Warren Buffett’s bet on Bank of America and a more-generous buyback plan helped his Berkshire Hathaway 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 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.
Wells Fargo and American Express, two of Buffett’s largest investments, both beat the S&P 500, climbing more than 20 percent last year.
Berkshire climbed 2.8 percent to $137,834 Wednesday, the highest level since 2008. Stocks and commodities surged after U.S. lawmakers passed a bill averting spending cuts and tax increases threatening a recovery in the world’s biggest economy.
Buffett has boosted investment returns in recent years with preferred stakes in companies including Goldman Sachs and General Electric that sought Berkshire’s backing and reputation as investor confidence waned. The latest bet, a $5 billion stake in Bank of America, may result in billions of dollars in gains.
The Charlotte lender’s shares doubled last year to $11.61 as CEO Brian 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.
“It was a well-timed investment,” said Matthews, who is also a shareholder in Bank of America. “It’s proven he still has his chops.”
Buffett has increasingly relied on buying whole companies to boost returns. Acquisitions valued in the billions of dollars, which Buffett dubs “elephants,” were elusive in 2012, even as he struck smaller deals to buy party-supply retailer Oriental Trading and more than 60 newspapers, including at least seven in the Carolinas.
Takeovers from prior years continue to lift Berkshire. Profit at railroad Burlington Northern Santa Fe, Buffett’s largest acquisition, rose 18 percent to $2.44 billion in the first nine months of the year from the same period in 2011, even as the industry struggled with declining coal shipments.
Berkshire’s manufacturing, service and retailing businesses also posted stronger results, buoyed by the addition of Lubrizol, an engine-additives maker that Buffett bought in 2011.
Units including Acme Brick, paintmaker Benjamin Moore and broker HomeServices of America are probably getting a boost from an improving residential real-estate market, said Stifel Nicolaus’s Shields. Housing starts climbed to an 861,000 annual pace in November from 708,000 a year earlier, Commerce Department figures show.
Buffett didn’t respond to a request for comment emailed to an assistant.