The 1978 Berkshire Hathaway Annual Report details a transformative period marked by the year-end merger with Diversified Retailing Company, which necessitated a complex restatement of financial accounts. This structural change resulted in Blue Chip Stamps becoming a majority-owned subsidiary, leading to the full consolidation of diverse business segments including insurance, textiles, candy, and newspapers. Chairman Warren Buffett uses his letter to explain that while these accounting shifts may obscure economic reality, the company achieved a strong 19.4% return on equity from operations. The report highlights the exceptional performance of the Illinois National Bank and the acquisition of Cypress Insurance, alongside a cautious outlook for the insurance industry's upcoming cycle. Throughout the text, management emphasizes a value-oriented investment strategy, preferring to acquire significant stakes in excellent businesses at discounted prices rather than pursuing traditional corporate takeovers. The documents also address ongoing antitrust litigation involving the Buffalo Evening News and the pending mandated divestiture of the company's banking assets.