Ideas & Debate

No need to fear rising public debt, advises investor Buffett

buffet

Billionaire Warren Buffett, CEO and chairman of investment company Berkshire Hathaway at an earlier event. --FILE

When it’s this time of the year, you know it’s time for Warren’s wisdom. The “Oracle of Omaha’s” (Mr Warren Buffett) widely read annual letter is out and as usual, he shares his wise counsel. Today’s letter is about him and three thought-provoking ideas he sets forward.

On a topic that’s closer to home - national deficit and its attendant risks - Mr Buffett makes a rather astonishing remark.

He says, “those who regularly preach doom because of government budget deficits might note that our country’s national debt has increased roughly 400-fold during the last of my 77-year periods.

That’s 40,000 percent. Suppose you had foreseen this increase and panicked at the prospect of runaway deficits and a worthless currency. To “protect” yourself, you might have eschewed stocks….Yet a simple unmanaged investment business in American would’ve grown five times…” Interesting food for thought.

Relevant too as we inch closer to 60 percent of national debt-to-GDP. Perhaps, the excessive fear is unwarranted or perhaps not. Time will tell.

On investment managers (Mr Buffett thinks they’re all charlatans), he shares his usual disapproval through a personal example.

He says, “If my $114.75 had been invested in a no-fee S&P 500 index fund, and all dividends had been reinvested, my stake would have grown to be worth (pre-taxes) $606,811 on January 31, 2019. That’s a gain of 5,288 for 1….. If that hypothetical institution had paid only one percent of assets annually to various “helpers”, such as investment managers and consultants, its gain would have been cut in half, to $2.65 billion.

That’s what happens over 77 years when the 11.8 percent annual return actually achieved by the S&P 500 is recalculated at a 10.8 percent rate.” Such an inconvenient truth. The late John Bogle must be smiling in Heaven.

On politics, he’s dismissive that any politico-economic ideology is superior to the other. He states, “Our country’s almost unbelievable prosperity has been gained in a bipartisan manner.

Since 1942, we have had seven Republican presidents and seven Democrats. In the years they served, the country contended at various times with a long period of viral inflation, a 21 percent prime rate, several controversial and costly wars, the resignation of a president, a pervasive collapse in home values, a paralysing financial panic and a host of other problems.

All engendered scary headlines; all are now history.” Takeaway; the economy has its own head. Its goes wherever it chooses to go. It favours no particular political leaning or economic agenda.

In all, Warren’s letter is an overall good read. For die-hard fans of the lovable octogenarian, Berkshire’s 2019 annual meeting will be taking place on the Saturday of May 4th. You and I can attend via Yahoo’s webcast.