Transcription
First, let me say that in the economic world, or in the business world, certainly in the investment world, sometimes we have an idea of what we think will happen. We never know when. And the biggest problem you can have is by believing that you know when something is going to happen and acting strongly on that.
One of the guys who, uh, works for me once wrote a memo to his clients, and he had expressed a simple rule: If you name a price, don't name a date. If you name a date, don't name a price. But if you name a price and a date, you can be wrong. In, in the other two cases, you can never be wrong. You say, "Well, I think that stock is going to sell at 40 sometime." They can't prove you wrong, you know, etcetera.
So, so we, we, we talk about a correction, but we should not be, so we should not have so much hubris as to think we know when it's going to happen. That's number one.
Number two, back in the crisis of '07-'08, people got into the habit of asking me and others, they kept saying, "What inning are we in?" This became the big question in that cycle. What inning are we in? And so, and that's the way people talk about that now. When they said it back in '08, what they meant is, "How close are we to the end of the crisis?" is what they were asking. More recently, they've been asking it, and what they mean is, "How, how, how close are we to the end of the bullish phase of the credit cycle?"
And I've been saying, "We're in the eighth inning" for a little while. And I realized about a year ago that there's one problem with that locution, which is that this isn't baseball, and we don't know how long the game's going to go. In baseball, if I tell you we're in the eighth inning, that means you can start packing up, uh. But in investing, the game could go nine innings, 11, 14. Who, there's no limit. Like I said, to Justice about his question about seven to eight-year cycles, there's no limit.
So, the current economic recovery is, uh, the third longest in history. And if it goes on for another year, it'll be the longest in history. There's nothing to say it can't. There's also nothing, there's no law. There are not laws of nature or physics at work here. So, there's nothing to say it can't go another year, another two years, another three years. Anything's possible.
Now, we can tell from the fact that that no recovery has gone more than, I think, about 120 months. There must be something, there must be some reason, you know. We, we may not even be able to say what it is, but it tends to define the probabilities. By the way, most people, you probably haven't started to think about this yet, but I'm, I'm assured that almost, just about everybody dies by 114. And that we, we get more and more and more people who are living past 100. And I'm optimistic about that. But, but still, almost nobody lives past 114. We don't know why, but that's the rule. So, if you're start, if you're, if you're going to make a put down hard money for a vacation cruise for your 116th birthday, you're probably wasting your money.
And so, so the thing is that, uh, you know, this can go on a long time. And in particular, I want to expand on your question a little bit to say that you, you said, "Do I think about whether this is going to be a, a crash, correction, or crash?" And, uh, first of all, you have to realize that the period of time that you have seen is only a brief part of history, and you have to bear that in mind. So, if you've been looking at markets, let's say for the last, uh, 20 years, it's easy to say talk about crashes because it happens that the last two cyclical episodes we've had have been bubble and crash. We had the tech bubble and crash, and then the mortgage bubble and crash. That is not to say that every upswing is a bubble and, and, and has to be followed by a crash. And in fact, over the previous decades that I lived through, we had lots of minor, uh, boomlets and then corrections.
So, it, so first of all, don't automatically think bubble, crash. Secondly, uh, Chris was asking me before, "What do I think is the whole mark of a bubble?" And, and market-wise, I think that the hallmark of a bubble is bubble thinking. And, and I didn't get a chance to tell you what I meant. But bubble thinking, to me, is when people say, you know, there's always a grain of truth. So, in 1999 and '98, the grain of truth was that the internet would change the world. And so, people took that grain of truth and they expanded it to mean that, as a consequence, if you invested in an, an internet or an e-commerce company, you would probably make a fortune, uh, because the internet was going to change the world. And it happens. And by the way, and as a consequence, it, it didn't matter what price you paid. There's no price too high to participate in that kind of a trend. And it turns out that the internet did change the world, and probably 99% of those companies ended up valueless.
So, the point is that when you reach at the point where people have separated value and price considerations from platitudes and things have slipped their moorings and gone off into infinity, that, that's a bubble. And that, to me, that kind of, so if you hear people say, "Price doesn't matter. No price too high," then I think you're in bubble land.
You know, I started in the investment business, um, 50 years ago in the summer of 1968. I was between years of grad school, and I had a summer job at City Bank in the investment research department. And at that time, this, the New York banks invested in what were called the Nifty Fifty, the stocks of the 50 greatest, fastest-growing companies in America. IBM, Xerox, K-Mart, Avon, Merck, Eli Lilly, Texas Instruments, Hewlett-Packard, Perkin-Elmer, AIG, and on and on like that. And they were selling at astronomical prices, 80 to 90 times earnings, you know, the, the average P/E ratio for the postwar period of 16 times earnings. So, they were selling at five-plus times the average. And the official dictum at the bank was that the price didn't matter. You didn't have to look at the price because if it was a little too high, so what? It's growing so fast, it'll just grow into the price. And if you bought the stocks when I got there in, in '68, and you, and you diligently held them for five years, you lost 90% of your money because it turned out the price does matter. So, that's, to me, that's the mark of a bubble.