One of Mr. Buffett’s goals each year is to beat the S&P 500. Last year, Berkshire did.
In 2018, the company’s book value rose 0.4 percent and its stock price climbed 2.8 percent. By comparison, the S&P 500 lost 4.4 percent, counting dividends.
For years, Mr. Buffett’s preferred measure of Berkshire’s performance was the company’s book value as compared with the S&P 500 and he would highlight the annual rise and fall of both on a table in the letter.
But beating the S&P 500 became more difficult as Berkshire grew and shifted to buying whole companies. In 2014, Mr. Buffett added the annual performance of Berkshire’s stock price to the table.
“The fact is that the annual change in Berkshire’s book value — which makes its farewell appearance on page 2 — is a metric that has lost the relevance it once had,” Mr. Buffett wrote in this year’s letter.
Why no deal making?
Berkshire has grown by spending large chunks of money to acquire other companies. That remains part of its long-term plan, according to Mr. Buffett’s letter, but the current business climate means that it’s temporarily on hiatus:
In the years ahead, we hope to move much of our excess liquidity into businesses that Berkshire will permanently own. The immediate prospects for that, however, are not good: Prices are sky-high for businesses possessing decent long-term prospects.
And if you were in any doubt about Mr. Buffett’s appetite for huge deals, he paints a vivid picture about just how much he’d like to bag one:
We continue, nevertheless, to hope for an elephant-sized acquisition. Even at our ages of 88 and 95 — I’m the young one — that prospect is what causes my heart and Charlie’s to beat faster. (Just writing about the possibility of a huge purchase has caused my pulse rate to soar.)
Succession plans remain a secret
Every year, investors carefully read Mr. Buffett’s letter for clues about Berkshire’s succession plans. They didn’t get any on Saturday.
Mr. Buffett did, however, champion his two most senior lieutenants. At the start of 2018, Berkshire Hathaway promoted two of its longtime executives, Gregory E. Abel and Ajit Jain, to oversee the company’s businesses. Mr. Abel became vice chairman of the conglomerate’s non-insurance businesses; Mr. Jain is vice chairman of Berkshire’s insurance operations.
In his letter on Saturday, Mr. Buffett said:
I want to give you some good news – really good news – that is not reflected in our financial statements. It concerns the management changes we made in early 2018, when Ajit Jain was put in charge of all insurance activities and Greg Abel was given authority over all other operations. These moves were overdue. Berkshire is now far better managed than when I alone was supervising operations. Ajit and Greg have rare talents, and Berkshire blood flows through their veins.
Quips and quotes
Mr. Buffett’s annual letter has become known for its investment advice and folksy wisdom as well as a few corny jokes. Here are some the best lines from this year’s. (The Charlie they mention is Charles T. Munger, Mr. Buffett’s vice-chairman at Berkshire Hathaway.)
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