Rodent Regatta

Exuberance

Dave mentioned the drop in several companies’ market caps. It reminded me of this:

Now, speculation - in which the focus is not on what an asset will produce but rather on what the next fellow will pay for it - is neither illegal, immoral nor un-American. But it is not a game in which Charlie and I wish to play. We bring nothing to the party, so why should we expect to take anything home?

The line separating investment and speculation, which is never bright and clear, becomes blurred still further when most market participants have recently enjoyed triumphs. Nothing sedates rationality like large doses of effortless money. After a heady experience of that kind, normally sensible people drift into behavior akin to that of Cinderella at the ball. They know that overstaying the festivities - that is, continuing to speculate in companies that have gigantic valuations relative to the cash they are likely to generate in the future - will eventually bring on pumpkins and mice. But they nevertheless hate to miss a single minute of what is one helluva party. Therefore, the giddy participants all plan to leave just seconds before midnight. Theres a problem, though: They are dancing in a room in which the clocks have no hands. [from the 2000 letter to shareholders of Berkshire Hathaway]

Anyone interested in understanding the ”bubble,” and of what historical proportions it was, should take a look at the 1999 letter as well as the one from 2000. Warren Buffett said this in this year’s letter:

Here’s one for those who enjoy an odd coincidence: The Great Bubble ended on March 10, 2000 (though we didn’t realize that fact until some months later). On that day, the NASDAQ (recently 1,731) hit its all-time high of 5,132. That same day, Berkshire shares traded at $40,800, their lowest price since mid-1997. [from the 2001 letter to shareholders of Berkshire Hathaway]

Today those same shares are worth $71,700 each.

Another bit of Warren Buffett’s wisdom

One final note that seems so timely given the events and discussions on so many weblogs this week:

The Constitution’s First Amendment allows the media to print or say almost anything. Journalism’s First Principle should require that the media be scrupulous in deciding what that will be. [from the 2000 letter to shareholders of Berkshire Hathaway]

Trust me, these letters are wonderful for anyone running a business or attempting to understand how other businesses are being run.