Some of this year's jewellery for those that need the motivation to begin reading it:
>> Throughout my lifetime, politicians and pundits have constantly
moaned about terrifying problems facing America. Yet our citizens now live an astonishing six times better than
when I was born. The prophets of doom have overlooked the all-important factor that is certain: Human potential
is far from exhausted, and the American system for unleashing that potential – a system that has worked wonders
for over two centuries despite frequent interruptions for recessions and even a Civil War – remains alive and
effective. <<
>> Coca-Cola paid us $88 million
in 1995, the year after we finished purchasing the stock. Every year since, Coke has increased its dividend. In
2011, we will almost certainly receive $376 million from Coke, up $24 million from last year. Within ten years, I
would expect that $376 million to double. By the end of that period, I wouldn’t be surprised to see our share of
Coke’s annual earnings exceed 100% of what we paid for the investment. Time is the friend of the wonderful
business. <<
>> The highlight of 2010 was our acquisition of Burlington Northern Santa Fe, a purchase that’s working
out even better than I expected. [We] are enthusiastic about BNSF’s future because railroads have major cost and environmental advantages over trucking, their main competitor. Last year BNSF moved each ton of freight it carried a record 500 miles on a single gallon of diesel fuel. That’s three times more fuel-efficient than trucking is, which means our railroad owns an important advantage in operating costs. Concurrently, our country gains because of reduced greenhouse emissions and a much smaller need for imported oil. When traffic travels by rail, society benefits. Over time, the movement of goods in the United States will increase, and BNSF should get its full
share of the gain. The railroad will need to invest massively to bring about this growth, but no one is better
situated than Berkshire to supply the funds required. However slow the economy, or chaotic the markets, our
checks will clear. <<
>> The fundamental principle of auto racing is that to finish first, you must first finish. That dictum is
equally applicable to business and guides our every action at Berkshire.
Unquestionably, some people have become very rich through the use of borrowed money. However,
that’s also been a way to get very poor. Companies with large debts often assume that
these obligations can be refinanced as they mature. That assumption is usually valid. Occasionally, though, either
because of company-specific problems or a worldwide shortage of credit, maturities must actually be met by
payment. For that, only cash will do the job. Borrowers then learn that credit is like oxygen. When either is abundant, its presence goes unnoticed.
When either is missing, that’s all that is noticed. Even a short absence of credit can bring a company to its knees. [We, at Berkshire] have pledged that we will hold at least $10 billion of cash. We customarily keep at least $20 billion. By being so cautious in respect to leverage, we penalize our returns by a minor amount. Having loads of
liquidity, though, lets us sleep well. Moreover, during the episodes of financial chaos that occasionally erupt in our
economy, we will be equipped both financially and emotionally to play offense while others scramble for survival. That’s what allowed us to invest $15.6 billion in 25 days of panic following the Lehman bankruptcy in 2008. <<
The problem is that its hard to schedule both passenger trains and freight trains on the same railways, and the benefits of transporting freight by train instead of truck are both economically and environmentally more important. OTOH high speed rails with their own tracks are awesome and let us get around this dilemma.
Perhaps I'm naive, but with today's technology (GPS, processing power for scheduling, communications, etc.) and a modest investment in some more switching tracks (compared to high speed rail) why couldn't we saturate the bus?
Because of geography and property rights this is pretty much a monopoly as a class of transport. And while the government's stewardship of rail thus far is not seen as a paragon of efficiency or customer service (http://reason.com/archives/2005/12/01/amtrak-sucks), the only way to make this work would be to have the tracks effectively nationalized.
The issue is that high speed passenger rail requires trainsets that are built basically like aircraft, and really do not do well in a collision with a freight train built and loaded like...a freight train.
It is definitely reasonable to use improved signaling to increase capacity, but rails for HSR need to be smoother, different grade limits, possibly banked, etc. They can often but not always share right of way with existing freight lines. Still, designing them to be grade separated, protected from incursions by malfunctioning freight, etc. is a hard problem.
I think the low hanging fruit is increasing investment in conventional freight, metro area rail for passengers, and limited investment in dedicated HSR only on routes where air travel faces capacity limits -- northeast corridor, los Angeles to las Vegas, and probably unfortunately not sf to la (as much as I would personally enjoy it).
> Yet our citizens now live an astonishing six times better than when I was born.
By what metric? From everything I've read the income disparity in America has increased steadily since the 1950s. Are we 6x happier? 6x Healthier? 6x More free?
Buffett was born in 1930. The US GDP per capita was about $7,200 then, today it is about $42,000 (both values in 2005 dollars from http://www.measuringworth.com/usgdp/).
I'd be much more interested in seeing the differences in median wealth (for the population as a whole, and broken down by race/ethnicity), adjusted for inflation.
The term "wealth" refers to "private assets (such as savings and property) minus debts. It is what you own minus what you owe. In other words, it is net assets. Income, on the other hand, refers to wages, salary, interest that you earn, Social Security benefits, etc."
"In the 22 years between 1976 and 1998, the share of the nation's private wealth held by the top 1% nearly doubled, going from 22% to 38%. During those two decades, the size of the overall "wealth pie" grew, but the ownership of that wealth is now more concentrated than at any time since the 1920s."
The stats above are kind of dated, but I'd be willing to bet the disparity in wealth between the richest and poorest in America is even more pronounced now.
Here is a measure of the increase of "U.S. median family net worth by percentile of net worth" from 1989 to 2007:
"I'd be much more interested in seeing the differences in median wealth (for the population as a whole, and broken down by race/ethnicity), adjusted for inflation."
Which I agree with wholeheartedly.
But then to my disappointment, you posted information about wealth distribution rather than median wealth.
I got the impression you were saying that wealth distribution says something about median wealth. I don't think it does.
Knowing a distribution, you know its median. Even if you just know the weight in a quantile (e.g. X% of wealth is in the hands of the top Y% of people), then you can upper bound the median wealth once you know per-capita wealth. And if you're willing to make some assumption about the general shape of the distribution, knowing it tells you even more.
Your original comment is about relative wealth. Therefore, I think his point is that your original comment is irrelevant in the context of a 6x increase in wealth.
Per capita is not a great metric, especially since GDP is not distributed per capita across the country, and there are many ways of measuring GDP.
Even bad metrics can be better than nothing, and they can also be worse than nothing, but if you're going to quantify it, GDP is probably the only way to go. Based on my limited knowledge of 1930, I'd still much rather be living in 2011. Maybe not 6x, but at least 1.5x more. Back then they didn't even have Turing machines down on paper, much less actual physical hardware...
As overdue as it was, women and blacks being able to vote is not "6 times better".
60 years to 80 years life expectancy is not "6 times better".
26 to 7 infant mortality is not "6 times better".
8% to 30% college graduation rate is not "6 times better".
Estimated hourly wages have actually fallen drastically, when estimated apples to apples (i.e. adjusted for inflation).
Labor productivity is mostly based on advances in technology, and in any event, working harder is hardly the same as being "6 times better" off.
In other words, let's stay within the context of what is actually being argued. Plus, it's rude to open your argument with, You honestly have to ask this question? If you have something to say, you can say it without implying that @samtp is too dumb to see the obvious.
There's some double-counting here: life expectancy at birth includes infant mortality. (Taking your figures, 1.35 years of the 8-year life-expectancy difference comes from the infant-mortality difference.)
But does any of this equate to a 6x better life? This is extremely subjective, but I'd measure overall happiness, autonomy, and ability to participate in power as key ingredients for a better life. And going by those metrics, I seriously doubt that we are 6x better (or even 2x better).
All of the stats that you provided point to Americans being more productive over a longer period of time. People are becoming better at producing and consuming. However, by only looking at these numbers, you ignore what I feel makes us human. I don't think that the ultimate goal in a person's life is to add to their country's GDP. We are more than a cog in a machine. You can point to improvements centered around work, but what about enjoyment and free time? Surely a better life is one where you have more time to enjoy with family and friends, rather than being able to exceed your company's 3rd quarter sales projections.
Add to that the declining purchasing power of the dollar, the growing income disparity and the thinning out of the middle and upper-middle class, etc, etc.
Average life expectancy in the US:
1930 - 60 yrs
2010 - 78 yrs
Clearly, Mr. Buffet's statement is PR rather than fact.
>> Throughout my lifetime, politicians and pundits have constantly moaned about terrifying problems facing America. Yet our citizens now live an astonishing six times better than when I was born. The prophets of doom have overlooked the all-important factor that is certain: Human potential is far from exhausted, and the American system for unleashing that potential – a system that has worked wonders for over two centuries despite frequent interruptions for recessions and even a Civil War – remains alive and effective. <<
>> Coca-Cola paid us $88 million in 1995, the year after we finished purchasing the stock. Every year since, Coke has increased its dividend. In 2011, we will almost certainly receive $376 million from Coke, up $24 million from last year. Within ten years, I would expect that $376 million to double. By the end of that period, I wouldn’t be surprised to see our share of Coke’s annual earnings exceed 100% of what we paid for the investment. Time is the friend of the wonderful business. <<
>> The highlight of 2010 was our acquisition of Burlington Northern Santa Fe, a purchase that’s working out even better than I expected. [We] are enthusiastic about BNSF’s future because railroads have major cost and environmental advantages over trucking, their main competitor. Last year BNSF moved each ton of freight it carried a record 500 miles on a single gallon of diesel fuel. That’s three times more fuel-efficient than trucking is, which means our railroad owns an important advantage in operating costs. Concurrently, our country gains because of reduced greenhouse emissions and a much smaller need for imported oil. When traffic travels by rail, society benefits. Over time, the movement of goods in the United States will increase, and BNSF should get its full share of the gain. The railroad will need to invest massively to bring about this growth, but no one is better situated than Berkshire to supply the funds required. However slow the economy, or chaotic the markets, our checks will clear. <<
>> The fundamental principle of auto racing is that to finish first, you must first finish. That dictum is equally applicable to business and guides our every action at Berkshire. Unquestionably, some people have become very rich through the use of borrowed money. However, that’s also been a way to get very poor. Companies with large debts often assume that these obligations can be refinanced as they mature. That assumption is usually valid. Occasionally, though, either because of company-specific problems or a worldwide shortage of credit, maturities must actually be met by payment. For that, only cash will do the job. Borrowers then learn that credit is like oxygen. When either is abundant, its presence goes unnoticed. When either is missing, that’s all that is noticed. Even a short absence of credit can bring a company to its knees. [We, at Berkshire] have pledged that we will hold at least $10 billion of cash. We customarily keep at least $20 billion. By being so cautious in respect to leverage, we penalize our returns by a minor amount. Having loads of liquidity, though, lets us sleep well. Moreover, during the episodes of financial chaos that occasionally erupt in our economy, we will be equipped both financially and emotionally to play offense while others scramble for survival. That’s what allowed us to invest $15.6 billion in 25 days of panic following the Lehman bankruptcy in 2008. <<