Berkshire Hathaway Inc. may end a long streak of outperforming the S&P 500 this year, chief executive Warren Buffett warned shareholders on Friday, even as he said he was still eagerly hunting for acquisitions to grow the ice-cream-to-insurance conglomerate.
In his annual letter to investors, Mr. Buffett opened up with a warning that this year, for the first time, the growth in Berkshire's book value per share may underperform the growth in the S&P 500 when measured over a five-year period.
"To date, we've never had a five-year period of under-performance, having managed 43 times to surpass the S&P over such a stretch," he wrote. "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."
Mr. Buffett said he expects the growth in Berkshire's intrinsic business value will over time exceed the S&P's returns by small margins. But at the same time, he said the firm would underperform in a strong market like this year.
Long-time Berkshire investors said they detected almost a sense of frustration in this year's letter.
"He's gotten away from some of the things that used to just matter to him so much," said Bill Smead, chief investment officer of Smead Capital Management in Seattle. "He has so much capital I don't think he can just rely on a stock portfolio the way he used to."
Just last month, Berkshire struck a deal to put $12-billion (U.S.) toward the $23-billion cash buyout of ketchup maker H.J. Heinz Co., but Mr. Buffett said he and vice-chairman Charlie Munger were not done.
"But we still have plenty of cash and are generating more at a good clip. So it's back to work; Charlie and I have again donned our safari outfits and resumed our search for elephants," Mr. Buffett said in the annual letter.
Berkshire reported $47-billion of cash on hand at Dec. 31.
Mr. Buffett did not hint at what sort of companies he would like to acquire, except to note that one thing he will buy more of is newspapers.
Despite a years-long aversion to the business, Berkshire has of late been buying up papers in smaller communities across the country. Mr. Buffett said Friday he will continue to do so.
"At appropriate prices – and that means at a very low multiple of current earnings – we will purchase more papers of the type we like," he said.
Berkshire employs more than 288,000 people worldwide in dozens of businesses. Mr. Buffett serves as chairman, chief executive and chief investment officer. When he leaves, at least four people will replace him in those various roles.
Mr. Buffett's annual shareholder letter is one of the most closely read public statements by any investor or executive in corporate America. It often comes out early on a Saturday morning, and Buffett devotees have been known to set aside an entire weekend to read and digest it.
(It was released Friday night this time for scheduling reasons related to SEC filing deadlines).
Mr. Buffett also offered a lengthy treatise on the upside – and downside – of companies paying dividends to shareholders, by way of explaining why Berkshire would continue its policy of not paying one out.
He t devoted three full pages from the 24-page later to explaining his philosophy.
"I have made plenty of mistakes in acquisitions and will make more. Overall, however, our record is satisfactory, which means that our shareholders are far wealthier today than they would be if the funds we used for acquisitions had instead been devoted to share repurchases or dividends," he wrote.
Mr Smead said he understood Mr. Buffett's position but said his philosophy was easier said than followed for most of the investing public.
"I'm a long-term Buffett fan and I don't agree because I know what happens in the lives of most investors and most investors need some cash flow from these wonderful companies that they own," he said.