Warren Buffett is sorry. In this weekend's Berkshire Hathaway (NYSE:BRKa) (NYSE:BRKb) annual report -- all 82 pages of it -- the greatest investor of our generation is humbled by his company's performance. It was the second straight year that the company's growth in book value lagged the S&P 500, and while Buffett prefers intrinsic long-term benchmarks, he understands that his company fell short this time.
"Our shareholders can buy the S&P through an index fund at very low cost," he wrote, no doubt delighting the folks at Vanguard. "Unless we achieve gains in per-share intrinsic value in the future that outdo the S&P, Charlie (Munger) and I will be adding nothing to what you can accomplish on your own."
He also mentions that Berkshire struck out by not finding enough attractive opportunities to buy into last year, leaving it with $43 billion sitting idle.
Give it a rest, Buffett. Few investors are going to abandon Berkshire for the vanilla comforts of an index fund, and you have no reason to be ashamed. Over the past 40 years, Berkshire has grown its book value per share at an annualized rate of 21.9%. That's more than twice the S&P 500's 10.4% annualized return in that time, but thanks to the magic of compounding, Berkshire's overall gain in book value per share is actually more than 50 times better than the industry's leading market gauge.
Don't even get me started on the absurdity of saying that you "struck out" just because you had too much money. Even Paris Hilton doesn't apologize for that. Yes, interest rates are pitiful, and perhaps stashing away some of that greenery into S&P 500 Spiders would have helped Berkshire come out on top.
Still, investors are buying into Berkshire Hathaway because they believe in the field-tested acumen of Buffett and Charlie Munger. Later in the letter, Buffett compares one of his insurance executives to Barry Bonds. No, we're not talking about steroids, big heads, or standoffishness toward the media. Buffett mentions it as a compliment because National Indemnity's Don Wurster would rather take a walk if he doesn't see a pitch he likes than to swing at everything.
But Buffett has completely botched his baseball metaphors. See, he didn't strike out at all. Like Don Wurster, he, too, chose not to swing when the pitches weren't landing in the strike zone.
Could Buffett have taken some of that money and added it to his five largest market positions -- American Express (NYSE:AXP), Coca-Cola (NYSE:KO), Gillette (NYSE:G), Wells Fargo (NYSE:WFC), and Moody's (NYSE:MCO) -- instead? Perhaps, but the point is that buying into Berkshire means having faith whenever Buffett or Munger steps into the batter's box. Flip over their baseball cards, and you will see decades of sweet stats. And what do I see here for 2004? Sorry, Buffett, last year wasn't a K. I see they scored it here as BB -- bases on balls.
Now for some related stories on Berkshire:
- Berkshire knows how to skirt scandal in the insurance industry.
- Buffett and Munger did get itchy to buy this past spring.
- Buffett turns 75 in August. This is how we celebrated his 70th birthday.
Longtime Fool contributor Rick Munarriz thinks that walks -- and on-base percentages -- are highly underrated in baseball. He does not own shares in any of the companies mentioned in this story. The Fool has a disclosure policy. He is also part of the Rule Breakers newsletter research team, seeking out tomorrow's ultimate growth stocks a day early.
