Warren Buffett expects employment to improve significantly next year as the home construction business begins to recover.
Once new households catch up with the oversupply of housing, construction can pick up again, boosting a wide range of businesses that create more jobs, Buffett told shareholders of Berkshire Hathaway Inc. at their annual meeting Saturday at the Qwest Center Omaha.
“I think you'll see a lot of improvement in the employment picture,” said Buffett, chairman and CEO of Omaha-based Berkshire. “I think we're going to see plenty of household growth in future decades.”
He also said that good times remain ahead for the United States, despite the nation's financial problems in answer to a question raised by fellow Omahan Richard Holland, an early Berkshire investor.
“I don't see how anybody can be other than enthused about this country,” Buffett said, saying that the past 100 years has been “the most extraordinary economic period in the history of the world,” largely because of the positive influences of capitalism.
“We have a system that works” even though it “gets gummed up occasionally,” he said. “The power of capitalism is incredible.”
Although policymakers are trying to stimulate the economy, Buffett said, the biggest factor in the recovery is capitalism.
At Berkshire, aside from residential real estate, the company's diverse businesses are improving “month by month,” Buffett said.
He said he was warned by his future father-in-law, William Thompson, in the 1950s that he shouldn't invest in stocks because the Dow Jones industrial average was above 200 points and unlikely to increase. Buffett returned to Omaha in 1956 and his investment business has outpaced the stock index, which now stands at 12,810.
Other countries such as China have used “state-sponsored capitalism” to improve their economies, he said, but being born in the United States today is the best place to be.
Buffett said that over the coming 100 years there will likely be 15 or 20 “bad years,” but he expects economic progress to continue.
Buffett and Vice Chairman Charlie Munger spent six hours fielding questions at the meeting, which was expected to draw as many as 40,000 people.
When the issue of his successor as CEO came up, he said the leading candidate is a “straight arrow.” Buffett has a list of potential successors and discusses it with Berkshire's directors but has not named those on the list or his preference.
The succession issue has drawn added attention this year because of the March 28 resignation of David Sokol, a top Berkshire executive who was believed to have been on the list.
Berkshire's board of directors will choose the company's next CEO. In response to a question, Buffett, 80, said that when he no longer is available for Berkshire, his son, Howard G. Buffett, would be chairman but have no executive duties. If the board picked the wrong person as CEO, Buffett said, a non-executive chairman controlling a large block of Berkshire stock would be in a good position to help the board find a new CEO.
Buffett said he believed in Berkshire's purchase of Lubrizol Inc., an Ohio-based fuel additives company, despite a controversy over Sokol's purchase of that company's stock.
The deal, which is due for a vote by Lubrizol shareholders in June, will be a good acquisition for Berkshire because the company is a leader in its industry and has good protection against competitors, Buffett said.
Most of the questions from shareholders and a trio of journalists — Carol Loomis of Fortune magazine, Becky Quick of CNBC and Andrew Ross Sorkin of the New York Times — focused on topics besides Sokol. Answers from Buffett and Munger ranged from lighthearted to serious, covering many of the themes that the two have discussed before.
Among the other topics:
» Inflation is not a good thing, but the economy adjusts to it as long as it doesn't get out of hand, Buffett said. “Inflation has not destroyed us,” but he expects inflation to increase, although he did not say when or by how much.
» Investors would be better off putting their money in low-cost stock market index funds unless they are going to spend time studying and choosing proper investments.
» The U.S. dollar likely will lose value, but other currencies will, too. Berkshire does not have significant investments in currency markets, but some of its investments or company divisions do business in other currencies.
» Investments in gold depend on hoping someone else will pay more for the same thing, while investments in assets such as businesses offer a return because they produce goods and services.
» Asked what he would like to be remembered for 100 years from now, Buffett said he would like to be known as a teacher.
» So far, Buffett is losing a bet over whether an index fund gives better returns than a managed hedge fund. Over the past three years, the index fund has lost 8.18 percent and the hedge fund has lost 4.24 percent. At the end of a decade, the “losing” side in the mathematical contest is to contribute to a charity of the winner's choice.
» Munger said he is encouraged by BYD, the Chinese automobile and battery company that is 10 percent owned by Berkshire, despite delays in delivering some of its products.
» Buffett said he was unsure about whether the federal government should have provided financial assistance to U.S. auto companies, “but I think the administration did the right thing. They made the right decision.” But if a company is bailed out, the CEO should be “dead broke” and the company's officers and directors should face severe consequences.
» Buffett said he's not selling any shares in the Washington Post even though he left the company's board because he wants to focus on Berkshire and spend less time traveling.
» Buffett said a niece of his was engaged Friday at Borsheims, the Omaha jewelry store owned by Berkshire, and encouraged those in the audience to visit the store and see what happens.
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