2022: How does Buffett time big market moves so well?

RAJID ERDUWAL: Hello, Warren and Charlie. It is great to see you both and the wonderful Berkshire managers. Our thanks for everything that you do.

My name is Rajid Erduwal (PH), and I am from New Jersey. My question is on market timing. You have always said that it is impossible to time the markets.

Yet if we look at your track record, you have had amazing timings with some of your key decisions.

You got out of the stock markets in 1969 and 1970. You got back in 1972, ’74, when the markets were really cheap. You did the same thing in ’87, ’99, 2000.

And today we are sitting on a significant amount of cash when the markets are going down.

My question is how do you time the big market moves so well?

WARREN BUFFETT: We’d like to offer you a job first. (Laughter)

RAJID ERDUWAL: I will take it. (Laughter)

WARREN BUFFETT: The interesting thing is, you know, obviously we haven’t the faintest idea what the stock market is going to do when it opens on Monday. We never have had. We have never made —

Charlie and I — I don’t think in all the time we’ve worked together — and I’ll tell you something later on maybe about how learning takes place — but we have never — I don’t think we’ve ever made a decision where either one of us has either said or been thinking, we should buy or sell based on what the market’s going to do.

CHARLIE MUNGER: No.

WARREN BUFFETT: Or for that matter, on what the economy’s going to do. We don’t know.

And the interesting thing is, sometimes I get some credit some place for the fact that, you know, how wonderful it was that we were optimistic in 2008 when everybody was down on stocks and all that sort of thing.

You know, we spent a big percentage of our net worth at a very dumb time. (Laughs)

I shouldn’t say we, it’s I.

We spent about 15 or 16 billion dollars — which was a lot bigger to us then than it is now — we spent it in the last few weeks, over a period of three or four weeks — between Wrigley and Goldman Sachs and generally — at a terrible time, as it turned out.

I mean, I didn’t know whether it was going to be a good time or a bad time, but it was a really dumb time.

And I wrote an article for The New York Times, “Buy American,” and all these things.

Well, if I’d had any sense of timing and waited six months until — I think the low was in March — and in fact I think I was on CNBC maybe that day, or something.

But I totally missed that opportunity. I totally missed, you know, in March of 2020.

We have not been good at timing. We’ve been reasonably good at figuring out when we were getting enough for our money. And we had no idea when we bought anything — well, we always hoped it would go down for a while so we could buy more, and we hoped even after we were done buying and ran out of money that if it was cheap the company would keep buying, in effect, taking our interest up.

I mean, that’s stuff you can learn it in fourth grade. But it’s not what’s taught in school.

And so never give us any credit. Well, actually, give us all the credit. I mean, go out and tell everybody how smart we are, but we aren’t. (Laughter)

We haven’t ever timed anything. We’ve never figured out insights into the economy.

I mean, when I was 11 years old, March 12th, I guess, 1942 — or March 11th — you know, I bought stock when the Dow was 90 — well, it was 101 in the morning — It was 99 at the end of the day I think — and, you know, now it’s 34,000, or maybe it’s 1,000 less than it was on Thursday. (Laughter)

But, you know, it’s one decision that it’s a good thing to own American business.

And, you know, if the Harvard endowment had come to see me as an 11-year-old, (laughs) you know, or General Motors’ pension fund or something and, you know, they say, well, no, but we have to have a balance. And we have to maybe have 60%. And then we have to sit around every three months and listen to a bunch of managers.

They’d have just done better if they’d just taken some darts and thrown them and just said, we’re going to be in America 50 years from now and 100 years from now, and we’ll do better in stocks than we will in bonds.

It’s amazing how hard people make what a simple game it is.

But of course, if they told everybody what a simple game it was then 90% of the income or more of the people that were speaking would disappear.

So, it’s really a little too much of us to expect of human nature that people will explain why they really aren’t adding any value to what you can do by yourself.

Or actually, you’re, you know — I hate to use the example — but you can have monkeys throwing darts at the page. And, you know, take away the management fees and everything, I’ll bet on the monkeys.

But I don’t consider them a superior species. And I don’t want them to move next-door instead of my next-door neighbor or (laughs) anything, but it’s just the way it has to be.

Charlie, do you have anything cheerful to say? (Laughter)

CHARLIE MUNGER: Well, frequently in the wealth advisory business, the way it used to be, you go to your investment advisor, you say, what should I do to protect myself for the future?

And he says, why don’t you give me $50,000 of your net worth now? That’s my contribution to your future. (Laughter)

It’s a peculiar business. (Laughter)

WARREN BUFFETT: Yeah, and it’s a great play because you (unintelligible) rich. It’s still a —

If you have a son or daughter that really wants to make money per point of IQ, and per erg of energy, and all of that, well, tell them to go to Wall Street. I mean, don’t have them enter the priesthood or anything.

I mean, if that’s what they want. It self-selects. And it always will be the case.

I mean, there’s no reason to despair about humanity because they behave in their self-interest. They may not actually be behaving in their self-interest over time, but they — you know, are they happier? Who the hell knows?

But if they just want to make money —

Well, people here in the auditorium saw a little session from the Salomon [Brothers] episode.

And Gerry Corrigan was then the head of the New York Fed, and that same committee was grilling him. And they said, Mr. Corr — they were giving him a hard time — and they said, who was the highest — they said something to this effect, that — who’s the highest paid guy at Solomon last year?

And he said, well, and he named him — maybe he named him — and he just said he got — I forget whether it was 20 million last year — and we’re talking 1991 now, too — he said, maybe he got 20 million.

And the guy says, well, how old is he? And, you know, he said, well, I think he’s — Corrigan said —something to the effect of, he’s, you know, 26, or something like that.

And then Corrigan couldn’t resist saying, and he can’t even throw a football. (Laughter)

And the truth was, you know — now, there’s a lot more money in throwing a football now than there used to be.

You know, one of my heroes was Ted Williams. You know, I think he was making 20 or 25 thousand dollars a year.

You know, just imagine today some guy that bats .230 or .240, you know, and if he makes it to the bigs, I mean, the money flows in.

And of course, those peoples should sit down and thank the fact that the stadium that could hold 30,000 or 40,000 people and was the source of revenue for the people who pay their paychecks, that stadium went from 30,000 to 40,000, because somebody first invented television and they came up with cable television and they came up with pay and all that sort of thing.

And nobody knows the names of those people. But capitalism is very, very, very peculiar in how it dishes out rewards.

And for a while it was better to be in Wall Street than be a .220 or .230 hitter in the bigs.

And, you know, it is now reversed because of the development of TV, et cetera.

So, it’s a crazy world. Rewards seem very, very, very, very capricious, and they are.

And they don’t seem to any theologian, or even to Charlie and me in our spare time, the whole thing seems kind of crazy.

But it’s worked awfully well. And even the people who don’t take advantage — get short-changed by the system — are doing far, far better than if the system hadn’t gotten changed.

Doesn’t mean that you necessarily shouldn’t work for change, but you should recognize the limitations of what you can do with humans, put it that way.

OK. Charlie, is there any way you’d like to close the sermon? (Laughs)

CHARLIE MUNGER: Well, I do think we have a very interesting phenomenon, in —

I would argue that in a lot of the wealth advisory business, people are charging for skill and delivering closet indexization.

In other words, nobody can stand being that different from the crowd and results. They’re afraid they’ll lose their fees. So, everybody does the same thing. It’s mildly ridiculous.

The world is mildly ridiculous. (Laughter)

WARREN BUFFETT: Yeah. But as Charlie pointed out in the movie, which only the people here saw that, that before we were married, you know, we tried to convince a couple of young women that we were really more attractive than we were. I mean — (Laughs)

You can’t expect people not to behave in their self-interest. And that was very important, that we didn’t disclose all of our weaknesses before the marriage. So —

CHARLIE MUNGER: Warren and I are trying to be a little better. (Laughter)

WARREN BUFFETT: Yeah, that was true--

CHARLIE MUNGER: We may fail a little. And I don’t know about you, but I’ve slightly improved since I was 17. (Laughter)

WARREN BUFFETT: Yeah, well — (Laughter)

That’s a really interesting point, because if fortune has just showered you with all kinds of good things you ought to be a better person in the second half of your life than the first half. I mean, that really should not be asking too much of people.

If they’ve won the ovarian lottery, and they’re born in the United States, and all kinds of good things have happened to them, and you’ve had a chance to see how stupid you were and all kinds of things you did, you know, why not have the second half of your life be better than the first half?

I would say — working from a very low base — but, I mean, I’m not nearly, you know, by any intelligence test or ability to do any of that, you know, I haven’t learned anything. But you do learn certain things only by interacting with people.

And you don’t know, when you’re two years old, no matter how much you’re picking up all kinds of knowledge from the world, the learning machine that’s going on in a two-year-old’s head is just unbelievable.

But it’s not the same as having 30 or 40 years of experience with actually how the human animal behaves, which is really, you know, you’re learning all the time about it.

But that should make you a better person in the second half of your life than the first half.

And I would say that if you say you’re a better person in the second half and have got reason to say it in the first half, you know, forget about the first half. (Laughs)

Enjoy the second half.

And both Charlie and I have had the luxury of A, living a long time so we get to play, what we would regard as the hopeful and respectable second half.

And we have had enough sense to figure out — well, we figured out what makes us happy. And we’ve gotten somewhat more sensitive to what can make other people unhappy and all that sort of thing.

And I’d rather be judged by the second half of my life than the first half, and so would Charlie.

CHARLIE MUNGER: Yeah, of course.

WARREN BUFFETT: OK.

CHARLIE MUNGER: I’m very — I don’t even look at what I did when I was young because it would embarrass me. (Laughter)

WARREN BUFFETT: Yeah. OK.

Any of you who wish to quiz Charlie on specifics can do so later. (Laughter)