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Buffett's New Normal

February 1, 2013 by Robert Asahina

Two cheers for Warren Buffett: one for emphasizing the importance of economic growth, and one for nodding, even slightly, in the direction of 4% growth. Interviewed on public radio's "Marketplace," the Sage of Omaha failed, however, to earn a third cheer by setting his sights significantly lower:

On how the U.S. can back to 4 percent or more growth: Buffett: Well, 4 percent's a pretty big number. But even, take a subpart, 2 percent. If we have 1 percent population growth and we have 2 percent real growth in output, that's 20 percent in 20 years. If every generation lives 20 percent better than the generation before it, that is not bad. I think we'll do better than that, but 20 percent is not bad.

When it comes to the economy as a whole, Buffett seems comfortable discounting the  power of compounding, something he values much more highly when it comes to putting his own money where his mouth is. The A shares of his Berkshire Hathaway fund, recently trading at $131,875.00 (yes, that's per share), have significantly outperformed the S&P and the Dow during the past two decades — by a factor of more than four. Since 1990, Berkshire's A shares have increased in value more than 16 times (compared to less than four times for the S&P and Dow). That's 1600% in a little more than 20 years, as opposed to the "20 percent in 20 years" that he describes as "not bad" — for the rest of us.  


Author

Robert Asahina

Robert Asahina has been a newspaper and magazine editor and writer, a book publishing executive and editor, and a data management consultant. He was editor in chief and deputy publisher of Broadway Books, president and publisher of the adult publishing group of Golden Books, and vice president and senior editor of Simon and Schuster; deputy managing editor of The New York Sun and an editor at The New York Times Book Review, Harper's, George, and The Public Interest; and a consultant at Freddie Mac. He is the author of "Just Americans" and of numerous articles and reviews for The Wall Street Journal, Harper's, The New York Times Book Review, and elsewhere.

 

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