Berkshire Hathaway 2013 Annual Meeting Audience Question # 38

Warren and Charlie have never made an investment decision based on a macro economic forecast

Warren Buffett:

OK. Carol?

Carol Loomis:

This question is from Benjamin Knoll of Greater Twin Cities United Way.

“Every time Bill Gross writes a new essay on the, quote, ‘new normal,’ unquote, I get more depressed about the prospects for my retirement.”

“Do you share his view that market returns in the next few decades will be much lower than in the past few? And should we expect Berkshire’s future market returns to be greatly constrained, not only by its size, but also by much lower equity returns overall?”

Warren Buffett:

Yeah, Charlie and I don’t pay any attention to macro forecasts.

We have worked together now for 54 years, and I can’t think of a time when we made a decision on a stock, or on a company, where a macro discussion… where we’ve talked about macro.

We don’t know what things are going to look like, in any precise way. And, incidentally, naturally, we think if we don’t know it, nobody else knows. That’s the conceit that we have.

And… so we… you know, why talk… why spend time talking about something you really don’t know anything about? I mean it… people do it all the time, but it not very productive. So we talk about the businesses.

I like Bill Gross. Sounds like Lloyd Bentsen, you know, back in the… he’s a friend of mine.

But I don’t… it doesn’t make any difference to me what he thinks about the future, doesn’t make any difference to me, you know, what any economist thinks about it.

I have a general feeling that America will continue to work well. And I don’t… you know… there’s… throughout my adult lifetime, and before that, there’s always been all kinds of opinions that, you know, about what’s going to happen this year or the next year or anything like that.

And nobody knows.

What you do know, with a very high degree of certainty, in my view, is that BNSF will be carrying more carloads 10 years from now, 20 years from now; that there will be no substitute for the service that they provide; that there will be two important railroads in the west and two important railroads in the east; and that they will have an asset that has incredible replacement value, nobody could turn out something like it, and that they’ll get paid fairly for what they do.

It’s not very complicated.

And to ignore what you know because of predictions about what you don’t know, or what nobody else knows, in our view, it’s just plain silly.

So we don’t have anything against somebody talking about a new normal or an old normal or an in-between normal, but it doesn’t mean anything to us.

My own guess is that people will do very well owning good businesses, if they don’t pay too much for them, you know, whether they hold them for 10 years or 20 years or 30 years.

And if they try and time their purchases in some way by listening to forecasts about what’s going to happen in business and try and buy and sell them, they’re going to do very well for their broker and not so well for themselves.


Charlie Munger:

Yeah. But, of course, Warren, we have a lot of money. We have to do something with it. So we’re going to do our thing no matter what the external climate is.

If you’re a busy surgeon and trying to decide whether to work two more years before you retire, then you may be more interested, and rationally so, in the new normal.

And I would personally advise the guy to work an extra couple of years.

In other words, I kind of agree with Bill Gross.

Warren Buffett:

What do you think the normal is?

Charlie Munger:

Well, less than we’ve enjoyed in our lifetimes, the new normal.

Warren Buffett:

What have we enjoyed in the last 10 years? I mean, you know…

Charlie Munger:

It hasn’t been so bad.

Warren Buffett:

No. And it hasn’t been…

Charlie Munger:

It’s not nearly as good as it was in the first 30.

Warren Buffett:

Yeah. And do you think it would be worse than the average of the last 10 years?

Charlie Munger:

I think that’s quite a conceivable outcome.

Warren Buffett:

So take your pick. OK.

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