The "mass hallucination" that gripped the world's stock markets during the tech boom is ending, the US investment guru Warren Buffett has told the BBC.

We had a mass hallucination about four or five years ago and it spread to every place

Warren Buffett

He said the markets were now "more realistic" compared with the share bubble of a few years ago, when investors ignored common sense and started "dreaming".

Mr Buffett added that the hallucination had led to an erosion of accounting standards, which erupted so damagingly over the past few months.

And he said investors should take a long-term view with their money if they wanted to be successful.

Track-record

Warren Buffett has become one of the world's most successful investors through his company Berkshire Hathaway.

People behave like lemmings in certain cases - when money is involved there's that desire to believe

Warren Buffett

His strategy has been to concentrate on buying stakes in undervalued companies and then holding the shares for many years, rather than seeking to make a quick gain from speculative trading.

During the tech boom of the late 1990s Mr Buffett was criticised for not investing in internet companies and consequently missing out on the large share increases seen at the time.

'Crazy prices'

In an interview with the BBC, Mr Buffett said most of the froth of the tech boom years had now gone.

"When you have a market value of $20bn-30bn on a company that's just a gleam in the eye of someone I think hallucination fits the phenomenon.

"Businesses were sold at somewhat crazy prices, but that's over with now and I think it'll stay over with for a while."

When asked why people had acted in such a way he said people "go mad in crowds - they lose their ability to see what's right in front of them".

"People behave like lemmings in certain cases - when money is involved there's that desire to believe."

No easy fix

He said he had no solution for private investors who had made big losses when the market collapsed.

"Unfortunately the people who got in a few years ago were paying bubble prices for securities and they weren't alone - the small investor and the professional were doing the same thing.

"If you pay the wrong price for something there's no cure - that's true if you're buying businesses, commodities, homes or anything else.

Soaring stocks led to scandal

The "hallucination" in the market contributed towards the recent corporate scandals seen in the US, such as Enron and WorldCom.

Mr Buffett said standards were "eroded".

"When people get very happy anything goes to some degree and accounting deteriorated... management stuck their hands further and further into the cookie jar and there were real abuses," he said.

"Generally speaking American CEOs are able and they're decent people but when they saw someone else making $30m instead of their $3m they didn't ignore it."

Long-term view

Mr Buffett said he did not know what effect a war with Iraq would have on the markets or the economy and said investors should try and avoid looking at short-term factors.

"You're taking your eye off the ball if you're looking at specific events, in terms of either business or markets.

"You can't time those things and you can't know exactly how they'll work out."

And he urged investors to look for value and invest for the long-term.

"In the end if [people] buy good businesses at the right price they will do wonderfully."