Buffett’s 2016 Shareholder Letter Displays Cautious Optimism for U.S. Markets

Optimism Historical Buffett

Every year, we look forward to Warren Buffett’s letter to Berkshire Hathaway’s shareholders. We’ve analyzed over 50 shareholder letters from the Oracle of Omaha, dating back to 1965 and, like most analysts, we look forward to Buffett’s predictions for the U.S. Economy in each one. In the wake of the turmoil surrounding and following the presidential election, we were eager to find out what his language in the 2016 letter would give away about his vision for the future.

Despite the growing political circus, Buffett’s 2015 letter displayed higher levels of confidence and optimism than the letters he’d penned during previous election years.

This year, a decline in optimism and positive sentiment reflects uncertainty about market volatility in the short term.

Optimism vs Positive Sentiment Buffett.pngBuffett’s 2016 letter demonstrates 5.2% less optimism (a measure of language demonstrating a positive view of the future) and 10.4% less positive sentiment than last year’s, as he cautions shareholders that, over the next few years, the market is likely to see some decline:

“Moreover, the years ahead will occasionally deliver major market declines – even panics – that will affect virtually all stocks. No one can tell you when these traumas will occur – not me, not Charlie, not economists, not the media. Meg McConnell of the New York Fed aptly described the reality of panics: ‘We spend a lot of time looking for systemic risk; in truth, however, it tends to find us.’”

However, our data echoes Buffett’s reassurances that there’s plenty to be optimistic about.

Optimism Historical Buffett.png

Despite the small decline, Buffett still demonstrates 30.2% more optimism here than in his average shareholder letter, making this one of his most optimistic of the last 50 years.

His words of caution for the short term are nearly drowned out by his proclamations about the country’s spectacular economic growth…

“One word sums up our country’s achievements: miraculous. From a standing start 240 years ago — a span of time less than triple my days on earth – 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.”

…and its bright future:

“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. 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.”

Though he’s clear that the next four years will be a challenge — for the markets and for American values — the Oracle of Omaha’s 2016 shareholder letter expresses plenty of optimism for America’s financial future.