2007: Are we in a "lean" or "fat" period for stock market returns?
AUDIENCE MEMBER: Hi, Warren. Hi, Charlie. I’m Walter Chang (PH) from San Jose, California. My wife and I are expecting our first baby boy in July, and we’re going to name him Warren after you. (Laughter)
WARREN BUFFETT: You’re trying to get into my will again.
AUDIENCE MEMBER: Charlie, I’m rooting for you, for the next one.
WARREN BUFFETT: I’d move him further down the line, maybe to number five. (Laughter)
AUDIENCE MEMBER: Warren and Charlie — Warren, if you were writing a follow-up to the very prescient Fortune magazine article from November 1999 in which you were talking about the lean and fat 17-year periods, what would you be writing?
And since we’re halfway through the third 17-year period, how is it turning out, based on your expectations from back in 1999?
WARREN BUFFETT: Yeah. The 17 years, of course, I had a little fun with because of the fact there were two 17-year periods and there are also 17-year locusts. So I stretched it a little from a literary standpoint.
But there’s nothing magic about given spans of time. There was something very different between the first 17 years of that 34-year period and the second 17, and I used that for kind of a dramatic contrast.
If I were writing something now, I would say what I said just a little earlier in response to Frank Martin’s question, that it is — if I had to own long bonds or long-term position equities, I’d rather have equities. But I would not have high expectations for them, but I would have expectations beyond 4 3/4 percent.
How much beyond, I’m not sure, but something enough beyond four 3/4 percent that I would rather own equities than bonds.
I did not feel — I felt, in 1999, that people were extrapolating the experience of the previous 17 years and assuming there was something magic about owning equities.
And expectations of the people were bound to be — that they were — people were bound to be disappointed. They simply had an unrealistic view by extrapolation, and that was the main purpose of that article.
But if I were writing something now, I would not have high expectations for equities, but I would have better expectations for equities than for bonds.
Charlie?
CHARLIE MUNGER: Yeah. And I would say that since that article was written, the results from owning equities have been pretty lean, at least compared to what happened in the glorious 17 years that preceded.
So Warren has been right so far, and he’s probably right now when he says modest expectations.
WARREN BUFFETT: Yeah. You really don’t have — in markets you can’t say something terribly important or intelligent every day or every week or every month.
That’s one of the problems of — if you went on television too often or had to write weekly letters or something of the sort.
Every now and then you get something extreme. I mean, I did close down the partnership in 1969, and an article appeared. I did give an interview in ’74. I gave another interview in ‘81 or ’2.
I mean, every now and then, things really get out of whack. But the gradations in between, they’re too tough.
But the nice thing about it is you don’t have to have an opinion every day or every week or every month. If you own some good businesses and you bought them at the right price, if they get to a silly price, you probably should sell them.
And if you find that everything is extremely cheap, like in ’74, you should put every available dime into equities. And that’s what we’ve tried to do.