Warren Buffett, in Latest Shareholder Letter, Praises Wonders of Capitalism
Plus, New York Times works Trump-bashing into an art-auction story
Berkshire Hathaway chairman Warren Buffett, age 94, is out with the most recent of his famed annual letters to shareholders.
I found at least four noteworthy items in it.
First, there was a defense of capitalism. “One way or another, the sensible – better yet imaginative – deployment of savings by citizens is required to propel an ever-growing societal output of desired goods and services. This system is called capitalism. It has its faults and abuses – in certain respects more egregious now than ever – but it also can work wonders unmatched by other economic systems. America is Exhibit A,” Buffett writes.
Second, there was a reminder about the dangers of inflation, addressed to “Uncle Sam”: “never forget that we need you to maintain a stable currency and that result requires both wisdom and vigilance on your part.”
Third, there was a dismissive note about elite higher education. “One further point in our CEO selections: I never look at where a candidate has gone to school. Never!” Buffett writes. “Of course, there are great managers who attended the most famous schools. But there are plenty such as Pete who may have benefitted by attending a less prestigious institution or even by not bothering to finish school. Look at my friend, Bill Gates, who decided that it was far more important to get underway in an exploding industry that would change the world than it was to stick around for a parchment that he could hang on the wall. … Not long ago, I met – by phone – Jessica Toonkel, whose step-grandfather, Ben Rosner, long ago ran a business for Charlie and me. Ben was a retailing genius and, in preparing for this report, I checked with Jessica to confirm Ben’s schooling, which I remembered as limited. Jessica’s reply: ‘Ben never went past 6th grade.’”
Buffett writes, “I was lucky enough to get an education at three fine universities. And I avidly believe in lifelong learning. I’ve observed, however, that a very large portion of business talent is innate with nature swamping nurture.” (It’s possible that Buffett may be slightly overstating his case here; if Buffett hadn’t encountered Benjamin Graham at Columbia Business School, his own trajectory might have been different, and less prosperous.)
Fourth, Buffett’s letter typically comes with a table showing the performance over time of Berkshire Hathaway versus the S&P 500 with dividends. For a long time he used Berkshire’s book value but at some point he changed it to per-share market value. Also for a long time this comparison fit on a single page, but now it takes two. The bottom line is that the “compounded annual gain” from 1965 to 2024 of Berkshire Hathaway is 19.9 percent and the S&P 500 with dividends is 10.4 percent. The “overall gain, 1964-2025,” according to the table, is 5,502,284 percent for Berkshire Hathaway and 39,054 percent for the S&P 500.
Buffett puts these numbers in the annual report to show how much better investors can do, or could have done, by letting him invest their capital rather than sticking it in an index fund or in some other stock. Okay, but he is 94 and a lot of the outperformance came when Buffett was much younger.
The less appreciated point is that even at 10.4 percent a year—for a period that started after the postwar boom of the 1950s and that includes both the stagflation 1970s and the “great financial crisis” of 2008—compounding over time can produce phenomenal wealth. What “39,054 percent” means is that an investor who put $10,000 into the S&P 500 in 1964 in a tax-exempt account would have accumulated about $3.9 million. Buffett calls it “the magic of long-term compounding.” If you don’t believe me or Buffett, go check out the compounding calculator at investor.gov. Put in a $10,000 initial investment and a 60 year timespan and 10.4 percent estimated annual interest rate. The calculator spits out about $3.8 million. Not everyone lives long enough to let that money work for that long. Plenty of people can’t stomach the volatility, so they choose to put some money in bonds rather than stocks. Taxes and fees can eat away at the returns. But “39,054%” is not a bad lesson to take away from this year’s Buffett letter.
To get the 5,502,284 percent, you had to be lucky enough to be an early investor with Warren Buffett, who is a rare talent. But anyone can get the 39,054 percent by just being patient and by avoiding the temptations of trying to time or beat the market or the mistake of trying to avoid volatility by putting money into bonds rather than stock. I guess you can claim that the 1964 to 2025 period is exceptional because it was a period of American global dominance that included the 1980s Reagan boom, the 1990s Clinton-Gingrich boom, the “peace dividend” of the end of the Cold War, and the personal computer and Internet revolutions. There’s no guarantee that the next 60 years will bring similar progress, or that America won’t decline and be surpassed by some other country.
But what Buffett calls “the American miracle” has been a long-term story; as he put it, “Our country’s progress over its mere 235 years of existence could not have been imagined by even the most optimistic colonists in 1789, when the Constitution was adopted and the country’s energies were unleashed.” I’d put the founding in 1776 rather than 1789 and note that the energies were unleashed and the progress began almost from the outset of European settlement in North America. But those are minor cavils. In the big picture, Buffett is and has been right about the wonders of capitalism and of America.
He won’t live forever, and he notes that “it won’t be long before Greg Abel replaces me as CEO and will be writing the annual letters.” Berkshire shareholders can sweat whether Buffett’s successors will be as good at allocating capital. My own hope is that, amid all the negativity, after Buffett there will be other prominent voices also yet reminding people of the wonders of capitalism and the miracle of America.
New York Times works Trump-bashing into art auction news article: “Barnes & Noble Widow to Auction $250 Million Art Collection,” is the online headline over a New York Times news article about Louise Riggio hiring Christie’s to sell a Mondrian and other works.
In the middle of the article by Zachary Small comes this: “The Riggio collection will test the market’s strength, coming after the chaos of the presidential election but in the midst of uncertainty over how American tariffs might affect the global art trade.”
What “chaos of the presidential election” is the Times talking about? The Times newsroom might have been unhappy with the results of the election, but by recent standards the election itself was not chaotic. The voting was fairly orderly and the outcome reasonably clear. The places where elections are completely nonchaotic tend to be dictatorships. And of all the possible effects of the Trump administration on the art market, prosperity resulting from lower taxes, less government spending, and less regulation may in the end outweigh tariffs, though the Times only mentions the tariffs. It’s sad to see the Times newsroom so afflicted by Trump derangement syndrome that it can’t even write up a straightforward news article about an art auction without veering into Trump-bashing.
Regular readers of The Editors know this is not exactly a Trump fan site and we haven’t been hesitant to criticize Trump, his circle, or his policies when warranted. But when people are anxious that Trump is going to crash the art market, it’s appears to me to be less about Trump than about the people with the anxiety. Maybe it’s a buying opportunity for people who can see past the nervousness. As journalism goes, it’s a disappointment. Where were the Times editors to delete the sentence before inflicting it on readers and damaging whatever remains of the newspaper’s reputation for nonpartisan accuracy?
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When it comes to infecting every news article with TDS—whether it's art news, sports, recipes, book reviews, etc.—the Times can't help itself. "Climate change" also makes unnecessary cameos.