Billionaire investor Warren Buffett on Saturday said that the US economy is in better shape than the presidential candidates make it seem, although businesses such as his still face challenges.
In his annual letter to Berkshire Hathaway Inc shareholders, Buffett did not name specific candidates or issues, but noted that the negative drumbeat about the economy, healthcare reform and income inequality might get voters down about the future.
“It’s an election year, and candidates can’t stop speaking about our country’s problems [which, of course, only they can solve],” wrote Buffett, who has endorsed Democratic US presidential hopeful Hillary Rodham Clinton. “That view is dead wrong: The babies being born in America today are the luckiest crop in history.”
Buffett struck an optimistic tone in the wide-ranging letter, which largely focused on what contributed to his conglomerate’s US$24 billion profit last year and discussed Berkshire’s prospects for the future. The letter also touched on climate change.
Buffett defended the lending practices at its mobile home unit, Clayton Homes, and Berkshire’s association with investment firm 3G Capital LLC.
Clayton’s lending practices have been questioned over the past year in stories by the Seattle Times and The Center for Public Integrity that suggested the company was using predatory lending practices.
Clayton follows state and federal regulation and retains ownership of every mortgage it finances, Buffett wrote.
He included a copy of a disclosure form Clayton uses to inform customers about lending options.
Berkshire teamed up with 3G Capital to buy Kraft Foods Group Inc and HJ Heinz Co — and promptly announced layoffs at both firms.
Berkshire has always craved efficiency and tends to buy lean companies, while 3G Capital looks for investments that need costs reduced, Buffett wrote.
The letter also noted that Berkshire shareholders would this year be asked to vote on a proposal requiring the company to prepare a report on the threat climate chance poses for its insurance operation.
It is reasonable to worry about climate change’s effect on the world, but it should not hurt insurance companies because policy prices are set annually based on that year’s risks, Buffett wrote.
“As a homeowner in a low-lying area, you may wish to consider moving,” Buffett wrote. “But when you are thinking only as a shareholder of a major insurer, climate change should not be on your list of worries.”
Change could create challenges for Berkshire, Buffett wrote.
For instance, Berkshire’s Burlington Northern Santa Fe Corp railroad is certain to haul less coal in the future and car insurer Geico Corp could be hurt by driverless cars, he wrote.
Berkshire’s businesses would adapt just as the company did when its original Berkshire Hathaway textile operation failed, he wrote, adding that Berkshire has an advantage in that it can invest in a variety of industries through its subsidiaries, which last year agreed to 29 smaller acquisitions worth US$634 million.
Buffett’s letter is one of the most well-read documents in the business world each year because of his successful track record and his knack for explaining complicated subjects in simple terms.
The 85-year-old Buffett has said he has no plans to retire, and he offered no new hints about his future in Saturday’s letter — other than to joke about being 100-years-old when he announces Geico’s latest successes.
The book value of Berkshire’s businesses last year improved 6.4 percent even as its stock price fell 12.5 percent, Buffett wrote.
When dividends are factored in, the S&P 500 gained 1.4 percent by comparison.
Berkshire Hathaway employs more than 360,000 people at its eclectic mix of companies, including insurance, utilities, railroad, manufacturing and retail firms.
Berkshire also holds significant stakes in Coca-Cola Co, Wells Fargo & Co, American Express Co, IBM Corp and other companies.
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