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Buffett's New Normal

Article by Robert Asahina February 1, 2013 //   2 minute read

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.