Warren Buffett, the world's most successful investor, is still happy to invest in the UK.
Berkshire Hathaway's AGM saw the usual horde of adoring investors make their annual pilgrimage to Omaha -- some 35,000 of them, apparently, including a fair-sized contingent of journalists and television crews.
Despite confessing in the annual letter he sent to investors in February that he'd made mistakes during the year -- including buying into ConocoPhillips at something close to the top of the oil market, and then taking a stake in Irish banks -- Warren Buffett got a very relaxed ride from investors who'd seen their holdings fall in value. And that's because the simple fact of the matter was that if Buffett had had a bad year, almost every other investing opportunity had fared worse.
Questions, please
From what I've seen of the AGM, it was a fairly lacklustre affair. Questions were pre-screened, and a proportion of them reserved for journalists as opposed to investors.
There were questions asked about derivatives, for example -- not surprising, in an era when so many of these "financial weapons of mass destruction" (as Buffett once memorably called them) have exploded so spectacularly. Other questions asked during the five and a half hours touched on the U.S. government, macro-economics, the financial crisis and the impact of the housing meltdown.
Previous Berkshire Hathaway AGMs have gone down in investing folklore. Somehow, I don't think that this one will follow them.
Hello, Britain
Despite people heading to Omaha from all over the world, Buffett's focus is usually America. That’s not surprising. Many of his audience are American, many of his investors are American, and the company itself is American.
But this time, he reached out to Britain -- not during the AGM's question-and-answer session, but during an interview with the BBC held as part of the accompanying media circus. Amid the celebrity-focused discussion of his wealth, fondness for Omaha, and why, aged 78, he still goes to work each day, there were some nuggets directly aimed at British investors.
The interviewer painted a picture to Buffett that essentially described the same doom-laden scenario we've all been worrying about in recent weeks -- high levels of public sector debt, the credit crunch, and all the other ailments afflicting UK plc. Given all this, she asked, would you still invest in Britain?
Buffett's reply couldn't have been couched more robustly, and boiled down to one word: "Sure." Pointing out that he already had stakes in two major British businesses, Buffett professed himself eager to add to that number -- jokingly going so far as to ask listeners to phone him if they had one to sell. Basket-case Britain? Not according to Buffett.
At root, he argued, the problems facing the British economy were transitory, and without doubt people in twenty years time would be better off than they were today.
"Whether that's true in 20 weeks or 20 months I don't know," he warned, pointing out that although he never knows what is going to happen in the short term, he does know what is going to happen over the long term: capitalism will lead to wealth creation, and in turn to wealth accumulation.
And buried in his argument was a simple throwaway observation -- you have to listen to the recording to hear it -- that provides listeners with a big clue as to how they can accumulate some of that wealth themselves.
"Ten years from now, the FTSE 100 will be higher than it is now," he pointed out. To some people, that will come as a surprise. A cursory glance at the FTSE 100, they will argue, shows that today it's at about 4,400, well down from the 6,900 it reached at the end of 1999. So why should the next ten years be any better?
Reasons to be cheerful
Because, for one thing, that's before taking into account the effect of accumulated dividends. Although the market is down 29.8% over the last ten years, it's actually almost level-pegging when the effect of dividends are taken into account.
And, don't forget, that's after the double-whammy of the dotcom boom raising prices to stratospheric valuations at the start of those ten years, and the present downturn then hammering prices at the end of the ten year comparison.
In fact, according to the 2009 Barclays Capital Equity Gilt Study, the past ten years have seen shares suffer their second-worst decade in over a century -- you have to go back to 1974 and the oil crisis to find a worse performance. And, what's more, over that century we've also had two World Wars and the Great Depression.
In short, I'm convinced that Buffett is right. Money invested in the stock market today -- especially in the form of a low-cost FTSE All-Share index tracker, with dividends accumulated -- will be worth a lot, lot more in ten years time.
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