Warren Buffett on Reaching Stock Market Highs

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Warren Buffett had his annual charity lunch today and was on CNBC for a short interview. As usual, he was asked about the current stock market situations and, as usual, he managed to sum everything up in a few folksy sentences. Here’s a direct quote from the full CNBC interview:

If you had your choice between buying and holding a 30-year bond for 30 years or holding a basket of American stocks, there’s just no question, you’re going to do better owning stocks. It’s more attractive than, considerably more attractive than fixed income securities. That doesn’t meant they’re going to go up or down tomorrow, next week, or next year, but over time, a bunch of businesses that are earning high returns on capital are going to beat a bond that’s fixed at roughly 3% or 30 years. And it’s not my field of specialty, but actually they look, stock generally (American businesses), they look cheaper than, generally, real estate.

[…] That’s what you have to do in investing. I mean, you’re sitting with some cash in your pocket. You have savings, and the question is what do you do with it? You can buy a duplex next door and rent it out to people and do fine over time or buy a small piece of farmland or something of the sort or you can put it into something fixed income, bonds, or bank deposits, or whatever it may be.

My interpretation is that you have invest your money somewhere, and if you have a 30-year time horizon and you don’t plan on timing the market in and out, then stocks are still your best bet. Over the long haul, stocks will still outperform bonds and cash (at current interest rates), and he thinks real estate as well right now. Timing the market is too hard to do. Predicting returns over the next 5 years is too hard to do. If you don’t have a long enough time horizon or can’t handle the swings, you shouldn’t be in stocks.

Long-term stock investors just have to take some lumps if prices drop for a while. Keep enough money in bonds and cash so you don’t panic and have money to spend in the meantime.

[I actually have an issue with the CNBC caption “Buffett: Stocks always more attractive than bonds”. He never said that. He specifically noted that the 30-year bond was paying 3%. In the past (1970s?), Buffett has invested in Treasury bonds when the rates were really high and the stock market was overvalued. If today’s rates were 8% instead of 3%, Mr. Buffett would be rational enough to adjust his opinion.]

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  1. I was attracted to your blog several years ago on the topic of Series I Savings Bonds and your predictions of the next six month fixed and variable rates, but I primarily invest in the stocks through my retirement plans (currently 53% traditional, 47% Roth). And I am a fan of Warren Buffet. He is in his 80s and mostly into stocks! His cost basis is probably very low. So that if there is a 2008 crash very soon, he’d still be extremely wealthy and ahead of his basis. I read somewhere a lesson about the famous 1929 crash. People assume the worst case scenario: that most investors put all they had into the stock market the trading day before the 1929 crash. More likely, people started investing ten years before the crash and recovered within five years of the crash. With that philosophy in mind, I’ve been dollar cost averaging since 1989 into mostly stock index funds. I’ve seen sideways years like 2018: 1994 was a sideways year. I’ve seen 30% years in the early 1990s. I’ve invested through the 2003 low and 2009 low. And I’ve got government bonds on the side so that I can keep my retirement accounts fully into stocks while taking distributions. I can understand why Buffett says stocks are exciting. When you pick a stock, you hope you studied its potential enough to get a certain gain in a certain time. And you root for the company. Buffett drinks Coca Cola and owns Coca Cola stocks. When you buy a bond you know what you are getting, and that is more often than not a return of something likely close to the CPI-U, and certainly something to fall back on. However it can be argued that if you’ve invested in stock index funds for thirty years, the amount you put in during the thirtieth year will be tiny compared to the reinvested dividends and compounded gains by that point. A 50% crash won’t necessarily mean your balance will fall down to the level of 50% of your principle and company matching contributions. So you wonder if you should have been fully into stocks fr9m the beginning!

  2. Not only are stocks a good bet, but if you picked a basket of high dividend quality stocks, you could get a 3% dividend return, and then whatever stock growth there is later. I have bonds too of course, but honestly, I sometimes wonder why…

  3. Stocks price to earnings ratio height currently only surpassed by dot-com bubble years, which means we are higher than pre-Great Depression levels. I’m out.

    • I’ve invested in stock funds at stock market tops in 2000 and 2007. I never ever timed my stock mutual fund purchases in my 29 years of dollar cost averaging. I don’t plan to the future. I remember blogs where people stayed out of the market from 2008 through 2012 and missed huge gains.

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