Is Warren Buffett over optimistic?

The Sage of Omaha thinks the world is looking pretty rosy for investors at the moment. Merryn Somerset Webb isn't so sure.

The future's good. Very good or so says Warren Buffett. In this week's issue,we look at his latest letter to his investors. In it he says much what he always says that America is great; that human ingenuity and capitalism make anything possible; and that anyone who buys and holds "conservatively financed" US stocks will "almost certainly do well".

We aren't so sure. Might it be that Buffett is looking backwards a little too much? His own career has spanned a period of fast-moving globalisation that has given tremendous freedom and extraordinary growth opportunities to America's big firms (and everyone else's for that matter). But if Buffett was starting his career today, would things be moving in the same happy direction?

Jonathan Compton doesn't think so. He explains the danger Buffett isn't seeing: a "bombastic, introspective and nationalistic" trend in Western politics that could easily lead us to a 1930s-style collapse in world trade. Your immediate thought will be that Compton is worried about Donald Trump. Not so.

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As he notes, politicians all over the world are calling for much the same things as Trump (tighter control over everything from mergers and acquisitions to the tax status of multinationals) and the trend that is producing is already clear in the numbers: since 2008 the G20 nations have between them introduced 1,583 new trade-restrictive measures and removed only 387. The future could be less good than Buffett thinks.

We always tell you to invest with as much of a margin of safety as possible. That's particularly important at the moment. Turn to our cover story and you will see why that means not going anywhere near the upcoming initial public offering of Snap. We also look at why it could mean investing in small companies in France (yes, really!). After all, as Andrew Van Sickle points out, valuations across Europe remain reasonable, but when it comes to small caps, they are "extremely cheap".

You might also look to our chart of the week for an idea. We've been suggesting Russia for some time on the basis that it is too cheap. I suspect that those of you who got in early will want to take some profits. But you should also note that, despite the huge gains of the last year, it is still very cheap. I would hang on to a small stake.

David Stevenson looks at a less nerve-wracking investment Alliance Trust. The Dundee-based investment trust has had a trying few years underperforming assets, overpaid management and stroppy activists. But David reckons (as I think I do see my blog on the matter) that it has given itself "an impressive reboot" and that it is turning into a reasonable one-stop asset-allocation shop. Finally, remember that you are going to end up with duds in your portfolio (however safe they look on day one). What do you do with them? John Stepek answers that one in this week's issue.

Merryn Somerset Webb

Merryn Somerset Webb started her career in Tokyo at public broadcaster NHK before becoming a Japanese equity broker at what was then Warburgs. She went on to work at SBC and UBS without moving from her desk in Kamiyacho (it was the age of mergers).

After five years in Japan she returned to work in the UK at Paribas. This soon became BNP Paribas. Again, no desk move was required. On leaving the City, Merryn helped The Week magazine with its City pages before becoming the launch editor of MoneyWeek in 2000 and taking on columns first in the Sunday Times and then in 2009 in the Financial Times

Twenty years on, MoneyWeek is the best-selling financial magazine in the UK. Merryn was its Editor in Chief until 2022. She is now a senior columnist at Bloomberg and host of the Merryn Talks Money podcast -  but still writes for Moneyweek monthly. 

Merryn is also is a non executive director of two investment trusts – BlackRock Throgmorton, and the Murray Income Investment Trust.