Warren Buffett Explains Why Stocks Are More Valuable Today Than In The Past

The reason why the value of American stocks is higher today than it has historically been is simple, according to billionaire investor and Berkshire Hathaway Inc. (NYSE: BRK-A) (NYSE: BRK-B) CEO Warren Buffett: stock repurchases.

What Happened

Investors have many options to allocate their savings, Buffett said in a Thursday interview with CNBC's Becky Quick on his 88th birthday.

For example, an investor can buy a duplex and rent out property and "do fine over time," or purchase a bond and collect a 3-percent yield, Buffett said.

A better alternative is to invest in an American stock that is known to "earn a lot of money relative to the capital put in," the Berkshire CEO said. 

The reason why stocks are worth a lot more today than 20, 50 or 100 years ago is that companies have "plowed back part of their earnings" through share repurchases, Buffett said. Over a period of years, repurchases "make a huge difference" in driving share prices higher, he said. 

Why It's Important

Even though Buffett said stock prices are a lot higher today than in the past, it doesn't mean the time to buy has passed.

The octogenarian said he was buying stocks "this morning," and retail investors shouldn't be afraid to do the same.

"I would rather buy cheaper, but I have been buying stocks since March 11, 1942," he said.

What's Next

Buffett's advice to investors is straightforward: the right to time to buy stocks is never certain, but the decision to buy stocks, especially over bonds, couldn't be clearer. Investors can hold a piece of ownership in "a variety of great businesses" or buy a "piece of paper" that pays 3 percent in 30 years, he said. 

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Screenshot courtesy of CNBC.