After 30 years, the world's most famous investor has just made a big change
For nearly 30 years, Warren Buffett has used book value as the benchmark for the value Berkshire Hathaway has created each year. In hisWarren Buffett swaps benchmarks for the first time in more than half a century.
The group’s equity investments are required to be valued at market prices but the operating businesses it owns are required by accounting standards to be valued at their book value, which he said was far below their "current value." When Buffett started investing back in the 1960s, book values for companies whose balance sheets were dominated by physical, tangible assets were a better guide to the realisable value of a company than they are today, when intangibles like brands values and intellectual property have become drivers.
Between 1965 and 2018 the annual percentage increase in Berkshire’s book value per share was 18.7 per cent. Over the same period the gain in its share price was 20.5 per cent. "That combination causes the book-value scorecard to become increasingly out of touch with economic reality," he wrote.
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