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The Berkshire Hathaway 2012 Annual Report is now out, you can read the full version here
2012 was another year that Berkshire did not surpass the S&P 500 in annual returns as calculated by book value gain vs the index gain. Book Value gained 14.4% for the year versus the S&P 500 at 16%, and that makes it three times in the past four years that the company has under performed the benchmark.
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. (The record is on page 103.) 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 fiveyear
wins will end.
In Warren Buffett’s second disappointment of the year was that he was unable to make a major acquisition. It’s been known that Buffett has a lot of cash that he wants to put to work, and with the size of his cash holdings, he needs to acquire large companies. The hunt came to and end in February 2013 with the purchase of Heinz. Although a major purchase wasn’t made, Berkshire did purchase 26 smaller companies throughout the year.
Though I failed to land a major acquisition in 2012, the managers of our subsidiaries did far better. We had
a record year for “bolt-on” purchases, spending about $2.3 billion for 26 companies that were melded into
our existing businesses. These transactions were completed without Berkshire issuing any shares.
Todd Combs and Ted Weschler had great years:
Todd Combs and Ted Weschler, our new investment managers, have proved to be smart, models of
integrity, helpful to Berkshire in many ways beyond portfolio management, and a perfect cultural fit. We
hit the jackpot with these two. In 2012 each outperformed the S&P 500 by double-digit margins. They left me in
the dust as well.
Berkshire spent $9.8 billion on Capital Expenditures in 2012, with about 88% of it in the United States. That was a 19% increase over the 2011 year. Buffett goes on to mention that it is impossible to time the market, and over the last century much has happened, but the total Dow Jones return was over 17,000%. This is a message to all the CEO’s about holding back capital expenditures because of short term issues. Since you are unable to predict the future, it is better to allocate capital now if it makes business sense and not worry about where the economy is headed.
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