2008: Where will the market go from here?

AUDIENCE MEMBER: Good morning, Mr. Buffett, Mr. Munger. My name is Sam Reiner (PH) from Fort Lee, New Jersey, and my question concerns your comment this week about the recession, and the stock market going up so significantly in April.

Can you expand on where the market is going from here? (Laughter)

WARREN BUFFETT: Hah. Well, I can expand, but I couldn’t answer. (Laughter)

Charlie and I haven’t the faintest idea where the stock market is going to go next week, next month, or next year. We never talk about it. You know, it never comes up.

Our directors will tell you that they’ve never been to a directors meeting where the subject of the direction of the stock market is — we are not in that business. We don’t know how to be in that business.

Obviously, if we could guess successfully a high percentage of the time where the stock market was going to go, we would do nothing but play the S&P futures market. There wouldn’t be any reason to look at businesses and stocks. So it’s just not our game.

We don’t think — what we see when we look at the stock market is we see thousands and thousands and thousands of companies priced every day, and we ignore 99.9 percent of what we see, although we run our eyes over them.

And then every now and then we see something that looks like it’s attractively priced to us, as a business. Forget about the word “stock.”

So when we buy a stock, we would be happy with that stock if they told us the market was going to close for a couple years. We look to the business.

It’s exactly the same way as if you were going to buy a farm a few miles here outside of Omaha. You would not get a price on it every day, and you wouldn’t ask, you know, whether the yield was a little above expectation this year or down a little bit.

You’d look at what the farm was going to produce over time. You’d look at expected yields. You’d look at expected prices, the taxes, the cost of fertilizer, and you would evaluate the intelligence of your purchase based on what the farm produced relative to your purchase price.

Quotes would have nothing to do with it. That’s exactly the way we look at stocks. We look at them as businesses. We make judgments about what the future of those businesses will be. And if we’re right about — in those judgments, the stocks will take care of themselves.

Charlie?

CHARLIE MUNGER: Nothing to add. (Laughter)

WARREN BUFFETT: He’s been practicing for weeks. (Laughter)