Warren Buffett probably missed his target for the first time in 44 years.
Berkshire Hathaway Inc., his $292 billion company, is poised to report that it failed to increase net worth more rapidly than the Standard & Poor’s 500 Index during the past five years, according to analyst estimates. It would be the first time the billionaire investor fell short of the goal since he took over the Omaha, Nebraska-based company in 1965.
Buffett, 83, highlights the comparison as a way for shareholders to evaluate his performance against a low-cost fund that tracks the index. The S&P 500 returned 128 percent including dividends since the end of 2008, fueled by the Federal Reserve’s stimulus efforts and higher corporate profits. Berkshire’s book value per Class A share, Buffett’s yardstick, rose 80 percent to $126,766 starting at the same point until Sept. 30, the latest data available.
“He’s been awfully honest” by keeping the goal the same, said Tom Russo, a partner at Berkshire investor Gardner Russo & Gardner. “He didn’t pick it because it was an easy benchmark.”
Analyst estimates show that Buffett probably didn’t narrow the gulf much in the final three months of 2013. Barclays Plc predicts Berkshire’s book value rose to $131,005 a share, or 86 percent more than it was five years earlier. Keefe, Bruyette & Woods estimates an 83 percent gain.
Book value, a measure of assets minus liabilities, is often presented on a per-share basis to help investors compare a company’s net worth to its trading price. Buffett has said that if he’s able to add value more quickly than the S&P 500 rises, Berkshire shares should outperform the benchmark over time.
Index Surges
Buffett’s long-term track record is among the best in investing and responsible for making many of his early backers wealthy. Book value stood at just $19 a share when he took over and had compounded at almost 20 percent annually through 2012. That compares with 9.4 percent for the benchmark.
Buffett, Berkshire’s chairman and chief executive officer, didn’t respond to an e-mailed request for comment sent to an assistant. The company hasn’t announced a date for reporting 2013 results.
For the last half-decade, the S&P 500 has posted double- digit returns every year except 2011, when the debt crisis in Europe overshadowed optimism about a rebound in the U.S. That was the only year from 2009 through 2012 that Berkshire’s book value per share outperformed the index.
The fact wasn’t lost on Buffett, who said in a March letter to shareholders that he and Berkshire Vice Chairman Charles Munger would probably fall short of their goal if the S&P 500 continued its rally.
“We do better when the wind is in our face,” he wrote.
Bigger Company
One of Buffett’s recent picks hasn’t helped. A $10.9 billion investment in International Business Machines Corp. in 2011 has lagged behind the index.
Buffett makes the benchmark harder to beat by comparing his performance to pretax returns for the S&P 500. Berkshire’s book value per share is an after-tax number. Adjusting for that discrepancy would have caused a “substantial” lag in the index’s performance during the last five decades, he has written in reports to shareholders.
Missing the mark in the last five years would highlight how difficult the billionaire’s task has gotten with his company’s expansion. Takeovers and stock picks have built Berkshire into a business with dozens of operating units and equity investments valued at more than $100 billion. That means future gains have to be bigger in absolute terms to increase book value by the percentage amounts of years past.
If the record is broken, investors are unlikely to abandon the stock because Buffett has delivered such good results for shareholders over his career, said Meyer Shields, an analyst at KBW. Class A shares climbed 33 percent last year, compared with 30 percent for the S&P 500.
“There’s been a gradual recognition that, as good as Berkshire is, it’s going to get tougher,” Shields said.
–Editors: Dan Reichl, Anthony Gnoffo