Over the years, Charlie [Munger, Berkshire Hathaway Vice Chairman] and I have observed many accounting-based frauds of staggering size. Few of the perpetrators have been punished; many have not even been censured. It has been far safer to steal large sums with pen than small sums with a gun.
I bought my first stock in 1942, in the summer of '42. I was 11 years old. And so 75 years have gone by. And I have never known what the market's going to do the next day. And that's not my game. My game is to decide whether I'm in the right economy, which America's definitely been ever since that time. The Dow has gone from 100 to 21,000 during that time. And no matter what the headlines say, or terrible things are happening - we were losing the war in the Pacific when I first bought stocks.
But 300 million Americans, their lending institutions, their government, their media, all believed that house prices were going to go up consistently. And that got billed into a $20 trillion residential home market. Lending was done based on it, and everybody did a lot of foolish things.
We've used up a lot of bullets. And we talk about stimulus. But the truth is, we're running a federal deficit that's 9 percent of GDP. That is stimulative as all get out. It's more stimulative than any policy we've followed since World War II.
Long ago, Ben Graham taught me that "Price is what you pay; value is what you get." Whether we're talking about socks or stocks, I like buying quality merchandise when it is marked down.
The most common cause of low prices is pessimism - some times pervasive, some times specific to a company or industry. We want to do business in such an environment, not because we like pessimism but because we like the prices it produces. It's optimism that is the enemy of the rational buyer.
As I have mentioned before, we cannot make the same sort of money out of permanent ownership of controlled businesses that can be made from buying and reselling such businesses, or from skilled investment in marketable securities. Nevertheless, they offer a pleasant long term form of activity (when conducted in conjunction with high grade, able people) at satisfactory rates of return.
Managers thinking about accounting issues should never forget one of Abraham Lincoln's favorite riddles: How many legs does a dog have, if you call a tail a leg? The answer: Four, because calling a tail a leg doesn't make it a leg.
I mean, we'll be pounding on the guy's chest, you know, on the floor, and you know, he's not going to just jump up all of a sudden. So it makes it tough. I mean, it's tough to be in the legislature, you know, and vote for something and then people say, well, you voted all this money and you know, it's all getting spent. It isn't getting spent. It's getting invested. But it's all getting spent. Nothing's happening.