Warren Buffett Warned Investors About This in 1999. The Past Week Looked Familiar
In July 1999 Warren Buffett said investors expected far too much from stocks; the S&P 500 then fell 49.1% from March 2000 to October 2002. A version of the gauge he named in 2001 reads higher today. Here is what…
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In July 1999, at Allen & Co.’s Sun Valley, Idaho, gathering of business leaders, Warren Buffett told the room: “Investors in stocks these days are expecting far too much, and I’m going to explain why.” Fortune printed the talk that November, four months before the S&P 500 peaked and began a 49.1% slide. This week, with stocks posting their worst week since April 2025, that warning is worth rereading.
Gary and Linda Kessler, 67 and 64, have $2.4 million: a $1.7 million rollover IRA, $500,000 in a brokerage account and $200,000 in a Roth. About 80% sits in stock index funds, or $1,920,000. They withdraw $96,000 a year, 4%, each January, on top of Social Security. Gary wants to know whether this is the start of a repeat, and what a 2000 to 2002 slide would do to their withdrawals.
The direct answer: nobody can say whether this is the start, and this week is a 5.6% dip from a record. A repeat of that slide would cut their $2.4 million to $1,437,079 by the end of 2002 and push a $96,000 draw to 6.7% of what was left. Cutting stocks to 60% before any slide would have finished $209,380 ahead. That is the plan that fits them.
What Buffett said, and what came next
The Dow Jones Industrial Average closed 1964 at 874.12 and 1981 at 875.00: 17 years, no gain. A Paine Webber and Gallup survey released that July found investors with under five years of experience expected 22.6% a year for the next decade; 20-year veterans expected 12.9%. Buffett’s most probable figure, dividends included, after costs and with 2% inflation, was 6% a year, “just as likely to be less as more.”
The S&P 500 closed at 1,527.46 on March 24, 2000 and bottomed at 776.76 on Oct. 9, 2002. The S&P 500 fund fell 10.7% in 2000, 12.9% in 2001 and 22.8% in 2002, 39.9% over three years. At the end of 2006 its price was still 3.6% below its end-1999 close, dividends not counted. For a retiree, the damage was three down years in a row while withdrawals kept coming. That is sequence risk: losses in the first years of withdrawals cost more than the same losses later, because you sell shares low to pay the bills.
This week, and the gauge Buffett named in 2001
On Thursday, Nov. 5, the S&P 500 fell 4.4%, from 7,688.62 to 7,353.73, its worst day since April 2025. The S&P 500 fund lost 2.7% for the week and ended Friday 5.6% below its Oct. 6 record, still up 7.8% for 2026.
In Fortune in December 2001, Buffett called the market value of U.S. stocks against GNP “probably the best single measure of where valuations stand at any given moment.” Near 200%, “you are playing with fire.” The Federal Reserve’s version, nonfinancial corporate stock against GDP, read 163% in the first quarter of 2000 and 255% in the second quarter of 2026, about 56% above the 2000 peak reading on the same series.
To be fair to the gauge, it gave no date in 1999, and the market ran for months past it. A 5.6% dip is a pullback. A correction is usually a 10% drop from a high; a bear market is 20% or more and tends to last, like 2000 to 2002. A 20% drop from the record would take roughly another 15% from Friday’s close. Nothing in this week says which one this is.
Four plans, one slide
Each plan runs the 2000 to 2006 price path with $96,000 withdrawn every January, bonds and T-bills earning 4%, and dividends left out, so every line is a little low. Copy the table and put your own share of stocks next to it.
| Plan ($2.4 million, $96,000 a year) | End of 2002 | End of 2006 |
|---|---|---|
| Plan A: 80% stocks | $1,437,079 | $1,690,645 |
| Plan B: 80% stocks plus two-year cash buffer | $1,381,647 | $1,650,856 |
| Plan C: 60% stocks | $1,646,459 | $1,874,277 |
| Plan D: 80% stocks, draw trimmed after a down year | $1,452,177 | $1,727,993 |
S&P 500 fund price changes for 2000 to 2006, dividends left out; bonds and T-bills at 4% a year; withdrawals each January.
Plan A: stay 80% stocks, rebalance each January. $1,437,079 after 2002, down 40.1%. After $288,000 of withdrawals, $96,000 is 6.7% of the balance. It fits you if Social Security covers most of your bills.
Plan B: 80% stocks plus a two-year cash buffer. $192,000 in T-bills, drawn first and refilled only after an up year. No stock sold in 2000 to 2002. Yet it ended $55,432 behind Plan A in 2002 and $39,789 behind in 2006, because more money stayed in stocks on the way down. The draw becomes 6.9%. It is worth it if you know you would otherwise sell at the bottom.
Plan C: cut to 60% stocks, $1,440,000, and rebalance. Ahead of Plan A by $209,380 at the end of 2002 and $183,632 at the end of 2006. The draw is 5.8% after the slide. The price: less gain in strong years. It fits you if you draw 4% and have no pension.
Plan D: 80% stocks, trim the draw 10% after any down year. $86,400 instead of $96,000, or $800 a month less. Worth $15,098 by 2002 and $37,348 by 2006, with the trimmed draw at 5.9% of the balance. It fits you if your budget has room and you want the upside.
Plan C is the call for the Kesslers. The condition that flips it: if they would abandon 60% after a year like this one, Plan D keeps them at 80% with a rule they can follow.
Two down-year moves to write down now
Roth conversion in a down year. IRA shares worth $100,000 at the top are worth $60,100 after a 39.9% fall. Converting them at 22% costs $13,222 in tax against $22,000 at the top, $8,778 less, and the recovery comes back inside the Roth tax-free. Pay the tax from the brokerage account, and watch the Medicare surcharge line two years out.
RMDs in kind. Gary, born in 1959, starts required distributions at 73 in 2032. At the IRS factor of 26.5, the RMD on $1.7 million is $64,151; after a 39.9% fall the IRA is $1,021,700 and the RMD $38,555. The IRS allows an RMD in kind: shares move to the brokerage account, taxed as income at that day’s value, and nothing is sold low.
Run the numbers on your own account
- Take your stock funds down 39.9%, take out three years of withdrawals, and divide one year’s draw by what is left. For the Kesslers, $96,000 divided by $1,437,079 is 6.7%.
- Rerun it at 60% stocks and with a 10% trim, and pick the plan whose after-slide rate you can live with.
Where this is weak
The Fed’s 255% is built differently from the number Buffett printed and is comparable only with its own 2000 reading, and a high reading named no date then. The 2000 to 2006 path is one history; after a short, sharp drop with a fast recovery, Plan A or the cash buffer can beat Plan C. The table leaves out taxes. None of this fits a retiree with a pension that covers the bills, or anyone who would quit the 60% plan after one strong year.
The bottom line
Buffett’s 1999 warning was about expectations, and the gauge he named in 2001 reads higher now than at the 2000 peak. The Kesslers’ decision is the stock share they hold before any slide. At 60% stocks, a repeat of 2000 to 2002 leaves them $209,380 better off and their draw at 5.8% instead of 6.7%. If they cannot hold 60% through a strong year, stay at 80% and trim the draw by $9,600 after every down year.
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