Did Warren Buffett Move the Goalposts in the Latest Letter?

Did Warren Buffett Move the Goalposts in the Latest Letter?

February 28, 2015 $SPY, $vlue, $brk-a
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(Last Updated On: February 28, 2015)

It appears even the Oracle of Omaha may be vulnerable to short term performance pressures. The Berkshire report came out today, and it has magically changed formats to deemphasize the fact the book value per share has lagged the S&P 500 for 5 out of the last 6 years.

A pretty terrible streak of book value performance (explained in the opening discussion).

Examining reporting in the Old and New Formats

First, a look at Berkshire performance in the “old reporting format,” which is NOT included in this year’s report.

Old Reporting Format
1) Berkshire BV 2) S&P TR 1-2 Difference
2009 19.8 26.5 -6.7
2010 13 15.1 -2.1
2011 4.6 2.1 2.5
2012 14.4 16 -1.6
2013 18.2 32.4 -14.2
2014 8.3 13.7 -5.4

Next, a look at the performance as reported in the “new” format.

New Reporting Format
1) Berkshire BV 2) Berkshire MV 2) S&P TR
2009 19.8 2.7 26.5
2010 13 21.4 15.1
2011 4.6 -4.7 2.1
2012 14.4 16.8 16
2013 18.2 32.7 32.4
2014 8.3 27 13.7

Notice how the difference in reporting changes the flavor of the results?

A few key differences in reporting that shift focus from relative performance:

  1. No relative results–which would be horrific the past few years!
  2. Berkshire Market Value included–which looks a lot better than book value performance!

The logic for the change as stated by the Oracle:

During our tenure, we have consistently compared the yearly performance of the S&P 500 to the change in Berkshire’s per-share book value. We’ve done that because book value has been a crude, but useful, tracking device for the number that really counts: intrinsic business value.

He goes on to justify the “change in reporting”:

Today, our emphasis has shifted in a major way to owning and operating large businesses. Many of these are worth far more than their cost-based carrying value. But that amount is never revalued upward no matter how much the value of these companies has increased. Consequently, the gap between Berkshire’s intrinsic value and its book value has materially widened.

There is certainly some validity to the change in reporting metrics.

However, we must ask the question:

The old reporting format was good to go from 1965 to 2013…

Why change now?

Did it have anything to do with the worst book-value performance run in history for Berkshire Hathaway?


Not saying, I’m just saying…

Reporting Differences Illuminated

In the old days there were 3 columns:

  1. Book value per share
  2. S&P 500 Total Return
  3. Difference between 1 and 2

See below…

Pre 2014 performance format:


In the newest report there are 3 columns:

  1. Book value per share (Berkshire)
  2. Market value per share (Berkshire)
  3. S&P 500 Total Return

Post 2014 Format:



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Wesley R. Gray, Ph.D.

After serving as a Captain in the United States Marine Corps, Dr. Gray earned a PhD, and worked as a finance professor at Drexel University. Dr. Gray’s interest in bridging the research gap between academia and industry led him to found Alpha Architect, an asset management that delivers affordable active exposures for tax-sensitive investors. Dr. Gray has published four books and a number of academic articles. Wes is a regular contributor to multiple industry outlets, to include the following: Wall Street Journal, Forbes, ETF.com, and the CFA Institute. Dr. Gray earned an MBA and a PhD in finance from the University of Chicago and graduated magna cum laude with a BS from The Wharton School of the University of Pennsylvania.

  • Laplace’s Demon

    I think you are right to say that Buffett has “moved the goalposts”. However one could argue that the comparison of the book value of Berkshire with the market value of the S&P handicaps Berkshire, since book value is typically a very conservative valuation metric, whereas market value can sometimes be a very optimistic one. A more reasonable comparison would be book against book and market value against market value. It’s astonishing that Berkahire was able to beat the S&P for so long with a handicap. Perhaps we are indeed seeing a decline in the outperformance of Berkshire relative to the market, but as your own article clearly pointed out, no one beats the market forever. It appears though that like for like, Berkshire still has the edge for now.