In a plainspoken mea culpa to shareholders, Berkshire Hathaway Chairman Warren Buffett on Friday admitted disappointment in his company’s 2012 performance, including the bad news that Berkshire stock underperformed the benchmark S&P 500 index.
Berkshire Hathaway’s per-share stock value fell 1.6% below the S&P 500 to end 2012 14.4% higher versus the stock index’s 16.0%. Of course, the company’s total gain for shareholders— and increase in net worth of $22.8 billion for the year—was nothing to sneeze at. And Berkshire’s overall gain, from 1964 when Buffett took over the company through 2012, totaled 586,817% versus 7,433% for the S&P 500.
“When the partnership I ran took control of Berkshire in 1965, I could never have dreamed that a year in which we had a gain of $24.1 billion would be subpar,” Buffett wrote in his 21-page letter to shareholders within Berkshire’s annual report for 2012. “But subpar it was. For the ninth time in 48 years, Berkshire’s percentage increase in book value was less than the S&P’s percentage gain (a calculation that includes dividends as well as price appreciation). In eight of those nine years, it should be noted, the S&P had a gain of 15% or more. We do better when the wind is in our face.”
As of Monday’s market prices, investors with $152,500 kicking around can buy one Class A share of Berkshire Hathaway stock (NYSE: BRK.A). The Class B shares were selling for $101.64 in midafternoon trading on Monday, down about $0.41, or 0.4%, from Friday’s close.
No Elephants Bagged in 2012
The billionaire businessman’s second big disappointment last year was his inability to make a major acquisition, and he expressed that disappointment in his trademark folksy style that only a handful of CEOs can pull off.
“I pursued a couple of elephants, but came up empty-handed,” he wrote, adding that he and his partner Charlie Munger’s luck changed early in 2013 when Berkshire Hathaway agreed to buy 50% of a holding company that will own all of H.J. Heinz.
The other half is owned by a group of investors led by a longtime friend of Buffett’s, Jorge Paulo Lemann, a Brazilian businessman and philanthropist. Berkshire’s total investment of about $12 billion will soak up much of what Berkshire earned last year.
“But we still have plenty of cash and are generating more at a good clip,” Buffett said. “So it’s back to work; Charlie and I have again donned our safari outfits and resumed our search for elephants.”
And Now for Some Good News
To read through Buffett’s entire 21-page letter is to understand just how deep the Oracle of Omaha’s optimism runs. The letter may begin by acknowledging Berkshire’s subpar performance, but Buffett uses twice as many pages to lay out his good news from 2012.
So although he failed to land a major acquisition last year, Buffett enthuses over a record year for bolt-on purchases, with $2.3 billion spent on 26 companies that were melded into existing businesses.