We at Smead Capital Management have grown tired of the naysayers who claim there is a limited opportunity to make money in companies tied to the US economy. We are glad to know that we are not alone. Buffett points out that the US economy is still “wonderful” and should create ever higher standards of living in the next 30 years:
“It’s an election year, and candidates can’t stop speaking about our country’s problems (which, of course, only they can solve). As a result of this negative drumbeat, many Americans now believe that their children will not live as well as they themselves do.
That view is dead wrong: The babies being born in America today are the luckiest crop in history.
American GDP per capita is now about $56,000. As I mentioned last year that – in real terms – is a staggering six times the amount in 1930, the year I was born, a leap far beyond the wildest dreams of my parents or their contemporaries. U.S. citizens are not intrinsically more intelligent today, nor do they work harder than did Americans in 1930. Rather, they work far more efficiently and thereby produce far more. This all-powerful trend is certain to continue: America’s economic magic remains alive and well.
Some commentators bemoan our current 2% per year growth in real GDP – and, yes, we would all like to see a higher rate. But let’s do some simple math using the much-lamented 2% figure. That rate, we will see, delivers astounding gains.”4
The Berkshire Hathaway annual shareholder letter once again gives us continued confidence as long-duration common stock holders. We believe our portfolio is made up of “wonderful” companies like Berkshire Hathaway, Wells Fargo and American Express. We continue to look for cheap use of capital by wise business managers. We are also committed to seek out quality companies via our eight criteria for common stock selection in our portfolio and our future investment opportunities.
1. Source: 2015 Berkshire Hathaway Annual Letter (www.berkshirehathaway.com/letters/2015ltr.pdf) p. 2.
2. Source: Ibid, p.6
3. Source: Ibid, p.20
4. Source: Ibid, p.6
William Smead is CEO and chief investment officer at Smead Capital Management.