interest rates were going to be fifteen  percent next year on bonds.

There's a lot of equities I wouldn't want to own.

Part of the reason that you've been so bullish on equities for many years at this point is  

the interest rate environment. You've looked at interest rates and said interest rates are gravity  

on stock prices. And when interest rates are so low, stock prices inevitably are going to climb.

There's been this really weird thing that's been happening in the markets. Where all of a sudden good news  

that we got from a good jobs report made people start to worry that interest rates were going to  

climb, and that the fed was going to raise rates more than anticipated. People got really nervous  

around that you can still see it every time we get up on the 10-year back towards three percent. 

It gives investors or at least traders I should say, some concerns about what's happening.  

If you buy a 30-year government bond it has a whole bunch  

of coupons attached in the old days. But it has a whole bunch of coupons  

The coupon says three percent or whatever. It may say and you know that's what you're going  

to get between now and 30 years from now. And then they're going to give you the money back.  

What is a stock? A stock is the same  sort of thing, it has a bunch of coupons.  

It's just they haven't printed the numbers on them yet, and it's your job as an investor  

to print those numbers on. If those numbers say ten percent, and most American businesses earn  

over ten percent on tangible equity. If they say ten percent, that bond is worth a hell of a lot  

more money than a bond that says three percent on it. But if that government bond goes to ten percent,

it changes the value of this equity bond that in effect you're buying. You are buying when you  

buy General Motors or Berkshire Hathaway or anything. You are buying something that over time  

is going to return cash to you. Maybe a long time in terms of Berkshire, but it'll be bigger numbers.  

And those are the coupons and it's up to you, your job as an investor to decide what you think those  

coupons will be because that's what you're buying. And you're buying the discounted value of it.

And the higher the yardstick goes, and  the yardstick is government bonds, the  

less attractive these other bonds look that, and  that's just fundamental economics. So in 1982,  

when the long government bond got to 15 percent, a company that was earning 15 percent on equity,  

worth no more than book value under those circumstances. Because you could buy a 30-year strip

of bonds and guarantee yourself for 15% a year, and a business that earned 12%  

was a sub-par business then. But a business that earns 12%, when the government bond is 3%  

is one hell of a business now, and that's why they sell for very fancy prices. So three percent is a  

long way from fifteen percent that you were just talking about. But and I watched it go from three  

to fifteen though too. Right, is there an inflation point on that way, because people think oh my gosh  

we've gone from 2.4% to 2.9% and that's a big difference. That's not much.

Historically speaking, that's still  the way we should be measuring these things  

not on the absolute movement, or the percentage gain movement over time? 2.4% to 2.9% is nothing if  

you're comparing it with businesses that earn 12% on equity and reinvest. In the S&P, you can just look at

the figures. For decades has earned on tangible equities earned a lot more than that, and it  

translates into more higher prices than it should. Is there a tipping point along the  

way or is it a gradual decline? Nobody knows yeah but it's it is gravity.  

I mean if you told me interest rates  were going to be 15% next year on bonds,

there's a lot of equities I wouldn't want  to own now, and I would buy  

a lot of governments at 15% and I kind of wish I had in 1982, but I didn't. If I told you that the  

long bond was going to trade at four and a half to five percent next year. It makes a difference but  

it's been idiotic to own long bonds. During the last you know I talked about this in the report  

It's just been idiotic. And big public  pension funds and all that they sat there, and they  

own bonds now they may have bought them on a four or five percent basis, but if they go to a  

three percent basis, there're selling way above  but that the way people think about it is  

that they do some very silly things. I mean you lay this out in the annual report but a  

lot of investors are told, retail investors are told that they should have a certain percent  

of their portfolio in bonds, maybe they're told 60% 40%, maybe they're told 70% 30% stocks to bonds  

that's something that you should do and that's the safe way of doing it. What are they missing?

Some people should not own stocks at all, because they just get too upset with price fluctuations if  

you're going to do dumb things because a stock goes down, you shouldn't own a stock at all  

What are dumb things? Selling a stock cause it goes down? Yeah selling a stock because it goes down. I mean  

you know, if you buy your house  at twenty thousand dollars and somebody  

comes along next thing says I'll pay you 15. You don't sell it because the quote's 15.  

You look at the house or whatever it may be. But some people are not actually emotionally  

or psychologically fit to own stocks, but I think they're more of them would be, if you get educated  

on what you're really buying which is part of a business. And the longer you hold stocks the  

less risky they become, whereas the longer the maturity of a bond, the more risky it becomes

Do you feel like that's a message that is getting through to people it's one that you repeat again  

and again and I always feel like I was watching a lot of the Olympics, and I felt like what they  

do in the Olympics is so easy. These guys sailing through the air and doing massive spins on the ice  

and turns, and then I read your annual letter and I think oh it's really easy to invest, and then I  

walk away and realize it's not that easy. It's not easy psychologically for many people but I've been teaching since I was 21. I told my first class on investments and I had a  

class last week, with 11 schools 220 students, and some of them get it and some of them don't  

People would rather gamble, I mean the idea that you can double your money in six months that  

that's just going to it's why people go  to the races, why they go to Vegas you know  

Whatever it may be, they even know  the odds are against them and they still do it  

I mean it's a strong instinct to want to  get rich fast, and I don't know how to do it