It’s an election year, so that means the doom-and-gloomers are out in full force, but don’t believe ’em, Berkshire Hathaway Chairman and Chief Executive Warren Buffett says in his Saturday letter to shareholders.
“The babies being born in America today are the luckiest crop in history,” he says.
Buffett’s upper-middle-class neighbors in Omaha enjoy a living standard better than John D. Rockefeller Sr. in the 1930s, Buffett says.
“Rockefeller certainly had power and fame; he could not, however, live as well as my neighbors now do,” Buffett says.
The U.S.’s “golden goose” of commerce and innovation will keep laying more — and larger — eggs, he says.
And that will be to the benefit of all, even some of those who are on the “losing” side of capitalism — decent, hard-working people whose skills just aren’t valued as highly by a competitive marketplace, he says.
The march toward an ever-more-productive economy has pushed per-capita U.S. gross domestic product to about $56,000, Buffett says — six times the amount in 1930, the year he was born. And that’s in real terms — in other words, adjusted for inflation.
“U.S. citizens are not intrinsically more intelligent today, nor do they work harder than did Americans in 1930,” he says. “Rather, they work far more efficiently and thereby produce far more.”
Still, some lament U.S. growth that is inching up around 2 percent annually in recent years.
Buffett offers a formula for why that’s just fine, thank you:
» The U.S. population is growing by about 0.8 percent a year, so 2 percent overall growth produces about 1.2 percent of per capita growth.
» In a single generation of, say, 25 years, that rate of growth leads to a gain of 34.4 percent in real GDP per capita.
» That 34.4 percent gain will produce a $19,000 increase in real GDP per capita for the next generation.
“Today’s politicians need not shed tears for tomorrow’s children,” Buffett says. “For 240 years it’s been a terrible mistake to bet against America, and now is no time to start.”
Buffett doesn’t mention his voting preferences in the letter. In December he endorsed Hillary Clinton for president. He appeared at a campaign event in Omaha with her that month. — Brad Davis
Buffett remains keen on banks; Wells Fargo is top stock holding
Wells Fargo & Co. remains Berkshire Hathaway's largest stock holding, the market value of the bank's shares having risen more than three-fold in the past 10 years.
In 2006, the market value of the 218 million Wells Fargo shares Berkshire owned was $7.6 billion. Today? The market value of the California-based bank's shares - now numbering a half billion - in Berkshire's portfolio: $27 billion.
And banks remain a preferred investment for Buffett, whose equity investing is now aided by deputy stock pickers Todd Combs and Ted Weschler.
Berkshire by the end of 2015, according to company's annual shareholder letter released Saturday, also added to its holdings of Minneapolis-based U.S. Bancorp. Berkshire increased its stake 5 percent to 102 million shares.
All told, the top banking investments at Berkshire mean the company owns more than 600 million shares in two of the largest banks in the country, Wells Fargo ranked No. 4 in assets, U.S. Bancorp at No. 7.
There were other notable changes in the list of the largest stock holdings by market value supplied by Buffett in his letter:
» Out of favor holdings appear to be Goldman Sachs and Walmart Stores Inc.
Berkshire trimmed its stake in New York investment bank Goldman by 13 percent to 11.3 million shares. The Walmart stake was shaved 6.2 percent to 63.5 million shares in the world's largest retailer.
The conglomerate also upped its stake in several firms:
» Berkshire added to its holdings in ag implement maker Deere & Co., increasing its stake by almost 40 percent to 22.1 million shares.
Holding steady from a year ago were stakes in American Express, Coca Cola, DaVita Healthcare, Moody's, Procter & Gamble, and drugmaker Sanofi.
All told, Berkshire's stock portfolio had a year-end market value of $112 billion, down 4.2 percent from a year earlier. — Russell Hubbard
Buffett offers a defense of productivity — and job cuts — with a caveat
Warren Buffett defended economic productivity — or doing more with fewer people — in his annual letter to shareholders Saturday.
The defense comes as Berkshire Hathaway's partner in Kraft Heinz — investor 3G Capital — has sparked a wave of cost-cutting across the packaged food industry with its so-called zero-based budgeting, which requires managers to justify each expense anew every year, instead of relying on last year's budget as a baseline for the current year's spending.
Such budgeting, in part, has led to big job cuts at Heinz. Other food manufacturers, like Omaha's ConAgra Foods, have followed suit, saying they need to stay competitive.
Brazilian firm 3G's method at juicing profits from companies is to buy companies that present opportunities for cost-cutting, Buffett said. "And then — very promptly — to make the moves that will get the job done," he said.
"Their actions significantly boost productivity, the all-important factor in America’s economic growth over the past 240 years," Buffett said.
Berkshire owns about 27 percent of Kraft Heinz; 3G owns the rest.
Kraft Heinz shut plants and cut about 2,600 jobs in North America at the end of last year in an effort to reduce costs.
That's not Berkshire's M.O. with its wholly owned companies, Buffett said. Instead, Berkshire tends to buy companies that already are operating leanly and efficiently.Then Berkshire just gives them room to run. But Buffett said he supported partner 3G's playbook.
"At much of corporate America, truly major gains in productivity are possible," he said — meaning more opportunities could be possible for 3G to come in, cut costs and boost productivity.
Rooting out inefficiencies is the "secret sauce" to the U.S.'s gains in living standards, Buffett said.
Berkshire units run efficiently, he said, extolling American productivity:
» In 1947, about 1.35 million workers worked in railroads. The revenue ton-miles of freight moved by the biggest railroads totaled 655 billion. (The entire U.S. workforce was 44 million.) In 2014, the biggest railroads carried 1.85 trillion ton-miles — a 182% increase — but employed only 187,000 workers — an 86 percent reduction. Some of that is related to fewer workers on passenger railroads. But all the same, the inflation-adjusted price per ton mile of freight has fallen 55 percent since 1947, Buffett said.
But all that productivity — the engine of capitalism — isn't without losers, Buffett said. And in recent years, gains in productivity have "largely" benefited the wealthy — not the average American. Workers, too, can pay a "terrible price," he said.
That doesn't mean productivity isn't good or necessary, he said. It means "a variety of safety nets" must be in place. He said he favors expanding the earned income tax credit.
"The price of achieving ever-increasing prosperity for the great majority of Americans should not be penury for the unfortunate," he said. — Brad Davis
Berkshire's cash pile keeps growing — $71 billion and counting
Berkshire Hathaway's cash continues to grow under Chairman and Chief Executive Warren Buffett — who loves the green stuff as opposed to his precious company shares when it comes to buying other companies.
Omaha-based Berkshire Hathaway said Saturday cash at the end of 2015 was $71.7 billion, up 13 percent from 2014's $63.2 billion, what Buffett called in his annual shareholder letter released Saturday an "endless gusher of cash."
Historically, Buffett has preferred to buy the dozens of operating companies that make up Berkshire using cash, as opposed to company shares, which he hates to see parted with.
Buffett also pledged in the letter to always maintain $20 billion in cash on the balance sheet.
The advantages of such a cash pile, he said, are many, and accrue also to Berkshire Hathaway's catastrophe insurers such as General Re. If a major global disaster happened, Buffett wrote, few other insurers could weather it. Berkshire's insurers, he wrote, would thrive.
"We would also remain awash in cash and be looking for large opportunities to write business in an insurance market that might well be in disarray," the CEO wrote in his letter to shareholders Saturday. Russell Hubbard
Buffett: Online streaming could 'level off' or 'modestly decrease' attendance at Omaha annual meeting
The plan to stream a portion of the Berkshire Hathaway annual meeting for the first time over the Web could “level off” or “modestly decrease” attendance at the annual pilgrimage to Omaha, company Chairman and Chief Executive Warren Buffett said.
Last year’s 40,000 attendees “strained our capacity,” Buffett said, noting the city’s CenturyLink Center convention center was stuffed full, as were overflow rooms at the center and in the Hilton hotel across the street. All of the city’s major hotel rooms also were sold out, he said.
Yet it’s important for investors to be able to see that the two heads of the company — 85-year-old Buffett and 92-year-old Vice Chairman Charlie Munger — haven’t “drifted off into la-la land,” Buffett said in Saturday’s annual letter to shareholders.
Not all of those shareholders can make it to Omaha, so Buffett said he and Munger “decided to enter the 21st century” and stream the April 30 meeting online, on the Yahoo Web portal, starting that day at 9 a.m.
“Shareholders ... should not need to come to Omaha to monitor how we look and sound,” he said.
Still, many will still attend what’s been called the Woodstock for Capitalists, and Buffett in his letter to shareholders writes for four pages on why people should still consider coming to Omaha, and what they should do if they come.
One big plea: Shop. Buffett said Nebraska Furniture Mart would be offering its typical discount. The Omaha store did more than $44 million worth of business over the last Berkshire weekend, Buffett said. “If you repeat that figure to a retailer, he is not going to believe you,” he said. — Brad Davis
Buffett: 'Highly likely' climate change poses major threat, but not to shareholders
Berkshire Chairman and Chief Executive Warren Buffett said in his annual letter to shareholders Saturday that it’s “highly likely” that climate change poses a major threat to the planet.
He said he stopped short of saying he was “certain” because he said he’s not an expert.
“It would be foolish, however, for me or anyone to demand 100 percent proof of huge forthcoming damage to the world if that outcome seemed at all possible and if prompt action had even a small chance of thwarting the danger,” he said.
Shareholders, Buffett said, will be asked at this year’s annual meeting to consider voting their proxies for a measure that would require the company to discuss climate change, how such activities might present a risk to the company’s insurance operation and explain how the company is responding to such threats.
Buffett said the sponsor of the proxy proposal believes Berkshire is “especially threatened by climate change because we are a huge insurer, covering all sorts of risks.”
But Buffett said insurance policies are customarily written for one year — not 10 or 20 at fixed prices. That means that they can be repriced annually to “reflect changing exposures.”
In other words, if it’s more likely that a particular policy will be exposed to possible effects from climate change — from a hurricane, for instance — then that policy can be priced accordingly, meaning more premium income.
The effect, then, would be to make Berkshire larger and more profitable, not the other way around.
“As a citizen, you may understandably find climate change keeping you up nights,” Buffett said. “As a homeowner in a low-lying area, you may wish to consider moving. But when you are thinking only as a shareholder of a major insurer, climate change should not be on your list of worries.” — Brad Davis
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