Fudging data without lying. LOL.
ANOTHER LOOK AT BUFFETT’S SUCCESS Warren E. Buffett has made Berkshire Hathaway’s shareholders “an astounding amount of money,” Jeff Sommer writes in the Strategies column. And he provided a window into just how much in his annual letter to shareholders, which included a table on its second page that enumerates the market return of Berkshire shares, year by year. Until now, Mr. Buffett has measured success using the change in book value of his shares.
“However you analyze it, Berkshire’s long-term performance has been awesome. Using market value, he says, its shares gained 21.6 percent annually compared with 19.4 percent for book value and 9.9 percent for the Standard & Poor’s 500-stock index, with dividends. Using market returns, the shares gained a cumulative 1,826,163 percent since he took control,” Mr. Sommer writes. But gone in his letter this year was a comparison between the book value return and the S.&P. return, which would show that he trailed the S.&.P. again, using book value. Counting 2014, Mr. Buffett has underperformed the S.&P. 500, using book value, in five of the last six years.
“By shifting to the market value metric ‒ for the first time in 50 years ‒ his returns look better. Would he have added a table on his golden anniversary showing market value if it had been a bad year for Berkshire in the stock market, whose judgment he has often disdained? I don’t know. Mr. Buffett declined to comment,” Mr. Sommer adds. But to outperform the market consistently, as Mr. Buffett has done over most of his career, “is exceedingly rare. That’s worth celebrating, even if it’s also worth asking why the recent years haven’t been extraordinary.”
As I wrote here, the PAP like Buffett did very well in the early days by people who believed in them; not so well in recent yrs: https://atans1.wordpress.com/2015/02/24/sg50-versus-brk50/
Update on 21 March 2015. Letter to Economist defending change in comparison
Valuing Berkshire Hathaway
You criticised Warren Buffett for moving the goalposts by now giving more weight to Berkshire Hathaway’s share price than its book value (“Corresponderous”, March 7th). But the goalposts should have been moved long ago. The previous practice of using book value per share versus the total return of the S&P 500 was an apples-to-oranges comparison of an accounting measure with a market-valuation measure.
Naturally, Berkshire Hathaway’s book value per share would underperform when the S&P’s price-to-book ratio was soaring, as it did by 21% in 2013. Likewise it would outperform in years like 2008, when valuations were plunging. Comparing the change in Berkshire’s market value to the S&P’s total return is the best way of measuring how the market judges Berkshire’s strategy.