1998: Do the Baby Boomers drive the stock market higher by investing for retirement?

AUDIENCE MEMBER: Hello, Mr. Buffett, Mr. Munger. My name is Robert McCormick, I’m from Holdrege, Nebraska.

And I would like to know how much you attribute the gains enjoyed by the stock market these past years to the baby boomer generation investing for their retirement?

WARREN BUFFETT: Yeah, I would say that, personally, I would not think that has much to do with it.

I think the two big factors are in — well, there’s three big factors. One is the improved return on equity, which was a fundamental factor that pushed stock prices up.

Two is a decline in interest rates that pushed stock prices up.

And then finally, stock prices advancing, themselves, brings in buying. It doesn’t go on forever, but it creates its own momentum, to some extent, if you have these underlying factors that started to push it along.

So I would say two of the three factors are fundamental and the third is a market-type factor that bull markets do feed on themselves, and I think that you’ve seen some evidence of that.

But I don’t think that any specific — you know, the 401(k) factor or whatever it may be, was it by itself.

But I do think money is pouring into mutual funds, for example, because people have had a very favorable experience with those funds. And that does bring investors along. People want to be on the train.

Charlie?

And I think, incidentally, many of them have very unrealistic expectations.

CHARLIE MUNGER: Yeah. The general investment experience in the last, what, 18 years in common stocks has been awesomely high, I think by any past standards now, isn’t that right, Warren?

WARREN BUFFETT: Right. Well you’ve had — since 1982 you’ve had roughly tenfold in the Dow, and probably similar in the S&P. With a huge amount of money and with more participants all the time.

And there are people coming into the market every day because they feel that they’ve missed the boat or they’re coming in heavier than they came in before, simply because they’ve had a pleasant experience.

Past experience doesn’t — does not mean much, in terms of what you should expect from your investments. You will do well in your investments because you own or bought things at the right price and the businesses behaved well from that point forward.

CHARLIE MUNGER: Well, you won’t have 18 more years of 17 percent or 18 percent per annum. That I think we can virtually guarantee.