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  • It is gravity. I mean if you told me  

  • interest rates were going to be fifteen  percent next year on bonds.

  • There's a lot of equities I wouldn't want to own.

  • Part of the reason that you've been so bullish on equities for many years at this point is  

  • the interest rate environment. You've looked at interest rates and said interest rates are gravity  

  • on stock prices. And when interest rates are so low, stock prices inevitably are going to climb.

  • There's been this really weird thing that's been happening in the markets. Where all of a sudden good news  

  • that we got from a good jobs report made people start to worry that interest rates were going to  

  • climb, and that the fed was going to raise rates more than anticipated. People got really nervous  

  • around that you can still see it every time we get up on the 10-year back towards three percent

  • It gives investors or at least traders I should say, some concerns about what's happening.  

  • If you buy a 30-year government bond it has a whole bunch  

  • of coupons attached in the old days. But it has a whole bunch of coupons  

  • The coupon says three percent or whatever. It may say and you know that's what you're going  

  • to get between now and 30 years from now. And then they're going to give you the money back.  

  • What is a stock? A stock is the same  sort of thing, it has a bunch of coupons.  

  • It's just they haven't printed the numbers on them yet, and it's your job as an investor  

  • to print those numbers on. If those numbers say ten percent, and most American businesses earn  

  • over ten percent on tangible equity. If they say ten percent, that bond is worth a hell of a lot  

  • more money than a bond that says three percent on it. But if that government bond goes to ten percent,

  • it changes the value of this equity bond that in effect you're buying. You are buying when you  

  • buy General Motors or Berkshire Hathaway or anything. You are buying something that over time  

  • is going to return cash to you. Maybe a long time in terms of Berkshire, but it'll be bigger numbers.  

  • And those are the coupons and it's up to you, your job as an investor to decide what you think those  

  • coupons will be because that's what you're buying. And you're buying the discounted value of it.

  • And the higher the yardstick goes, and  the yardstick is government bonds, the  

  • less attractive these other bonds look that, and  that's just fundamental economics. So in 1982,  

  • when the long government bond got to 15 percent, a company that was earning 15 percent on equity,  

  • worth no more than book value under those circumstances. Because you could buy a 30-year strip

  • of bonds and guarantee yourself for 15% a year, and a business that earned 12%  

  • was a sub-par business then. But a business that earns 12%, when the government bond is 3%  

  • is one hell of a business now, and that's why they sell for very fancy prices. So three percent is a  

  • long way from fifteen percent that you were just talking about. But and I watched it go from three  

  • to fifteen though too. Right, is there an inflation point on that way, because people think oh my gosh  

  • we've gone from 2.4% to 2.9% and that's a big differenceThat's not much.

  • Historically speaking, that's still  the way we should be measuring these things  

  • not on the absolute movement, or the percentage gain movement over time? 2.4% to 2.9% is nothing if  

  • you're comparing it with businesses that earn 12% on equity and reinvest. In the S&P, you can just look at

  • the figures. For decades has earned on tangible equities earned a lot more than that, and it  

  • translates into more higher prices than it should. Is there a tipping point along the  

  • way or is it a gradual decline? Nobody knows yeah but it's it is gravity.  

  • I mean if you told me interest rates  were going to be 15% next year on bonds,

  • there's a lot of equities I wouldn't want  to own now, and I would buy  

  • a lot of governments at 15% and I kind of wish I had in 1982, but I didn't. If I told you that the  

  • long bond was going to trade at four and a half to five percent next year. It makes a difference but  

  • it's been idiotic to own long bonds. During the last you know I talked about this in the report  

  • It's just been idiotic. And big public  pension funds and all that they sat there, and they  

  • own bonds now they may have bought them onfour or five percent basis, but if they go to a  

  • three percent basis, there're selling way above  but that the way people think about it is  

  • that they do some very silly things. I mean you lay this out in the annual report but a  

  • lot of investors are told, retail investors are told that they should have a certain percent  

  • of their portfolio in bonds, maybe they're told 60% 40%, maybe they're told 70% 30% stocks to bonds  

  • that's something that you should do and that's the safe way of doing it. What are they missing?

  • Some people should not own stocks at all, because they just get too upset with price fluctuations if  

  • you're going to do dumb things because a stock goes down, you shouldn't own a stock at all  

  • What are dumb things? Selling a stock cause it goes down? Yeah selling a stock because it goes down. I mean  

  • you know, if you buy your house  at twenty thousand dollars and somebody  

  • comes along next thing says I'll pay you 15. You don't sell it because the quote's 15.  

  • You look at the house or whatever it may be. But some people are not actually emotionally  

  • or psychologically fit to own stocks, but I think they're more of them would be, if you get educated  

  • on what you're really buying which is part of a business. And the longer you hold stocks the  

  • less risky they become, whereas the longer the maturity of a bond, the more risky it becomes

  • Do you feel like that's a message that is getting through to people it's one that you repeat again  

  • and again and I always feel like I was watching a lot of the Olympics, and I felt like what they  

  • do in the Olympics is so easy. These guys sailing through the air and doing massive spins on the ice  

  • and turns, and then I read your annual letter and I think oh it's really easy to invest, and then I  

  • walk away and realize it's not that easy. It's not easy psychologically for many people but I've been teaching since I was 21. I told my first class on investments and I had a  

  • class last week, with 11 schools 220 students, and some of them get it and some of them don't  

  • People would rather gamble, I mean the idea that you can double your money in six months that  

  • that's just going to it's why people go  to the races, why they go to Vegas you know  

  • Whatever it may be, they even know  the odds are against them and they still do it  

  • I mean it's a strong instinct to want to  get rich fast, and I don't know how to do it

It is gravity. I mean if you told me  

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Are Interest Rates Gravity on Stock Prices? | Investing 2022 | Inflation | Warren Buffett

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    鄭景鴻 に公開 2022 年 02 月 26 日
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