Judging Berkshire Hathaway Performance

In January 1999, Buffett published his owners manual, you can find the full version here.

https://www.berkshirehathaway.com/owners.html

Item 9 is perhaps the most critical, how to judge performance. Is the company delivering?

We feel noble intentions should be checked periodically against results. We test the wisdom of retaining earnings by assessing whether retention, over time, delivers shareholders at least $1 of market value for each $1 retained. To date, this test has been met. We will continue to apply it on a five-year rolling basis. As our net worth grows, it is more difficult to use retained earnings wisely.

We continue to pass the test, but the challenges of doing so have grown more difficult. If we reach the point that we can't create extra value by retaining earnings, we will pay them out and let our shareholders deploy the funds

The criteria was updated in 2014, with new guidance.

I should have written the “five-year rolling basis” sentence differently, an error I didn’t realize until I received a question about this subject at the 2009 annual meeting.

When the stock market has declined sharply over a five-year stretch, our market-price premium to book value has sometimes shrunk. And when that happens, we fail the test as I improperly formulated it. In fact, we fell far short as early as 1971-75, well before I wrote this principle in 1983.

The five-year test should be: (1) during the period did our book-value gain exceed the performance of the S&P; and (2) did our stock consistently sell at a premium to book, meaning that every $1 of retained earnings was always worth more than $1? If these tests are met, retaining earnings has made sense.

So, we as shareholders have been given 2 tests to judge the stock buy. The 2nd test has been easily met, and can be disregarded without further investigation. The first required a little digging, as in 2019, 5 years after establishing his new criteria, he stopped publishing per share book value yearly increases.

Here is the data.