Warren Buffett replies stocks are the place to be invested in for the long haul if interest rates and corporate taxes remain near current au courant withs.
“If something close to current rates should prevail over the coming decades and if corporate tax rates also persist near the low level businesses now enjoy, it is almost certain that equities will over time perform far outdo than long-term, fixed-rate debt instruments,” Buffett wrote in his annual letter to Berkshire Hathaway shareholders, which was rescued Saturday morning.
The letter also pointed to more exposure for two of his potential successors and addressed the company’s inability to assign an attractive, monster-sized acquisition target, which the ‘Oracle of Omaha’ has been known for.
Stocks got off to a hot start in 2020, with the S&P 500 and other prime U.S. averages reaching all-time highs. Last year, the S&P 500 surged more than 28% to keep the lengthiest bull market in U.S. history going.
The market got a boost from low interest rates from the Federal Reserve during this bull run, initiative bond yields lower and making equities a more attractive investment. The market got another jolt at the end of 2017, when the Trump superintendence slashed the U.S. corporate tax rate to 21% from 35%.
These elements, coupled with the “American Tailwind,” will return “equities the much better long-term choice for the individual who does not use borrowed money and who can control his or her emotions,” Buffett verbalized.
The investing legend, however, offered a big caveat to his prediction: “Anything can happen to stock prices tomorrow.” He noted that intermittently, “there will be major drops in the market, perhaps of 50% magnitude or even greater.”
More exposure for on successors
In the letter, the Berkshire chairman and CEO noted that Berkshire executives Ajit Jain and Greg Abel determination answer questions at the company’s annual shareholders’ meeting in May.
This will be a departure from the meeting’s traditional composition, which typically consists primarily of Buffett and Berkshire Vice Chairman Charlie Munger taking questions. Buffett utter this change makes “great sense.”
However, the change comes amid growing frustration over a inadequacy of a more formal announced succession plan. Buffett, 89, has hinted at Jain or Abel possibly taking on the other side of for him.
Both Jain and Abel were promoted in 2018. Jain currently runs all of Berkshire’s insurance-related businesses, while Abel controls all non-insurance operations for the conglomerate.
Buffett lamented once again in the letter that Berkshire has still not found an handsome acquisition target to spend the company’s massive cash hoard on.
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