Thread by @URSOProject

I read your 2020 annual letter with interest, @chamath. Odd it was published in late May, but we’re all busy. Before commenting on this incredibly bad take of a comparison to Berkshire Hathaway, allow me to help you with some math. First, 1965 to 1974 is TEN years, not nine. 1/

Berkshire did return 12.5% against 1.4% from 1965-1974 but that’s actually ten, not the nine years you reference. Simple mistake, I’m sure. Had you used nine years Berkshire had returned 22.7% annually, quite a bit higher than the 12.5% you errantly show. More on this soon. 2/

Second, for what its worth, the S&P 500 actually returned 18.4% in 2020, not the 17.88% you mentioned twice and were careful to point out included dividends. I’d rather round to the tenths, check my source and be correct than round to the hundredths and be precisely incorrect. 3/

Perhaps you or your auditors used returns without dividends? That wouldn’t work, however, because the dividend yield was greater than 0.52%. Where do your numbers come from? Standard and Poor's provides them for free. 4/

Third, its difficult to know what math you are using here or from where you get your data. 2017 to 2020 is four years and the S&P 500 returned 16.0% over those four years. The five-year return is 15.2%, matching the figure in your table - but that’s five years. 5/

Further, over what period of time does 15.2% compound to a 59% overall gain? Your math makes no sense unless these are not annual periods. 15.2% over four years is 74.9% cumulative and over five years is 101.1%. How do you get to only 59% overall for the index? Weird. Support? 6/

Feel free to use these figures. Over the past five years, according to Standard and Poor’s, the index returned:
2016: 12.0%
2017: 21.8%
2018: (4.4%) - the parentheses reflect a negative
2019: 31.5%
2020: 18.4%
7/

It sure would be great to see how you arrived at 15.2% and 59% for 2017 to 2020. What’s your data source? Do material errors in your calculation for the index imply errors in your calculation of your investment returns? 8/

Also, why do you use Gross IRR’s in presenting your returns and not net or time-weighted returns? IRR is of course dollar weighted, so any increase in flows or assets will potentially overstate returns. If it helps calculating a compound return series can be done as such: 9/

(1 + the percent interest rate)^ time period. A series of returns can be linked as: (1 + the period percent return) + (1 + the period percent return) + etc…Or you can use a financial calculator such as the one below. I happen to have an extra which I'd be happy to send you: 10/

Fourth, it’s very lacking in your presentation and comparison that in an annual letter penned on May 26 seeing no mention made to the performance of each of your SPACs during the first five months of 2021, four of the six of which are substantially negative for the year. 11/

Finally, comparison of your returns for what you call 9 years to Berkshire’s first 9 years is stunningly bewildering (ignoring that the return series for BRK is in reality ten years - see above). How is that even remotely comparable? What's the point? Better than Mr. Buffett? 12/

Did you know that when buying control in 1965, Berkshire was failing in textiles which were ultimately closed in 1985? In fact, 3 of BRK’s first control investments, textiles, Diversified Retailing in '77 and Blue Chip Stamps in '83 were all companies that eventually failed. 13/

It was the diversion of capital to other money-making enterprises that saved BRK and allowed it to become what it is today. That's the brilliance of Mr. Buffett. I hope you continue to present your returns against Berkshire’s early years in each successive year without fail. 14/

Perhaps you cherry picked the most convenient time series for Berkshire, errantly using the 10-year and calling it the 9-year to more favorably suit the comparison? You may have known that the 1973-1974 bear market was vicious? Berkshire declined 2.5% in '73 and 48.7% in '74. 15/

1974 was year TEN under present management's control. At 8 years in, Berkshire had compounded at 26.3% against 7.8% for the index. By year 12, Berkshire’s compound return had recovered to 18.4%, having gained 129.3% in 1976. Pre and post the bear market. Cute using 1974. 16/

By 1981, Berkshire had compounded at 25.1% vs 6.4% for the index, remarkable in that the market put in its secular low at that time. By 1998, Berkshire’s annual gain had averaged 28.9% since 1965 vs 12.2% for the index, more than three decades. Certainly more than nine years. 17/

It’s impressive to see you calculate your 9-year gain at 33.0%. Of course that’s an IRR, highly influenced by the dollars at work at intervals, are gross of fees & not time-weighted. When $BRKA calculates their growth in book value per share, gains over time are AFTER TAXES. 18/

The stock price has closely matched gains in book value per share over time. No idea what you own outside of the SPACs, but I’d be hesitant to calculate a return on incremental rounds of VC financing until cash is ultimately taken out & taxed or the business is IPO’d or sold. 19/

It will be interesting to see how SPACs fare over time for the common shareholder, post wicked dilution and control premiums paid. Like Berkshire, capital allocation skills will be tested when confronted with buying businesses that are disruptive and prove to not disrupt. 20/

Meanwhile, the 11-year for Berkshire gets pulled down to 11.5% at 1976 so you have some cushion when presenting your 10-year return next year! After that the comparison will get way more difficult. It sure will be interesting to see how results fare and capital is allocated. 21/

If you can maintain anywhere near the 19% advantage over the index & allocate your way around the inevitable purchases of terrible businesses then another two decades hence you can crown yourself the new Buffett. In the meantime the comparison is a thoroughbred to a jackass. 22/

Lastly, I’d look into getting somebody to check your math before releasing your annual year-end letter next May. You control a lot of money and surely have resources. The picture of the jet is nice. Perhaps there's room at your shop for a fact checker?