'Market is not overvalued if 2 conditions are met' by Warren Buffett [C:W.B Ep.102]

Blog Link: https://www.yapss.com/post/collection-warren-buffett-102-investing-market-is-not-overvalued-if-2-conditions-are-met

(Note: questions were asked in 1998)
In this episode, Warren Buffett was asked on whether the U.S.A. market is overvalued and would he buy Berkshire Hathaway stock, considering the fact that they’ve had a nice ride up already during 1998? And if yes, what would he recommend to buy A share or B share, or the combination?

In this episode, you’ll learn:
- 2 conditions to determine whether the market is not overvalued.
- What is the difference between BRK A and B shares.

#WarrenBuffett #CharlieMunger #BerkshireHathaway

[Transcript]
(Source: https://buffett.cnbc.com/video/1998/05/04/afternoon-session---1998-berkshire-hathaway-annual-meeting.html)
~ Please visit the site above for full video of Berkshire Hathaway Annual Meeting.

AUDIENCE MEMBER 00:09
My name is Samuel Wong from Irvine, California. I have two questions.

Question number one, do you think the U.S.A. market is overvalued today? And question number two, would you buy Berkshire Hathaway stock today, considering the fact that they’ve had a nice ride up already this year?

And if yes, presuming I have a kid, 20 years old, and he has $150,000 to invest in Berkshire Hathaway, and you won’t need the money until five years later, gradually, would you recommend to buy A share or B share, or the combination? Thank you.

WARREN BUFFETT 00:53
If you decide to buy Berkshire, I don’t think it really makes much difference whether you buy A or B. But we don’t make any recommendations about whether people buy or sell Berkshire. We never have and that’s a game we don’t want to get into.

In terms of — overvalue — the question whether the market’s overvalued, generally, it’s simply as we said last year here in the annual report. It’s not — the general market is not overvalued if two conditions are met, which is — in our view — which is that interest rates remain at or near present levels or go lower or — and that corporate profitability in the U.S. stay at the present — or close to the present — levels, which are virtually unprecedented.

Now, those are a couple of big ifs, as we pointed out. A lot of the stories that came out after the annual report would emphasize one aspect or another but it’s simply — and they say, “What does he mean by that?” Well, it means exactly what I say. If the two conditions are met, I think it’s not overvalued. And if either of the conditions is breached in an important way, I think it will turn out to be overvalued. And I don’t know the answer, which is why I put it in the form that I did.

It’s very tough at any given time to look forward and know what level of valuation is justified. You do know when certain dangerous things appear, and certainly if you’re predicating your answer that stocks are OK at these prices — if you come to that conclusion — you have to also come to the conclusion, in our view, that corporate earnings, at present levels, are likely to be maintained. And that’s a conclusion you would have to come to. I don’t think it’s obvious that that’s the case.

Area 10, please.

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