FORTUNE — Warren Buffett still draws a crowd.
This weekend, nearly 40,000 people are expected to travel to Omaha, Neb. to hear Buffett dispense bits of wisdom on the economy and investing and the stock market. There will also be a truckload of reporters there so they can broadcast those bits of wisdom out to the rest of the world. All the hotels in downtown Omaha are booked.
A question you might ask, if you have been reading some recent reports, about Buffett might be, “Why? Hasn’t he lost it?”
At least that’s what people seem to be reporting recently. Talk of the demise of Buffett’s investing prowess began in early March, when the annual letter of Berkshire Hathaway (BRKA), the insurance conglomerate that Buffett runs, showed that the company’s book value hadn’t risen as fast as the rest of the stock market over the past five years.
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And the notion that Buffett is a nobody when it comes to the market has picked up steam recently. The New York Times wrote that Buffett’s recent “stretch of mediocrity” could not be explained by randomness, or bad luck. The greatest investor of his generation, or ever, was no more. Slate followed with its own version of that story, asking if Buffett could really be trusted as an investor anymore.
Both the New York Times story and the one by Slate cited a study of Buffett’s performance by a statistician that has his own blog and appears to teach night classes at Georgetown. Neither piece was very critical of the study. And how could you be? He’s a statistician, who has his own blog. He’s got numbers! The author of the study, Salil Mehta, wrote his own piece denouncing Buffett’s recent performance for TheStreet.
I recently asked Buffett what he thought of the study, and he basically shrugged his shoulders, saying, “We’ll see.” Basically, he said he’d let his performance speak for itself. That’s the classy way to go, I guess. But it was unsatisfying for me. So I decided to take a look at Mehta’s study to see if his findings added up. (Spoiler: They don’t.)
The chart below (from Mehta) basically sums up what he found:
The blue bars shows Buffett’s performance. The brown bars are the years where he failed to beat the market. And as you see, the chart gets very brown at the end. Mehta agrees Buffett’s track record, over his whole career, is hard to match. But, Mehta says, some periods have been much better than others. And recently, Mehta believes that Buffett has recently been coasting on the fumes of his past success. “It seems like his overall career performance peaked in the middle of his tenure,” says Mehta. “And so even if he slips slightly now, his prior success is what is holding up things here and allowing his overall career average to remain amazingly good.”
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But Mehta uses the change in Berkshire’s book value (that’s what BV stands for on the left of the chart) as the measure for Buffett’s success. Buffett does, too. So it’s defensible. But Buffett has really just stuck with this measurement out of consistency.
My Fortune colleague Carol Loomis (who is one of three journalists who will be asking questions of Buffett at Berkshire’s annual meeting on Saturday) wrote about this recently. When Berkshire was starting out, the company’s book value was mostly made up of Buffett’s publicly traded investments. So using book value made sense. These days, though, Berkshire owns lots of whole private companies, like Dairy Queen, Fruit of the Loom, and See’s Candies. Those are not valued like publicly traded stocks in Berkshire’s book value. As a result, using book value to track how Buffett’s stock picks have performed really doesn’t work anymore.
Take another look at Mehta’s chart. If you buy his argument that Buffett has lost his mojo recently, a pretty good year to guess when would be 2009, the beginning of the second-to-last brown bar on the right. But something else happened that year. Berkshire bought Burlington Northern, the railroad, an acquisition that added $34 billion in assets to Berkshire’s book value that don’t trade like stocks. In fact, railcars, like pretty much everything else, are guaranteed to lose value over time as they get older. That ensures that the book value of Buffett’s investment will look like a loser, even if his actual return on Burlington is great.
Given the problems with book value as a gauge, I asked Mehta to re-run Buffett’s performance numbers using the return of Berkshire’s stock each year, instead of book value. Here’s what I got back:
This time, the green bars track Buffett’s performance. They look kind of similar to the blue bars, mostly up, higher in the middle. The big difference is the brown bars — signifying the years Buffett trailed the market. There are more of them, but as you can see, they are much more spread out, as you would expect. No grouping at the end. Buffett has been hot some years, and others not. Still, overall, Buffett has way outperformed the market. Actually, more so. A dollar invested in Berkshire’s stock in 1968 would be worth nearly $6,540 today. The same dollar invested in the S&P 500 at the same time would be worth just $59 today. A dollar of Berkshire’s book value back in 1968 would now be worth $3,553.
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And if you believe that the market is efficient over time, then share price should be a pretty good proxy for how the value of all of Buffett’s investments have increased or fallen over time, not just his publicly traded ones. Recently, a duo from AQR, one of the world’s largest hedge funds, and an economics professor at New York University’s business school wrote an academic paper trying to explain what makes Buffett so good at investing. That study relied on Berkshire’s stock to measure Buffett’s performance as well.
Mehta responded that even the second chart proves his point, though, that Buffett isn’t the Buffett of old. Look at the green bars. They are much shorter now then they were back in the 1970s and 1980s. Buffett’s performance has trailed off. But so has the stock market’s performance, and inflation. So it’s hard to fault Buffett for that. In a lower-return world, he is still outperforming, by a lot.
And that’s true this year more than ever. Since the beginning of January, Berkshire’s stock is up nearly 9%, compared to just 2% for the market overall. Buffett’s found it! Or, really, never lost it.
So, don’t discount what the Oracle of Omaha has to say about the market this weekend at Berkshire’s annual meeting. Warren Buffett appears to still know something about investing.
