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Buffett Questions Performance as S&P 500 Beats Berkshire

Buffett also outlined how Berkshire Hathaway changed some of its investing principles, but kept others intact.

After buying back stock at a price of 120% of book value in late 2012, Buffett said on Friday he will use that ratio as a target to buy back shares.

"We originally said we would not pay more than 110% of book value, but that proved unrealistic. Therefore, we increased the limit to 120% in December when a large block became available at about 116% of book value."

While Berkshire raised the price at which it might consider buying back stock, succumbing to some shareholder demands, Buffett was not ready to commit to paying out a dividend, a policy that the 'Oracle' said has been pressed by many of his friends and investors.

Buffett indicated that Berkshire Hathaway will only pay a dividend if the company's book value growth continues to underperform overall markets - a real concern according to 2012 results.

"[We] believe our assumptions about the book-value buildup and the market-price premium seem reasonable. If the prospects for either factor change materially for the worse, we will reexamine our actions," said Buffett.

Still, in the letter, Buffett outlined once more why dividends are a staple of many companies, including Berkshire's top four stock holdings, that also can create significant shareholder value.

Although Buffett said a rising market dampened Berkshire's relative performance in 2012, he nonetheless stood by a bullish stance on investing in America and the prospect of a growing economic recovery.

"There was a lot of hand-wringing last year among CEOs who cried 'uncertainty' when faced with capital allocation decisions... At Berkshire, we didn't share their fears, instead spending a record $9.8 billion on plant and equipment in 2012, about 88% of it in the United States," wrote Buffett, noting the figure was a new record.

Overall, the down note taken by Buffett in Berkshire's annual letter may be little more than a way for the 'Oracle of Omaha' to present a strong year for the investing conglomerate.

Berkshire Class A shares recently hit record highs above $152,000.00 a share in February.

-- Written by Antoine Gara in New York
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