19 %
Operating expenses after incentive fee 6.57 % 4.44 %

Net investment income/(loss) before incentive fee (0.78)% (0.78)%

* The ratios are computed based upon the weighted average net assets of shares as a whole throughout the
year and includes the Offshore Feeder’s proportionate share of the Master Fund’s expenses and net investment
income or loss. The ratios, with the exception of incentive fees, were annualized whereas the total return was
not, for periods less than a year.

8. SUBSEQUENT EVENTS
Management has evaluated events occurring through March 3, 2022, the date that these
financial statements were available for issue, and found that there were no significant events
which would have a material bearing on these financial statements.

94
 AUDITOR’S REPORT &
FINANCIAL STATEMENTS

Aquamarine
Value Fund, L.P.
(A DELAWARE LIMITED PARTNERSHIP)

96 Independent Auditor’s Report

Financial Statements
For The Year Ended December 31, 2021

98 Statement of Assets and Liabilities

99 Statement of Operations
100 Statement of Changes in Partners’ Capital
101 Statement of Cash Flows
102 Notes to the Financial Statements

95
 ANNUAL REPORT 2021 Aquamarine

Deloitte Ltd.
Corner House
20 Parliament Street
P.O. Box HM 1556
Hamilton HM FX
Bermuda

Tel: + 1 (441) 292 1500

Fax: + 1 (441) 292 0961
www.deloitte.com

INDEPENDENT AUDITOR’S REPORT

To the General Partner and Limited Partners of

Aquamarine Value Fund, L.P.

Opinion
We have audited the financial statements of Aquamarine Value Fund, L.P. (the “Onshore
Feeder”), which comprise the statement of assets and liabilities, as of December 31, 2021 and
the related statements of operations, changes in partners’ capital, and cash flows, for the year
then ended, and the related notes to the financial statements (collectively referred to as the
“financial statements”).
In our opinion, the accompanying financial statements present fairly, in all material respects,
the financial position of the Onshore Feeder as of December 31, 2021 and the results of its
operations, changes in partners’ capital and its cash flows for the year then ended in accordance
with accounting principles generally accepted in the United States of America.

Basis for Opinion

We conducted our audit in accordance with auditing standards generally accepted in the United
States of America (GAAS). Our responsibilities under those standards are further described in the
Auditor’s Responsibilities for the Audit of the Financial Statements section of our report. We are
required to be independent of the Onshore Feeder and to meet our other ethical responsibilities, in
accordance with the relevant ethical requirements relating to our audit. We believe that the audit
evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

Responsibilities of Management for the Financial Statements

Management is responsible for the preparation and fair presentation of the financial statements
in accordance with accounting principles generally accepted in the United States of America, and
for the design, implementation, and maintenance of internal control relevant to the preparation
and fair presentation of financial statements that are free from material misstatement, whether
due to fraud or error.
In preparing the financial statements, management is required to evaluate whether there are
conditions or events, considered in the aggregate, that raise substantial doubt about the On-
shore Feeder’s ability to continue as a going concern for a period of one year after the date that
the financial statements are issued.

96
Aquamarine Value Fund, L.P. AUDITOR’S REPORT

Auditor’s Responsibilities for the Audit of the Financial Statements

Our objectives are to obtain reasonable assurance about whether the financial statements as
a whole are free from material misstatement, whether due to fraud or error, and to issue an
auditor’s report that includes our opinion.
Reasonable assurance is a high level of assurance but is not absolute assurance and therefore is
not a guarantee that an audit conducted in accordance with GAAS will always detect a material
misstatement when it exists. The risk of not detecting a material misstatement resulting
from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery,
intentional omissions, misrepresentations, or the override of internal control. Misstatements are
considered material if there is a substantial likelihood that, individually or in the aggregate, they
would influence the judgment made by a reasonable user based on the financial statements.
In performing an audit in accordance with GAAS, we:
• Exercise professional judgment and maintain professional skepticism throughout the audit.
• Identify and assess the risks of material misstatement of the financial statements,
whether due to fraud or error, and design and perform audit procedures responsive to
those risks. Such procedures include examining, on a test basis, evidence regarding the
amounts and disclosures in the financial statements.
• Obtain an understanding of internal control relevant to the audit in order to design audit
procedures that are appropriate in the circumstances, but not for the purpose of
expressing an opinion on the effectiveness of the Onshore Feeder’s internal control.
Accordingly, no such opinion is expressed.
• Evaluate the appropriateness of accounting policies used and the reasonableness of
significant accounting estimates made by management, as well as evaluate the overall
presentation of the financial statements.
• Conclude whether, in our judgment, there are conditions or events, considered in the
aggregate, that raise substantial doubt about the Onshore Feeder’s ability to continue as a
going concern for a reasonable period of time.
We are required to communicate with those charged with governance regarding, among other
matters, the planned scope and timing of the audit, significant audit findings, and certain
internal control-related matters that we identified during the audit.

March 3, 2022

Deloitte refers to one or more of Deloitte Touche Tohmatsu Limited (“DTTL”), its global network of member firms, and their related entities
(collectively, the “Deloitte organization”). DTTL (also referred to as “Deloitte Global”) and each of its member firms and related entities are
legally separate and independent entities, which cannot obligate or bind each other in respect of third parties. DTTL and each DTTL member firm
and related entity is liable only for its own acts and omissions, and not those of each other. DTTL does not provide services to clients. Please see
www.deloitte.com/about to learn more. Deloitte Ltd. is an affiliate of DCB Holding Ltd., a member firm of Deloitte Touche Tohmatsu Limited.

97
 ANNUAL REPORT 2021 Aquamarine

Statement of Assets and Liabilities

At December 31, 2021 (Expressed in United States dollars)

 ASSETS
Investment in Aquamarine Master Fund, L.P., at fair value $54,739,347
Cash and cash equivalents 513,352

Total assets 55,252,699

 LIABILITIES
Subscription received in advance 500,000
Accrued expenses and other payables 25,666
Capital withdrawals payable 130,891

Total liabilities 656,557

 PARTNERS’ CAPITAL
$54,596,142

See notes to the financial statements

98
Aquamarine Value Fund, L.P. FINANCIAL STATEMENTS

Statement of Operations
For the year ended December 31, 2021 (Expressed in United States dollars)

Note

 NET INVESTMENT LOSS ALLOCATED FROM

AQUAMARINE MASTER FUND, L.P.
Income $ 289,270
Expenses 4 (2,205,763)

(1,916,493)

 EXPENSES
Administration fee 5 32,988
Professional fees 60,519
Other expenses 648

94,155

 NET INVESTMENT LOSS (2,010,648)

 NET REALIZED GAIN AND NET CHANGE IN UNREALIZED

APPRECIATION FROM INVESTMENTS AND FOREIGN CURRENCIES
ALLOCATED FROM AQUAMARINE MASTER FUND, L.P.
Net realized gain from investments and foreign currencies 621,824
Net change in unrealized appreciation from investments and
foreign currencies 12,338,558

 NET REALIZED GAIN AND CHANGE IN UNREALIZED
APPRECIATION 12,960,382

 NET INCREASE IN PARTNERS’ CAPITAL RESULTING FROM

OPERATIONS $10,949,734

See notes to the financial statements

99
 ANNUAL REPORT 2021 Aquamarine

Statement of Changes in Partners’ Capital

For the year ended December 31, 2021 (Expressed in United States dollars)

General Limited
Partner Partners Total

 PARTNERS’ CAPITAL,
DECEMBER 31, 2020 $ - $41,724,735 $41,724,735

 INCREASE IN PARTNERS’ CAPITAL
From operations
Net increase in partners’ capital - 10,949,734 10,949,734

From capital transactions

Capital contributions - 4,830,464 4,830,464
Capital withdrawals - (2,908,791) (2,908,791)

 PARTNERS’ CAPITAL,
DECEMBER 31, 2021 $ - $54,596,142 $54,596,142

See notes to the financial statements

100
Aquamarine Value Fund, L.P. FINANCIAL STATEMENTS

Statement of Cash Flows

For the year ended December 31, 2021 (Expressed in United States dollars)

 CASH FLOWS PROVIDED BY/(USED IN):

 OPERATING ACTIVITIES:
Net increase in partners’ capital resulting from operations $10,949,734 
Adjustments to reconcile net increase in partners’ capital
resulting from operations to net cash used in operating activities:
- Net realized gain from investments allocated
from Aquamarine Master Fund, L.P. (621,824)
- Net change in unrealized appreciation on investments allocated
from Aquamarine Master Fund, L.P. (12,338,558)
- Net investment income allocated from Aquamarine Master Fund, L.P. 1,916,493
- Payments for purchases of Aquamarine Master Fund, L.P. (4,840,000)
- Proceeds from sales of Aquamarine Master Fund, L.P. 3,090,799
- Change in accrued expenses and other payables (3,089)

Net cash used in operating activities (1,846,445)

 FINANCING ACTIVITIES
Capital contributions received, net of changes in contributions
received in advance 5,330,464
Capital withdrawals paid, net of changes in capital withdrawals payable (3,001,071)

Net cash provided by financing activities 2,329,393

 NET INCREASE IN CASH AND CASH EQUIVALENTS 482,948

 CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 30,404

 CASH AND CASH EQUIVALENTS, END OF YEAR $ 513,352

See notes to the financial statements

101
 ANNUAL REPORT 2021 Aquamarine

Notes to the Financial Statements

For the year ended December 31, 2021 (Expressed in United States dollars)

1. ORGANIZATION AND BUSINESS ACTIVITY

Aquamarine Value Fund, L.P. (the “Onshore Feeder”) was organized as a Delaware Limited
Partnership on March 15, 2001 and commenced operations on April 26, 2001.
The Onshore Feeder operates under a “master/feeder” structure, where Aquamarine Master Fund,
L.P. (the “Master Fund”), a British Virgin Islands (“BVI”) International Limited Partnership, is the
master fund. The Onshore Feeder invests substantially all of its investable assets in the Master Fund,
together with Aquamarine Fund, Inc. (the “Offshore Feeder”) a BVI Business Company (collectively,
the “Feeder Funds”). At December 31, 2021, the Onshore Feeder’s proportionate interest in the
partners’ capital of the Master Fund is approximately 16%.
The investment objective of the Onshore Feeder is to compound wealth for limited partners over the
long term. The Onshore Feeder intends to achieve its investment objectives through its investment in
the Master Fund, which has the same investment objectives as the Onshore Feeder.
Aquamarine Capital Management, LLC (the “General Partner”), a New York limited liability
company is the general partner of the Onshore Feeder, serves as the investment manager
to the Feeder Funds and the Master Fund and is responsible for certain administrative and
investment advisory services for the Feeder Funds and the Master Fund. The General Partner is
a registered adviser with the Security Exchange Commission (“SEC”) and its principal decision
maker is Guy Spier.
Aquamarine Zürich AG (the “Asset Manager”), a Swiss company limited by shares, which is affiliated
to the General Partner through common ownership, is sub-contracted by the General Partner
to provide asset management services in Switzerland to the Master Fund. The Asset Manager is
licensed with the Swiss Financial Market Supervisory Authority (“FINMA”) as an Asset Manager for
Collective Investment Schemes.
The performance of the Onshore Feeder is directly affected by the performance of the Master Fund.
The Master Fund utilizes the services of the General Partner to invest the assets of the Onshore
Feeder, together with the assets of the Offshore Feeder.
The financial statements of the Master Fund, including the condensed schedule of investments,
are included at the end of this report and should be read in conjunction with the Onshore Feeder’s
financial statements.

102
Aquamarine Value Fund, L.P. FINANCIAL STATEMENTS

2. SIGNIFICANT ACCOUNTING POLICIES

Basis of preparation
The financial statements have been prepared in conformity with accounting principles generally
accepted in the United States of America (“US GAAP”) and are stated in the United States (“U.S.”)
dollars. The following is a summary of the significant accounting and reporting policies used in
preparing the financial statements.
Investment Company
The Onshore Feeder is considered an investment company pursuant to Accounting Standards
Update No. 2013-08, Financial Services - Investment Companies (Topic 946): Amendments to the Scope,
Measurement and Disclosure Requirements ("ASU 2013-08"), and therefore follows the accounting
and reporting guidance for investment companies.
Use of estimates
The preparation of financial statements in conformity with US GAAP requires management to
make estimates and assumptions that affect the reported amounts in the financial statements
and accompanying notes. Actual results could differ from those estimates and the differences
could be material.
Valuation of investment in the Master Fund
The Onshore Feeder records its investment in the Master Fund at fair value based on its respective
percentage of the Master Fund’s partners’ capital. Valuation of securities held by the Master
Fund is disclosed in Note 2 of the Master Fund’s notes to the financial statements (the “Master
Fund’s Notes”).
ASC 820, Fair Value Measurement and Disclosure (“ASC 820”) defines fair value, establishes
a framework for measuring fair value and requires certain disclosures about fair value
measurements. Additional disclosures due to the impact of ASC 820 on the Onshore Feeder’s
underlying investments held within the Master Fund are included in Note 4 of the Master
Fund’s Notes.
Cash and cash equivalents
The Onshore Feeder classifies cash at bank and short-term deposits with original maturities of three
months or less as cash and cash equivalents.
Revenue and expense recognition
The Onshore Feeder records its proportionate share of the Master Fund’s income, expenses, and
realized and unrealized gains and losses. The Master Fund’s income and expenses recognition
policies and allocation are discussed in Note 2 of the Master Fund’s Notes.
Income and expenses that are directly attributable to the Onshore Feeder are recorded on the
accrual basis as incurred.

103
 ANNUAL REPORT 2021 Aquamarine

Notes to the Financial Statements

For the year ended December 31, 2021 (Expressed in United States dollars)

2. SIGNIFICANT ACCOUNTING POLICIES (continued)

Capital withdrawals payable
The Onshore Feeder recognizes capital withdrawals payable in accordance with ASC 480,
Distinguishing Liabilities from Equity (“ASC 480”). Capital withdrawals are recognized as liabilities
when the amount requested in the capital withdrawals notice becomes fixed. Prior to December 31,
2021, the Onshore Feeder received capital withdrawal notices to be paid after year end but based
on December 31, 2021 partners’ capital balances. Within the context of ASC 480, such capital
withdrawal notices represent an unconditional obligation of the Onshore Feeder at December 31,
2021. The liability to such partners is presented in the statement of assets and liabilities as “capital
withdrawals payable”.
Foreign currency
The books and records of the Onshore Feeder and the Master Fund are maintained in U.S. dollars.
The foreign currency translation policy is discussed in Note 2 of the Master Fund’s Notes.
Income taxes
The Onshore Feeder reviews and evaluates tax positions in its major jurisdictions and determines
whether or not there are uncertain tax positions that require financial statement recognition. In
determining the major tax jurisdictions, the Onshore Feeder considers where it is organized and
where it makes investments. The Onshore Feeder’s US Federal tax returns for 2018 to 2021 remain
open for examination by tax authorities and tax positions associated with foreign tax jurisdictions
remain subject to examination based on varying statutes of limitations.
The Onshore Feeder is not aware of any other tax positions for which it is reasonably possible that
the total amounts of unrecognized tax benefits will change materially in the next twelve months.
The determination of income taxes is based on complex analyses of many factors, including matters
that are subject to interpretation.
Individual partners are taxed on their proportionate share of the Onshore Feeder’s income.

3. PARTNERS’ CAPITAL ACCOUNT

The Onshore Feeder is currently offering limited partnership interests (“Interests”), which are defined
as partners’ share of the partners’ capital as reflected in each limited partner’s capital account. The
Interests are divided into four classes, A, B, E, and F. The limited partners holding Class A Interests
are sometimes referred to herein as “Class A limited partners”, limited partners holding Class B
Interests are sometimes referred to herein as “Class B limited partners”, limited partners holding
Class E Interests are sometimes referred to herein as “Class E limited partners” and the limited
partners holding Class F Interests are sometimes referred to herein as “Class F limited partners”.
As of December 31, 2021, there are Class A, Class B, Class E, and Class F Interests for amounts of
$1,881,048, $17,847,549, $7,465,183, and $27,402,362, respectively.

104
Aquamarine Value Fund, L.P. FINANCIAL STATEMENTS

3. PARTNERS’ CAPITAL ACCOUNT (continued)

Capital contributions
The minimum investment in the Onshore Feeder is $500,000 by each Class A limited partner
and $1,000,000 for each Class B limited partner, Class E limited partner, and Class F limited
partner. The General Partner may in its discretion waive the minimum initial contribution amount
with respect to any partner. Following initial investment, a limited partner may make additional
investments in amounts of not less than $10,000 subject to adjustment at the discretion of the
General Partner. The General Partner may admit new limited partners and permit limited partners
to make additional contributions as of the first business day of each calendar month, or at any
other time in the General Partner’s sole discretion.
Capital withdrawals
Class A limited partners may make a complete or partial withdrawal from their capital accounts
as of the last day of each calendar quarter, with 60 days’ prior written notice to SS&C Fund
Services (Bermuda) Ltd. (formerly Prime Management Limited), a division of SS&C GlobeOp (the
“Administrator”).
A withdrawal fee of up to five percent (5%) of the withdrawal amount may be charged for withdrawals
made by a Class A Limited Partner. However, in no event will any Class A Limited Partner be charged
withdrawal fees in excess of five percent (5%) of withdrawal proceeds for a withdrawal.
Withdrawal fees will be deducted from the amount otherwise payable to a redeeming Limited
Partner and will be payable to the Fund. The General Partner may, in its sole discretion, waive
or reduce the withdrawal fees otherwise due with respect to any Limited Partner’s investment, by
rebate or otherwise.
Class B limited partners may make a complete or partial withdrawal from their capital accounts
as of the last business day of the calendar month in which the Class B lock-up period (defined
below) expires, upon 60 days prior written notice to the Administrator. Thereafter, a class B limited
partner may make a withdrawal on the last business day of the calendar month for each 12-month
anniversary of the expiration of the Class B lock-up period, or such other date as determined by the
General Partner.
Class B limited partners may not withdraw any capital contribution (and any appreciation thereon)
until the expiration of the 12-month period following the contribution of such capital, (the Class B
lock-up period), without the prior written consent of the General Partner.
Class E limited partners may make a complete or partial withdrawal from their capital accounts as
of the last business day of the calendar month in which the Class E lock-up period (defined below)
expires, upon 90 days prior written notice to the Administrator. Thereafter, a class E limited partner
may make a withdrawal on the last business day of the calendar month for each 2-year anniversary
of the expiration of the rolling Class E lock-up period, or such other date as determined by the
General Partner.

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 ANNUAL REPORT 2021 Aquamarine

Notes to the Financial Statements

For the year ended December 31, 2021 (Expressed in United States dollars)

3. PARTNERS’ CAPITAL ACCOUNT (continued)

Class E limited partners may not withdraw any capital contribution (and any appreciation thereon)
until the expiration of the rolling 2-year period following the contribution of such capital, (the Class
E lock-up period), without the prior written consent of the General Partner.
Class F limited partners may make a complete or partial withdrawal from their capital accounts as
of the last business day of the calendar month in which the Class F lock-up period (defined below)
expires, upon 90 days prior written notice to the Administrator. Thereafter, a class F limited partner
may make a withdrawal on the last business day of the calendar month for each rolling 5-year
anniversary of the expiration of the rolling Class F lock-up period, or such other date as determined
by the General Partner.
Class F limited partners may not withdraw any capital contribution (and any appreciation thereon)
until the expiration of the rolling 5-years following the contribution of such capital, (the Class F
lock-up period), without the prior written consent of the General Partner.
The General Partner in its sole discretion may waive or reduce the Class B, Class E, and Class F
lock-up periods and/or the notice period required for withdrawals by Class B, Class E, and Class F
limited partners. Class B, Class E, and Class F limited partners are not subject to withdrawal fees.
Each withdrawing limited partner will receive, at the General Partner’s sole discretion, at least 90%
of its estimated withdrawal amount with the balance payable 30 days after the Onshore Feeder’s
annual audit. The General Partner may in certain circumstances suspend withdrawals from the
capital account of the Onshore Feeder.
Allocation of gains/losses and management fees
At the end of each month, the aggregate amount of management fees payable by the Onshore
Feeder during such month which are attributable to each Class A limited partner shall be charged
to such Class A limited partner’s capital account, and any net capital appreciation or depreciation
will be allocated to all partners (including the General Partner) based on their proportionate share
of the Onshore Feeder’s partners’ capital for such month.

4. RELATED PARTY TRANSACTIONS AND BALANCES

Management fees
The Onshore Feeder as a limited partner in the Master Fund pays a monthly management fee
to the General Partner (as the Investment Manager of the Master Fund). The management fee
is calculated solely on the partners’ capital of Class A limited partners as of the last business day
of each calendar month. The Investment Manager provides the Onshore Feeder with continuous
supervision of the Master Fund’s assets, including the composition of its portfolio and furnishes
advice and recommendations with respect to investments, investment policies and the purchase
and sales of investments in securities and derivatives.

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Aquamarine Value Fund, L.P. FINANCIAL STATEMENTS

4. RELATED PARTY TRANSACTIONS AND BALANCES (continued)

Management fee due to the General Partner is recorded in the financial statements of the Master
Fund. The amount has been charged to each of the Feeder Funds’ capital accounts in the Master
Fund. Management fee is discussed in Note 6 of the Master Fund’s Notes.
For the year ended December 31, 2021, a total management fee of $18,147 was incurred and
$1,589 was payable at the reporting date by the Master Fund on behalf of the Onshore Feeder.
The fee is included in the expenses allocated from the Master Fund in the Statement of Operations.
Incentive allocation
Incentive allocation to the General Partner is recorded in the financial statements of the Master
Fund. The amount is allocated to each of the Feeder Funds’ capital accounts in the Master Fund.
Incentive allocation is discussed in Note 6 of the Master Fund’s Notes.
For the year ended December 31, 2021, the incentive allocation to the Master Fund GP from the
Onshore Feeder was $2,106,963. The allocation amount is included in the expenses allocated from
the Master Fund in the Statement of Operations.
Partners’ capital
The Onshore Feeder has no related party partners at the reporting date.

5. ADMINISTRATION AGREEMENT
The Master Fund and the Feeder Funds entered into an administration agreement with the
Administrator as of April 1, 2007 for the provision of certain accounting, administrative and
investor services. Refer to Note 7 in the Master Fund Notes for further information regarding the
administration agreement.
A flat fee of $1,250 per month, annual exchange of information services fee and audit assistance fee
are charged for the Feeder Funds.
For the year ended December 31, 2021, total administration fees of $32,988 were incurred of which
$10,750 was payable at the reporting date.

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 ANNUAL REPORT 2021 Aquamarine

Notes to the Financial Statements

For the year ended December 31, 2021 (Expressed in United States dollars)

6. RISK FACTORS
Due to the nature of the “master/feeder” structure, the Onshore Feeder may be materially affected
by the risk factors affecting the Master Fund as discussed in Note 8 of the Master Fund’s Notes.

7. FINANCIAL HIGHLIGHTS
The following financial highlights are calculated for the limited partners taken as a whole and
exclude data for the General Partner.
Individual limited partners’ returns will vary due to the timing of contributions and withdrawals,
different management fees and incentive allocation arrangements. The incentive allocation is borne
by the Master Fund.
Total return
Total return before incentive allocation 30.14%
Incentive allocation (4.87%)
Total return after incentive allocation 25.27%

Ratio to average limited partners’ capital*

Operating expenses before incentive allocation 0.38%
Incentive allocation 4.19%
Operating expenses after incentive allocation 4.57%

Net investment loss before incentive allocation (0.81%)

*Ratios of operating expenses and net investment income are computed based on the monthly average of the
partners’ capital of all limited partners for the year. Ratios to average limited partners’ capital include the Onshore
Feeder’s proportionate share of the Master Fund’s expenses and net investment income or loss.

8. SUBSEQUENT EVENTS
Management has evaluated subsequent events occurring through March 3, 2022, the date that
these financial statements were available for issue, and found that there were no significant events
which would have a material bearing on these financial statements.

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 TEAM AQUAMARINE

GUY SPIER, Managing Partner

OFFICE TEAM
Orly Hindi, Investor Relations and
Chief Compliance Officer, New York
David Jud, Finance Manager, Zürich
Chantal Hackett, Executive Assistant, Zürich
Mariana Baldé, Office Assistant, Zürich
Sarah Money, Chief Operating Officer, Zürich
William Green, Advisory Board, New York
Cecelia Wong, Brand Manager, Hong Kong AUDITOR
Nadia Menezes, In-house Counsel, British Virgin Islands Deloitte Ltd., Bermuda and British Virgin Islands
Mark Baumgartner
DIRECTORS Carlene Romney
Simon Spier, London Abhinav Prabhakar
Mark Chapman, British Virgin Islands Aurelie Legangneux
Roshni Singhania
AZAG BOARD BDO, Zürich
Roland Gysi, Chairman, Zürich Franco A. Straub
Andreas Mikos, Board Member, Zürich Jelena Miljkovic
Flavio Bürgisser
GENERAL COUNSEL
Bratschi AG, Zürich TAX, ACCOUNTING AND ADMINISTRATION
Ingmar Snijders SS&C GlobeOp, Canada
Holland & Knight LLP, New York Shawn Jezard
Curtis Stefanak Conor Loughlin
Rick Ferreira
Harneys, British Virgin Islands
Michael Tartsinis
Philip Graham
Ben Dear
Shelly Wu
BROKERS AND CUSTODIANS
Credit Suisse, Zug Michael J. Liccar & Co., LLC, Chicago
(K1’s, US Tax accounting)
Marcel L. Huly
Paul J. Jacobazzi
Northern Trust, Limerick Debra Markovich
Meliosa O’Caoimh Michael J. Smith
Amy Hughes
James Condon
SwissComply AG, Zürich
(FINMA compliance and risk management)
Stephen Gallagher
Bettina Collart
Olive Kelly
Severin Lehmann
Alliance Bernstein, New York, London Camille Stucker
Bjoern Steckenborn
Patrick Robinson
Anthony Crowe CPA PC, New York
(Management Tax Accounting)
IIFL, Mumbai Anthony Crowe
Vasudev Jagannath Gregg Chavios
Tax Partner AG, Zürich
(Management Tax Accounting)
Roger Dall’O
Tom Lawson
Christa Merz

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 ANNUAL REPORT 2021 Aquamarine

WITH THANKS
OUR CEOs
Stephen Squeri
CEO, American Express
Brian Moynihan
CEO, Bank of America
Warren Buffett
CEO, Berkshire Hathaway
Wang Chuanfu
CEO, BYD Auto Co Ltd
Ajay Mahajan
CEO, Care Ratings
John Elkann
CEO, Exor NV
Satyanarayan Goel
CEO, Indian Energy Exchange
Sanjay Mehrotra
CEO, Micron Technology
Robert Fauber
CEO, Moody’s
Mark Schneider
CEO, Nestlé

WITH ADDITIONAL THANKS

Adriano Viganò Katharine Sephton
Christopher Grove Christina Denk
Daniel Moore Manuel Ritter
Alexandra Debow

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