The fact wasn’t lost on Buffett, who said in a March letter to shareholders that he and Berkshire Vice Chairman Charles Munger would probably fall short of their goal if the S&P 500 continued its rally.
“We do better when the wind is in our face,” he wrote.
Bigger Company
One of Buffett’s recent picks hasn’t helped. A $10.9 billion investment in International Business Machines Corp. in 2011 has lagged behind the index.
Buffett makes the benchmark harder to beat by comparing his performance to pretax returns for the S&P 500. Berkshire’s book value per share is an after-tax number. Adjusting for that discrepancy would have caused a “substantial” lag in the index’s performance during the last five decades, he has written in reports to shareholders.
Missing the mark in the last five years would highlight how difficult the billionaire’s task has gotten with his company’s expansion. Takeovers and stock picks have built Berkshire into a business with dozens of operating units and equity investments valued at more than $100 billion. That means future gains have to be bigger in absolute terms to increase book value by the percentage amounts of years past.
If the record is broken, investors are unlikely to abandon the stock because Buffett has delivered such good results for shareholders over his career, said Meyer Shields, an analyst at KBW. Class A shares climbed 33 percent last year, compared with 30 percent for the S&P 500.
“There’s been a gradual recognition that, as good as Berkshire is, it’s going to get tougher,” Shields said.