The Wall Street Journal published an article in early 2020 discussing Berkshire Hathaway’s results for 2019, in which a woman was quoted complaining about the underperformance of Berkshire’s stock over the past year relative to the S&P 500. What this woman may have failed to realize is that Berkshire’s true earnings increased from $38.4 billion in 2018 to $41.0 billion in 2019, an increase of 6.8%, while the earnings per share of the S&P 500 have gone from $41.38 in 2018 to $39.81 in 2019, a 3.7% decrease.
The focus of one’s attention on a stock price as an indicator for company performance is a common mistake in financial markets (something Buffett preaches on frequently). Which makes the comparison of a company's stock price to the yearly advance in the S&P 500 a useless activity for anyone wanting to understand the economics of a business.
In order to accurately judge a company’s performance in relation to a market index, an investor must look at the true earnings of the business and compare those earnings to the earnings of the other companies within that market index, with the understanding that the price of these securities may not accurately reflect the performance of the businesses.
If this approach is taken with Berkshire, one can clearly see that the performance of the business was greater than a large portion of the companies within the S&P 500. So in fact, it was not Berkshire who underperformed the S&P 500, but rather Berkshire’s stock who underperformed Berkshire; a positive sign for any value investor.
Read more about Berkshire Hathaway: 3 Lessons from Warren Buffett's Annual Letter
Please note: Olympus Wealth Management and/or the managing partner, employees, or other affiliates may or may not own holdings in Berkshire Hathaway and readers should not take the above statements as a recommendation to buy or sell Berkshire Hathaway stock but instead as an informative article meant to increase one’s knowledge of the company.