Why Warren Buffett’s 1999 warning still applies today

Warren Buffett arrives in Sun Valley, Idaho, with an unpopular warning — a warning that the visionaries in the room weren’t in the mood to hear.

The tech leaders gathered there all wanted to change the world and made a lot of money doing it.

And in a year in which some tech stocks are up 27x, many people are investing in sky-high valuations that they feel good about.

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There were polite nods as Buffett sat behind the podium.

Buffett warned the crowd that they were expecting too much in the long run. He points to several periods in recent US history when the US economy has doubled, tripled, or even fivefolded in value – but the stock market has gone nowhere because in the first place. it was overpriced.

Buffett acknowledges the market’s skyrocketing performance in recent years. But this should make investors cautious. Over time, he warns, reality will catch up with sky-high valuations.

Buffett was right when he preached caution in late 1999. The infamous collapse of the bubble – which would plunge the Nasdaq Stock Market by 75% and see familiar names like Apple Company. (NASDAQ: AAPL) and Inc. (NASDAQ: AMZN) have dropped more than 80% of their market capitalization — just a few months away.

Buffett’s friend Microsoft Corporation (NASDAQ: MSFT) CEO Bill Gates was in the audience that day. In less than a year, Microsoft’s stock price would drop 34%, and it would take 14 years for the company’s stock to return to 1999 levels.

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Andy Grove, founder Intel Corporation (NASDAQ: INTC), also present in the crowd. He will find his company doing even worse. Intel posted a 24% return over the next 17 years, about half of the S&P 500’s 58% gain.

Is History Repeating Itself?

Nearly two years ago, Charlie Munger, Buffett’s partner at Berkshire Hathaway Corporation (NYSE: BRK-A), issued its own warning of a dangerous market mania, saying that investors “are very close to the brink of playing with fire.”

The performance of the stock market over the past year has corroborated that view. The S&P 500 fell more than 22%, ending 14 years of bull market history. And in slumps similar to those that technology suffered in 2000 and 2001, tech giants like Tesla Inc. (NASDAQ: TSLA), Apple, Amazon and Meta Inc Platform. (NASDAQ: META) spilled trillions of dollars in market value between them.

And it’s not just publicly traded companies — funding for startups has dropped 23% globally over the past year. Clearly, there has been a shift in market sentiment.

Investors are no longer excited and driven by the fear of missing out. Now they are confused after nearly a year of prolonged market downturn. And this reminds us of more wise words from Buffett: be greedy when others are fearful.

It’s worth noting that the tech stocks that suffered the most in the most recent major tech sell-off have recovered more than 2,000% annually in the coming years. It is possible that today’s investors are facing a similar opportunity.

And investors looking to profit from the eventual rebound have in their arsenal that they didn’t have in 2001 — easy access to new startups through crowdfunding.

Start Engine is a crowdfunding giant that allows casual investors to take stakes in some of the most exciting, if risky, companies in the world. It recently signed an agreement with another crowdfunding fund – Indiegogo – to bring Indiegogo’s network of 800,000 investors to StartEngine’s crowdfunding platform.

The deal puts StartEngine in reach of 1.7 million investors — and the buyback chain may just be getting started.

See more about start-up investment from Benzinga.

Photo: Courtesy of lucky live communication on Flickr

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