The letter is peppered with comments that reveal Buffett’s thinking, sometimes subtly, sometimes overtly. Here are some of the most noteworthy:
1. America is doing great.
Buffett is, of course, a big booster for American ingenuity and the American economic system–in fact he says in his new documentary Becoming Warren Buffett that being born in the United States was one of the luckiest breaks he got.
Perhaps in response to the relentless negative messages in the most recent election cycle, Trump’s praise of the American economy and people is almost over-the-top this time around. “One word sums up our country’s achievements: miraculous,” he writes. He goes on: “You need not be an economist to understand how well our system has worked. Just look around you. See the 75 million owner-occupied homes, the bountiful farmland, the 260 million vehicles, the hyper-productive factories, the great medical centers, the talent-filled universities, you name it – they all represent a net gain for Americans from the barren lands, primitive structures and meager output of 1776. Starting from scratch, America has amassed wealth totaling $90 trillion.”
2. Immigrants are good for our country.
In his paragraph on America’s strengths, Buffett cites “a tide of talented and ambitious immigrants” as one of this nation’s key assets. This is the only mention he makes of the issue, but many consider it significant in these days of Trump’s anti-immigration initiatives. Buffett has always been bullish on immigrants in the United States. For instance, on the day the Trump issued the executive order temporarily banning even legal immigrants from certain countries from entering the United States, Buffett was at Columbia with his pal Bill Gates, telling students that immigrants should be welcomed.
3. The rule of law makes us strong.
The rule of law is an odd thing to mention in a shareholder letter but Buffett does. In the same passage where he praises immigrants, he tells us that they, combined with our market system and rule of law can “deliver abundance beyond any dreams of our forefathers.”
Why mention the rule of law? We can only speculate, but my guess is that it’s a response to the Trump administration’s attempts to make policy by executive order, something that President Barack Obama also did. So far, Trump’s biggest executive order initiative, the ban on immigrants–especially non-Christian ones–from specific countries has been at least temporarily halted by the rule of law as the order faced lawsuits from many directions, including the entire stat of Washington, and judges around the country ordered Immigration officials to stop barring legal entry while these suits are decided.
4. You should see fear as an opportunity.
Buffett has famously counseled investors to be fearful when others are greedy and greedy when others are fearful. In this letter, at a time when the market is flying high but by some predictions is due for a drop soon–he goes into a bit more detail.
“The years ahead will occasionally deliver major market declines–even panics–that will affect virtually all stocks. No one can tell you when these traumas will occur,” he writes. And then he goes on to give some spectacularly good common-sense advice. “During such scary periods, you should never forget two things: First, widespread fear is your friend as an investor, because it serves up bargain purchases. Second, personal fear is your enemy. It will also be unwarranted. Investors who avoid high and unnecessary costs and simply sit for an extended period with a collection of large, conservatively-financed American businesses will almost certainly do well.”
5. Always take the long view.
One big secret of Buffett’s success is his extraordinary patience and consistency. For example, in his letter, he refers to GEICO as “the company that set my heart afire 66 years ago (and for which the flame still burns).”
If you take the long view, he argues, investments in a basked of solid companies with good financial underpinnings will almost certainly go well. In fact, he’s just about proved his point with a long-running bet that has him pitting a Vanguard index fund that simply owns all the stocks in the S&P 500 against the performance of any group of hedge funds over a ten-year period. With one year left to go, Buffett is all but certain to win the bet, with the hedge funds showing average gains of 22 percent over nine years, while the S&P index fund is up 85 percent. (Even the very best of the hedge funds only shows gains of 63 percent during that time.)
Buffett has always insisted that you don’t need to be a genius to succeed at investing. You just need enough time to outwait temporary market downturns, and enough emotional fortitude not to sell when things look grim.
It’s a lesson we should all try to remember next time the market takes a plunge.
Credit: Inc
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