In a lectures to university students, Warren Buffett answers questions about economic growth, markets, & investor psychology.

Video length: 00:09:20

Transcript

The whole century is quite interesting. If you take the 20th century – it was an unbelievable century for the United States. The GDP per capita, and that’s the way to think of this; per capita. Sometimes they talk about our GDP versus Europe’s. But if their population is the same every year and ours goes up one percent, in the end that you’ve got to have a deviser as well as the numerator. And so GDP per capita in the 20th century in the United States went up six hundred ten percent. Actually, qualitatively it went up far more than that because you can’t really measure certain things in medicine or whatever it may be, and the improvements. But just on a quantitative basis it went up every single decade including the decade of the 30s.

So here you had a 100 years when, basically, the US citizenry was getting was improving their lot decade by decade by decade. The thirties it was up 13 percent. That best decade was World War Two in the 40’s, it was up 36 percent. The worst decade was the first world war. So you get sometimes the analogy, you can get in trouble on analogies, but in any event it was it was a huge period. Interestingly enough there were six big periods in there for the stock market. In both directions. There were three big bull market from nineteen hundred to 1921. The Dow went from 66 to 71. Less than a 10 percent move in 20 years. Less than half a percent a year, you got dividends too, but a half a percent. So it didn’t move. From ’21 to ’29 as you point out it went from 71 to a high of 381 in September of 1929. Wow. Five hundred percent.

Well obviously. The well-being of the country did go up 500 percent during that period and the well-being of the country went up a whole lot more than 10 percent during the first 21 years, so we got this very uneven development. From September 1929 until the end of 1948, the Dow went from 381 to about 180. It was cut in half and that was 18 long years. And yet the per capita GDP was moving right up during this whole period, so the economy was doing fine. From ’48 to ’65 the Dow went again for about 180 up to close to a thousand. Again five for one which was far outstripping it. From ’65 to ’81, the Dow went down, literally, while again, per capita GDP. And then we’ve had this last period where it’s gone up terrifically.