Warren Buffett, the billionaire investor, lauded the "miraculous" qualities of the US economy over the weekend in highlighting another stellar year for his company, Berkshire Hathaway.
Mr Buffett, whose record of beating the stock market over the past 50 years is unparalleled, is known for being persistently optimistic about the prospects of the US economy. But his usual hymn to its dynamism reached new heights in his annual letter to Berkshire Hathaway shareholders, which was released Saturday.
“Americans have combined human ingenuity, a market system, a tide of talented and ambitious immigrants, and the rule of law to deliver abundance beyond any dreams of our forefathers,” Mr Buffett wrote.
The businessman who supported Hillary Clinton during last year's presidential campaign, did not mention President Donald Trump in his letter. But his celebration of the economy's ability to deliver growth stands in stark contrast to Mr Trump's darker descriptions of the country's economic prospects.
That Mr Buffett went out of his way to give credit to a “tide of talented and ambitious immigrants” was also worthy of note in light of the Trump administration’s crackdown on immigrants.
Outstanding year
Last year was another outstanding one for the man known widely as the Oracle of Omaha. Berkshire Hathaway's stock price was up 23 per cent in 2016, about double the return on the Standard & Poor's 500 index. Berkshire's operating companies also performed well in an improving economy, with operating earnings increasing to $17.5 billion in 2016 from $17.3 billion in 2015.
Mr Buffett’s investment letters, which accompany Berkshire’s report, are highly anticipated. This year, he attacked what he saw as tricks used by US companies to boost earnings and stock prices, but defended share buybacks.
“As the subject of repurchases has come to a boil, some people have come close to calling them un-American – characterising them as corporate misdeeds that divert funds needed for productive endeavours,” Mr Buffett said.
“That simply isn’t the case: both American corporations and private investors are today awash in funds looking to be sensibly deployed. I’m not aware of any enticing project that in recent years has died for lack of capital.”
But he expressed concern that “too many” public companies are deviating from generally accepted accounting principles (GAAP) to present better earnings numbers.
Companies that regularly leave out what they call “restructuring costs” and “stock-based compensation” from their expenses, boosting profits by deviating from standard accounting practices made him nervous, he said.
Adjustments
“To tell owners year after year, ‘Don’t count this,’ when management is simply making business adjustments that are necessary, is misleading. And too many analysts and journalists fall for this baloney.”
And he returned to a persistent theme of fund managers and value for investors. Underscoring his long-held thesis that, over time, highly paid hedge-fund hotshots lose out to a cheap index fund, Mr Buffett presented the latest results of a bet he made nine years ago.
Since then, a standard S&P index fund overseen by Vanguard is up 85 per cent, easily outpacing the hedge funds’ return of 22 per cent. Annually, the gap is just as wide: 7 per cent for the index fund and 2.2 per cent for the hedge funds.
As usual, Mr Buffett did not mince words in expressing his astonishment as to how elite investment professionals could register such mediocre returns while raking in steep fees.
– (Copyright New York Times 2017 / Reuters)
