Buffett B of A adds to buyback helping Berkshire beat S&P 500

, Bloomberg


Warren Buffett

Warren Buffett's bet on Bank of America Corp. and a more-generous buyback plan helped his Berkshire Hathaway Inc. beat the Standard & Poor's 500 Index in a year when he didn't make a major acquisition.

Class A shares advanced 17 percent last year, beating the 13 percent gain in the S&P 500. The Omaha, Nebraska-based company is also poised to extend its record of outperforming the equity benchmark on Buffett's favored scorecard: the change in book value per share over time.

Buffett's stock picks and acquisitions have expanded Berkshire's book value, a measure of assets minus liabilities, more than 5,000-fold since he took control of the company in the 1960s. Shareholders had plenty to celebrate last year, including the profitable Bank of America wager, the performance of new investment managers, stronger earnings at some operating units and the buyback plan.

"You put it all together, and it paints a nice picture," said Jeff Matthews, author of "Warren Buffett's Successor: Who It Is And Why It Matters" and a Berkshire shareholder.

Buffett, 82, is Berkshire's billionaire chairman and chief executive officer. He wrote to investors in February that he earns his paycheck if the company's per-share intrinsic value rises faster than the S&P 500. Because that number is hard to pinpoint, Buffett has said measuring book value per share is the best alternative.

Book Value

Book value may have climbed to $113,579 a share on Dec. 31, according to an estimate from Meyer Shields, an analyst at Stifel Nicolaus & Co. That would give Buffett's firm a 7.8 percent annual growth rate for the five years ended 2012, compared with 1.7 percent for the S&P 500, including dividends. Berkshire typically discloses year-end book value per share in February when it releases annual results.

Part of those returns come from gains in Berkshire's $88 billion stock portfolio. Wells Fargo & Co. and American Express Co., two of Buffett's largest investments, both beat the S&P 500, climbing more than 20 percent last year.

Buffett has boosted investment returns in recent years with preferred stakes in companies including Goldman Sachs Group Inc. and General Electric Co. that sought Berkshire's backing and reputation as investor confidence waned. The latest bet, a $5 billion wager on Bank of America, may result in billions of dollars in gains.

The lender's shares doubled last year to $11.61 as CEO Brian T. Moynihan built capital and cut costs. Buffett's August 2011 investment gave Berkshire preferred stock paying a 6 percent annual dividend and 10-year warrants to buy 700 million of the bank's shares at $7.14 apiece. Exercising those options at the end of last year would have generated more than $3 billion in profit.

Good Timing

"It was a well-timed investment," said Matthews, who is also a shareholder in Charlotte, North Carolina-based Bank of America. "It's proven he still has his chops."

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