Return of Capital

One of the great ironies of the late-1990’s stock-market bubble is that more Americans followed the advice of Wall Street scam artists than that of Omaha billionaire Warren E. Buffett, the best money manager in the second half of the 20th century.  

The “New Paradigm” fooled much of America; Buffett and his partner, Charlie Munger, however, shunned technology and internet stocks.  “Only in the sales presentations of investment banks,” Buffett, the CEO of Berkshire-Hathaway, Inc., wrote to shareholders in March 2000, “do earnings move forever upward.”  His remarks were prescient.  The tech-heavy NASDAQ peaked the same month before losing 75 percent of its value, the Dow Jones Industrial Average fell three consecutive years (2000-02) for the first time in the postwar era, and Washington has struggled to restore public confidence in U.S. capital markets.  Surveying this carnage, more Americans may wish they had listened not only to Buffett but to the best money manager of the first half of the 20th century—Julius Pierpont Morgan—who famously said, “I’m not interested in return on capital.  I’m interested in return of capital.”

In some respects, Buffett, the second-richest man in America behind Microsoft’s Bill Gates, was the public face of the market in the 1990’s.  The financial press...

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