Daily Management Review

Buffett: Our Children Will Be the Happiest


Head of Berkshire Hathaway Warren Buffett published a letter to shareholders in which he admitted some of his mistakes. At that, Buffett believes that this current economic situation in the US is still favorable.

thetaxhaven via flickr
thetaxhaven via flickr
At the end of 2015, Berkshire Hathaway stock price fell by 12.5%, while the index S&P500, which also features Buffett’s trading company has grown by 1.4%. This is the worst performance for the investor since 2009. Since the beginning of 2016, the company's shares are traded in the range $ 130-135 per share.

In a letter to investors, Buffett said that he’s made some wrong investments. In particular, they are related to the advice on buying entire companies. "I will make other mistakes, you can be sure of this. If luck turns away from us, they will also affect our operations at a lower level." - said Mr. Buffett.
At the same time, acquisition of shares in high-tech companies, including IBM, which brought a loss, does not look a mistake to Buffett. "We expect that the value of our investment in IBM will be restored on the market and eventually exceed the amount paid by us", - he said.

The volume of assets of Berkshire Hathaway, which last year lost in value, was $ 1 billion compared to just $ 65 million a year earlier. In addition to the IBM, Buffett losses were brought by Deere engineering concern and the major retail chain Walmart, despite the fact that Berkshire Hathaway got rid of part of the company's shares owned by him for over a decade.

In 2015, net profit of Berkshire Hathaway available for distribution to shareholders increased by a quarter - from $ 19.87 billion to $ 24.08 billion. In the IV quarter, profit rose by a third to $ 4.16 billion to $ 5.48 billion. Thus, the last quarter was the most successful for the company.
Revenues for 2015 amounted to $ 210.82 billion from $ 194.67 billion a year earlier. Revenue from insurance business (the main for Buffett’s group) amounted to almost $ 163 billion, over 75% of the total turnover.

Buffett also recalled this year's presidential elections in the United States. "All the candidates talk about the problems of our country. As a result, in such an atmosphere, many Americans believe that their children will live worse than the parents. On the contrary, young Americans born today will be the happiest generation in history." - believes the guru of Omaha.

Buffett noted that the US GDP per capita is $ 56 thousand. "In real terms, - he reminds his last year’s message – this is a tremendous six-fold increase comparable to that in 1930, the year I was born." According to him, since then, the Americans became neither smarter, nor hardworking, but their work has become much more efficient: "This powerful trend will preserve, the American economic miracle continues."

The indicator of economic growth of 2%, which does not impress the US presidential candidates, looks very favorable for Buffett. This growth was expressed in an increase in GDP per capita by 1.2%. Yet, if we extrapolate it for a generation, that is, for 25 years, it gives a boost to whole 34.4%. It will be an additional $ 19 thousand a year for one person, $ 76 thousand for a family of four. "Today’s politicians should not shed tears over the children of tomorrow," - said the investor.

Distribution of this wealth in an equitable manner is another question, said Buffett, who supports the Democrats and is in favor of increasing taxes on the super-rich. The gap between rich and poor, investors and manual workers, will not disappear, he said. "Congress will be driving the battle, money and voices will be weapons, and lobbying will be a fast-growing industry", - said Buffett.