Warren Buffett on the Possibility of Dow 8,000 ... and 100,000

The market seems to be recovering from yesterday's bout of jitters linked to Ukraine and China, with the benchmark S&P 500 and the narrower Dow Jones Industrial Average (DJINDICES: ^DJI  )  both up 0.25% at 10:15 a.m. EDT. Meanwhile, Berkshire Hathaway CEO Warren Buffett (NYSE: BRK-B  ) appeared on CNBC this morning to offer his considered, long-term business owner's perspective on the stock market and other topics.

When CNBC host Becky Quick asked whether investor fears linked to China and the Ukraine were warranted, Buffett had a categorical response:

They're not warranted in terms of the market. I didn't sell my farm yesterday – I wrote about it -- I didn't sell my property down there near NYU, so why should I sell my businesses?

Meanwhile, with some pundits warning of a possible stock market bubble and assorted doomsayers crying that we are on the verge of another crisis on the order of (or worse than!) what happened in 2008, Buffett emphasized just how dire things were then -- and why the crisis won't be recurring soon:

[Another 2008] will happen again someday, but we're not remotely close to it happening now, but it will happen again someday -- it won't happen in the same way. ... That was some period and we talked about it at the time, but even at the time I said it was an economic Pearl Harbor -- I wasn't strong enough in terms of what was going on. ... Humans will behave in crazy ways, both on the upside and the downside in the next 50 years. It's very unlikely they do it in the next few years because after something like 2008, once they get out of the emergency room, they're a little more careful for a while.

On the whole I agree, but I would simply note that Buffett may be underestimating the effect of bad incentives on investor behavior. The Financial Times reported Wednesday that "a majority of new leveraged loans come in 'cov-lite' form, eclipsing the 29 per cent reached at the height of the leveraged buyout boom just before the global financial crisis." ["Cov-lite" refers to loan terms that contain little protection for investors.]

Asked by CNBC host Joe Kernen whether he would be flabbergasted if stock markets around the world would halve in value, Buffett responded:

That would surprise me a lot. It'll happen again, but not from this level. ... Someday, you'll see 100,000 on the Dow; I won't, but you will. During my lifetime, I saw it cross 100 both ways at one time. I've had four times in Berkshire's history where Berkshire's gone down 50%.

Finally, on the economy, Buffett is patiently optimistic:

I've been reasonably bullish ever since the fall of 2009 and I got bullish on stocks earlier just because they fell so far. The trajectory still looks to me just pretty steady. I don't have any reason to think 2014 is going to be some breakaway year on the upside. ... Everything I see in our businesses is that they're continuing to increase at about the same trajectory as before.

One theme that crops up throughout the discussion is the importance of temperament. In business-related matters (and this naturally includes investing), stick to a rational analysis of the available evidence and keep your emotions in check when it comes time to make a decision. It has worked for Buffett and it can work for you.


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