Warren Buffett released his 53rd annual Berkshire Hathaway (BRK) shareholder letter last Saturday. The letter is widely read by investors for insight into how to invest better and how to avoid investment mistakes. After 52 letters can Warren say anything new? Yes, he can. Read on for our highlights.
An Olympic year for US investors
BRK stock, its book value and the S&P 500 all rose 22-23 percent in 2017. Call these benchmarks the gold, silver and bronze of the investing Olympics with only decimals separating the medalists. Buffett says that what counts most for him is BRK’s normalized per share earning power. He also says he favors investing in the S&P 500 as the next best thing to owning BRK.
Tax reform was enacted by Congress late in 2017. While some political messaging pointed in other directions, the major beneficiaries of the new law are US corporations. For example, BRK shareholders got a $29 billion boost in net income because the company will pay a 21% tax rate, not the old 35% rate. As Warren Buffett said, the large increase in BRK earnings in 2017 had nothing to do with management’s efforts. Other big US companies have also benefitted from last year’s tax reform by paying large sums now in exchange for lower rates later. Apple, Cisco and Goldman Sachs are some examples. The conclusion I draw is that earnings are going up noticeably for US companies because of tax reform. That makes stocks look more attractive on a value basis.
In Buffett’s words
How to give up the ‘now’ for ‘more later’
Investing is an activity in which consumption today is foregone in an attempt to allow greater consumption at a later date. “Risk” is the possibility that this objective won’t be attained.
…using diversification and time
As an investor’s investment horizon lengthens, however, a diversified portfolio of U.S. equities becomes progressively less risky than bonds, assuming that the stocks are purchased at a sensible multiple of earnings relative to then-prevailing interest rates.
Optimism about US economy
And – as has been the case since 1776 – whatever its problems of the minute, the American economy was going to move forward.
Will Warren Buffett live forever?
Lest we end on a morbid note, I also want to assure you that I have never felt better. I love running Berkshire, and if enjoying life promotes longevity, Methuselah’s record is in jeopardy.
This communication may include forward-looking statements. All statements other than statements of historical fact are forward-looking statements (including words such as “believe,” “estimate,” “anticipate,” “may,” “will,” “should,” and “expect”). Although we believe that the expectations reflected in such forward-looking statements are reasonable, we can give no assurance that such expectations will prove to be correct. Various factors could cause actual results or performance to differ materially from those discussed in such forward-looking statements.”
“Historical performance is not indicative of future results. The investment return will fluctuate with market conditions.
Past performance is not indicative of any specific investment or future results. Views regarding the economy, securities markets or other specialized areas, like all predictors of future events, cannot be guaranteed to be accurate and may result in economic loss to the investor.
Investment strategies, philosophies, allocations and holdings are subject to change without prior notice.
This communication is intended to provide general information only and should not be construed as an offer of specifically tailored individualized advice.
While the Adviser believes the outside data sources cited to be credible, it has not independently verified the correctness of any of their inputs or calculations and, therefore, does not warranty the accuracy of any third-party sources or information.
Adviser does not endorse the statements, services or performance of any third-party vendor.
Unless stated otherwise, any mention of specific securities or investments is for hypothetical and illustrative purposes only. Adviser’s clients may or may not hold the securities discussed in their portfolios. Adviser makes no representations that any of the securities discussed have been or will be profitable.
Any IPO alerts are purely informational and should not be construed as recommendations to invest.
Any case studies or hypothetical client profiles are for demonstration purposes only. They illustrate the breadth and depth of the many clients we represent at various life stages. Any similarities to actual Adviser’s clients past or present are strictly coincidental. Individual advice and results will vary based on each client’s circumstances, objectives and prevailing economic conditions.