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The Sage of Omaha Speaks to CEOs About Uncertainty

Warren Buffett chides CEOs about their “hand-wringing” over “uncertainty” when faced with capital allocation decisions. In his 2012 Berkshire Hathaway annual report, Buffett says America has faced the unknown since 1776 and that “opportunities abound for America. Further he says “American business will do fine over time. And stocks will do well just as certainly, since their fate is tied to business performance.

Despite record levels of both earnings and cash too many CEOs seem unnecessarily spooked, says Warren Buffett , who reports that “we didn’t share their fears, instead spending a record $9.8 billion on plant and equipment in 2012, about 88 percent of it in the U.S. That’s 19 percent more than we spent in 2011, our previous high. Charlie [Munger] and I love investing large sums in worthwhile projects, whatever the pundits are saying. We instead heed the words from Gary Allan’s new country song, “Every Storm Runs Out of Rain.”

Buffett goes on to opine that investors and managers are in a game that is heavily stacked in their favor. (The Dow Jones Industrial advanced from 66 to 11,497 in the 20th Century, a staggering 17,320 percent increase that materialize despite four costly wars, a Great Depression and many recessions.

“Since the basic game is so favorable, Charlie and I believe it’s a terrible mistake to try to dance in and out of it based upon the turn of the tarot cards, the predictions of ‘experts,’ or the ebb and flow of business activity. The risks of being out of the game are huge compared to the risks of being in it.

“My own history provides a dramatic example: I made my first stock purchase in the Spring of 1942 when the U.S. was suffering from major losses throughout the Pacific War zone. Each days headlines told of more setbacks. Even so, there was no talk about uncertainty; every American I knew we would prevail. The country’s success since that perilous time boggles the mind: On an inflation-adjusted basis, GDP per capita more than quadrupled between 1941 and 2012. Throughout that period, every tomorrow has been uncertain. America’s destiny, has always been clear: every-increasing abundance.

“If you are a CEO who has some large, profitable project you are shelving because of short-term worries, call Berkshire. Let us unburden you.”

These are indeed heart-warming words, and without taking anything away from one of the world’s richest men and great investors let us say that in the grand sweep of things he has a point, but the past is not prologue to the future. The world today is not the world of 1945 when the U.S. found itself as the one if not the only intact and unscathed industrial economy in the world. It’s fine to think in multigenerational leaps, but most mortals have to contend with what’s ahead of them now. And while we’re at it, Warren, can you do something about that darned “Buffett rule.”

Read: http://www.berkshirehathaway.com/letters/letters.html

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