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Buffett alters yardstick after Berkshire falls short of goal

AP
FILE - In this May, 6, 2013, file photo, Berkshire chairman and CEO Warren Buffett is interviewed in Omaha, Neb. Buffett is offering a refresher course on his approach to investing in his 2014 annual letter to Berkshire Hathaway Inc. shareholders. (AP Photo/Nati Harnik, File)

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By Bloomberg News
Saturday, March 1, 2014, 5:54 p.m.
 

Warren Buffett, the billionaire chairman and chief executive officer of Berkshire Hathaway Inc., changed the standard by which he measures performance after falling short of his target for the first time in decades.

A gauge of Berkshire's net worth failed to rise as much as the Standard & Poor's 500 Index in the five years ended 2013, Berkshire's annual report showed on Saturday. It was the first time that happened since he took control of the company in 1965. Still, Buffett said that he and Vice Chairman Charles Munger can beat the index over stock cycles, like they did in the six-year period that ended Dec. 31.

“Through full cycles in future years, we expect to do that again,” Buffett wrote in the report. “If we fail to do so, we will not have earned our pay.”

Buffett, 83, has long criticized other companies for altering how they evaluate their performance when such changes make managers' efforts look better. Even as he predicted that Omaha, Neb.-based Berkshire would fall short of its goal last year, he wrote that he and Munger wouldn't “change yardsticks.”

Book value, the measure of assets minus liabilities that Buffett highlights, rose to $134,973 a share at the end of December, 91 percent more than where it stood five years earlier. The S&P 500 returned 128 percent during that period, including dividends, as stocks rallied from their financial crisis lows. The Berkshire number is an after-tax figure, while the index results are before taxes.

“He moved the goal post a little bit,” said David Rolfe, chief investment officer of Berkshire shareholder Wedgewood Partners Inc., which manages about $7 billion. “For those that focus in on that, it may be disconcerting. Quite frankly, we never gave it much thought.”

Apart from missing the five-year goal, Buffett said operations performed well in 2013. Berkshire reported that fourth-quarter net income rose 9.6 percent to $4.99 billion on better results at insurance units. Annual profit jumped to a record $19.5 billion while Buffett's cash hoard climbed to $48.2 billion as of Dec. 31 from $47 billion a year earlier.

The number of employees increased by more than 42,000 to 330,745 at the end of 2013. That includes about 29,000 at HJ Heinz Co., the food company that Berkshire bought last year with Jorge Paulo Lemann's 3G Capital.

Buffett said the Heinz deal could be a template for large acquisitions. Berkshire provided more than $12 billion to help finance the deal, while 3G oversees operations. He wrote that he's is prepared to take a larger stake in Heinz if some 3G investors seek to sell their shares in the ketchup maker.

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