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This 1986 letter to Berkshire Hathaway shareholders reports a significant 26.1% gain in net worth, driven largely by the exceptional performance of subsidiary managers. Warren Buffett emphasizes that the company’s intrinsic business value often exceeds its recorded book value due to the "economic goodwill" created by these high-quality operations. The text highlights a decentralized management philosophy that prioritizes hiring talented, self-motivated leaders and allowing them to run their businesses without interference. While celebrating acquisitions like Fechheimer Bros. and Scott Fetzer, Buffett expresses difficulty in finding new, reasonably priced investment opportunities in a euphoric stock market. Additionally, the report provides a detailed analysis of how the Tax Reform Act of 1986 and purchase-price accounting rules impact reported earnings. Ultimately, the source serves as a meditation on capital allocation, the importance of owner earnings over standard accounting figures, and the long-term value of a "buy and hold" investment strategy.