Insights from the U.S.

I recently returned from a whirlwind three-week holiday in the United States, a trip that was anchored by a visit to the legendary Berkshire Hathaway AGM. Picture this: a sold-out stadium, buzzing with investors—a true festival of finance! This year was extra special, as Warren Buffett, in a move that caught everyone by surprise, including the board, was the passing of the torch to Greg Abel at the end of the day.

Talk about a mic-drop moment! So, what did I glean from this adventure and the sage wisdom of the Oracle of Omaha?

In the lead-up to the big announcement, the AGM had a distinct vibe of self-reflection. It felt like Warren, more than ever, was keen to share his hard earned wisdom. He touched on a vast range of topics, including: the ever-present threat of nuclear weapons, the breakneck speed of change in our world, and the sheer, dumb luck of being born in the USA.

Buffett, with his signature dry wit, reminded us, “If you were born in the
United States, you’ve already won the ovarian lottery.” He also mused on the unchanging nature of human instincts, saying, “We have not changed much in terms of our basic instincts. We’re still subject to the same emotions that have driven people for thousands of years.” But it wasn't all doom and gloom. Getting to 94, while drinking cherry coke every day, you have to be an optimist, and he called for long-term thinking: “The world is going to change in dramatic ways, but the best thing you can do is to keep your head, stay optimistic, and think long-term.”

And, of course, he couldn't resist a jab at trade wars: “Tariffs are a very, very dangerous game. They can be used as a weapon, and once you start down that path, it’s very hard to know where it ends.”

Ah, the perennial question: what's up with Berkshire's Everest-sized cash pile? The answer, as always, was to the point: they haven't found anything worth sinking their teeth into. As Buffett put it, “We don’t see anything that makes sense to do with a significant portion of our cash right now. That could change in a year, or it could take five years. We’re not in a hurry.” He then added, “We will always have more cash than most companies, and we’re comfortable with that.”

One of the big questions swirling in my mind during this trip was the whole idea of American exceptionalism. Is it fading, or will the US continue its epic run? This came up with both Buffett at the AGM and Bill Ackman at a UBS side event. Both acknowledged the potential pitfalls of trade wars and the risk of alienating allies, which could undermine the very system that's made America.

Buffett didn't mince words: “America has been the winner in the world’s economic game for a long time, but that doesn’t mean it’s guaranteed forever.” He also sounded the alarm on the US dollar: “If you print enough money, you can always pay your debts in nominal terms, but you can destroy the value of your currency. That’s the real risk.” And on those deficits? “A 3% deficit might be sustainable with inflation, but a 7% deficit is not. That needs to change.”

Ackman, a self-proclaimed Trump supporter, echoed these concerns, acknowledging the risks of tariffs and the challenges to American dominance. With a big chunk of US debt coming up for renewal, rising interest costs could send shockwaves through the system, demanding fiscal discipline and smart tax management. The mood was cautiously optimistic, but those outlier risks are definitely worth keeping an eye on.

You can't deny it: Americans love to shop. They'll buy anything and everything, and the sheer volume of stuff they consume is mind-boggling. It's impossible (and maybe not even desirable) to bring all that production back to the US.

Interestingly, the Berkshire shopping day was a record-breaker, with most categories up 10-15% year-over-year. While the full impact of tariffs is still brewing, it's clear that America is already a pricey place, especially when you factor in our exchange rate. From the jazz-soaked streets of New Orleans to the skyscrapers of New York, you're often looking at double the price of goods back in New Zealand.

Buffett, noted, “The American consumer is the engine of the world economy. They buy, and they keep buying. That’s not going to change anytime soon.”

I did my best to convince more Americans to hop on a plane to New Zealand and take advantage of the exchange rate, but alas, the one thing American’s don’t tend to buy in excess is world travel, or maybe even world maps...

It's easy to get a one-dimensional view of the US from the media, but the reality is far more nuanced. America is a sprawling country with a vast mix of cultures and priorities across its states. This visual map (https://www.visualcapitalist.com/us-state-economies-compared-to-entire-countries/) is a great reminder of its sheer scale.

On this trip I had the chance to explore Austin, New Orleans, Omaha, and New York, each offering a unique slice of American life. Beyond the headlines, Americans are getting on with it. And when you dive deep into these regions, you can't help but notice the strong work ethic and the innovative spirit that permeates the culture. Cruising around Austin in Waymo robo taxis, summoned via a regular Uber app, was a stark reminder of the massive disruption and innovation heading our way. Add in the exponential growth of AI, and it's clear that the future is being shaped right now.

Buffett, ever the optimist, chimed in, “The world will keep changing, and America will keep adapting. That’s what we do best.”

Zooming out, there are some serious structural issues in the US, like tariffs and deficits, that need to be tackled. How long these issues will linger is anyone's guess—two years, twenty years, two centuries? Who knows! We'll undoubtedly see some folks getting lucky with bold bets on macro shifts or even insider-ish plays on speculative presidential crypto coins.

But the core principles, and Buffett's wisdom, still ring true: focus on the long game, be patient, and be decisive when the time is right. For investors, it's all about staying the course, diversifying, and keeping costs in check—the very traits that have fuelled Berkshire's success and Buffett's unwavering support for index investing.

As Buffett wisely said, “The best investment for most people is a low-cost index fund. Don’t try to time the market. Just keep investing, and let compounding do its work.”

So, is American exceptionalism on the decline? Investors should remember that a market-neutral weight typically allocates 60-70% of a global equity portfolio to the US. While the US will likely remain a powerhouse, we'll be watching closely to see if investment flows start to shift away from such a heavy US concentration.

In the meantime, keep calm and invest on!