Warren Buffett still has an index problem
Matt Phillips writes that this means that, to-date, Buffett’s investment in Goldman has generated $3.1 billion in returns — a healthy 62%. Over the same period, the S&P 500 with dividends reinvested — the benchmark Buffett sets for himself — returned 44%.
Buffett may have “out-Goldmaned Goldman”, as Market Watch put it, or got ahold of “10 million Goldman Sachs shares without handing over a penny”, in the WSJ’s accurate but misleading words, but he still has an index underperformance problem. Berkshire has underperformed the S&P over the last four years, and is on track for its first ever five-year period of underperformance. Part of that is cyclical — the equity market has boomed since late 2008, and Buffett knows this isn’t good for Berkshire.
Berkshire ended 2012 with a book value of $187 billion. If the S&P repeats its average yearly return over the last four years of 14%, Buffett will need the equivalent return of nine Goldmans to beat the S&P in 2013. — Ben Walsh