Buffett’s 2007 Berkshire Hathaway letter warned that belief in ever-rising home prices exposed financial folly. The article applies that lesson to stocks: favor companies with strong fundamentals and hold them long term instead of trying to time the market.
The article reports that over the prior six months the Nasdaq and S&P 500 rose about 23% and 18%, respectively. The Nasdaq hit a new high that week, while the S&P 500 was less than 1% from another record. An American Association of Individual Investors weekly survey found nearly half of U.S. investors expected prices to fall in the next six months, compared with about 33% who expected them to rise.
For comparison, the article says the S&P 500 rose nearly 200% from 1995 to 1999 amid enthusiasm for internet companies. Many firms had unprofitable business models, weak finances or inexperienced leaders; hundreds of tech stocks collapsed, and many never recovered. Microsoft fell more than 60%, Apple lost more than 50% in one day in 2000, and Amazon dropped close to 95% between 1999 and 2001; all three later became industry leaders.
