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You mentioned that we are in a big "bun". Can you clarify this and tell me what this could lead to? When you print money on the scale that modern nations do—Japan, the US, Europe, etc.—we are entering uncharted territory in terms of volume. Nothing like what we are doing now has ever happened before, and we know from the experience of other countries that trying to print too much money will eventually cause terrible problems.
And we are closer to the terrible problems than ever before, although they may still be far away. I sincerely hope so. When Volcker raised the rate to 20% after the 70s, and the government paid 15% for its bonds, it was a terrible recession. It lasted a long time and caused a lot of suffering. I sincerely hope we don't get to this point again.
I think the conditions that allowed Volcker to do this without political interference were very unusual. And looking back, I think what he did was the right move. I wouldn't predict that our current politicians would be willing to allow the new Volcker to act as harshly on the economy and provoke a similar recession.
So I think the new problems are likely to be different from the old ones. You might still want a Volcker-style recession instead of what awaits you. The problems ahead may be worse than those that Volcker struggled with , and they will be harder to fix. Think of all those Latin American countries that print too much money.
Dictators and so on appear there. This is exactly what Plato was talking about when describing the early Greek democratic city-states. One person, one vote, a lot of equality, then demagogues appear, stirring up the population, and soon there is nothing left of democracy. I don't think Plato's idea was crazy.
I think it describes well what happened in Greece at one time, and it happened again and again in Latin America. We don't want to get to that point. At least I don't. We have acted quite extreme, and we don't know how serious the problems will be, and whether we will end up like Japan or something much worse.
And life becomes interesting because we don't know how it will all end. I think we know we're flirting with serious trouble. I think we also know that some of our previous fears were exaggerated. Japan continues to exist as a civilized nation, despite incredible by all previous standards excesses in printing money.
Think about how tempting that is. You have a bunch of interest-bearing debt, and you're paying it off from checking accounts that no longer pay interest. Think how tempting that is for a group of legislators. You get rid of interest payments and the use of the money supply increases. It seems like paradise.
And of course, when things become so tempting, they are likely to be overused. If you think about it, my life path has not been predicting small, short-term differences between the Russell Index and the S&P Index. I have no opinion on which index is better at any given time . I never even think about it .
I'm always just looking for something good enough to put Munger's money into. And I think I want to swim against the current as best I can. I don't try to predict the ebb and flow of the tides. If you are going to invest in stocks for the long term or in real estate, of course there will be periods when there will be a lot of pain and other periods when there will be a rise.
And I think you just have to learn to live with them. As Kipling said, treat these two swindlers the same. You have to deal with day and night. Does this bother you a lot ? No. Sometimes it's night, and sometimes it's day. Sometimes it's a boom, sometimes it's a bust. I believe in doing your best and continuing as long as you are allowed to.
What impact has passive investing had on stock valuations? Oh, huge. That's another thing that's coming up. We have a new group of emperors, and they are the people who vote with shares in index funds. Maybe we can make Larry Fink and the people at Vanguard the Popes . Suddenly we had this huge transfer of voting rights to these passive index funds.
This will change the world. And I don't know what the consequences will be, but I predict that they won't be good. We have an extremely strong economy and an extremely strong technical civilization , and that's not going anywhere. And knowledge and stuff like that , and you can't believe what a modern factory looks like when you fill it with robots.
And this is becoming more and more common. And it also comes to China, for that matter . So these trends are inevitable. And I think that creates adaptation problems. If you have a great union job and you get replaced by a robot, you have a complex problem. And if you have a company like Kodak and they invent something new that makes your product obsolete, you have a problem too, and you solve it by dying.
Many people don't like this decision . Because all of these problems are real, it's so tempting to get rid of debt by simply giving the person an interest-free checking account instead of paying them interest every month. Not only do we have a serious problem, but the easiest solution for politicians, as well as for the Federal Reserve, is to simply print more money and solve the temporary problems that way.
And this, of course, carries certain long-term threats. We know what happened in Germany when the Weimar Republic just kept printing money. All of this exploded, and it contributed to Hitler's rise to power. So all of this is dangerous and serious, and we don't want politicians to just take the easy way out, based on the theory that it didn't hurt us last time , so we can double down, do it again, then double down again, and so on.
We know what happens with such infinite doubling. You will get a completely different government if you continue to do this. Enough. You are playing with danger if there is no discipline in the process. But I don't think Japan is in any terrible danger. They did it on a huge scale and were able to pull it off.
I don't think we will be able to handle our problems as well as Japan. If taxes weren't an issue, what do you think about switching to cash today and expecting better opportunities to use it over the next 12 months? Do you think this is a good idea? In my entire adult life, I have never hoarded cash in anticipation of better conditions.
I just invested in the best I could find and I don't think I'd change that now. And the Daily Journal spent its cash. Berkshire currently has a cash surplus, quite a lot, but it's not because the company thinks it knows how to time its investments well. She just can't find anything worth buying. So, we don't have a solution to your problem.
We just deal with it the way I described. Given the valuation and market correction in early 2020, why is n't Berkshire buying or adding any new companies to its portfolio? Of course, it's worth giving the team credit for purchasing Apple shares a few years ago. This is certainly bearing fruit. The reason we don't buy is because we can't buy anything at the prices we are willing to pay.
Everything is simple . Other people drive up the price , and a significant portion of the purchases are not made by those who actually plan to own the assets. To a large extent, this is buying for commission. Private equity firms buy assets to earn more commissions, increasing the amount of assets under management.
Of course, it's much easier to buy something using someone else's money. We use our own money, or at least we think so. I have always believed that nothing is worth an infinite price. Even a great company like Costco can reach a price point where you say: that's too expensive. But I would say that if I were investing money for some sovereign wealth fund or pension fund with a planning horizon of 30, 40 or 50 years, I would buy Costco at the current price.
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