Warren Buffett, the billionaire investor, has lauded the "miraculous" qualities of the U.S. economy in highlighting another stellar year for his company, Berkshire Hathaway, to its shareholders
Buffett, whose record of beating the stock market over the past 50 years is unparalleled, is known for being persistently optimistic about the prospects of the U.S. economy.
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But his usual hymn to its dynamism reached new heights in his annual letter to Berkshire Hathaway shareholders, which was released on Saturday morning (US time).
"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," Buffett wrote.
![Berkshire Hathaway Chairman and CEO Warren Buffett.](/web/20170228181416im_/http://www.smh.com.au/content/dam/images/g/u/e/i/h/v/image.related.articleLeadwide.620x349.gulkje.png/1488169303565.jpg)
He supported Hillary Clinton during last year's presidential campaign, and he did not mention President Donald Trump in his letter.
That Buffett went out of his way to give credit to a "tide of talented and ambitious immigrants" was also worthy of note in light of the Trump administration's crackdown on immigrants.
Results spike
Last year was another outstanding one for the man known widely as the Oracle of Omaha. Berkshire Hathaway's stock price was up 23 percent in 2016, about double the return on the Standard & Poor's 500 index.
Berkshire's operating companies, which include insurance firm Geico, railroad company BNSF and numerous others, also performed well in an improving economy, with operating earnings increasing to $17.5 billion in 2016 from $17.3 billion in 2015.
![US President Donald Trump addresses Congress on Tuesday.](/web/20170228181416im_/http://www.smh.com.au/content/dam/images/g/u/l/e/g/c/image.related.articleLeadwide.620x349.gulkje.png/1488103111556.jpg)
Buffett's investment letters, which accompany Berkshire's report, are highly anticipated. After all, he is 86 years old, sitting on a mountain of $85 billion in cash and, as a recent documentary about his life made clear, showing little sign of slowing down.
Buffett also revealed in his letter that a recent bet on Apple had paid quick dividends. He owns a 1.1 percent stake in the company that he purchased at a total cost of $6.7 billion. His 61 million shares are now worth more than $8 billion.
![Buffett's bet on Apple has paid off handsomely.](/web/20170228181416im_/http://www.smh.com.au/content/dam/images/g/u/b/e/6/x/image.related.articleLeadwide.620x349.gulkje.png/1488093179033.jpg)
Hedge fund hit
Over the years, Buffett has had a complicated relationship with Wall Street. He has been a withering critic of the culture of high pay, group think and excessive fees yet he has also swooped in to buy big stakes in investment firms when they hit rough times.
In his 2016 letter, Buffett took special aim at hedge funds, which in recent years have faced persistent outflows of investor money because of poor performance, stubbornly high fees and a broad move toward cheaper, passive options like index funds and exchange-traded funds.
The wealthy are accustomed to feeling that it is their lot in life to get the best.
Underscoring his long-held thesis that, over time, highly paid hedge-fund hotshots lose out to a cheap index fund, Buffett presented the latest results of a bet he made nine years ago.
Since then, a standard S&P; index fund overseen by Vanguard is up 85 percent, easily outpacing the hedge funds' return of 22 percent. Annually, the gap is just as wide: 7 percent for the index fund and 2.2 percent for the hedge funds.
As usual, Buffett did not mince words in expressing his astonishment as to how elite investment professionals could register such mediocre returns while raking in steep fees.
"I'm certain that in almost all cases the managers at both levels were honest and intelligent people. But the results for their investors were dismal really dismal," he wrote.
"And, alas, the huge fixed fees charged by all of the funds and funds-of-funds involved fees that were totally unwarranted by performance were such that their managers were showered with compensation over the nine years that have passed."
Elite expectation
He sheeted home some of the problem to the "expectation bias" of wealthy clients who fell for the "esoteric gibberish" from their advisers.
"The wealthy are accustomed to feeling that it is their lot in life to get the best food, schooling, entertainment, housing, plastic surgery, sports tick you name," he wrote
"Their money, they feel, should buy them something superior compared to what the masses reserve."
Buffett estimated this search for the something special had cost elite investors to waste more than "$100 billion".
"Human behaviour behaviour won't change. Wealthy individuals, pension funds, endowments and the like will continue to feel they deserve something 'extra' in investment advice," he says.
"Those advisors who cleverly play to this expectation will get very rich. This year the magic potion may be hedge funds, next year something else."
Monkey talk
Buffett argues that the high fees that are then leveraged for this advice are often justified by performance based on luck.
"Further complicating the search for the rare high-fee manager who is worth his or her pay is the fact that some investment professionals, just as some amateurs, will be lucky over short periods," he says.
"If 1000 managers make a market prediction at the beginning of a year, it's very likely that the calls of at least one will be correct for nine consecutive years. Of course, 1000 monkeys would be just as likely to produce a seemingly all-wise prophet. But there would remain a difference: The lucky monkey would not find people standing in line to invest with him."
Buffett concludes the letter thanking his staff and giving investors tips on attending the company's annual conference including recommending a trip to the local bookshop and inviting challengers in a newspaper throwing contest.
"When I was a teenager – in my one brief flirtation with honest labor – I delivered about 500,000 papers. So I think I'm pretty good at this game. Challenge me! Humiliate me! Knock me down a peg!" he says.
New York TImes and staff reporters