When investing legend Warren Buffett wrote in 1995 that “a rising tide lifts all yachts,” he wasn’t celebrating prosperity, he was issuing a warning. In booming markets, strong results don’t necessarily mean strong skill. Sometimes they just mean everyone with a pulse is getting richer at the same time. Three decades later, in the midst of what many speculate to be a bubble within the artificial intelligence (AI) market, that line feels less like a clever paraphrase and more like a timeless diagnosis of how investors routinely confuse luck with genius.
Then-CEO Buffett used the phrase while discussing Berkshire Hathaway’s (BRK.A) (BRK.B) massive gains in 1995, a year when markets surged broadly. Berkshire’s net worth jumped 45%, a staggering result by almost any standard. But instead of taking a victory lap, Buffett downplayed it.
“This was a year in which any fool could make a bundle in the stock market,” he wrote, adding bluntly, “And we did.” The JFK paraphrase came immediately after: a rising tide lifts all yachts.
The metaphor matters. Buffett didn’t say a rising tide lifts all boats. Boats imply effort, navigation, and seamanship. Yachts imply wealth. His point was that when markets are roaring, capital itself does much of the work. Asset prices rise across the board, mistakes are masked, leverage looks brilliant, and even sloppy decisions get rewarded. In those environments, it becomes dangerously easy for investors (and managers) to attribute outcomes to intelligence rather than favorable conditions.
This is where Buffett’s warning cuts deepest. Bull markets create false positives. They elevate mediocre strategies, justify bad behavior, and turn temporary tailwinds into permanent narratives. Companies that should never have been public thrive. Fund managers with no repeatable edge look unstoppable. Risk gets reframed as courage. Leverage becomes “conviction.” And when the tide is high enough, nobody bothers to check who’s actually swimming naked.
Buffett has always been suspicious of this dynamic. His career is defined as much by what he avoided as by what he bought. During periods of market euphoria, he consistently resisted the urge to chase returns, fully aware that outperformance during a mania is often just correlation dressed up as brilliance. When everyone is making money, distinguishing skill from luck becomes nearly impossible.
The “rising tide” problem isn’t limited to investors. It infects corporate behavior, too. Executives get rewarded for growth that comes from favorable cycles rather than durable advantages. Acquisitions look smart because multiples expand. Compensation packages balloon because stock prices rise, even if intrinsic value doesn’t. Entire industries convince themselves they’ve cracked the code, when in reality they’re just beneficiaries of cheap capital and optimistic markets.
Buffett’s framing also explains why downturns matter so much. When the tide recedes, “yachts” don’t matter — balance, construction, and discipline do. Weak business models get exposed. Overleveraged players disappear. The difference between real economic value and financial engineering becomes painfully clear. That’s why Buffett has often said he prefers to judge businesses and managers over long stretches of time, across multiple cycles, rather than during isolated boom periods.
In today’s market, the quote feels especially relevant. Extended rallies, easy liquidity, and thematic investing, from dot-coms to housing to crypto to AI, have repeatedly produced the same pattern: rapid wealth creation followed by harsh reckonings. Each cycle generates its own class of “geniuses,” many of whom quietly vanish when conditions normalize. The lesson Buffett was pointing to in 1995 is that environments create outcomes just as much as decisions do.
For long-term investors, the takeaway is uncomfortable but essential. If your portfolio is doing well in a roaring market, that’s great, but it doesn’t automatically mean your strategy is sound. The real test is whether it works when conditions turn hostile. Are returns driven by durable advantages, or by momentum and leverage? Are risks understood, or just ignored because prices keep rising?
Buffett’s refusal to celebrate easy wins is part of what made Berkshire different. He understood that humility in good times is not modesty, it’s risk management. By recognizing when the tide is doing the lifting, you’re less likely to mistake luck for skill.
“A rising tide lifts all yachts” endures because it captures a truth most investors don’t want to hear. Success in bull markets is common. Enduring success across decades is rare. The difference lies in knowing when you’re steering, and when you’re simply floating.
On the date of publication, Caleb Naysmith did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
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