In the 2016 edition of his annual letter to shareholders of Berkshire Hathaway Inc., billionaire investor Warren Buffett reiterated his optimistic long-term outlook for the US economy, explained why investors should opt for low-cost index funds and weighed in on buybacks. Highlights below.
On the long-term outlook for the US: 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. Yes, the build-up of wealth will be interrupted for short periods from time to time. It will not, however, be stopped.
On share repurchases: It is puzzling... that corporate repurchase announcements almost never refer to a price above which repurchases will be eschewed. That certainly wouldn’t be the case if a management was buying an outside business. There, price would always factor into a buy-or-pass decision.
On Ajit Jain (widely considered a possible successor to Buffett): If there were ever to be another Ajit and you could swap me for him, don’t hesitate. Make the trade!
On how even value investors exit investments: Sometimes the comments of shareholders or media imply that we will own certain stocks “forever”. It is true that we own some stocks that I have no intention of selling for as far as the eye can see (and we’re talking 20/20 vision). But we have made no commitment that Berkshire will hold any of its marketable securities forever.
On investment fees: When trillions of dollars are managed by Wall Streeters charging high fees, it will usually be the managers who reap outsized profits, not the clients. Both large and small investors should stick with low-cost index funds.
What the oracle missed
Berkshire is now one of the biggest shareholders in some big US airlines, but Buffett hasn’t given any reasons for this fresh interest. This, from a man who in 2008 wrote that “if a farsighted capitalist had been present at Kitty Hawk, he would have done his successors a huge favour by shooting Orville (Wright, one of the inventors of the airplane) down”.
Graphics by Ahmed Raza Khan/Mint. Data source: Bloomberg, Reuters.