News Feb 28, 2017 02:39 PM EST

Warren Buffett's Optimism on American Businesses

By April Kirstin Chua

Investment expert Warren Buffett is optimistic about the prospects of American businesses. Buffett urges them to continue to create astonishing wealth after his Berkshire Hathaway Inc. reported a higher quarterly profit on Saturday.

In his annual letter to Berkshire shareholders, Buffett is certain that US stocks will do well in the years ahead if investors work together with a collection of large, conservatively financed American businesses. Buffett cites Berkshire as an example with more than 90 operating units. These includes businesses such as the BNSF railroad and Geico auto insurance that reported weaker results last quarter.

"American business -- and consequently a basket of stocks -- is virtually certain to be worth far more in the years ahead," Buffett said. "Ever-present naysayers may prosper by marketing their gloomy forecasts. But heaven help them if they act on the nonsense they peddle." Buffett's Berkshire Hathaway firm owns dozens of US stocks including Apple, Coca-Cola and four of the biggest US airlines.

Berkshire disclosed a 15 percent increase in fourth-quarter net income amounting to $6.3 billion. However, it underperformed an S&P 500 share index for the fourth time in the last five years. The growth of the firm's assets, with Buffett's preferred measure of its performance, was 10.7 percent in 2016 while the S&P 500 climbed 12.0 percent. Meanwhile, its operating profit fell six percent to $4.38 billion from $4.67 billion.

Buffett furthers Berkshire still has about $86 billion of cash and equivalents despite big investments made on Apple and airline stocks. He discredits active investment managers, in his letter, and compares them to 1,000 monkeys who would likely produce the same results as a seemingly all-wise prophet. An investment manager notes that Buffett spent too much in praising Berkshire's values but did not address Kraft Heinz's failed takeover of Unilever.

Cole Smead of Smead Capital Management says the letter was more about Buffett's epitaph than prior letters. Notably, Kraft abandoned its $143 billion takeover attempt despite strong refusal from Unilever's board of directors. Buffett previously expressed his stand against hostile takeovers, where firms buy out shareholders directly without support from the target's board.

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