Buffett Talks Index Funds, Stock Bubbles

Billionaire investor and Berkshire Hathaway Inc. (NYSE: BRK.A) (NYSE: BRK.B) CEO Warren Buffett was a guest on CNBC's "Squawk Box" segment Monday morning and spoke on various topics, including his overall view on the state of the stock market.

The $51M Return 

March 11, 1942 was the day Buffett, 87, bought his first stock and needless to say a lot has happened since then, he told CNBC's Becky Quick: 14 U.S. presidents, world wars and events that could have prompted another world war like the Cuban missile crisis. But the "best single thing" any investor could have done on that day in 1942 was to buy an index fund and "never look at a headline" again, Buffett said. 

Any investor who bought $10,000 of an index fund in 1942 and re-invested the dividend proceeds back into the fund would be sitting on $51 million today, Buffett said.

"And the only thing you had to really believe in then is that America would win the war and that America would progress as it has ever since 1776," Buffett said. "You didn't have to worry about what stock to buy, you didn't have to worry about what day to get in and out."

Buffett: No Bubble In Stocks

One of the most important ways to measure a stock's investment profitability is to compare it to alternative investment choices, Buffett said. If government bonds were to suddenly offer a 7- or 8-percent return tomorrow, then stocks would "look less attractive" by default and even "not attractive" at all. But that isn't the case today, as stocks aren't in a bubble and remain a good venue for average investors, he said. 

Naturally, this raises the question of why Buffett's firm is sitting on $100 billion in cash. The answer is simple, he said: if an attractive and large-scale deal presents itself tomorrow, Buffett and his right-hand man Charlie Munger wouldn't hesitate to pull the trigger. 

"We'll get the money employed," he said. "Something will happen."

After all, cash always has and will always be the second "worst investment" investors can make, Buffett said, with the first being "something dumb that you're doing for the longer term."

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