CHART: Warren Buffett Will Fail Berkshire Hathaway Shareholders For The First Time In 44 Years

By his own metric, Warren Buffett will fall short for the first time since he took over Berkshire Hathaway in 1965.

For 43 years, Berkshire has increased its book value (i.e. net worth) faster than the S&P 500 (including dividends) on a rolling five year basis. Bloomberg’s Noah Buhayar calls it the Buffett 5-Year Test, and it’s important to investors because it means they would be better off picking Berkshire over some “low-cost fund that tracks the index.”

From 2008 to the end of 2013, the S&P 500 returned 128%. Berkshire (which computes return based on book value per Class A share) returned 80% from 2008 through September 2013, according to Bloomberg. That won’t be enough to get him past the index when the company reports 2013 results.

Buffett knew this day was coming.

“To date, we’ve never had a five-year period of underperformance, having managed 43 times to surpass the S&P over such a stretch,” he wrote in his latest annual letter to shareholders. “But the S&P has now had gains in each of the last four years, outpacing us over that period. If the market continues to advance in 2013, our streak of five- year wins will end.”

It’s hard to pin too much blame on Berkshire and Buffett. The S&P’s mega rally since the financial crisis made Buffett’s benchmark particularly difficult to uphold.

Regardless, don’t expect Buffett to take this lying down.

“One thing of which you can be certain: Whatever Berkshire’s results, my partner Charlie Munger, the company’s Vice Chairman, and I will not change yardsticks,” said Buffett. “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.”

“Charlie and I believe the gain in Berkshire’s intrinsic value will over time likely surpass the S&P returns by a small margin,” he added. “We’re confident of that because we have some outstanding businesses, a cadre of terrific operating managers and a shareholder-oriented culture. Our relative performance, however, is almost certain to be better when the market is down or flat. In years when the market is particularly strong, expect us to fall short.”

The company touts Buffett’s yardstick atop its yearly reports.

We put the data since 1969 into a chart:

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