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Buffett’s Shareholder Letter Optimistic, Promises Increased U.S. Investments

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Warren Buffett’s latest annual letter to shareholders of Berkshire Hathaway, released Saturday morning, was upbeat and optimistic despite the current economic environment.

Citing book value increases of 13% in shares over 2010, Buffett enthused over the “highlight of 2010,” the company’s acquisition of Burlington Northern Santa Fe (BNSF), citing the “major cost and environmental advantages” the acquisition has over trucking. He also promised that Berkshire’s money would be behind BNSF’s need to “invest massively” to reap its share of growth in coming years.

Buffett cited Berkshire’s commitment to additional spending and investment within the United States as setting “a new record for capital spending,” and promised that an additional $2 billion over 2010’s property and equipment expenditures would be made at home rather than abroad. That adds to the original $6 billion figure, of which he said 90% was spent in the United States.

Some of that spending will be on BNSF, and some on MidAmerican Energy, since both, as highly regulated industries with long-lived assets and the need for excellent customer service, need not just to maintain their infrastructure but also to anticipate market demands.

MidAmerican, Buffett pointed out, will have 2,909 megawatts of wind energy in operation by 2011’s end, “more than any other regulated electric utility in the country,” thanks to an investment of “a staggering $5.4 billion.”

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Uncertainty in the economy would not be a deterrent, Buffett said, since “money will always flow toward opportunity,” and “no matter how serene today may be, tomorrow is always uncertain.” While he said that “the bountiful years . . . will never return,” Berkshire’s investments for long-term gain rather than short-term results are in keeping with the company’s quest for better-than-average results.

Along those lines, he pointed out that while much of the company’s earnings come from insurance float (funding $66 billion in investments), the continuing practice at Berkshire will continue to be emphasizing the development of earnings from non-insurance businesses.

More major acquisitions will continue to be in the company’s ongoing strategy: “Our elephant gun has been reloaded, and my trigger finger is itchy,” Buffett said.

On the negative side, Buffett cited three redemptions that will have a negative impact on the company’s earning power: a Swiss Re note that was redeemed early in 2011, and preferred stocks in General Electric and Goldman Sachs.

However, in a return to the positive, Buffett said that he believes a return of better interest rates will offset at least some of the losses—as will a return to higher dividends. “At some point, probably soon, the Fed’s restrictions [on dividends] will cease, he said, adding that he expects other companies will soon increase dividends.