Mar 03, 2014

    Buffett stumbles on 5-year target for first time


    MR 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 last year, the company's annual report showed on Saturday.

    It was the only five-year period that happened since Mr Buffett took control in 1965. Still, the billionaire Berkshire chairman and chief executive said he can beat the index over equity market cycles, like he did in the six-year period that ended on Dec 31.

    "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."

    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 US$134,973 (S$171,000) 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 goalposts a little bit," said Mr David Rolfe, chief investment officer of Berkshire shareholder Wedgewood Partners. "For those who focus on that, it may be disconcerting. Quite frankly, we never gave it much thought."

    Apart from missing the five-year goal, Mr Buffett said operations performed well last year. Berkshire reported that fourth-quarter profit rose 9.6 per cent to US$4.99 billion, while annual profit jumped to a record US$19.5 billion on higher earnings at insurance units and railroad Burlington Northern Santa Fe.

    Mr Buffett's cash hoard climbed to US$48.2 billion as of Dec 31, from US$47 billion a year earlier.

    The number of employees increased by more than 42,000 to 330,745 at the end of last year. That includes about 29,000 at HJ Heinz, the food company that Berkshire bought last year with 3G Capital.

    Mr Buffett said the Heinz deal could be a template for large acquisitions. Berkshire provided more than US$12 billion to help finance the deal, while 3G oversees operations. He wrote that he is prepared to take a larger stake in Heinz if some 3G investors seek to sell their shares in the ketchup maker.

    Berkshire is also seeking more acquisitions at its MidAmerican unit, after buying NV Energy last year for US$5.6 billion to expand in Nevada. The utility business provides attractive ways to deploy capital and is less vulnerable than other industries in recessions, Mr Buffett said.

    "He's taking the money and reinvesting it in a smart way," said Mr David Sims, co-manager of the Eagle Capital Growth Fund, which holds Berkshire shares. "It's difficult for any investors to be unhappy with that."

    Mr Buffett's long-term track record is among the best in investing, and made many of his early backers wealthy.