Investment guru Warren Buffett is headed for his worst year relative to the rest of the US stock market since 2009, with shares in his conglomerate Berkshire Hathaway down 11 per cent with two more trading days to go.
The underperformance comes in Mr Buffett’s Golden Anniversary year at the helm, when he told investors for the first time that they should judge his record based on Berkshire’s share price, rather than just the book value of the company, which had been his preferred yardstick for decades.
Mr Buffett urged them to make that judgment based on the long term, rather than on a single year, reflecting investing mentor Benjamin Graham’s view that the stock market may be a “weighing machine” in the long run, but in the short term it is a “voting machine”.
But in 2015, the market has been voting negatively on Berkshire’s prospects for weathering the decline in commodity prices, according to Jim Shanahan, analyst at Edward Jones.
Although Berkshire has no oil and gas subsidiaries, its railroad business transports oil, coal and agricultural products, and its manufacturing arm sells products to the shrinking oil industry. Weak results from Berkshire’s insurance divisions in the middle of the year may also be due to lower oil prices, Mr Shanahan said, since lower petrol prices mean drivers and truckers are on the road for longer and having more accidents.
“They are impacted by the weak resources sector and commodity prices in general,” he said.
Berkshire has also been hit by big declines in two of its largest stock market investments: American Express, which is down by 24 per cent this year; and IBM, which is down 13 per cent.
Mr Buffett’s operating results have not been poor, however, with Berkshire’s net earnings up 18 per cent to $18.6bn in the first nine months of the year, and book value up 3.3 per cent.
The fall in Berkshire shares this year comes against a 3 per cent return from the S&P 500, including dividends. It is only the 11th negative year since Mr Buffett seized control in 1965, and the worst underperformance relative to the S&P 500 since 2009, when the wider stock market recovered much more sharply from the effects of the financial crisis.
In a change to the format of his annual letter to shareholders this year, Mr Buffett displayed Berkshire’s annual share price record as well as its book value.
“Over time, stock prices and intrinsic value almost invariably converge,” he wrote in February. “In our view, the increase in Berkshire’s per-share intrinsic value over the past 50 years is roughly equal to the 1,826,163 per cent gain in market price of the company’s shares.”