Buffett Warns on Double Digit Returns

by Kevin on February 29, 2008

An article on CNN’s website for Fortune makes me a bit nervous. It is titled Buffett: Don’t Bank on Big Returns. He points out that during the last century, the DOW went from 66 to 11,497. This averages out to 5.3% per year. If the market maintained that average until 2100 the DOW would be worth nearly 2 million. He thinks this is highly unlikely.

I’m not too sure to think… if the markets (and inflation) continue to grow, you think it would be as he describes. I think I need an economist’s opinion.

{ 1 comment }

Master Your Card March 1, 2008 at 2:26 am

I am but a simple amateur economist, but it seems to me that whether buffett is on to something or not can be at least partly determined by figuring out whether our national productivity has increased at an equivalent rate over the last century.

I wouldn’t really know how to calculate this to accurately, but according to the Wikipedia data (http://en.wikipedia.org/wiki/List_of_countries_by_past_GDP_%28PPP%29), which covers 1870 to 1973, productivity increased by a factor of 35. Granted, the data range doesn’t fit perfectly, but it does provide a rough estimate of future productivity gains we might expect.

The DOW, on the other hand, increased by a factor of 174!

Really rough and dirty calculations, but it does seem like Buffet might be on to something…

Comments on this entry are closed.