I expected Alice Schroeder's biography of Warren Buffett, The Snowball, to provide many investing insights. Buffett is an "oracle," after all. Page 17 is among the first that I dog-eared. It describes a well-known talk Buffett gave in 1999 to business and cultural luminaries at Herbert Allen's annual Sun Valley conference. I took a lesson from this story that perhaps you haven't thought about.  

One of the main takeaways was Buffett's dour expectations of the market's near future. In 1999, the recent past of the S&P 500 looked like this:

  • 1995: up 38%
  • 1996: up 23%
  • 1997: up 33%
  • 1998: up 29%

People were clearly used to seemingly unstoppable growth. But Buffett pointed out that the Dow Jones Industrial Average at the end of 1981 was at 875, pretty much equal to its value at the end of 1964. He suggested that over the coming 17 years, the stock market might return an annual average gain of just 6%. Many guffawed, at least to themselves, and enjoyed another 21% gain in the S&P 500 in 1999. But look what came next:

  • 2000: down 9%
  • 2001: down 12%
  • 2002: down 22%

Maybe Buffett was onto something, eh?

And another thing ...
I noticed another lesson in the story, though, one that you don't hear as much about. You see, Buffett had pointed out that between 1964 and 1981, while the Dow might not have experienced a net gain, the overall economy grew fivefold. That's a critical point to remember: The stock market doesn't necessarily reflect the economy. But if the economy is growing, the stock market will eventually catch up. Indeed, many up years followed in the market, with the S&P 500 advancing more than 25% in 1985, 1989, and 1991.

And get this -- even when the market didn't move much, many stocks did. Consider how these stocks did from late 1971 to late 1981, despite the Dow dropping a few points during the period:


Average Annual Gain, 1971-1981

Boeing (NYSE:BA)


Altria Group (NYSE:MO)


McDonald's (NYSE:MCD)


ExxonMobil (NYSE:XOM)


Honeywell (NYSE:HON)


Procter & Gamble (NYSE:PG)


General Electric (NYSE:GE)


Data: Yahoo! Finance. Returns from Dec. 23, 1971, to Dec. 24, 1981.

So no matter what the stock market is doing, remember that if the economy is growing or you expect it to grow, stocks should eventually follow suit. And in any market, you can find some bargains. We'd love to point you to some now -- during this, possibly the best investing opportunity of the past 35 years.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.