What's going on?
Warren Buffett’s publicly listed investment company, Berkshire Hathaway, reported results over the weekend. But most people’s attention was drawn to the “Oracle of Omaha’s” annual letter to his shareholders in which he emphasized a positive future for the American economy.
What does this mean?
Buffett called babies being born in America today, “the luckiest crop in history.” He, essentially, cited economic progress as being the driver of increased living standards over the course of his 85-year lifetime. He said that, even at the historically low rate of 2% growth per year, America would continue to deliver stellar improvements to its population: the economy would grow by about 1/3 per person over the course of the next 25 years (when factoring in population growth) – and he thinks that’s pretty darn good.
Why should I care?
For markets: Buffett’s long-term strategy has been to invest in economic growth. He has typically bought big and, seemingly, well-run companies that produce essential things like soft drinks (Coke), banking (Wells Fargo), computer systems (IBM) and credit cards (American Express). His strategy has been to tie his investments to the overall economy. It’s a strategy that has made him the world’s 3rd richest individual.
The bigger picture: Many of Berkshire Hathaway’s companies had a tough 2015 – but have been doing better this year. Buffett tends to focus on “value” stocks: big companies that aren’t valued too highly. Such companies performed worse than “growth” stocks like Facebook and Netflix in 2015, but so far in 2016, it’s the growth stocks that have faltered.