Warren Buffett released his annual letter to shareholder on Saturday and, as always, it was a delight to read. You can find the entire letter here; but today, I thought I would share some of the highlights.
***
One word sums up our country’s achievements: miraculous. From our standing start 240 years ago – a span of time less that triple my days on earth – Americans have combined human ingenuity, a market system, a tide of talented and ambitious immigrants, and the rule of law to deliver abundance beyond any dreams of our forefathers.
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, they 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 weaker output of 1776. Starting from scratch, America has amassed wealth totaling $90 trillion.
Early Americans, we should emphasize, were neither smarter nor more hard working than those people who toiled century after century before them. But those venturesome pioneers crafted a system that unleashed human potential, and their successors built upon it.
The economic reaction will deliver increasing wealth to our progeny far into the future. Yes, the build-up of wealth will be interrupted for short periods from time to time. It will not, however, be stopped. I’ll repeat what I’ve said in the past and expect to say in future years: babies born in America today are the luckiest crop in history.
America’s economic achievements have led to staggering profits for stockholders. During the 20th century, the Dow Jones Industrials advanced from 66 to 11,497, a 17,320 percent capital gain that was materially boosted by steadily increasing dividends. The trend continues: by year end 2016, the index has advanced a further 72 percent to 19,763.
American business – and consequently a basket of stocks – is virtually certain to be worth far more in the years ahead. Innovation, productivity gains, entrepreneurial spirit and the abundance of capital will see to that. Ever present nay-sayers may prosper by marketing their gloomy forecasts. But heaven help them if they act on the nonsense they peddle.
Many companies, of course, will fall behind, and some will fail. Winnowing of that sort is a product of market dynamism. Moreover, 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 – not me, not Charlie [Munger], not economist, no the media. Meg McConnell of the New York Fed aptly described the reality of panics: ‘We spend a lot of time looking for systemic risk; in truth, however, it tends to find us.’
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.
***
Thank you, Warren, for another year of terrific insights.