more BRK... "Stock Investors Should Expect 7% Return, Buffett Says"
quote.bloomberg.com
Forbes:
...http://www.forbes.com/home/2003/05/03/cz_rl_0503omaha.html
...http://www.forbes.com/home/2003/05/02/cz_rl_0502buffett.html
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>>> Stock Investors Should Expect 7% Return, Buffett Says (Update1)
By Terence Flanagan
Last Updated: May 3, 2003 15:14 EDT
Omaha, Nebraska, May 3 (Bloomberg) -- Investors in U.S. stocks should expect a return of about 6 percent to 7 percent a year, and people who are looking for double those gains are ``dreaming,'' billionaire investor Warren Buffett said.
The economy, as measured by gross domestic product, can be expected to grow at an annual rate of about 3 percent over the long term, and inflation of 2 percent would push nominal GDP growth to 5 percent, Buffett said. Stocks will probably rise at about that rate and dividend payments will boost total returns to 6 percent to 7 percent, he said.
``That math isn't bad, but it is bad for people who expected long-term returns based on looking in the rear-view mirror,'' Buffett said at Berkshire Hathaway Inc.'s annual shareholder meeting in Omaha, Nebraska.
The Standard & Poor's 500 Index, a benchmark for U.S. stocks, surged 18 percent a year on average from 1982 to 1999. The bull market tainted investor expectations, Buffett said. Polls in the late 1990s showed some investors expected stocks to gain 14 percent to 15 percent a year, he said.
``Thinking that in a low-inflation environment is dreaming,'' he said.
Buffett also said this year's rally in junk-rated corporate bonds has dimmed their appeal and that investors shouldn't buy these debt securities now just because he did last year.
``This year, money has poured into junk bonds and prices have changed dramatically,'' he said. ``No one should think that they should buy junk this year because we bought them last year.''
Junk Bonds
Berkshire increased its holdings of high-yield, high-risk debt by six-fold last year to $8.3 billion, buying securities in industries the company has previously shunned such as telecommunications. Junk bonds ``were quite attractive, particularly sometime in the fall,'' said Buffett.
Junk bonds, rated below BBB- at Standard & Poor's or below Baa3 at Moody's Investors Service, have surged 14 percent this year on average including price gains and interest payments, according to Merrill Lynch & Co. data.
The risk premium, or extra yield offered above benchmark U.S. Treasuries, has shrunk to about 7.6 percentage points from 11 percentage points in October.
Buffett told reporters that he plans to name new independent directors to the Berkshire board to comply with corporate governance rules.
Board Changes
``We will add outside directors and it will be done before the deadline,'' he said. ``It's just a matter of finding ones that meet our requirements. There aren't that many out there, but we'll find them.''
Berkshire's seven-member board includes Buffett's wife, son and three executives who have business ties to the company. Lawyers and corporate governance experts have said that Buffett will likely have to add at least two outside directors to the company's board to comply with new rules proposed by the New York Stock Exchange.
The Berkshire board members are Buffett; his son, Howard, 48; Buffett's wife, Susan, 70; Vice Chairman Charles Munger, 79, the CEO of Berkshire-owned Wesco Financial Corp; Ronald Olson, 61, a senior partner at law firm Munger, Tolles & Olson LLP; Malcolm Chace, 68, chairman of Bancorp Rhode Island Inc.; and Walter Scott Jr., 71, who owns a controlling stake in Berkshire's MidAmerican Energy Holdings Co. investment.
The California Public Employees' Retirement System, the largest U.S. pension fund and the owner of 6,000 Berkshire A shares, will vote against the election of Buffett's wife, son, Olson and Scott because of ``conflicts of interest,'' said spokesman Brad Pacheco. These directors have family or business relationships that could impair their objectivity, Calpers said.
$30 Billion Fortune
Buffett met with shareholders at the Omaha Civic Center, where Buffett fans and investors gathered to hear his opinions on corporate governance, investing and the stock market.
Buffett, 72, has amassed a fortune of more than $30 billion, making him the world's second richest man, buying stakes in companies such as Coca-Cola Co. and American Express Co. Over 40 years, he has built Berkshire into an insurance and investment conglomerate whose holdings include General Re Corp., Benjamin Moore Paints and Dairy Queen.
Berkshire earned a record $1.7 billion from operations in the first quarter after its General Re reversed four years of losses and turned a profit. Berkshire also had about $1.7 billion in gains on its securities investments, Buffett said. <<< |
