I think this article is worth reading every year or so. This is one of four? of Buffett’s famous op-eds related to market levels. They’ve all somehow been very prescient in a short timeframe. I highlighted a few quotes I thought was interesting below. One of the more notable facts I gathered was that interest rates were 6% back in 1999! People were choosing to buy equities at crazy valuations rather than getting 6% risk free.
DOW JONES INDUSTRIAL AVERAGE Dec. 31, 1964: 874.12 Dec. 31, 1981: 875.00
If government interest rates, now at a level of about 6%, were to fall to 3%, that factor alone would come close to doubling the value of common stocks.
If I had to pick the most probable return, from appreciation and dividends combined, that investors in aggregate–repeat, aggregate–would earn in a world of constant interest rates, 2% inflation, and those ever hurtful frictional costs, it would be 6%. If you strip out the inflation component from this nominal return (which you would need to do however inflation fluctuates), that’s 4% in real terms. And if 4% is wrong, I believe that the percentage is just as likely to be less as more.
(The actual 17 yr return from Nov 99 was 4.6% with divs reinvested)