Warren E. Buffett took aim Saturday at the “negative drumbeat” of this year’s presidential campaign, saying that the view that children today would not live as well as their parents was “dead wrong.”
In his annual letter to shareholders, the billionaire investor – who has endorsed Hillary Clinton for president – wrote that “the babies being born in America today are the luckiest crop in history.”
Employing his typical folksy humor and optimism, Buffett’s letter discussed such themes as income inequality, climate change, efficiency and prosperity, as well as investments like BNSF Railway and Kraft Heinz.
For 240 years it’s been a terrible mistake to bet against America, and now is no time to start.
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“For 240 years it’s been a terrible mistake to bet against America, and now is no time to start,” he wrote. “America’s golden goose of commerce and innovation will continue to lay more and larger eggs.”
Buffett cautioned, though, that while the “pie to be shared by the next generation will be far larger than today’s,” the way it is divided will “remain fiercely contentious.” Many of the negative effects of innovation and greater efficiency tend to harm the worker, he said.
He gave the example of how competition had forced his Dexter shoe operation to fold, leaving 1,600 employees in a small Maine town without work, many of whom were past the point where they could learn another trade. He said the same situation unfolded at the original New England textile plant of his holding company, Berkshire Hathaway.
Buffett’s suggested solution: providing safety nets for those who want to work but find their talents out of favor because of market forces.
“The price of achieving ever-increasing prosperity for the great majority of Americans should not be penury for the unfortunate,” he wrote.
The letter to shareholders was released along with the fourth-quarter and annual results for Berkshire Hathaway. Berkshire’s earnings rose to $24.08 billion last year from $19.87 billion in 2014, while annual revenue increased by $16 billion, to $210.8 billion.
In his letter, Buffett contrasted Berkshire’s pursuit of efficiency with that of 3G Capital, the Brazilian investment firm that he partnered with to acquire Heinz, which was later combined with Kraft last year.
While praising 3G’s method as “extraordinarily successful,” Buffett said it encompassed buying companies with the intent to immediately cut costs. Berkshire, he said, also “craves efficiency” but looks for companies that are avoiding bloat, ones that are run by efficient managers.
His example was Precision Castparts Corp., which was purchased a month ago for $32 billion – the company’s largest acquisition to date. He added that Mark Donegan, chief executive of Precision Castparts, would be among those deploying Berkshire’s capital through acquisitions.
Much smaller acquisitions were also a focus last year, when Berkshire’s subsidiaries made 29 “bolt-on” acquisitions, costing $634 million. Buffett said the company would make dozens more such acquisitions in future years.
Berkshire Hathaway is a big insurer, meaning that changes in weather patterns that could cause catastrophes, such as hurricanes, could hurt the company.
Addressing a proposal to discuss climate change at the company’s annual meeting in April, Buffett wrote that it seemed “highly likely to me that climate change poses a major problem for the planet.” He said that because insurance policies are rewritten each year, Berkshire Hathaway should not be exposed to high losses.
Buffett also defended the Clayton Homes subsidiary, whose mortgage practices have been scrutinized because they aim at lower-income homeowners. He sought to differentiate Clayton from what he said were the destructive and corrupt practices that contributed to the recession of 2008.
Clayton, he said, keeps all of the mortgages it originates, rather than siphon them off to banks that could structure them into new, complicated securities. Last year, however, Clayton foreclosed on 8,444 mortgages at a cost of $157 million, and paid almost $750,000 in fines and refunds to customers.
Berkshire’s noninsurance companies also include what Buffett called the “Powerhouse Five”: Berkshire Hathaway Energy, Marmon (an industrial holding company), Lubrizol (specialty chemicals), IMC (metalworking) and BNSF Railway, which together earned $13.1 billion last year.
“Woody Allen once explained that the advantage of being a bisexual is that it doubles your chance of finding a date on Saturday night,” Buffett said. “In like manner – well, not exactly like manner – our appetite for either operating businesses or passive investments doubles our chances for finding sensible uses for Berkshire’s endless gusher of cash.”