Warren Buffett Optimistic on US Business Growth

Billionaire investor Warren Buffett reiterated his optimistic long-term outlook for the U.S. economy and his distaste for high Wall Street fees in his annual letter to Berkshire Hathaway shareholders that always draws a big audience.

The letter released Saturday also describes the performance of the more than 90 companies that Berkshire owns.

Buffett again professed his unwavering love for America, provided a voice of reason for the investing debates du jour, gave Berkshire Hathaway Inc.'s managers pats on the back, humbly admitted mistakes and assured shareholders that the conglomerate's - and country's - best days are still ahead.

Section of Annual Letter to Berkshire Hathaway Shareholders
America’s economic achievements have led to staggering profits for stockholders. During the 20th century the Dow-Jones Industrials advanced from 66 to 11,497, a 17,320% capital gain that was materially boosted by steadily increasing dividends. The trend continues: By yearend 2016, the index had advanced a further 72%, to 19,763.

American business – and consequently a basket of stocks – is virtually certain to be worth far more in the years ahead. Innovation, productivity gains, entrepreneurial spirit and an abundance of capital will see to that. Ever-present naysayers may prosper by marketing their gloomy forecasts. But heaven help them if they act on the nonsense they peddle.

Many companies, of course, will fall behind, and some will fail. Winnowing of that sort is a product of market dynamism. Moreover, the years ahead will occasionally deliver major market declines – even panics –that will affect virtually all stocks. No one can tell you when these traumas will occur – not me, not Charlie, not economists, not the media. Meg McConnell of the New York Fed aptly described the reality of panics: “We spend a lot of time looking for systemic risk; in truth, however, it tends to find us.”

During such scary periods, you should never forget two things: First, widespread fear is your friend as an investor, because it serves up bargain purchases. Second, personal fear is your enemy. It will also be unwarranted. Investors who avoid high and unnecessary costs and simply sit for an extended period with a collection of large, conservatively-financed American businesses will almost certainly do well.

As for Berkshire, our size precludes a brilliant result: Prospective returns fall as assets increase. Nonetheless, Berkshire’s collection of good businesses, along with the company’s impregnable financial strength and owner-oriented culture, should deliver decent results. We won’t be satisfied with less.

Buffett steered clear of mentioning President Trump, but he did praise “a tide of talented and ambitious immigrants” in helping the US economy to prosper.

Buffett, who supported Democratic candidate Hillary Clinton in the US presidential election, did not address Donald Trump's policies.

His upbeat view of the US economy claims that “babies born in America today are the luckiest crop in history”. Mr Buffett's comments came as his firm Berkshire Hathaway, which owns dozens of US stocks including Apple, Coca-Cola and the four biggest US airlines, reported a 15% rise in fourth-quarter profits to $6.3bn.

Stock Success
Over the course of the year it underperformed the S&P 500 share index for the fourth time in the last five years. The growth in the company's book value - that is the company's assets minus its liabilities and Mr Buffett's preferred measure of Berkshire's performance - was 10.7% in 2016, while the S&P 500 rose 12.0%. Mr Buffett said investors “will almost certainly do well” by staying with a “collection of large, conservatively financed American businesses”.

The gifted stock-picker, who is on course to win a 2008 bet that an investment in the S&P 500 would beat five hedge funds over 10 years, also took a fresh swipe at highly paid “active” investment managers.

He said “1,000 monkeys would be just as likely to produce a seemingly all-wise prophet” as 1,000 highly paid professionals.

However, one investment manager said he felt Mr Buffett spent too much of the letter extolling Berkshire's virtues and did not address what went wrong with Kraft Heinz's failed takeover of UK household goods giant Unilever.

The letter was more about Mr Buffett's “epitaph even more so than prior letters”, said Cole Smead of Smead Capital Management.

Last week, Kraft, in which Berkshire is a major investor, dropped its $143bn takeover attempt amid strong opposition from Unilever's board.