CM in MA

Buffett: The Impossible Expectations of Stock Performance

tkenyon, you're absolutely right on all counts. I will point out, though, that due to the way the Dow is calculated, talking about returns on that index is a meaningless exercise. Btw, I was being facetious about Buffett selling puts--I guess it did not come across as intended. Sorry. As I wrote, it seems to me that Buffett is having some fun with us. cm

Buffett: The Impossible Expectations of Stock Performance

Gary, thanks for posting Warren's thoughts on at least one index return. It helps explain why he's not a passive index investor. It seems Warren is having some fun with us, and I believe he knows it. Putting it kindly, the Dow (DJIA) is a flawed index. At the risk of exaggerating, simply split the prices enough times and have each component go up a buck and the Dow would skyrocket. The DJIA is an artifact that gets reported because everyone is comfortable with it. That said, let's look at a real index, the S&P 500, through the lens of Warren's thoughts. From 1950 to year-end 2000, the S&P 500 (adjusted for splits/dividends) went from 16.66 to 1320.28. This is an annualized return of 8.95% for those 51 years. If the S&P 500 achieved the same record throughout this century, it would finish the year 2100 at roughly 6,972,515. Given the first seven years of the decade, it'll need to turn in a 9.66% annualized rate for the remaining 93 years. Can the 8.95% over time be repeated in the future? There's not one person who knows, including Warren. There's also not one person who knows if it can't do this, but history shows that at least it has. I wonder, though, why he's selling puts on indexes out to the mid-2020s. Could it be that he understands the bias towards upward moves, if only due to inflation? Perhaps he's just an optimist. As for his own holdings, he believes he can consistently find companies that can return an annualized 15% on equity, which if fully reflected in the price of the stock would also be an annualized return of 15% or more. Again, helps to explain why he doesn't want the drag of the rest of the index. I think Warren is great, and I wish I could invest as well as he has, and does. But he knows, as well as we do, that just because a number is large it isn't invalid or impossible to achieve. Want proof, look at the price of Berkshire stock. Back in 1969 who'd have ever thought that was possible.