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Buffett calls 2012 'subpar' in letter to shareholders

Warren Buffett
Warren BuffettNati Harnik / AP

Warren Buffett called 2012 "subpar" in his annual letter to shareholders as Berkshire Hathaway's per-share book value rose 14.4 percent, less than the S&P 500's 16-percent increase.

It's the ninth time in 48 years this has happened. Buffett notes that the S&P has outpaced Berkshire over the past four years and if the market continues to gain this year the benchmark stock index could have its first five-year win ever.

"When the partnership I ran took control of Berkshire in 1965, I could never have dreamed that a year in which we had a gain of $24.1 billion would be subpar ... But subpar it was."

Buffett notes that while he believes Berkshire's intrinsic value will probably beat the S&P by a "small margin" over time, the company's relative performance is better when the market is down or unchanged.

Even so, Buffett warned that he and partner Charlie Munger "will not change yardsticks. "It's our job to increase intrinsic business value — for which we use book value as a significantly understated proxy — at a faster rate than the market gains of the S&P." If they are successful, Berkshire's share price will beat the S&P "over time."

Berkshire's boss did have praise for his two new investment managers, Todd Combs and Ted Weschler, writing that "we hit the jackpot with these two." Buffett said they both outperformed the S&P by "double-digit margins" in 2012. Using a very small font, Buffett added, "They left me in the dust as well."

Buffett also expressed disappointment that Berkshire didn't make a major acquisition last year. "I pursued a couple of elephants, but came up empty-handed."

Echoing what he told us after Berkshire announced two weeks ago that it's teaming up with 3G Capital for a $23 billion acquisition of H.J. Heinz, Buffett said even though that deal accounts for much of what Berkshire earned last year, "we still have plenty of cash and are generating more at a good clip."

"So it's back to work; Charlie and I have again donned our safari outfits and resumed our search," Buffett said.

For its fourth quarter, Berkshire's operating earnings per share came in at $1704, below the consensus estimate of $1755 from the few analysts who follow the firm.

Warren Buffett will be live with Becky Quick for all three hours of CNBC's Squawk Box this coming Monday morning starting at 6 am ET. We want your questions. Send them by email to or by Twitter with the hashtag #askwarren.