Here's a reply from Buffett and Munger at the 2007 Berkshire Hathaway Annual Meeting—to a question posed by Frank Martin (Question 24)—that I thought was worth posting separately here. Going back and (slowly) reading the transcripts with the benefit of hindsight has been a fantastic learning experience, and this excerpt is a great example. All three of them clearly saw trouble ahead given the excesses that existed. And given that belief—and the belief that timing the downturn and its magnitude with precision was nearly impossible—Buffett and Munger gave this advice about how to act:
WARREN BUFFETT: ...We don’t have the faintest idea where the S&P will be in three years, or where the long-term bond will be in three years, but we do know which we would rather own on a 20-year basis.
CHARLIE MUNGER: Warren, we’d also expect that the current scene will cause some real disruption, not too many years ahead.
WARREN BUFFETT: That’s true, but if you go back a hundred years, you could almost say that in almost any period. You will get disruptions from time to time, and it’s very nice if you have a lot of cash then and you have the guts to do something with it.
But predicting them or waiting around for them, that sort of thing, is not our game. And I mean, we bought $5 billion worth of equities in the first quarter, something like that.
And...it would be a joke to even compare them to 1974 or a whole bunch of other periods. But we decided we would rather have them than cash, or we would rather have them than sit around and hope that things get a lot cheaper.
We don’t spend a lot of time doing that. You can freeze yourself out indefinitely.
So any time we find something that we think is intelligent to do, we just do it, and we hope we can do it big.