"When the partnership I ran took control of Berkshire in 1965, I could never have dreamed that a year in which we had a gain of $24.1 billion would be subpar, in terms of the comparison we present on the facing page." – Buffett
That's how Warren Buffett begins his annual letter to shareholders, apologizing for only making $24Bn against a $252Bn market cap that has the companies shares trading at new all-time highs of $152,750 a share.
It is because Buffett doesn't care about the PRICE of his stock – he cares about the VALUE of his company and the VALUE of Berkshire has not increased as much as the PRICE of the S&P, which Buffett gives the benefit of the doubt as an indication of the value of 499 of his competitors. In doing so, he sets a very Conservative benchmark as a goal but that's what good CEOs do – they strive to be the best, not just to beat some arbitrary benchmark.
Warren Buffett makes his living identifying stocks that are incorrectly valued and, as I noted to our Members in looking over our first dozen picks in our new Income Portfolio – so do we!
One thing of which you can be certain: Whatever Berkshire’s results, my partner Charlie Munger, the company’s Vice Chairman, and I will not change yardsticks. It’s our job to increase intrinsic business value – for which we use book value as a significantly understated proxy – at a faster rate than the market gains of the S&P. If we do so, Berkshire’s share price, though unpredictable from year to year, will itself outpace the S&P over time.
IN PROGRESS
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