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The Speech That Caused Warren Buffett to Be Ridiculed

October 28, 2014

Buffett was the closing speaker at the super prestigious and exclusive Sun Valley, Idaho, July 1999 conference speaking to many of the technology company leaders.  The following has been adapted from The Snowball © 2008 Alice Schroeder.

Buffett gave a chatty introduction and investment “lesson” background and closed with a direct discussion about their businesses.

“It’s wonderful to promote new industries, because they are very promotable.  It’s very hard to promote investment in a mundane product.  It’s much easier to promote an esoteric product, even particularly one with losses, because there’s no quantitative guideline.  And people will keep coming back to invest, you know.”

He then told a story about the power of a completely unfounded rumor and how people know it is unfounded but follow it anyway with their investing misguidedly believing that continuous investing will make it true.

“Well, that’s the way people feel with stocks.  It’s very easy to believe that there’s some truth to that rumor after all.”

He then said there is no new paradigm.  Ultimately, the value of the stock market could only reflect the output of the economy.  He showed slides illustrating how the market’s valuation for several years had outstripped the economy’s growth by an enormous degree. He said very directly that this meant that the present stock values were way too high, he was not a buyer and recommend selling before it was too late.  He told a joke that intimated that the people that bought stocks at the present levels were about to get screwed.

The audience said in stony silence.  Nobody laughed. Nobody chuckled or snickered or guffawed.  They were “embarrassed” for him, but because of his prior record they gave him the respect to not tell him he was behind the times, out of touch and while the past was his, the future was theirs.  They felt that this speech was the last roar of an old lion – that the speech was a tour de force.

This was in July 1999.  The year of 1999 began with the NASDAQ index at 2193.  On July 31, the Index was 2638. On Nov 3 the Index broke 3000 closing at 3028, on Nov 29, 1999 it closed at 4041 and on March 10, 2000 it closed at its all-time high of 5408.  On December 31, 2000, it was 2471. On Sep 21, 2001 (just 2 years after Buffett gave that speech) the index was 1387 (a shade more than half when he gave his speech) and on Oct 10, 2002 it hit the low point of 1108. It closed this past Thursday at 4453.

2 Comments leave one →
  1. 6hawthorne permalink
    October 28, 2014 9:12 pm

    HI ED VERY INTERESTING I ENJOY YOUR ARTICLESBOB NAGLER

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