Warren Buffett said his performance at Berkshire Hathaway should be measured over the course of stock market cycles, after missing a five-year target for the first time.
Berkshire’s net worth failed to rise as much as the Standard & Poor’s 500 Index from the end of 2008 through 2013, the company’s annual report showed. It was the only five-year period in which this has happened since Mr Buffett took control in 1965.
Still, the billionaire Berkshire chairman and chief executive officer says he can beat the index over equity market cycles, like he did in the six-year period that ended December 31st.
“Through full cycles in future years, we expect to do that again,” Mr Buffett wrote in the report. “If we fail to do so, we will not have earned our pay.”
Criticism
Mr Buffett (83) has criticised other companies for altering how they evaluate performance when such changes make managers look better.
Even as he predicted that Omaha, Nebraska-based Berkshire would fall short of its goal last year, he wrote that he wouldn’t “change yardsticks”.
The billionaire has often said his focus is on long-term results and that he will do best against the index when equities slump.
Book value, the measure of assets minus liabilities that Mr Buffett highlights, rose to $134,973 a share at the end of December, 91 per cent more than where it stood five years earlier. The S&P 500 returned about 128 per cent during that period, including dividends, as stocks rallied from their financial crisis lows.
The Berkshire number is an after-tax figure, while the index results are before taxes.
"He moved the goalpost a little bit," said David Rolfe, chief investment officer of Berkshire shareholder Wedgewood Partners, which manages about $7 billion. "For those that focus in on that, it may be disconcerting. Quite frankly, we never gave it much thought."
Net income up
Apart from missing the five-year goal, Mr Buffett said operations performed well in 2013. Berkshire reported fourth quarter net income rose 9.6 per cent to $4.99 billion, while annual profit jumped to a record $19.5 billion on higher earnings at insurance units and railroad Burlington Northern Santa Fe.
Buffett’s cash hoard climbed to $48.2 billion at year end from $47 billion a year earlier.
Employee numbers rise
The number of employees increased by more than 42,000 to 330,745 at the end of 2013. That includes about 29,000 at HJ Heinz, the food group Berkshire bought last year with Jorge Paulo Lemann's 3G Capital.
Mr Buffett said the Heinz deal could be a template for large acquisitions. Berkshire provided more than $12 billion to help finance the deal, while 3G oversees operations.
Missing the goal in the last five-year period highlights how difficult Buffett’s task has gotten with his company’s expansion. – (Bloomberg)
