Has the Sage of Omaha, now 82, lost his touch? In his annual letter to the stockholders of Berkshire Hathaway published last week, Warren Buffett admitted a “subpar” performance in 2012. He acknowledged that his next annual letter may show that, for the first time, his fund had underperformed the S&P index over a five-year period.
This year’s “subpar” performance represented an increase in the net asset value of his fund of only 14.4 per cent, 1.6 per cent less than the rise in the more excitable S&P. The anticipated deficiency in the 2009-13 result will arise because the figures for 2008 (when the index plunged but Berkshire’s NAV fell only modestly) will drop out of the five-year average. Meanwhile, the data for 2009 (when the index partially recovered but the Berkshire portfolio did not regain the value it had never shed) will remain in the calculation.
It seems that even Mr Buffett is being dragged into the wealth-destroying trap of judging investment skill by relative performance. In these terms, 1999 was his worst ever year. But his underperformance was a measure, not a criticism, of his skill. His rivals, seduced by fantasies of the “new economy”, would within a short time mostly relinquish more than all the gains they had made. I would not entrust a penny to a fund manager who did not underperform the market in 1999.
