Berkshire Hathaway’s 2012 Was Subpar, Says Buffett

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Warren Buffett’s Berkshire Hathaway (BRKA) (BRKB) reported earnings after Friday’s bell, and in the chairman’s own words, the performance was “subpar.”

It’s relative, of course: Berkshire’s per-share book value rose 14.4% in 2012. But as Buffett notes in his chairman’s letter, that lags the Standard & Poor’s 500 index’s total return for the year.

That led to a somewhat subdued opening to his letter, acknowledging that at least one part of his stellar track record is in danger.

To date, we�ve never had a five-year period of underperformance, having managed 43 times to surpass the S&P over such a stretch. But the S&P has now had gains in each of the last four years, outpacing us over that period. If the market continues to advance in 2013, our streak of five-year wins will end…Charlie [Munger, Berkshire's vice chairman] and I believe the gain in Berkshire�s intrinsic value will over time likely surpass the S&P returns by a small margin. We�re confident of that because we have some outstanding businesses, a cadre of terrific operating mangers and a shareholder-oriented culture. Our relative performance, however, is almost certain to be better when the market is down or flat. In years when the market is particularly strong, expect us to fall short.

Buffett added that his other disappointment last year was the lack of a major acquisition, though that’s something he’s already remedied this year, with his role in the purchase of H.J. Heinz (HNZ).

Buffett also had some counsel for his fellow CEOs, many of whom are complaining about the current political and economic climate, claiming it’s hindering their ability to do business.

American business will do fine over time. And stocks will do well just as certainly, since their fate is tied to business performance. Periodic setbacks will occur, yes, but investors and managers are in a game that is heavily stacked in their favor…Since the basic game is so favorable, Charlie and I believe it�s a terrible mistake to try to dance in and out of it based upon the turn of tarot cards, the predictions of �experts,� or the ebb and flow of business activity. The risks of being out of the game are huge compared to the risks of being in it…If you are a CEO who has some large, profitable project you are shelving because of short-term worries, call Berkshire. Let us unburden you.