In 1965, Warren Buffett took control of Berkshire Hathaway. It was a small textile company at the time, seemingly doomed by its dependence on a declining industry, but he quickly shifted its focus to insurance. That move was particularly brilliant because it created a steady flow of capital in the form of premium payments, and Buffett has invested those funds to great effect over the years.
Today, Berkshire is one of the largest and most diversified conglomerates in the world, with subsidiaries that span from manufacturing and industrials to consumer goods and retail. The company also owns more than $300 billion in equity investments, and many of the stocks in its portfolio have multiplied impressively in value, including Apple, American Express, and Coca-Cola. Buffett attributes that immense success to the “American Tailwind.”
The American Tailwind
Buffett has been investing for eight decades, meaning he has studied the stock market for longer than most people have been alive, and he has accomplished much during that time. Berkshire has grown into a $670 billion behemoth under his watch, and Buffett himself has amassed a fortune worth $100 billion. That success makes his advice particularly credible, and one recurring theme is his confidence in American business.
America has long been a wellspring of commerce and innovation. The U.S. is the largest economy in the world, and it is home to 9 of the 10 most valuable public companies. Buffett believes those qualities will persist far into the future, and his conviction has never wavered. In fact, he wrote a particularly bullish op-ed piece on American business for The New York Times as the stock market crashed in 2008. The headline was, “Buy American. I Am.”
In that article, Buffett acknowledged the dismal state of the financial world, and he warned that the economy would deteriorate further in the near term. But he also told investors that he was buying American stocks because “fears regarding the long-term prosperity of the nation’s many sound companies make no sense.”
Today, economic uncertainty has once again dragged the S&P 500 into bear market territory, but Buffett reiterated his conviction in American business in his most recent letter to Berkshire shareholders: “I have yet to see a time when it made sense to make a long-term bet against America. And I doubt very much that any reader of this letter will have a different experience in the future.”
How to buy American
The Vanguard S&P 500 ETF (NYSEMKT: VOO) tracks the performance of the S&P 500 index, which itself measures the return of 500 large American businesses. The diverse nature of the index — the S&P 500 includes value stocks and growth stocks from all 11 market sectors — makes it a good benchmark for the entire U.S. economy.
In that sense, the Vanguard ETF allows investors to diversify their wealth across hundreds of blue chip businesses that represent the very heart of America. It should come as no surprise that Buffett has regularly recommended buying an S&P 500 index fund like the Vanguard ETF, and his comments in Berkshire’s latest shareholder letter indicate that his opinion has not changed.
As a caveat, index funds generally have a more modest risk-reward profile compared to individual stocks, but the Vanguard ETF still produced a total return of 217% over the past decade, which is equivalent to 12.2% on an annual basis. At that pace, $100 invested weekly would be worth $1.3 million after three decades.
If you’re considering investing in the stock market right now or increasing your position in a given stock, keep Buffett’s concept of the American Tailwind close to heart. He is.
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American Express is an advertising partner of The Ascent, a Motley Fool company. Trevor Jennewine has positions in Vanguard S&P 500 ETF. The Motley Fool has positions in and recommends Apple, Berkshire Hathaway, New York Times, and Vanguard S&P 500 ETF. The Motley Fool recommends the following options: long January 2024 $47.50 calls on Coca-Cola, long March 2023 $120 calls on Apple, short April 2023 $38 calls on New York Times, and short March 2023 $130 calls on Apple. The Motley Fool has a disclosure policy.