30 December, AtoZForex, Amsterdam — It is Warren Buffett worst year according to the FT, when comparing the investment guru’s performance to the rest of the US stock market. Marking a relative underperformance by Warren Buffett since 2009, as its shares of Berkshire Hathaway are down 11 percent. On a different note, recent polls indicate that S&P 500 stock index will end 2016 roughly 8% higher from the current levels.
Relating back to the oracle of Omaha, this is the year that Warren Buffett disclosed to investors that they should change the preferred yardstick for measuring his record. Straying away from assessing the book value of Berkshire, Warren Buffett has indicated to judge the record based on the firm’s share price. Instead of basing judgment on just a single year, Warren Buffett has urged investors to make their judgment on the long term.
Impact of falling commodity prices
Reassessing 2015, Jim Shanahan, an Edward Jones analyst indicated that the market voted negatively upon the prospects of Berkshire for enduring the falling commodity prices. Even though Berkshire Hathaway does not directly deal with gas or oil, its manufacturing subsidiaries does sell products to the oil industry. Hence, the impact of the shrinking oil industry negatively influenced Warren Buffett worst year.
As an example, the insurance divisions of Berkshire Hathaway saw weak results for the middle of the year. According to the Edward Jones analyst, Jim Shanahan this could have been affected by lower oil prices. Considering that lower oil prices force truck drivers to be on the road for a longer period, exposing them to more accidents. The Edward Jones analyst comments further:
“They are impacted by the weak resources sector and commodity prices in general.”
Declines in stock market investments
Other factors that influenced the shares of Berkshire Hathaway to go down by 11 percent are the big declines of the firm’s two largest stock market investments. The first stock market investment that got hit is American Express, this particular investment of Berkshire Hathaway went down 24 percent so far for this year. The other large investment that got hit as well is IBM, which is down by 13 percent in 2015.
Nevertheless, Warren Buffett’s actual operating results were not poor, as Berkshire Hathaway net earnings went up by 18 percent in the first nine months of 2015, which depicts to $18.6bn. Meanwhile the book value went up 3.3 percent. Relatively to the S&P 500, the fall of Berkshire Hathaway shares still marks the worst performance since 2009, when the stock market recovered more sharply from the financial crisis effects.
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