NEW YORK - A five-year bull market may have finally outdueled one of the U.S. stock market's biggest bulls, and Warren Buffett will probably tell investors on Saturday that his 43-year run of beating the Street has come to an end.
By his own benchmark for performance, Buffett's Berkshire Hathaway almost certainly lagged a red-hot stock market in 2013 and probably also fell short over the previous five years, his favored time-frame for measuring the firm's return for its investors.
Using the gain in Berkshire's book value per share after taxes, which Buffett traditionally contrasts with the pre-tax total return, including dividends, on the Standard & Poor's 500 index, Berkshire will be hard pressed to match the S&P's 128.2 percent gain in the five years ended December 31, 2013.
Investors will learn for sure when the world's fourth-richest man releases his annual letter to investors on Saturday around 8 a.m. Eastern time. Buffett, 83, had already warned last year that he might miss his target, noting that his conglomerate of more than 80 companies and investments might fare relatively better in weaker markets than stronger ones.
The S&P's sharp rally since 2008 has made Buffett's benchmark particularly difficult to maintain over the past five years due to a flood of money from the Federal Reserve boosting equity markets. The whopping 32 percent total return on the S&P last year only makes it more likely that Berkshire's book value did not match the index's five-year performance. In fact, he would have required a one-year gain of more than 40 percent in book value per share from 2012's $114,214 to keep his prized streak alive.
Ironically, Buffett took on the role of cheerleader for the American stock market during the depths of the recession, writing an Op-Ed piece in the New York Times on Oct. 17, 2008, imploring readers to "buy America."
Berkshire has grown so big that some investors worry it will not be able to grow as quickly in the future. Hedge fund investor Doug Kass, who runs Seabreeze Partners Management, questioned Buffett about that very issue last year at Berkshire Hathaway's annual meeting, which draws thousands of people to Nebraska to a question-and-answer with Buffett and other company executives. Kass was invited as Berkshire's first "credentialed bear" to ask tough questions about the company's performance.
Kass, who remains short Berkshire stock, noted then that Buffett is now looking for larger and larger acquisitions, which are harder to find at attractively undervalued prices. That said, Buffett has hardly become a slouch at making money. Berkshire Hathaway will probably report operating earnings per share of $2,203.91, according to the average analyst estimate as compiled by Thomson Reuters I/B/E/S, and full-year net income of about $15 billion.
The annual letter to shareholders mixes Berkshire's results with everything from Buffett's views on the business climate to common-sense wisdow about investing, as well as an update on Berkshire's dozens of businesses, from lollipops to insurance.
In an excerpt that leaked earlier this week, for example, Buffett yet again banged the drum on the need for simple, disciplined, low-cost investing, especially for nonprofessional investors such as retirement savers. Investors will also scour this year's letter for any word on a possible successor to Buffett at Berkshire.
The Oracle of Omaha, as Buffett is known, has already talked a bit about what Berkshire could look like without him, but he's shied away from naming the next person to take the baton. Meyer Shields, an analyst with Keefe, Bruyette & Woods, Inc, said he expects "no real information on transition. I'd love to be wrong here, but the odds are ... against the idea of any useful information in terms of who takes over." The letter is also something of a preview for Berkshire Hathaway's annual shareholder meeting in early May, when Buffett and other Berkshire executives hold forth in Omaha on where the company could be headed.