When I closed the Buffett Partnership, I felt (and wrote to my investors) that the prospective return was about the same for equities and municipal bonds over the next decade, and I was roughly right. It’s not the same today. I’d have 100% of bonds in short-term bonds. Forced to choose between owning the S&P 500 vs. 20-year bonds, I’d buy stocks – and it would not be a close decision. But I wouldn’t have an equity investment with someone who charged high fees.
We don’t have the faintest idea where the S&P or bonds will be in three years, but over 20 years we’d prefer to own stocks.
Munger: We think there will be a disruption not too many years ahead.
Of course, you could have said that and have been right at any point in the past century – there are always disruptions – but stocks have still done well. We’d rather have good stocks than sit around and hope they get cheaper, so anytime we see something good, we buy, hopefully in size.
[Q – If you were to follow up on your Fortune article from 1999 about the lean and fat periods (Mr. Buffett on the Stock Market), what would you be writing? You talked about 17-year periods. How is it turning out now, since we’re halfway through the next one?]
There’s nothing magical about 17-year periods – I just had a little fun with it because there were two 17-year periods, and there are 17-year locusts.
In 1999, people were extrapolating from the experience of the previous 17 years and had unrealistic expectations. They were bound to be disappointed.
If I were writing something now, I’d say I’d have expectations beyond 4.75% – I don’t know how much more, but more for sure. I would not have high expectations for equities, but better than for bonds.
Munger: Since that article was written, the experience from owning equities has been pretty lean, so Warren’s been right so far and I suspect is right now to have modest expectations.
It’s hard to be right every day or week or month – that’s what happens if you’re on TV too often. But every now and then, things really get out of whack. But the gradations in between are too tough. If you own great businesses, you should just hold on most of the time, maybe sell if the valuations get extremely high and buy more if they get really cheap like in the early 1970s.
Source: Berkshire Hathaway Annual Meeting