Regards, Ivan
Posted on 09/27/2002 11:03:01 AM PDT by MadIvan
The "mass hallucination" that gripped the world's stock markets during the tech boom is ending, the US investment guru Warren Buffett has told the BBC.
He said the markets were now "more realistic" compared with the share bubble of a few years ago, when investors ignored common sense and started "dreaming".
Mr Buffett added that the hallucination had led to an erosion of accounting standards, which erupted so damagingly over the past few months.
And he said investors should take a long-term view with their money if they wanted to be successful.
Track-record
Warren Buffett has become one of the world's most successful investors through his company Berkshire Hathaway.
His strategy has been to concentrate on buying stakes in undervalued companies and then holding the shares for many years, rather than seeking to make a quick gain from speculative trading.
During the tech boom of the late 1990s Mr Buffett was criticised for not investing in internet companies and consequently missing out on the large share increases seen at the time.
'Crazy prices'
In an interview with the BBC, Mr Buffett said most of the froth of the tech boom years had now gone.
"When you have a market value of $20bn-30bn on a company that's just a gleam in the eye of someone I think hallucination fits the phenomenon.
"Businesses were sold at somewhat crazy prices, but that's over with now and I think it'll stay over with for a while."
When asked why people had acted in such a way he said people "go mad in crowds - they lose their ability to see what's right in front of them".
"People behave like lemmings in certain cases - when money is involved there's that desire to believe."
No easy fix
He said he had no solution for private investors who had made big losses when the market collapsed.
"Unfortunately the people who got in a few years ago were paying bubble prices for securities and they weren't alone - the small investor and the professional were doing the same thing.
"If you pay the wrong price for something there's no cure - that's true if you're buying businesses, commodities, homes or anything else.
Soaring stocks led to scandal
The "hallucination" in the market contributed towards the recent corporate scandals seen in the US, such as Enron and WorldCom.
Mr Buffett said standards were "eroded".
"When people get very happy anything goes to some degree and accounting deteriorated... management stuck their hands further and further into the cookie jar and there were real abuses," he said.
"Generally speaking American CEOs are able and they're decent people but when they saw someone else making $30m instead of their $3m they didn't ignore it."
Long-term view
Mr Buffett said he did not know what effect a war with Iraq would have on the markets or the economy and said investors should try and avoid looking at short-term factors.
"You're taking your eye off the ball if you're looking at specific events, in terms of either business or markets.
"You can't time those things and you can't know exactly how they'll work out."
And he urged investors to look for value and invest for the long-term.
"In the end if [people] buy good businesses at the right price they will do wonderfully."
Regards, Ivan
In the land of the blind, the one-eyed-man is king.
It is therefore easy to predict that telecom will be even cheaper in 4-8 months than it is now. Who would buy today if further bloodletting is certain?
Either Lucent or Nortel will go, however. I'm inclined to think that it's Nortel, but both companies have ~$4B of cash left to waste, so it won't be six months. Maybe a year.
In the areas of investment and common sense, I'm a big Buffett fan. His political stands are utopian, unrealistic, and dreamy.
That doesn't stop me from appreciating his investment acumen and plain old folksy humor. I think my favorite is when an interviewer asked him "Mr. Buffett, after you've died, what would you like people to say about you?". He thought for a minute, and replied, "God--was he old!".
For a minute, I thought you wrote (SAGE OF OSAMA ALERT).
Well, never mind, carry on.
"10% inspiration, 90% perspiration" was Thomas Edison's philosophy. From what Buffet says, he works harder than a lot of other researchers, and does'nt try to make $$$ in a business he does'nt understand.
He has actually achieved genius status in my book,by simply grasping his own limitations and being comfortable with them.
The adage states invention is "1 percent inspiration and 99 percent perspiration." and was said by Edison. So you get half marks.
At any rate, common sense is so novel these days, it makes headlines.
Or to put it more simply: as my grandfather said - "Common sense is not common."
Regards, Ivan
There might be company named Ericsson in a year, but without chips, wireline, or broadband. And its an open question if 3G will get built before all of Ericsson's 3G products are obsolete. If there is a rescue, it will be radical.
That said, Nortel will crash first.
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