Warren Buffett recognizes that stock market prices periodically get disconnected from fundamentals. For Buffett, it’s both a caution and an opportunity.
“People get captivated simply by the notion of rising prices without going back to the underlying rationale. And that’s when you get very dangerous conditions in terms of possible bubbles,” Warren Buffett said at the 1997 Berkshire Hathaway Annual Meeting.
Buffett notes that this applies to the market’s extremes both going up and falling.
“It’s just people behave in extreme ways in markets,” he adds. “And over time, that’s very good for people that keep their heads.”
Buffett’s full explanation on bubbles and market extremes
See the complete Lessons From Warren Buffett series
© 2021 David Mazor
Disclosure: David Mazor is a freelance writer focusing on Berkshire Hathaway. The author is long in Berkshire Hathaway, and this article is not a recommendation on whether to buy or sell the stock. The information contained in this article should not be construed as personalized or individualized investment advice. Past performance is no guarantee of future results.