we had an enormous economic recovery but the minds of people had been so scarred the memories parents told their children 1929 became a symbol in people's minds I mean if you said 1929 it was like saying 1776 or 1492 I mean everybody knew exactly what you were talking about in 1929 my dad who was 26 years of age then was employed as a security salesman by a a local small Bank he sold stocks and bonds but he mostly sold stocks and when stocks fall 48% and you were selling them to people a few months ago
you really don't feel like going out and facing those same people so I think my dad probably I likeed to do is they say now shelter in place which means stay at home and uh there really wasn't that much at our house just had a small yard it was winter time anyway my dad would have been puttering out the yard anyway and everybody wasn't you know television wasn't there and he and my mother got along very well so under those conditions I was uh born about 9 months later so I didn't notice at the time
that the market was closed but the stock market had actually recovered over 20% during that 9 and a half month period or thereabouts people did not think in the fall of 1930 they did not think they were in the Great Depression they thought it was a recession very much like that occurred at least a dozen times although not always when stock markets were important but then we'd had many recessions in the in the United States over the time and this did not look like it was something dramatically out of the ordinary actually for about 10
days after my birth the stock market actually managed to go up all of one or 2% there in those 10 days well from that point the uh stock market went from level of 240 to 41 which was a noticeable decline because uh if somebody had given me $1,000 on the day I was born and I'd bought stocks with it and bought the Dow average my $1,000 would have become $170 in in less than two years that is something that none of us are ever experienced that uh may have had it with one stock occasionally but
in terms of uh having a broad range of America marked down 83% in 2 years had marked down 89% of the peak was in September 3rd 1929 was extraordinary and in that intervening period less than one year after I was born just slightly less than one year my dad went to the bank where he worked and had his account and of course the bank had a sign on it closed and uh so he had no job he had two kids at that point his father had a grocery store but Charlie and I both worked for
my grandfather Charlie worked there in 1940 I worked there in 1941 so we didn't know each other but my grandfather said to my father that don't worry about your groceries already he says I'll just let your bill run my grandfather not exactly he cared about his family but he wasn't going to go crazy and uh one of the things as I look back on that period And I don't think the economists generally like to give it that much of a point of importance but if we'd had the FDIC the FDIC started on January 1st 1934
it was part of the sweeping legislation that took place when Rosell came in but if we'd had the FDIC we would have had a much much different experience I believe in the in the Great Depression people bling on smooth hall here and I mean there's all kinds of things and the margin requirements in 29 and all of those things entered into creating a recession but if you have over 4,000 Banks fail that's 4,000 local experiences where people save and save and save and put their money away and then someday they reach Fort and it's gone
and that happens you know in all 48 states and it happens to your neighbors and it happens to your relatives it has to have an effect on the psyche that's incredible so one very very very good thing that came out of depression in my view is the FDIC and uh it would have been a somewhat different world I'm sure if the bank failures hadn't just rolled across this country and with people that thought that they were Sabers found out that they had nothing uh when they went there and there was a sign that said closed
so the Great Depression went on and lasted a very long time but it lasted a lot longer in the minds of people than it did actually in its effects World War II came along and on sort of an involuntary manner we adopted keynesianism we started running fiscal deficits of course that were absolutely huge and took our debt up to a percentage of GDP which had never reached before and never have reached since so we had an enormous economic recovery but the minds of people had been so scarred the memories parents told their children 1929 became
a symbol in people's minds I mean if you said 1929 it was like saying 1776 or 1492 I mean everybody knew exactly what you were talking about and it affected stock prices in a rather remarkable way it was Jan January 4th of 1951 that the kid who was born on August 30th in 1930 had finished College before the stock market got back to where it was at that earlier time so take the years from 1920 or 1929 to 1951 and bear in mind that you know the country was only 140 years old when they started
that's 20 years out of a this amazing 231e lifetime of our country that was flat out a time of for a long time of no economic growth and no Feeling by people in terms about the wealth of the country the about what American economy was worth with all these corporations that were doing far far far better than they were on all but it took all of that time to restore in the market a price level that was equal to what it was when I was born 20 years earlier so if you think about the fact
that we're enduring a few months months and we'll endure some many more months and we don't know how it comes out and people in the 30s didn't know how it was going to come out but they endured persevered prospered and uh the American Miracle continued but it's interesting in that at the start of 1954 the stock market was the DOW was only at about 280 and I remember 1954 because it was the best year I ever had in the stock market uh the Dow went from 280 or thereabouts at the start of the year to
a little over 400 at the end of the year and soon as it went across 381 that famous figure from 1929 when I went to 400 everybody wondered is this 1929 all over again and that seems a little far-fetched cuz it was a different country in 1954 but that was the common question and it actually achieved such uh a level of worry about whether we were about to jump off another Cliff that's because the 3 81 of 1929 have been succeeded exceeded that Senator Fulbright Bill Fulbright of Arkansas who became very famous later in terms
of the Foreign Relations Committee but he headed the Senate Banking Committee and he called for special investigation he really was questioning whether we had built another house of cards again and his Committee in March of 1955 with the Dow 405 assembled 20 of the best Minds in the United States to testify as to whether we were going crazy again the Dow was at 400 and we' gotten in this incredible trouble before but that was the mindset of the country it's incredible we didn't really believe America was what it was and my boss the reason I'm
familiar with this was that I was working in New York for one of the 20 people that was called down to testify and I remember because Ben Graham was the one of the three smartest people I've met in my life and when he testified the Dow at 404 for he had one line in there right toward the started and his written testimony and he said the stock market is high looks High it is high but it's not as high as it looks and since that time we felt the American Tailwind in full force and the
Dow when we made the slide it was about 24,000 so you're looking at a market today that has produced $100 for every dollar all you did was had to believe in America just byy a cross-section of America you didn't have to read The Wall Street Journal you didn't have to look up the price of your stock you didn't have to pay a lot of money and fees to anybody you just had to believe that the amican miracle was intact but you'd had this testing period between 1929 and certainly 1954 is indicated by what happened when
it got back up to 380 they had this testing period and uh people really they lost faith to some degree they just didn't see the potential of what America could do and we found that uh nothing can stop America when you get right down to it it's been true all along it may have been interrupted with the scariest of scenarios when you had a war with one group of states fighting another group of states and it may have been tested again in the Great Depression and it may be tested now to some degree but in
the end the answer is never been against America and uh in my view is as true today as it was in 1789 and even was true at the during the Civil War and the depths of the depression Warren you are a big advocate of index investing and of not trying to time the market but by your having virture hold such a large amount of cash and t- bills it seems to me you don't practice what you preach I'm thinking that a good alternative would be for you to invest most of berkshire's excess cash in a
welld diversified Index Fund until you find an attractive acquisition or buyback stock that's a perfectly decent question and wouldn't quarrel with the numbers and I would say that that is an alternative for example that my successor may wish to employ because on balance I would rather own an index fund than carry treasury bills I would say that if we' instituted that policy in 2007 or 8 we might have been in a different position in terms of our ability to move late in 2008 or 2009 uh it has certain execution problems with hundreds of billions of
dollars than it does if you were having a similar policy with a billion or two billion or something the sort but it's perfectly rational observation and certainly looking back on 10 years of a bull mark it really jumps out at you but I would argue that if you were working smaller numbers that it would make a lot of sense and if you're working with large numbers it might well make sense of the future at burshire to operate that way you know we committed 10 billion a week ago and there are conditions under which they're not
remote they're not likely in any given week or month or year but but there are conditions under which we could spend hundred billion do very very quickly and if we did if those conditions existed the capital very well deployed and much better than in an index fund and we're operating on the basis that we will get chances to deploy Capital they will come and clump in all likelihood and uh they will come when other people don't want to allocate Capital Charlie what do you think about it well I played guilty to being a little more
conservative with the cash than other people but I think that's all right we could have put all the money into a lot of Securities that would have done better than the S&P the 2020 hindsight remember we had all that extra cash all that period if something come along in the way of opportunities and so on I don't think it's a sin to be a little strong on cash when you're as big a company as we are I watched Harvard use the last ounce of their cash including all their prepaid tuition from the parents and plunge
it into the market at exactly the wrong moment and make a lot of forward commitments to private Equity they suffered like two or three years of absolute agony we don't want to be like Harvard plus Timber and a whole bunch of the plus Timber and I mean yeah yeah we're not going to change we do like having a lot of money to be able to operate very fast and very big we know we won't get those opportunities frequently you know in the next 20 or 30 years there'll be at two or three times when it'll
be raining gold and all you have to do is go outside but uh we don't know when they will happen and we have a lot of money to commit and I would say that if you told me I had to either carry short-term treasury bills or have index funds and just let that money be in invested in America generally I would take the index funds but we still have hopes and the one thing you should very definitely understand about burshire is that we run the business in a way that we think is consistent with serving
shareholders who have virtually all of their net worth in Berkshire I happen to be in that position myself but I would do it that way under any circumstances we have a lot of people who trust us who uh really have disproportionate amounts of Burkshire compared to their net worth if you were to follow standard investment procedures and we want to make money for everybody but we want to make very very sure that we don't lose permanently money for anybody that buys our stock somewhere around intrinsic business value to begin with we have an aversion to
having a million plus shareholders maybe as many as 2 million and having a lot of them ever really lose money if they're willing to stay with us for a while and we know how people behave when the world generally is upset and they want to be with something I think they want to be with something that they feel is like the rocket braw and we have a real disposition toward that group I read Phil Fisher's book conservative investors sleep well well I haven't slept well since he really confused me when he commented that hoarding cash
was evil he wrote that instead companies should either put the cash to good use or distribute it to shareholders can I get your thoughts on on this well there are times when we're a wash in cash and there have been plenty of times when we didn't have enough cash Charlie and I I remember in the late 60s we were when Bank credit was very difficult we were looking for money over in the Middle East you remember that Charli I do yeah and uh they wanted us to repay it in diners and the guy that wanted
us to repay them in in diners or diners or whatever the hell they call them was also the guy that determined the value of those things so we were not terribly excited about him on payday and having him decide the exchange rate on that date but we obviously are looking every day for ways to deploy cash and we would never have cash around just to have cash I mean we would never think that we should have a cash position of x%c and I frankly I think these asset allocation things that tacticians in Wall Street put
out you know about 60% stocks and 30 we think that's total nonsense so we want to have all our money working in decent businesses but sometimes we can't find them or sometimes cash comes in expectedly or sometimes we sell something and we have more cash around than we would like and more cash around than we would like means that we have 10 or 15 cents around because we want money employed but we'll never employ it just employ it and in recent years we've tended to be cash heavy but not because we wanted cash per se
in the mid 70s you know we were scraping around for every dime we could find to buy things we don't like lots of Leverage and we never will we'll never borrow lots of money at Berkshire it's just not our style but you will uh find us quite unhappy over time if cash just keeps building up and I I think one way or another we'll find ways to use it Charlie I can't add anything to that
