Surprise! Warren Buffett turns out to be more prior to stock than politics

As many millions of people recently recalled, Warren Buffett, CEO of Berkshire HathawayHe does not always call them well. He predicted that Hillary Clinton would run for the presidency and win two years ago, and he never lost his faith in this perspective until the election night.

On this day two weeks later, however, it is the right time to look at a widely values ​​market prediction that Buffett did 17 years ago in 1999, and only reaches its terminal point. Here, Buffett was definitely on the right side of the bet.

Buffett’s prediction referred to what magnitude of total returns – passing the valuation plus reinverted dividends – United States investors would obtain in the 17 years that began in 1999. Buffett made the prediction of July of that year in a speech he gave at a conference Allen & Co.; He repeated it in several speeches in the coming months; and worked with this writer to turn speeches into a Fortune item, “Mr Buffett on the Stock Exchange” This worked at the number on November 22, 1999. You will notice that today is precisely 17 years later.

Why this weird weather of 17 years? Buffett was attention because in 1999 the U.S. values ​​market has just finished two periods of 11 years and aberrant, 17 years old, Buffett realized that it could be the framework of a speech. He also wanted to be based on the framework, adding a prediction during the 17 years that began in 1999.

The 17 -year initial period that Buffett had in its frame of reference went from 1964 to 1981, when the performance of the securities market was traumatively bad: the Dowry The Industrial average of Jones ended in 1964 to 874 and 1981 to 875. “I am now known as long -term investor and a patient,” said Buffett’s appointment. Fortune Article, “but this is not my idea of ​​great movement.”

The simplified explanation for this aberrant investment disaster was a dramatic increase in interest rates during the period: long -term government bond rates went from 4% to 1964 to more than 15% in 1981. Inevitably, as Buffett wrote FortuneIncreased interest rates are a drag for equity prices. During this particular period of 17 years, the drag was strong enough to overflow an almost GDP qualifications in the country, an economic indicator that would have normally been accompanied by roar gains for the stock market.

Then came the second period of 17 years, from the end of 1981 and extended until 1998. In those years, the President of the Federal Reserve, Paul Volcker, reduced interest rates and types of inflation. In response, actions increased strongly. And over time, the corporate benefits, “not constantly”, said Buffet, “but still, with real power.” The Dow, in that 17 years, increased more than ten, from 875 to an impressive 9,181.

Then, surprisingly, most investors did not think about Outliers. Instead, they were safe, out of a doubt that they were bright in the collection of stocks and was entitled to the riches they accumulated. A survey by Paine Webber and Gallup Organization was published in July 1999, when the Dow had added 2000 points, found that less than five years old, invested in investors for less than five years, waiting annually for the next 10 years of 22.6%. Those who had invested for more than 20 years expected 12.9%.

Well, Buffett said, as he summarized his views in the second half of 1999, the return of this magnitude will not happen. Instead, he predicted (without using these words) a kind of reversal to the average, in which the investment world, advancing, would be closed to the destination of normal suspects, interest rates and corporate benefits.

And here he saw an intermediate result. Net of the negotiation and management costs that investors entail, he said that, implying that these costs could strip the investors of a percentage point on their return – predicted that they could obtain annual returns in the 17 -year period of the end of 1999 at the end of 2016, which would be 6%.

Today, at the age of 17, what is the answer?

First, remember -you are the market of securities -as is presented by Dow and Standard & Poor, for example -indices, it does not take care of “clean” yields. What you control on computer screens are large returns before negotiation and management costs are deduced.

But the record shows that the gross returns of the period is anemic enough to confirm the general precision of Buffett. From mid -November 1999, until the day of last Friday negotiation, the total annual return to the investors of the Dow industrialists was 5.9%.

After demonstrating his ability to manage the work of crystal balls, in Buffett, 86, he was asked by this writer-an 87-year-old friend, since he could import a prediction on total returns for the 17 years from now on and ending at the end of 2033. He refused to appoint a return rate, explaining “ I have to take care of what I say because I am not having a doubt that I am not having a doubt that I will write about what I say because I will write about what I say. of follow -up. “

Buffett, however, made three thoughts about 17 years.

First, he believes that an investor at a low -cost S&P index that reinvests all dividends will do better, most likely, that an investor who buys a 17 -year -old government bond and reinvests all his coupons in the same instrument.

Second, suspected that amateur investors, “they do nothing” following the same index fund strategy altogether It ends with results higher than those made by investors who choose to use professionals who charge high rates.

Third, it forecasts that many professionals who fail their investors in a subperformation of the index funds will be very rich in the process of doing it.

Carol Loomis, a retired senior publisher, Carol Loomis is a friend of Warren Buffett. He has also been a shareholder of Berkshire Hathaway for many years.

This story originally presented to Fortune.com

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