Transcription
I was just wondering, um, there's a lot of differences between the recent boom and bust in the stock market and the one in the 1920s, uh, but there's also a lot of similarities and those similarities are are allowing people to draw the conclusion that, uh, stock prices will be depressed for, uh, some time to come. What Where do you disagree and agree with that conclusion?
>> Well, the the the whole century is quite interesting. If you take the 20th century, it was an unbelievable century for the United States. The GDP per capita, and that's the way to think of it as per capita. Sometimes they talk about our GDP versus Europe's, but if their population is the same every year and ours goes up 1%, you've got a, you know, in the end you got to you got to have a divisor as well as a numerator and
>> [clears throat]
>> So, GDP per capita in the 20th century in the United States went up 610%. Actually, qualitatively, it went up far more than that because you can't really measure, you know, certain things, uh, in medicine or whatever it may be in the improvements, but just on a quantitative basis, it went up every single decade, including the decade of the '30s. So, here you had 100 years when basically the US citizenry was getting was improving their lot decade by decade by decade. The '30s, it was up 13%. Uh, best decade was World War II, like the '40s, it's up So, you get sometimes the analogy, yeah, you can get in trouble on analogies, but in any event, it was a it was a huge period.
Interestingly enough, there were six big periods in there for the stock market in both directions. There were three big bull markets. From 1900 to 1921, the Dow went from 66 to 71, less than a 10% move in 20 years, less than half a percent a year. You got dividends too, but a half a percent So, it didn't move. From '21 to '29, as you point out, it went it went from 71 to a high of 381 in September of 1929. Went up 500%. Well, obviously, the Well-being of the country didn't go up 500% during that period. And the Well-being of the company country went [clears throat] up a whole lot more than 10% during that first 21 years. So, you have this very uneven development.
Then from 19 From September 1929 until the end of 1948, the Dow went from 381 to about 180. It was cut in half. And that was 18 long years. And yet, the per capita GDP was moving right up during this whole period. So, the economy was doing fine. From '48 to '65, the Dow went again from about 180 up to close to 1,000. Again, five for one, which was far outstripping it. From '65 to '81, the Dow went down, literally, while again per capita GDP. And then we've had this last period where it's gone up terrifically.
If you take the whole 100 years, it went up 180 for one. Every $1,000 became $180,000. But 43 and a quarter year 43 and three quarters years were those three big, huge bull markets, and 56 and a quarter years were periods of stagnation. All in an economy that was doing fine, you know, year after year after year. 56 and a quarter years, net the Dow was down a couple hundred points during that period. And the other 43 and three quarters years made up the rest of this move from '66 to 11,000 some on the Dow. So, you can say to yourself, how could it be that you could have a country that was doing better and better and better and better? Citizens were living every Every generation was living better than the one that preceded it. But you had these huge changes. Big gains a few times, long periods of stagnation. 20 years, I mean, that's a long time to do nothing.
The answer is that investors behave in very human ways, which is they get very excited during bull markets and they look in the rearview mirror and they say, "I made money last year. I'm going to make more money this year, so this time I'll borrow, you know, or or the neighbor says, you know, I wasn't in last year when that neighbor was dumber than I am made a lot of money, so I'm going to go in this year." So, they're always looking in the rearview mirror. And when they look in the rearview mirror and they see a lot of money having been made in the last few years, they plow in and they just push and push and push on prices. And when they look in the rearview mirror and they see no money having been made, they just say this is a lousy place to be. So, they don't care what's going on in the underlying business. And it's it's astounding, but that's that makes for huge opportunity. Just huge opportunity.
I mean, I lived through roughly half in an investing sense about half that period. And I've had that long period of stagnation from '48, I mean, from '65 uh to '82, 17 years. I wrote an article for Forbes in 1979. I just said, "How can this be?" Pension funds in the in 1970 put 100 and some percent of their new money in stock cuz they were wild about stocks. Then they got a lot cheaper and they put in a record low in 9% of their net new money in in 1978 when stocks were way cheaper. People behave very peculiarly in in in terms of the reactions because they they're human beings and they they get excited when others get excited, they get greedy when others get greedy, they get fearful when others get fearful. And they'll continue to do so. And you will you know, you will see things you won't believe in your lifetime in securities markets. And the country will do very well over time, but you will see these huge waves and and and uh if you can stay objective throughout that, if you can detach yourself temperamentally from the crowd, you get very rich. And you won't have to be be very bright. I mean, it I'm sure you are, but but you won't you know, it just it doesn't take brains. It takes temperament. It [clears throat] takes the ability to sit there and look at something when I started out in 1950. I would go through and find things at two times earnings, and they were perfectly decent businesses, and people wanted jobs at those companies, and everybody knew they were going to be around. And they wouldn't buy them at two times earnings, and that's when interest rates were two and a half percent.
You know, I went to the I started selling securities when I was 21. And a Kansas City Life Insurance Company happened to be fairly prominent company in Omaha. And the policies they sold you, if you were buying life insurance from them, had a built-in assumption of 2% interest. The stock of Kansas City Life was selling at less than three times earnings. You were getting 35% if you bought the stock. No question about the soundness of the company. I went to the local agent. I thought I figured hell, I ought to be able to sell him a few shares of stock. I mean the guy don't understand it. I mean he's got his whole life invested in this company. I went to the local agent, who'd been with him for 20 years, and his name was Moose. I said, "Mr. Moose," I said, "you know, you're selling these policies with 2%. You may even have a few on members of your own family, and you can buy into this company whose paycheck you depend on every month, and you and whose future you your your beneficiaries of these life policies depend on, and who you're selling them, you know, 2% [clears throat] investment on, and you can get 35% on your money." And he said, you know, "Stocks aren't any good." And then I couldn't I couldn't sell the you know, I was a lousy salesman. I mean, it well, you have to start with that, but but it it just blew me away. It blew me away. I thought this Sometimes I used to wonder if I was nuts, you know, and that but those things the same thing happened.
I mean, in 19 64, the Dow closed at 8 864. At the end of 1981, 17 years later later, it closed at 865. It moved one point in 17 years. Now, that's not a big move. That you you can't believe the how how discouraged people were by that by during that period. But, you know, people were living better. But, so things can go on a long time that don't make sense. And but they do come to an end. I mean, the internet thing. I mean, you had these companies selling for many billions of dollars that had no really practically no prospects of making any money. That That's a That's a bubble. But, Herb Stein one time said, "Anything that can't go on forever will end." Now, that's pretty But, think about that. And particularly think about it next time you're inclined to do something just cuz the stock's gone up a whole lot, you know, your neighbors made money or something. It You've got to be You just have to sit [clears throat] and think objectively and think about would I buy this whole business? If it's an internet company, it's got 100 million shares out and selling at 100, that's 10 billion dollars. Is it worth 10 billion dollars? If it's worth 10 billion dollars, it's got to be able to give you, you know, 7 or 800 million next year. And if it doesn't give you 7 or 800 million next year, it has to give you maybe 10% more than that the year after and continue to have There are a lot of businesses that can do that. And people just go crazy. And of course, it's fun. I mean, it's you know, it's like that sign they they put in brokers' offices that says, "Avoid hangovers, stay drunk." You know, I mean, it's it's just so much fun to keep buying. But, you you got to you got to do sensible things to get to get good results.