New York, Mar.3, stock advice .- Warren Buffett began his annual letter to shareholders of Berkshire Hathaway by calling 2012 a “subpar” year.
The billionaire writes that Berkshire’s increase in book value failed to beat the S&P 500′s total return for just the ninth time in 48 years, up 14.4% to the index’s 16%.
Buffett says investors shouldn’t necessarily expect Berkshire to outperform in big winning years for the broader marker, but performance “is almost certain to be better” in down or flat years for the market, and it is worth adding that 14.4% is hardly a disastrous year.
“To date, we’ve never had a five-year period of underperformance, having managed 43 times to surpass the S&P over such a stretch,” he continues. “But the S&P has now had gains in each of the last four years, outpacing us over that period. If the market continues to advance in 2013, our streak of five-year wins will end.”
Buffett’s second lament of 2012 is one he quickly corrected in early 2013: Berkshire’s lack of a big acquisition.
“I pursued a couple of elephants, but came up empty-handed,” he says. Of course that reversed in a big way two weeks ago, when Berkshire and 3G Capital teamed up in a deal to buy ketchup makerHJ Heinz for more than $23 billion.
Buffett had praise for his partners in the 50/50 joint venture. “We couldn’t be in better company.” he writes. “Jorge Paulo [Lemann] is a long-time friend of mine and an extraordinary manager.”
Of course, the question for Berkshire shareholders is whether Buffett is still chasing big game from hisOmaha office. The answer is yes.
While the $12 billion the firm will pump into Heinzsoaks up much of its 2012 earnings, the company continues to generate cash at a healthy pace. Buffett reports that he and partner Charlie Munger “have again donned our safari outfits and resumed our search for elephants.”
As for Berkshire’s investment portfolio, Buffett revealed that his two recent hires are managing more money and outpacing their boss.
“We hit the jackpot with these two,” he writes, referring to Todd Combs and Ted Weschler, now managing almost $5 billion apiece (of Berkshire’s $87.7 billion equity portfolio). “In 2012 each outperformed the S&P 500 by double-digit margins. They left me in the dust as well,” Buffett writes.
As for the stocks under his purview, the billionaire says investors can expect Berkshire to add to its stakes in the “Big Four”: American Express, Coca-Cola,IBM and Wells Fargo.
“Berkshire’s ownership interest in all four companies is likely to increase in the future. Mae West had it right: ‘Too much of a good thing can be wonderful.’,” he writes.
While Buffett had high praise for the manager’s in the Berkshire stable and at the companies it invests in, he had pointed criticism for others in Corporate America:
Berkshire Hathaway A shares inched up 0.1% to $152,750 Friday, while B shares slipped 0.1% to $102.05.There was a lot of hand-wringing last year among CEOs who cried “uncertainty” when faced with capital-allocation decisions (despite many of their businesses having enjoyed record levels of both earnings and cash). At Berkshire, we didn’t share their fears, instead spending a record $9.8 billion on plant and equipment in 2012, about 88% of it in the United States. That’s 19% more than we spent in 2011, our previous high. Charlie and I love investing large sums in worthwhile projects, whatever the pundits are saying. We instead heed the words from Gary Allan’s new country song, “Every Storm Runs Out of Rain.”We will keep our foot to the floor and will almost certainly set still another record for capital expenditures in 2013. Opportunities abound in America.
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