US billionaire, Warren Buffett, wants Americans to be optimistic about the Country's future, but careful about borrowing money, and the games public companies play with profit numbers they report.
Buffett said in his annual letter to Berkshire Hathaway shareholders Saturday that he still believes America's best days are ahead.
Commentators today often talk of 'great uncertainty.' But think back, for example, to December 6, 1941, October 18, 1987 and September 10, 2001, Buffett wrote, referring to the days before the Pearl Harbor attack, a stock market crash and terrorist attacks in the US. No matter how serene today may be, tomorrow is always uncertain. Don't let that reality spook you. He said a housing recovery will likely begin within the next year.
Buffett's letter detailed how the acquisition of Burlington Northern Santa Fe railroad, better results at Berkshire's other subsidiaries and strong investment performance combined to boost the company's net income by 61% to US$12.97B in Y 2010.
But Mr. Buffett also said in his message that it is important to educate investors on Key business principles. Buffett said the financial crisis of Y 2008 confirmed the dangers of investing with borrowed money because even a short absence of credit can ruin a company.
When leverage works, it magnifies your gains. Your spouse thinks you're clever, and your neighbors get envious. But leverage is addictive, Buffett said. Once having profited from its wonders, very few people retreat to more conservative practices.
That's part of why Berkshire always keeps at least US$20B in cash on hand for unforeseen events or investment opportunities, he said. At the end of Y 2010, its cash reserve totaled US$38B.
Mr. Buffett also offered Berkshire shareholders few new details about how the Company will function once he is no longer at the helm.
The 80 anni Chairman and CEO of Berkshire said that investment manager Todd Combs will manage US$1 to 3B of Berkshire's US$158B investment portfolio.
Berkshire hired Combs last fall, and Buffett says Combs has the risk aversion, dedication and track record he wants in an investment manager.
To replace Buffett, Berkshire plans to split his job into 3 parts: Chief Executive Officer, Chairman, and several Investment Managers.
Mr. Buffett has indicated that he has no plans to retire, and he says he loves his work and remains in good health.
Many people speculate that David Sokol, who is Chairman of NetJets and MidAmerican Energy, is the leading candidate to be Berkshire's next CEO.
But several other Berkshire managers have been mentioned as possible Chief Executives, including: Ajit Jain, who runs Berkshire's re-insurance division; Tony Nicely, Chief Executive of Berkshire subsidiary Geico; and BNSF CEO Matt Rose.
Buffett praised all those managers in his letter Saturday.-Paul A. Ebeling, Jnr. www.livetradingnews.com