Warren Buffett: Don't bet against America

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Warren Buffett's Bet on America

In his most recent letter to Berkshire Hathaway (NYSE: BRK-A) (NYSE: BRK-B) shareholders, Warren Buffett commented that politicians' views of America's future are "dead wrong." Buffett believes that not only are we going to leave our children with an even better America than the one we inherited, but America's economy will continue to grow and prosper for generations to come. Here are the details of Buffett's optimistic commentary, and what it means to you as an investor.

"America's economic magic remains alive and well"
There has been a lot of negative talk about the current and future state of America. From political slogans of "Make America Great Again" to saying that we could become the first Americans who didn't leave their children a better country than our parents left us, the tone of the 2016 presidential candidates has been rather pessimistic about where America is heading. Fed up with it, Buffett gave his input on the matter.

In direct contrast to most politicians, Buffett simply said, "The babies being born in America today are the luckiest crop in history."

Buffett points out that in real (inflation-adjusted) terms, per-capita GDP in America is 6 times what it was in the year he was born. It's not that Americans are smarter or harder workers than they were -- we simply get more efficient over time, a trend Buffett feels is "certain to continue."

He went on to say that while 2% GDP growth is indeed sluggish by historical standards, it will still produce continued real GDP growth over time, and therefore lead to a better standard of living for our children. In fact, he calculates that 25 years of 2% GDP growth would result in a 34.4% gain in real GDP over a 25-year period -- which translates to a $19,000 increase per capita.

Finally, Buffett discussed how far we've come, and how many more luxuries are even enjoyed by lower-income Americans than in years past. Buffett's parents couldn't imagine needing a television set, while Buffett now plays bridge online regularly.

He finished by saying:

For 240 years it's been a terrible mistake to bet against America, and now is no time to start. America's golden goose of commerce and innovation will continue to lay more and larger eggs. America's social security promises will be honored and perhaps made more generous. And, yes, America's kids will live far better than their parents did.

The takeaway: What it means to investors
Buffett's main reason for including this discussion in his letter to shareholders is to emphasize that Berkshire's business model will be effective for generations to come. There will still be opportunities to acquire great businesses and the earnings power of Berkshire's existing businesses will continuously improve.

However, this logic can be applied to any investment. Buffett is saying that companies and industries with a proven track record of growth and innovation will continue to grow and innovate -- nothing has changed in that regard. So, if you apply some of the same criteria Buffett uses when deciding which companies to acquire, or which stocks Berkshire should buy, your portfolio will be fine over the long term. Just to name a few of these criteria:

  • Buy stocks that are leaders, or among the top few companies in their respective businesses.
  • Identify a wide moat -- that is, a sustainable competitive advantage.
  • Focus on shareholder-friendly management, and companies with little or no debt.
  • Look for a track record of consistent revenue and earnings growth, as well as dividend growth (if applicable).

Buffett believes the magic of America, and American investment opportunities, is alive and well. Invest with the long term in mind, because what has worked in the past will continue to work in the future.

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RELATED: Warren Buffett through the years

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Warren Buffett through the years
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Warren Buffett: Don't bet against America
Warren Buffett speaks to the media during a press conference Monday, June 26, 2006 in New York. Buffet, the chairman of Berkshire Hathaway, recently announced his intention of giving 10 million shares of his company to charitable organizations, the majority going to the Bill and Melinda Gates Foundation. (AP Photo/Seth Wenig)
NEW YORK, UNITED STATES: California Governor Arnold Schwarzenegger (L) cofers with billionaire investor Warren Buffet (R) during a meeting with Wall Street investors at the Ritz Carlton hotel February 25, 2004 in New York City. AFP PHOTO/POOL/Kathy WILLENS (Photo credit should read KATHY WILLENS/AFP/Getty Images)
Investor Warren Buffet participates in the Treasury Conference on U.S. Capital Markets Competitiveness, Tuesday, March 13, 2007, at Georgetown University in Washington. (AP Photo/Gerald Herbert)
CLEVELAND - MARCH 25: Philanthropist Warren Buffet (C) wears a LeBron James Witness tee-shirt as he cheers for the Cleveland Cavaliers during a game against the Denver Nuggets March 25, 2007 at The Quicken Loans Arena in Cleveland, Ohio. NOTE TO USER: User expressly acknowledges and agrees that, by downloading and/or using this Photograph, user is consenting to the terms and conditions of the Getty Images License Agreement. Mandatory Copyright Notice: Copyright 2007 NBAE (Photo by David Liam Kyle/NBAE via Getty Images)
** FILE ** In this May 21, 2008 file photo, U.S. Billionaire investor Warren Buffet speaks during a news conference in Madrid. Buffett's Berkshire Hathaway Inc. is investing at least $5 billion in Goldman Sachs Group Inc., Goldman announced Tuesday, Sept. 23, 2008. (AP Photo/Paul White, file)
Warren Buffet, chairman of Bershire Hathaway, arrives for the annual Allen & Co.'s media conference Wednesday, July 9, 2008, in Sun Valley, Idaho. (AP Photo/Douglas C. Pizac)
FILE - In this May 2, 2009 file photo, Warren Buffett, CEO of Berkshire Hathaway, right, waves to shareholders prior to the annual Berkshire Hathaway shareholders meeting in Omaha, Neb. Warren Buffet's Berkshire Hathaway said Tuesday, Nov. 3, 2009, it has agreed to buy Burlington Northern Santa Fe in a deal valuing the railroad at $34 billion.(AP Photo/Nati Harnik, file)
Warren Buffet heads to lunch after a morning session at the Sun Valley Inn for the 2011 Allen and Co. Sun Valley Conference, Thursday, July 7, 2011, in Sun Valley, Idaho. (AP Photo/Julie Jacobson)
Warren Buffett is interviewed in the White House Briefing Room in Washington, Monday, July 18, 2011, following his meeting with President Barack Obama. Obama met with members of the Giving Pledge including, Buffett and Bill and Melinda Gates, and others to receive and update on the program. (AP Photo/Pablo Martinez Monsivais)
Billionaire investor Warren Buffet at the Allen & Company Sun Valley Conference in Sun Valley, Idaho, Friday, July 13, 2012. (AP Photo/Paul Sakuma)
Warren Buffett, chairman of Berkshire Hathaway Inc., right, speaks to David Rubenstein, co-founder and managing director of the Carlyle Group, during the Economic Club of Washington dinner event in Washington, D.C., U.S., on Tuesday, June 5, 2012. Buffett said he doesn't expect another U.S. recession unless Europe's crisis spreads. Photographer: Andrew Harrer/Bloomberg via Getty Images
DETROIT, MI - SEPTEMBER 18: Billionaire investor Warren Buffett speaks at an event called, 'Detroit Homecoming' September 18, 2014 in Detroit, Michigan. The purpose of the invitation-only event of Detroit expatriats is to give the group a chance to reconnect, reinvest and reinvent with their hometown. The topic of Buffet's conversation was, 'Why I'm Bullish on Detroit.' (Photo by Bill Pugliano/Getty Images)
Warren E. Buffett, Chairman of the Board and Chief Executive Officer, Berkshire Hathaway Inc., participates in a NADA Automotive forum happening in conjunction with the New York International Auto Show, Tuesday, March 31, 2015, in New York. (AP Photo/Mary Altaffer)
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