Warren Buffett: Don't bet against America

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

19 PHOTOS
Warren Buffett through the years
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Warren Buffett: Don't bet against America
Investor Warren Buffett answers reporters' questions during a press conference to announce that Walt Disney will buy Capital Cities/ABC July 31.
Billionaire investor Warren Buffett of Omaha makes a rare public appearance during an autograph session outside Borsheim's Jewelry Store in Omaha, May 4. Buffett was signing autographs for shareholders in his company, Berkshire Hathaway, which is having its annual meeting May 5.
Billionaire businessman Warren Buffett sits with his wife Susan (R) and daughter Susie, prior to the annual Berkshire Hathaway shareholders meeting in Omaha, May 5. This marks a rare public appearance for the reclusive Buffett.
Arnold Schwarzenegger, Republican candidate for governor of California in the October 7, 2003 recall election listens as world famous investor, Warren Buffett (L), one of his financial advisors, speaks to reporters after a meeting of Schwarzenegger's Economic Recovery Council in Los Angeles August 20, 2003. REUTERS/Fred Prouser FSP
Billionaire financier Warren Buffett looks on after a meeting with U.S. Senator Arlen Specter (R-PA) and chairman of the Senate Judiciary Committee, at the Hart Senate Office Building on Capitol Hill in Washington June 29, 2005. Specter is the co-author of a bill seeking to create a $140 billion asbestos compensation fund. REUTERS/Shaun Heasley SH/TC
Billionaire Warren Buffett arrives at the Sun Valley Resort in Sun Valley, Idaho July 10, 2007. The world's biggest media chiefs gather this week at the 25th annual Allen & Co. conference at the resort starting today. REUTERS/Rick Wilking (UNITED STATES)
Warren Buffett, chairman and CEO of Berkshire Hathaway, speaks at a Senate Finance Committee hearing about "Federal Estate Tax: Uncertainty in Planning Under the Current Law" on Capitol Hill in Washington, November 14, 2007. Billionaire Buffett warned of widening U.S. income disparity and endorsed the estate tax as a check on wealth accumulation, while two senior lawmakers said they want the tax repealed. REUTERS/Jason Reed (UNITED STATES)
Billionaire financier and Berkshire Hathaway Chief Executive Warren Buffett greets shareholders during the Berkshire Hathaway Annual Shareholders meeting in Omaha, Nebraska May 3, 2008. REUTERS/Carlos Barria (UNITED STATES)
Billionaire investor Warren Buffett laughs as he appears with Microsoft Corporation founder Bill Gates for a town hall style meeting with business students broadcast by financial television network CNBC at Columbia University in New York, November 12, 2009. REUTERS/Mike Segar (UNITED STATES BUSINESS)
Berkshire Hathaway Chairman Warren Buffett kisses his ukulele at the Berkshire Hathaway annual meeting in Omaha May 1, 2010. Buffett played "I've Been Working on the Railroad." REUTERS/Rick Wilking (UNITED STATES - Tags: BUSINESS TRANSPORT)
Billionaire financier and Berkshire Hathaway Chief Executive Warren Buffett (L) and Microsoft founder Bill Gates gesture at the national launch ceremony for the BYD M6 vehicle in Beijing September 29, 2010. Chinese battery and car maker BYD, backed by Buffett, launched its first premium multi-purpose vehicle (MPV) in Beijing on Wednesday to tap rising demand in the world's biggest auto market. REUTERS/Jason Lee (CHINA - Tags: TRANSPORT BUSINESS)
Billionaire Warren Buffett, wearing a traditional tikka or a red mark on the forehead, speaks during a news conference in Bangalore March 22, 2011. Buffett on Tuesday said he is looking to invest in large countries like India, China and Brazil, but added that restrictions on foreign ownership in India's insurance industry could be a deterrent. Buffett also said and the U.S. economy was improving and that the devastating earthquake in Japan would not hurt global growth. REUTERS/Stringer (INDIA - Tags: BUSINESS)
Berkshire Hathaway Chairman Warren Buffett tours the floor of the New York Stock Exchange September 30, 2011. REUTERS/Brendan McDermid (UNITED STATES - Tags: BUSINESS)
Berkshire Hathaway chairman Warren Buffett holds his hand over his heart during the singing of the national anthem, at the start of a 5km race sponsored by Brooks Sports Inc., a Berkshire-owned company, in Omaha May 5, 2013, a day after the company's annual meeting. Buffett at the meeting on May 4, 2013 gave the most extensive comments to date about the future of Berkshire Hathaway Inc after he is gone, saying he still expects the conglomerate to be a partner of choice for distressed companies. REUTERS/Rick Wilking (UNITED STATES - Tags: BUSINESS SPORT ATHLETICS)
Warren Buffett, Chairman of the Board and CEO of Berkshire Hathaway, poses for a portrait in New York October 22, 2013. REUTERS/Carlo Allegri (UNITED STATES - Tags: BUSINESS)
Roberta Buffett Elliott sits with her brother Warren Buffett as they attend an announcement ceremony at Northwestern University in Evanston, Illinois, January 28, 2015. The sister of financial investor Warren Buffett has given Northwestern University more than $100 million to create the Roberta Buffett Institute for Global Studies, the largest single gift in the school's 164-year history, the university said on Wednesday. REUTERS/Jim Young (UNITED STATES - Tags: BUSINESS EDUCATION SOCIETY)
Warren Buffett, chairman and CEO of Berkshire Hathaway, speaks at the Fortune's Most Powerful Women's Summit in Washington October 13, 2015. REUTERS/Kevin Lamarque/File Photo
Warren Buffett, chairman and CEO of Berkshire Hathaway, smiles before speaking with Bill Gates (not pictured), at Columbia University in New York, U.S., January 27, 2017. REUTERS/Shannon Stapleton
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