More than one question about Warren Buffett is likely to weigh on Berkshire Hathaway Inc. (NYSE:BRK.A) (NYSE:BRK.B) when the company releases its earnings numbers after the market closes on Friday afternoon.The old familiar, “When is Buffett going to retire, and who’s going to replace him?” will be a mainstay, but this year it’s being rounded by a more important question: “Has Warren Buffett lost his golden touch?”
Berkshire Hathaway Inc. (NYSE:BRK.A) (NYSE:BRK.B) performance so far in 2014 has been relatively strong, but over the last five years the company has not been that impressive. It would have been better, in fact, if investors had put their money in the S&P 500 (INDEXSP:.INX) directly, and get paid a dividend, rather than keep money in Berkshire. Friday’s earnings, and the annual shareholder meeting set for Sunday, are likely to see questions about performance being asked.
Berkshire earnings healthy, but disappointing
Nothing is expected to be wrong with the numbers Berkshire Hathaway Inc. (NYSE:BRK.A) (NYSE:BRK.B) releases on Friday afternoon. If anything the next earnings report from the company is expected to be positive. That doesn’t mean that investors will be happy with the company, however, because they’re looking for more from Berkshire Hathaway.
Analysts following Berkshire Hathaway Inc. (NYSE:BRK.A) (NYSE:BRK.B) are expecting the company to show earnings of $2167.67 per Class A share.
Warren Buffett promised his followers a way to beat the market, and beat the market they did. An investment in Class A Berkshire Hathaway shares made ten years ago would have doubled in value by today. An investment in the S&P 500 (INDEXSP:.INX) rose by just 65% in the same period. In recent years, however, Berkshire Hathaway Inc. (NYSE:BRK.A) (NYSE:BRK.B) has not produced those kinds of returns. That leaves investors a little cold when considering Omaha.
Berkshire earnings a product of Buffett philosophy
Berkshire Hathaway has, as it has grown to the $316.76 billion behemoth it is today, come to represent the market more and more accurately. The company’s famed CEO Warren Buffett may be the only person the mainstream media seriously refers to as an Oracle, but rumors are circling that he has lost his predictive capabilities. Looking at the firm’s history, however, that doesn’t seem true.
Warren Buffett is a value investors. When the market is doing well, as it has in the last five years, those stocks also do well, but pure growth stocks, which Buffett tends to stay away from, do a whole lot better. That drags the returns of the whole index up, and makes value investors’ returns look worse comparatively.
Berkshire Hathaway Inc. (NYSE:BRK.A) (NYSE:BRK.B) is not beating the market, because the current make up of the market does not best represent the way he invests. Bull runs in tech stocks, as most investors are well aware, do not last forever, and 2014 has seen a compression of momentum earners across the board. Despite that push, Berkshire Hathaway is up more than 8%.
Value investors like Warren Buffett aren’t sprinters, they win over the long term. Don’t buy the line that Berkshire Hathaway Inc. (NYSE:BRK.A) (NYSE:BRK.B) is just another index.