Buffett on Stock Valuations

A description of how Buffett viewed stock valuations, and how he was viewed by the so-called "smart money", back in the late 1990s.

...Warren Buffett was considered by some of the more "go-go" investors of that day as something of a "has been" – an investor who had peaked who was even called "extinct" for staying out of high tech stocks. He was seen as a "your-father's-Oldsmobile" investor at a time when all the kids were buying up those hot, high-tech Lamborghini type stocks. Buffett was skeptical of high-tech stocks and how they made money. He warned of an overvalued market that was heading for trouble. In fact, at that famous summer gathering of media, technology and financial moguls at Sun Valley, Idaho, Warren Buffett was asked to give the concluding talk in July 1999. His remarks, though politely received, supported the view among the smart set that Buffett was out of touch with the "new paradigm" of high technology and ever-rising internet stock valuations.

Buffett's talk — complete with stock market history, slides and charts, careful Warren Buffett reasoning, and a share of corny examples – delivered a message that most of his high-tech listeners and their financial sidekicks were not keen to hear. There was no "new paradigm," Buffett said. The market could only yield what the economy produced, and this market was way out of sync in that respect. The next seventeen years, he explained, might not look much better than the dismal 1964-to-1981 period when the Dow had gone exactly nowhere. "If I had to pick the most probable return over that period," he said, "it would probably be six percent." But many investors – including those listening to Buffett's words – expected much higher returns, more in the neighborhood of thirteen to twenty-two percent.

Much of Buffett's message that day was ignored and dismissed – until March 2000, when the "dot com" bubble began to implode. Yet for a time, Buffett was considered by the smart money as "out of it" and "losing his edge;" a guy who had missed the high-tech moment and was now rationalizing his mistake.

Here's another very useful summary of what Buffett was thinking back then.

Thanks to the past decade, stocks overall appear more or less in line with intrinsic value (that's the average...quite a few individual stocks are expensive while others are still cheap).

Though we're not yet 17 years removed from the day of that talk in Sun Valley, Buffett said recently he now views the prospects for stocks* favorably going forward. Stocks may have gone nowhere from 1964-1981, but it wasn't necessary to wait until the end of that period to start buying. In other words, it was a great time to buy in 1974 even though the market needed 7 more years to finally put the highs of 1964 in the rearview mirror.


* As a tactical matter, I would not be buying much right now until a correction occurs. Longer term shares of good businesses bought at fair prices this past year will likely do just fine.
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Buffett on Stock Valuations
Buffett on Stock Valuations
Reviewed by Pisstol Aer
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