Buffett Watch

Warren Buffett says investment gains will continue to be 'substantial,' applauds 'miraculous' US economy

Warren Buffett
David A. Grogan | CNBC

Warren Buffett's Berkshire Hathaway released its closely-watched annual letter on Saturday, in which the Oracle of Omaha told investors that the holding company's investment gains would continue to be 'substantial' in the coming years and the U.S. economy would continue its 'miraculous' boom.

The Omaha, Nebraska-based conglomerate's net earnings rose to $6.29 billion in the fourth quarter of 2016, up from $5.48 billion in the comparable year ago period. Investors frequently parse the document for Buffett's insights into specific sectors, in addition to his thoughts on the economy.

"Our expectation is that investment gains will continue to be substantial – though totally random as to timing – and that these will supply significant funds for business purchases," Buffett wrote in the letter.

"Concurrently, Berkshire's superb corps of operating CEOs will focus on increasing earnings at the individual businesses they manage, sometimes helping them to grow by making bolt-on acquisitions."

The 86-year old investor and his partner, 93 year-old Charlie Munger, have functioned as a dynamic duo that's helped turn Berkshire into a household name. Buffett wrote that the partnership will sometimes yield fewer dividends, but would remain lucrative.

"Some years, the gains in underlying earning power we achieve will be minor; very occasionally, the cash register will ring loud. Charlie and I have no magic plan to add earnings except to dream big and to be prepared mentally and financially to act fast when opportunities present themselves," Buffett said.

"Every decade or so, dark clouds will fill the economic skies, and they will briefly rain gold. When downpours of that sort occur, it's imperative that we rush outdoors carrying washtubs, not teaspoons. And that we will do," the investor wrote.

Charles Munger
Michael Newberg | CNBC

Kind words for immigrants

In an era when CEOs have been walking a tightrope in trying to address how President Donald Trump's economic policies will impact their businesses, Buffett — who prominently backed Democratic contender Hillary Clinton in the general election – largely steered clear of making any statements that could be construed as controversial.

Buffett did, however, speak favorably about immigrants, a segment of the U.S. population that has been under the microscope in recent weeks. Trump has moved to block illegal immigration, and issued a controversial travel ban to restrict movement by foreign citizens from seven countries linked to terrorism.

"Americans have combined human ingenuity, a market system, a tide of talented and ambitious immigrants, and the rule of law to deliver abundance beyond any dreams of our forefathers," the investor wrote.

"This economic creation will deliver increasing wealth to our progeny far into the future. Yes, the build-up of wealth will be interrupted for short periods from time to time. It will not, however, be stopped," Buffett said.

"I'll repeat what I've both said in the past and expect to say in future years: Babies born in America today are the luckiest crop in history."

'Economic traffic cop'

Buffett also lauded what he called the "miraculous" performance of the U.S. economy, a dynamic he expects to help boost the company's own bottom line. Since 1965, Berkshire has returned a whopping 19 percent annual gain, a function of what Buffett said was a free market that created American prosperity.

"Our efforts to materially increase the normalized earnings of Berkshire will be aided – as they have been throughout our managerial tenure – by America's economic dynamism. One word sums up our country's achievements: miraculous," he said.

"Above all, it's our market system – an economic traffic cop ably directing capital, brains and labor – that has created America's abundance," the investor wrote.

"This system has also been the primary factor in allocating rewards. Governmental redirection, through federal, state and local taxation, has in addition determined the distribution of
a significant portion of the bounty," he added.

Buffett, one of the world's richest men and widely considered to be a highly skilled investor, was also critical of fund managers, who he singled out as profiting from charging high fees rather than sound investing and generous returns.

"When trillions of dollars are managed by Wall Streeters charging high fees, it will usually be the managers who reap outsized profits, not the clients," said Buffett, widely considered
one of the world's best investors. "Both large and small investors should stick with low-cost
index funds."

--Reuters contributed to this article.