Buffett's Coke Smoke-screen
Warren Buffett has been much in the news for neither approving nor voting against Coca-Cola Corporation's new executive compensation plan. Much was said about his decision to neither approve nor disapprove of the plan. The plan in question involves a few paltry millions of dollars compared against Coke's multibillion dollar annual revenue. No one gives a darn except the news media, who love to show poor people the amusing spectacle of insanely rich people having a sham disagreement; and the Coke executives, who may have to buy new houses in the Hamptons instead of a new chateau in Tuscany this year.
Let me show you 5 numbers that you're not hearing anything about. (6.7), (2.1), 2.5, (1.6), (14.2). These numbers are how much better you did over the last 5 years - 2009, 2010, 2011, 2012, 2013 - by holding Berkshire Hathaway stock instead of a hypothetical investment in a zero-expense, zero-fee, dividends-reinvested S+P 500 index fund.
The numbers in parentheses, of course, are how accountants indicate a negative number. That's right; Warren - who runs Berkshire Hathaway, of course - lost to the S+P for 4 out of the last 5 years; and the one year he did beat the S+P, it was by a paltry two and a half per cent.
Let's look at that number another way. Suppose you invested $100 in each of the two investments in question on Jan 1, 2009. On December 31, 2013, how much money did you have?
Berkshire stock: $191.48
S+P 500, div reinvested: $228.31
Now that's not terrible performance. I would have gone home happy to be holding either investment during the time period specified. But, as we know, 95% of fund managers can't outperform the S+P 500 over time. Warren has been lionized as being one who can - and last year, justified his continuing underperformance by saying he could beat the S+P over any 5 year period. Now he's modified his rhetoric, saying Berkshire is optimized to outperform when the S+P is doing poorly - haha! that's funny, Warren, my own investments tend to outperform when other investments are doing poorly relative to them as well - and he now says BRK will outperform "over any cycle."
I have a different opinion. Warren has been lucky for a lot of years; he's been the outlier, the reason binomially modeled experiments need to calculate a p value. In other words, he's been lucky and now he is experiencing what all lucky stochasts experience - a well-described phenomenon called regression to the mean.
Good riddance, too. I have had just about enough of a guy worth $60 billion coming on TV and telling me how his secretary pays more taxes than he does, so therefore I and my peers need to pay more taxes. Smug jackwagon that he is, I'll be happy to see him fade away.