Temasek Holdings outperformed Berkshire Hathaway?
Update: Based on R’s comment below, it appears that the comparison is done from the viewpoint of Temasek Holdings being a shareholder, not from the perspective of Temasek’s shareholder MoF. However, since the state press provided no details as to how the 0.7% is calculated, I can only guess that this figure was from the viewpoint of a Berkshire Hathaway shareholder instead of BH itself. If so, then the state press did an apples-to-oranges comparison.
On Friday June 19th, Alvin Foo(l) of the Straits State’s Times wrote a piece comparing Temasek Holdings’ performance of the past ten years (1999-2009) with that of other investment corporations. One comparison in particular caught my eye; namely that Temasek delivered an annualised shareholder return over the 10-year period of 5.4% compared to Berkshire Hathaway’s 0.7%:
Temasek’s returns were also better than that of long-term investors like Swedish investment firm Investor AB, which delivered 3.7 per cent, and Berkshire Hathaway, which yielded 0.7 per cent.
Some questions ought to be asked as of how the figures of 5.4% for Temasek and 0.7% for Berkshire were obtained. A blog post by The Singaporean Skeptic pointed out that Berkshire delivered a compounded annual return of 6.4% over the 10 year period. That aside, Berkshire’s per share book value grew 9.3% annually from 2002 to 2008. Relying on share price which fluctuates wildly due to investors’ irrational exuberance paints a misleading picture of a company’s actual performance. How low is the State’s Times willing to sink to?
That aside, one should ask how exactly was the 5.4% return figure calculated. Unlike Berkshire, Temasek is unlisted and has no share price. How then could one make use of the notion of total shareholder return? Exactly what formula did the Straits Times use? Secondly, Berkshire Hathaway doesn’t pay out dividends (and never had a stock split hence the high share prices), because Warren Buffett believes that dividends should be paid out only in the case where more money can’t be obtained through re-investments of those funds:
“We feel noble intentions should be checked periodically against results. We test the wisdom of retaining earnings by assessing whether retention, over time, delivers shareholders at least $1 of market value for each $1 retained. To date, this test has been met. We will continue to apply it on a five-year rolling basis. As our net worth grows, it is more difficult to use retained earnings wisely.”
Mr. Buffett:: “We will either pay large dividends or none at all if we can’t obtain more money through re-investment (of those funds). There is no logic to regularly paying out 10% or 20% of earnings as dividends every year.”
So again, how could one invoke shareholder return? Thirdly, nowhere was it mentioned that the figure of 5.4% specifically excluded shareholder returns due to sales of unlisted assets transferred from the government of Singapore at likely a pittance. This point was made earlier with reference to Finance Minister Tharman’s boast that Temasek’s portfolio grew a net S$56 bn since 2003 excluding all capital injections. In the absence of such a statement, one cannot conclude that the 5.4%, however it may be calculated, excludes such proceeds.
Furthermore, one should wonder why the metric of TSR was selected for comparison with Berkshire Hathaway and Temasek. Unlike Temasek, which recently (and nonchalantly) offloaded its BofA and Barclays stakes at estimated losses of about $5 bn, Berkshire Hathaway invests for the long term and doesn’t engage in much selling, hence that probably explains the low 0.7% return rate (assuming the ST was honest with that figure) coupled with their no-dividend policy. It looks like the ST is being disingenuous again when it deliberately picked TSR as a basis for comparison.
Finally, the claim that Berkshire only delivered 0.7% annually utterly fails the giggle test. Who on Earth in their right mind would believe that the Sage of Omaha has seriously underperformed current depressed (due to the downturn) fixed deposit rates in Singapore? OCBC’s fixed deposit rates delivers a 0.8% rate currently.
It is correct to say that Temasek did better than an investor who bought Berkshire Hathaway stocks in March 1999 and held on to them until March this year. However, share price not only reflects a company’s performance, but also incorporates an element of investor sentiment. This sentiment can be greatly influenced by factors beyond the underlying performance of the company. Thus, a comparison of investment records should not be made by comparing Temasek’s shareholder returns against Berkshire’s share price.
It is more appropriate to compare Temasek’s performance against Berkshire’s shareholder equity value. This value stood at US$57.9 billion in the first quarter of 1999 and was reported at US$109.3 billion in the fourth quarter of last year, the closest comparison against Temasek’s November portfolio.
This represents a 6.56 per cent annualised growth, which is somewhat higher than Temasek’s return of 5.4 per cent. Berkshire’s shareholder equity in the fourth quarter of last year also declined 8.5 per cent from that in the first quarter of the year.
Also of note was this comment posted on the letter on the webpage:
Would Temasek be brave enough to publish the performance figures of its portfolio after excluding the assets that were transferred to it by the MOF at cost?
It is an insult to Warren Buffett by comparing Temasek with Berkshire Hathaway! The man buys a business and builds it up from scratch whereas Temasek had a lot of its assets transferred at way below market value.
ST has again displayed very poor professionalism in that article!
Posted by: cchan4 at Mon Jun 22 10:18:25 SGT 2009