ValueInvest.Wiki
← Back to Letters

2013 Shareholder Letter

Buffett's 2013 letter discusses the 'Powerhouse Five' businesses earning $12.4 billion, explains book value vs intrinsic value gap, and announces Heinz performance.

buffettberkshire2013intrinsic-valueHeinzannual-letter

2013 Shareholder Letter

Date: February 28, 2014 Author: Warren Buffett Company: Berkshire Hathaway

Overview

2013 per-share book value increased 18.2% (S&P 32.4%), with book value reaching $134,973 — a 19.7% compound annual return over 49 years.

Key Points

Powerhouse Five

Five largest non-insurance businesses delivered record $12.4 billion pre-tax earnings in 2014:

  • Berkshire Hathaway Energy (formerly MidAmerican)
  • BNSF
  • IMC (formerly Iscar)
  • Lubrizol
  • Marmon

Only Berkshire Hathaway Energy was owned a decade ago. The other four were acquired with mostly cash, causing "only minor dilution."

Book Value vs Intrinsic Value

"Book value is a useful tracking device, but 'significantly understated' proxy for intrinsic value."

Today, Berkshire's emphasis is on "owning and operating large businesses" rather than securities. Many businesses worth "far more than their cost-based carrying value" but that amount is "never revalued upward."

Heinz Performance

Only minor earnings from Heinz reflected in 2013 due to one-time charges ($1.3B for purchase/restructuring). Full earnings expected in 2014.

Why Berkshire Outperforms in Down Markets

"We have underperformed in ten of our 49 years, with all but one of our shortfalls occurring when the S&P gain exceeded 15%."

In 2007-2013 full stock market cycle, Berkshire overperformed the S&P.

Famous Quotes

"What counts is per-share intrinsic value. But that's a subjective figure, and book value is useful as a rough tracking indicator."

Related