Billionaire Warren Buffett’s investment group Berkshire Hathaway enters its fiftieth year betting on the continued economic prosperity of the United States.
Buffett’s annual letter to shareholders says the bet has delivered well for shareholders, with the group’s share value almost 700 times that of 1965 when it started.
As the US economy nears the end of the six-year cycle that followed the Global Financial Crisis, Buffett says his investment strategy continues to pay dividends in the toughest of times.
In late 2009 Buffet bought into the USA’s second-largest rail freight operator, raising eyebrows among many analysts.
“At the time, I called the transaction an ‘all-in wager on the economic future of the United States’,” Buffett recalled in his letter.
“That kind of commitment was nothing new for us: We’ve been making similar wagers ever since Buffett Partnership Ltd. acquired control of Berkshire in 1965.
“I have always considered a ‘bet’ on ever-rising US prosperity to be very close to a sure thing,” he said.
“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. And the dynamism embedded in our market economy will continue to work its magic. America’s best days lie ahead.”
Berkshire’s net income surged 31 per cent to $19.48 billion last year on total revenue of $182.15 billion.
Buffett noted performance gains at auto insurer Geico and in its “Powerhouse Five’’ – a group of non-insurance businesses including Burlington Northern Santa Fe railroad and electric utility MidAmerican Energy that posted pretax earnings of $10.8 billion for 2013, up nearly $760 million year-over-year. In total, Berkshire owns roughly 80 subsidiaries, including clothing, furniture and jewellery firms.
It also has major investments in such companies as Coca-Cola Co. and Wells Fargo & Co.
“On the operating front, just about everything turned out well for us last year — in some cases very well,’’ Buffett wrote.
Having wrapped up almost 50 years, Buffett forecast that his companies will still be key players in the US economy for the next 100.
“A century hence, BNSF and MidAmerican Energy will still be playing major roles in our economy.
“Insurance will concomitantly be essential for both businesses and individuals – and no company brings greater human and financial resources to that business than Berkshire.
“Moreover, we will always maintain supreme financial strength, operating with at least $20 billion of cash equivalents and never incurring material amounts of short-term obligations.”
In his reflections, Buffett admitted to a few mistakes, albeit small ones.
“Fortunately, my blunders usually involved relatively small acquisitions.
“Our large buys have generally worked out well and, in a few cases, more than well.
“I have not, however, made my last mistake in purchasing either businesses or stocks. Not everything works out as planned.”
And there was another word of warning for the public sector where spending isn’t matched by income.
“Local and state financial problems are accelerating, in large part because public entities promised pensions they couldn’t afford.
“Citizens and public officials typically under-appreciated the gigantic financial tapeworm that was born when promises were made that conflicted with a willingness to fund them.
“Unfortunately, pension mathematics today remain a mystery to most Americans.”
They may not be alone.
– with Associated Press
