Speculation

AUDIENCE MEMBER: Good morning, gentlemen. Wayne Peters. And where I come from our ladies are referred to as birds. (Laughter) And I’m sure I know a lot that would trade one in the hand for two in the bush — (laughter) — irrespective of the interest rate. (Laughter) I have two small questions. Firstly, with the speculation, and some would say rampant speculation, in the high tech and internet arenas, could you share your views on the potential fallout from the speculation for the general economy? And secondly, how long did it actually take you to perfect that curveball, and are we going to see it tonight? WARREN BUFFETT: The — I don’t think I want to give anything away about my pitches tonight. (Laughter) Ernie Banks may be in the audience, I know he’s in town, and I just can’t afford to do that. But you’ll see it tonight, and you can describe it anyway you’d like. The question about the high tech stocks and possible fallout, any time there have been real bursts of speculation in the market, you know that — it does get corrected, eventually. Ben Graham was right when he said that in the short run it’s a voting machine, and the long run it’s a weighing machine. Sooner or later, the amount of cash that a business can disgorge in the future governs the value it has — that the stock commands — in the market. But it can take a long time. And, I mean, it’s a very interesting proposition. For example, if you take a company that, in the end, never makes any money, but trades — changes hands — representing a valuation of 10 or $20 billion for some time, there’s no wealth created.

And Keynes wrote this 1936 — it says 1939 on the slide, but he wrote it in 1936 in “The General Theory” — that, you know: “Speculators may do no harm as bubbles on the steady stream of enterprise. But the position is serious when enterprise becomes the bubble on a whirlpool of speculation. When the capital development of a country becomes a by-product of the activities of a casino, the job is likely to be ill-done.” Well, the stock market — we’ve had a lot of people in the casino in the last year. You have millions and millions of people have set up accounts where they day-trade, where they — where they’re selling puts and calls, where they — I would say that you had the greatest increase in the number of gamblers, essentially, that — and there’s — you know, there’s nothing wrong with gambling. They got better odds than they’ve got if play the state lottery. But they have cash in their pocket. They’ve had action. And they actually, you know, have a lot of good results.