1. How to use GuruFocus - Tutorials
  2. What Is in the GuruFocus Premium Membership?
  3. A DIY Guide on How to Invest Using Guru Strategies
Holly LaFon
Holly LaFon
Articles (10163)  | Author's Website |

Warren Buffett Says Expected Berkshire Growth Rate Lower in Future

Buffett commented on expectations at the Berkshire shareholder meeting Saturday

May 06, 2017 | About:

Warren Buffett (Trades, Portfolio): Intrinsic value can only be counted or gained in retrospect, but intrinsic value to our definition would be cash generated between now and judgment day discounted at interest rate that seems to appreciate at the time and that’s very enormous over a 40-year period. if you pick out 10 years then you’re back to may 2007. we had some unpleasant things coming up. We’ve probably grown at 10%, and that’s going to be tough, maybe impossible to achieve if we continue in this interest rate environment.

if I could pick only one statistic to ask you about the future I would not ask about GDP, who was going to be president; i would ask you what the interest rate was going to be in the next 20 years on average. If you assume present interest rates, the average number over 20 years, likely I would say it’s difficult to get 10% [growth] but if any interest rate I would say it might be aspirational or might be doable. You would say we can’t continue low interest rates for a long time. I would say to look at Japan where we didn’t see how their interest rates could be sustained.

The chances of getting a terrible deal at Berkshire Hathway (NYSE:BRK.A)(NYSE:BRK.B) are probably low. The chances of getting sensational deal are also low. Best guess would be in the 10% range, but that assumes some higher interest rates, not dramatically but somewhat higher in the next 10 went years than the last seven years.

About the author:

Holly LaFon
I'm a financial journalist with a Master of Science in journalism from Medill at Northwestern University.

Visit Holly LaFon's Website

Rating: 5.0/5 (7 votes)



Luker - 2 years ago    Report SPAM
Luker - 2 years ago    Report SPAM

Interesting take.

My question is, if interest rates do rise, it seems like all assets will decline in value and then begin to rise at a rate that is in line with that new interest rate.

Buffett said that interest rates are like gravity. The higher they go the lower all other assets decline in value.

I do agree with Buffett that we are stuck in this low interest rate environment for the foreseeable future. And for that reason I am going to lock in what I believe to be 5 to 7 percent growth in the long term, with a short term downtrend if interst rates do rise substantially (But my gut feeling is they won't. We are a Japan type of economy right now). Even if interest rates rise, I feel like those who wait 10 years will see around 5 to 7 from the S and P 500 as the market will first dip, and then rise at a higer rate.

Buffett however is in financials. They are sell hedged to interest rate risk as they can loan at a higher rate. It is probably another good reason to stick with berkshire for the long term.

Debt is oh so slowly getting paid off. We have exploded federal debt, but household debt and corporate debt have declined. Overall the US balance sheet is slowly improving (Believe it or not!). If we had 10 percent growth like we did after coming out of the depression in the mid 40s to 50s, we could again see interest rates climb in 20 years or so as our current debt loads would not be that bad.

The problem is we are at two percent.

We need intelligent leaders in government and the fed who apply intelligent stimulus to slowly unwind our debt, keep us out of recession, and keep our economy growing.

But yes interst rates are going to be the primary driver of all of this in this slow growth environment.

I think Berkshire will outperform the market by one or two percent. And if the 5 or 6 percent for the S and P is correct (A forecast i have made), we are looking at 6 to 8 percent for berkshire over these next 10 years.

Not to shabby in a low inflation environment.

Please leave your comment:

Performances of the stocks mentioned by Holly LaFon

User Generated Screeners

pascal.van.garsseHigh FCF-M2
kosalmmuseBest one1
DBrizanall 2019Feb26
kosalmmuseBest one
DBrizanall 2019Feb25
MsDale*52-Week Low
Get WordPress Plugins for easy affiliate links on Stock Tickers and Guru Names | Earn affiliate commissions by embedding GuruFocus Charts
GuruFocus Affiliate Program: Earn up to $400 per referral. ( Learn More)
/* */