The Value Investor’s Annual Fix: Buffett’s Letter To Shareholders

March 3, 2014 in Investing

Anyone reading Warren Buffet’s annual letter to Berkshire shareholders would be struck by his utmost faith and confidence in the American way.

America’s great wealth of opportunity

Buffett reveals that Berkshire subsidiaries spent a record $11B during the year on capital expenditure on plant and machinery, and nearly 89% of that was spent within the United States. ”Though we invest abroad as well, the mother lode of opportunity resides in America,” says Buffett.

Then again, he recalls his 2009 purchase of railroad BNSF, which he then described as an “all-in wager on the economic future of the United States.”

U.S. prosperity is a given

“Charlie and I have always considered a “bet” on ever-rising U.S. prosperity to be very close to a sure thing. Indeed, who has ever benefited during the past 237 years by betting against America? If you compare our country’s present condition to that existing in 1776, you have to rub your eyes in wonder,” says Buffett in the annual letter.

He is equally optimistic on the future of the American economy, crisis or no crisis.

“And the dynamism embedded in our market economy will continue to work its magic. America’s best days lie ahead.”

On the resilience of American business

Buffett is clear that extreme market fluctuations and tumbling markets are opportunities for the true investor if he has cash available. “A climate of fear is your friend when investing; a euphoric world is your enemy,” he says in typically picturesque language.

Which is why he never thought of selling any of his carefully handpicked investments during the great financial crisis…more so because he firmly believed America would rebound and recover.

“Could anyone really believe the earth was going to swallow up the incredible productive assets and unlimited human ingenuity existing in America?” asks Buffett.

Buffett’s advice to non-professional investors

So bullish is Buffett on American business that he advises the common investor to partake in the prosperity through a simple and cost-effective strategy: a low-cost S&P500 index fund.

“In aggregate, American business has done wonderfully over time and will continue to do so (though, most assuredly, in unpredictable fits and starts). In the 20th Century, the Dow Jones Industrials index advanced from 66 to 11,497, paying a rising stream of dividends to boot,” advises Buffett.

“The 21st Century will witness further gains, almost certain to be substantial.”

An index fund allows the small investor to own a cross-section of large businesses that will do well on the whole.


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