Billionaire investor Warren Buffett is known for making savvy financial decisions that have made Berkshire Hathaway (NYSE:BRK-A) (NYSE:BRK-B) shareholders rich. But Buffett turned some heads recently when he predicted that former Secretary of State Hillary Clinton would run for the Presidency and win in 2016. The prediction raised a typical flurry of partisan responses on the political front, ranging from acknowledgements of Buffett's past support of Clinton to attacks on why the Berkshire CEO is making political comments at all.
Whether Buffett's prediction will be proven right depends on political considerations that are well beyond my expertise as a financial writer. But when it comes to past predictions, Buffett has put together an impressive track record, and those who're apt to doubt his foresight should look hard at the following examples of his prescience before taking the other side of his offered wager on the 2016 race. Let's take a look at three of Buffett's most famous predictions.
1. Buffett in 1974: Now is the time to invest and get rich.
During the 1970s, the U.S. economy was struggling through the first OPEC-induced oil-price shock, which caused crude prices to quadruple and sent America into a long recession. At the same time, high energy prices filtered throughout the financial system, leading to high inflation that would have left today's interest rate policymakers at the Federal Reserve in an irresolvable quandary about how to proceed through what has since been dubbed "stagflation." The stock market crashed by more than 40% during 1973 and 1974.
Despite the dour mood, Buffett emerged at the end of those two years with his first popular market call. Buffett didn't mince words, saying, "Now is the time to invest and get rich." As it turned out, Buffett had almost perfect timing, giving those who heeded his call a better than 30% gain the following year. Moreover, even though inflationary pressures persisted throughout the decade, Buffett's long-term approach put his investors in good position to reap the benefits of the huge bull market from 1982 to 1999.
2. Buffett in 1999: Average annual returns of 4% through 2016 will be much lower than most investors thought.
In late 1999, at the very end of the tech-boom-led bull market of the 1990s, Buffett flew in the face of optimistic sentiment in nearly every corner of the investing world. Rather than suggesting that the decade's strong returns would continue indefinitely into the future, Buffett rationally looked at the most likely path of fundamental factors like interest rates, corporate earnings, and overall economic growth. His conclusion: barring unprecedented conditions in the financial markets, stocks were doomed to much weaker returns than they had seen since the recessionary stock market bottom in 1982.
Admittedly, it's too early to declare victory on a prediction about 2016. But when you look at the S&P's average returns over the past 16 years, you'll find that they amount to about 2% annually, if you assume that the value of dividends exactly offsets the impact of inflation over that timeframe. Put another way, for the market to reach even Buffett's lowball prediction of growth, the S&P 500 (SNPINDEX:^GSPC) would have to climb to 2,750 within the next two years -- or a 40% to 50% gain from current levels. That's far from impossible, but it makes it most likely that Buffett will have been right to question even more ridiculously bullish assessments at the peak of the tech-boom hysteria.
3. Buffett in 2008: It's time to buy stocks.
By contrast, Buffett returned to his more bullish ways when stocks collapsed during the financial crisis. In a prescient article in the New York Times, Buffett declared that he was moving his personal portfolio out of Treasury bonds and into stocks, arguing that "equities will almost certainly outperform cash over the next decade, probably by a substantial degree."
Again, with four more years left to run on that decade, it's premature to assert that Buffett's predictive ability in this case. Yet even after the pullback over the past couple of weeks, the S&P 500 has doubled from its levels nearly six years ago, while near-zero interest rates have left fearful investors in the dust.
Warren Buffett's prediction about Hillary Clinton wasn't his first foray into the political realm, and given how difficult it is to make smart guesses about politics, critics might feel confident in their questioning of the Oracle of Omaha's call. Yet at least with his investing predictions, Buffett has demonstrated an uncanny ability to predict the future accurately -- and to make his shareholders wealthy in the process.
Dan Caplinger owns shares of Berkshire Hathaway. The Motley Fool recommends Berkshire Hathaway. The Motley Fool owns shares of Berkshire Hathaway. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.