That impression compounded the worries raised when the biggest acquisition he had ever made, General Re, coughed up a nasty surprise within days after Berkshire closed the purchase. Ron Ferguson, the CEO, had called to say that the company had been duped out of $275 million in an enormous, elaborately designed fraud called Unicover. Investors had been surprised, to say the least, when the first report Buffett gave them about General Re was an apology for this foolish thing, as well as an expression of confidence in Ferguson and the prediction that affairs would be righted. Since there had been concerns from the beginning about whether Buffett had bought General Re only to dilute his large positions in stocks like Coca-Cola, decades of blissful confidence in his judgment about buying businesses suddenly began to waver.

Even some of his most devoted believers were questioning his wisdom, as the stock market's repudiation of Buffett's Sun Valley manifesto grew even louder in the last few months of 1999. That December, he continued to look not just wrong about technology stocks but dead wrong and, at last, stubbornly blind to the obvious. The Dow closed the year up twenty-five percent. The NASDAQ blasted through 4,000 points, up an incredible eighty-six percent. The market valued Berkshire, with its burgeoning coffers of cash, at only $56,100 per share now, for a total market capitalization of $85 billion. That compared poorly to a little online media company called Yahoo!, which had quadrupled in the last year. Yahoo!, which captured the spirit of the times in its name, was now valued at $115 billion.

As 1999 spun to a close, there was no doubt who was important and influential at the turn of the millennium, and even less doubt who was not. Time magazine crowned Amazon.com's Jeff Bezos as its person of the year, comparing him in importance to Queen Elizabeth, Charles Lindbergh, and Martin Luther King Jr. Buffett's personal ranking had dropped on the annual taking-stock lists, which multiplied a thousandfold that year with the millennial summings-up and retrospectives. He had just fallen from being the second-richest to the fourth-richest man in the world. Technophiles reveled in pointing out the great investor's feet of clay, saying that "if Buffett headed a mutual fund, he'd be looking at a second career."38 Barron's, a weekly must-read on Wall Street, put him on its cover with the accompanying headline "Warren, What's Wrong?" and the comment that Berkshire stock had "stumbled" badly.39 He might as well have had a bull's-eye painted on his brow.

In public, Buffett repeated constantly-in almost unvarying terms-the ideas that had made him famous: the margin of safety, the circle of competence, Mr. Market's vagaries. He still maintained that a stock is a piece of a business, not a bunch of numbers on a screen. All through the market's dizzy rise, he refrained from arguing or disputing any of the madness, except for making his now-famous speech at Sun Valley. People thought, from the way he disciplined every syllable that exited his mouth, that he was above the criticism. "Never," he said, when asked if it bothered him when people called him a has-been. "Nothing bothers me like that. You can't do well in investing unless you think independently. And the truth is, you are neither right nor wrong because people agree with you. You're right because your facts and reasoning are right. In the end, that's what counts."40 But these were separate issues. While he had no problem thinking independently, he was indeed miserable over being called a has-been. Asked around then if being in the public eye for decades helped keep the criticism in perspective, Buffett paused for a long while. "No. It never gets easier," he said soberly. "It always hurts just as much as the first time." But he could not do a thing about it.

Buffett had spent his whole career competing in a contest that was impossible to win. No matter how much money he made and no matter how long he kept it up, sooner or later he would have a bad year or the momentum would slow down. He knew that. Over and over he had warned investors that trees don't grow to the sky. But that had never stopped him from climbing as fast as he could. And he had loved the climb-but somewhat to his surprise, there was no blue ribbon waiting at the top.

His life was fascinating, his business accomplishments important, the principles through which he had succeeded worthy of study. So far as could be determined, everyone who knew him personally liked the man. His kaleidoscope personality perpetually revealed new facets, yet remained faithful at its core to his Inner Scorecard. The one thing that he would always be the best at was being himself.

As he did every year, Buffett spent the holidays with Susie and the family at their vacation home in Emerald Bay, the house garlanded with Christmas decorations from Susie's huge collection.41 His work life may have been particularly challenging then, but Christmas of 1999 was a good one for his family. Warren was satisfied with the way his kids were maturing. Howie had settled down into life as a middle-aged farmer and successful businessman. Big Susie had gotten him interested in photography. Now he lived on an airplane half the time, photographing dangerous wild animals, his love of living on the edge channeled into getting bitten by a cheetah and chased by a polar bear.

A full-time mother of two children and unpaid part-time assistant to her father, Susie Jr. had followed in her mother's footsteps to become a major force in Omaha philanthropy, serving on the boards of the children's theater, the children's museum, and Girls Inc. Her ex-husband Allen ran the Buffett Foundation, and the two lived a few blocks apart and shared parenting.42 After his divorce, Peter had married Jennifer Heil and was still living in Milwaukee and writing music. In the early 1990s, he had gotten the opportunity to move to Hollywood and work in the entertainment industry. But "I realized if I moved to L.A.," he says, "I'd be one of thousands of me's out there trying to get work. My father was always into the movie The Glenn Miller Story. Glenn Miller searched and searched to find his sound; my father used to always talk about 'finding your sound.'" Peter stayed in Milwaukee rather than going to L.A., and felt that his father understood the resemblance to his choice to come back to Omaha to do things his way rather than staying in New York. Soon after, Peter was hired to compose and produce the soundtrack for an important PBS documentary, the eight-part 500 Nations. He had also written and produced a multimedia show as a benefit performance for Susie Jr. that became a PBS special, and toured with it for eleven weeks.43 Howie had been working on Big Susie, convincing her that the kids were mature enough, saying, "Give us a chance, the money is there, give us the chance to do something with it."44 That Christmas, Susie Jr., Howie, and Peter were shocked to receive five hundred shares of Berkshire stock in foundations that each could manage and give to any causes they chose. The kids were elated; Susie Jr. called it "gigantic."45 The family settled in for New Year's Eve. You could follow the progress of the millennium's arrival on television, starting in the Kiribati Islands. From Sydney to Beijing to London, millions of people celebrated on streets and beaches as a chain of fireworks shot around the globe. The Eiffel Tower's millennium clock broke down. But as the hours ticked by, nothing disastrous happened anywhere, even at General Re and Coca-Cola. There was a mathematical neatness to the progression of time zones, locations, hours, that Buffett liked. After the stressful fall he had just spent, the change of millennium was not exciting to him-it was relaxing, and he needed that.

PART SIX.

Claim Checks.

53.

The Genie.

Omaha * 1998.

Buffett was always wary of falling into what Munger called the Shoe Button Complex, pontificating on any and all subjects merely because he was an expert on business. But by the mid-1990s, both he and Munger were starting to receive-and answer-more and more questions about the business of life. He often treated the athletes and college students to whom he periodically spoke to the fable of the Genie.

"When I was sixteen, I had just two things on my mind-girls and cars," Buffett would say, taking a little poetic license here by leaving out the part about the money. "I wasn't very good with girls. So I thought about cars. I thought about girls, too, but I had more luck with cars.

"Let's say that when I turned sixteen, a genie had appeared to me. And that genie said, 'Warren, I'm going to give you the car of your choice. It'll be here tomorrow morning with a big bow tied on it. Brand-new. And it's all yours.'

"Having heard all the genie stories, I would say, 'What's the catch?' And the genie would answer, 'There's only one catch. This is the last car you're ever going to get in your life. So it's got to last a lifetime.'

"If that had happened, I would have picked out that car. But, can you imagine, knowing it had to last a lifetime, what I would do with it?

"I would read the manual about five times. I would always keep it garaged. If there was the least little dent or scratch, I'd have it fixed right away because I wouldn't want it rusting. I would baby that car, because it would have to last a lifetime.

"That's exactly the position you are in concerning your mind and body. You only get one mind and one body. And it's got to last a lifetime. Now, it's very easy to let them ride for many years. But if you don't take care of that mind and that body, they'll be a wreck forty years later, just like the car would be.

"It's what you do right now, today, that determines how your mind and body will operate ten, twenty, and thirty years from now."

54.

Semicolon Omaha * JanuaryAugust 2000 Buffett began the first week of the millennium in his office. In its first edition of the year, the Sunday Times of London said, "ignoring technology seems to have made a chimp out of Buffett."1 One of the first pieces of correspondence was an e-mail from Ron Ferguson, CEO of General Re.

Buffett was already bracing himself. General Re had so far brought him nothing but deplorable news. A year ago, after the company had admitted being duped in the Unicover fraud mere weeks after Berkshire bought it, Ferguson had made a new confession. Movie producers and their lenders had talked General Re into guaranteeing ticket sales on Hollywood films. The company said it would pay if the box office fell short, without knowing what scripts would be filmed or who would star in them. Buffett had been incredulous when he found out. Within weeks, lawsuits began to unreel from the film-finance fiasco faster than the failed films' credits unfurled. It could have gone without saying that his favorite manager, the brilliant Ajit Jain, would never have guaranteed any dumb movie deals. Although it did get said.

Then Ferguson belabored him into a nitpicking match over how to underwrite an Internet lottery called Grab.com that Ajit was reinsuring. Buffett now realized that Ferguson had a sharply different philosophy from his. Buffett always liked to talk about how he would rather step over one-foot bars than look for seven-foot bars to hurdle. The Grab.com lottery deal offered an easy profit-a one-foot bar to step over.2 Ferguson didn't want to do it because it was such a layup. General Re, he said, only did deals where it had an underwriting edge.

Buffett roundhoused the match to an end, then decided that he needed a change in management. Yet he did not act, for nothing required him to do so. General Re had a wonderful track record. The business needed mending, not a purge. Firing Ferguson so soon after he bought the company would mean a brouhaha, a public hullabaloo. He hated firing people.

Two months after the Grab.com deal, come the millennium, Ferguson was confessing that General Re had lost another $273 million from bad insurance pricing. It struck Buffett that he could no longer hope these were isolated mistakes, but an infestation; General Re seemed cursed since the day he'd announced he had bought the damn thing. In its first twelve months as part of Berkshire, General Re-formerly a paragon of discipline-had run straight into the ditch and had lost nearly $1.5 billion dollars from underwriting, the pricing and selection of risk. No company that Buffett had ever owned had lost money approaching a fraction of this magnitude. Buffett said little but recognized that he would have to do something soon.

When the news was published, investors rapidly readjusted their thinking once again. Had paying $22 billion for General Re been a mistake? Buffett's reputation took another hit.

Meanwhile, at Coca-Cola, despite the change in management, all was not well.3 Its new CEO, Doug Daft, had laid off six thousand people in January as his opening act. Investors reacted with shock. Only a minority on Wall Street had been pointing out the sediment rising in Coke's river of profits and investors were not yet convinced they were right. So Coca-Cola got socked, and along with it, BRK, already cheap at $56,100 on January 1, started to plummet.

Two weeks later, on February 9, in the early-morning sanctuary of his office, Buffett sat with half an eye fixed on CNBC, sorting through his reading. The hotline on the credenza behind his desk rang. Only Buffett answered this phone. He picked it up instantly. Jim Maguire, who traded BRK on the floor of the New York Stock Exchange, was on the other end. It was a short conversation.

"Yep...Uh-huh. Mmm-hmm...Okay. Mmm-hmm...Not now. Okay. Mmm-hmm...Mmmmmm-hmmmmmmm...Okay. Thanks." Click.

Maguire was calling to tell him that sell orders were pouring in for BRK. While Buffett had been playing bridge online the previous evening, an Internet bulletin-board writer on Yahoo! who went by "zx1675" had posted, "Warren in Hospital-Critical." Over the next few hours, the rumor spread virally from posters like "hyperpumperfulofcrap," who said over and over "BUFFETT OLD AND WEAK, SELL," and "SELL, SELL, SELL, SELL, SELL." With the rumors filtering through Wall Street and convincing people that Buffett was in the hospital in critical condition, BRK was trading heavily and getting hammered.4 Buffett's personal phone line started ringing. It had been an unusually busy morning for calls. He answered it himself, as usual, lighting up with a big grinning "Oh, hiiiiii!" to show he was happy to hear from the caller.

"How are you?" the caller inquired, with a slight tone of urgency.

"Well...never better!"

If a tornado were barreling straight toward Kiewit Plaza, Buffett would say that things were "never better" before mentioning the twister. People knew to read his tone of voice; today it sounded stressed. All morning, callers had wanted to know-how was he, really?

I'm fine, Buffett explained, everything is fine. Really. But from the way BRK was trading, people were listening to hyperpumperfulofcrap. This was the power of new media. As BRK continued sliding on rumors of Buffett's impending demise, shareholders were ringing their brokers, demanding to know whether Buffett was alive. People who knew people who knew Buffett grilled them: "Are you certain? Have you seen him? How can you know for sure?"

CNBC broadcast the rumors about Buffett's possible demise, flambeing the story with word of his reassurances. Skepticism grew. If he was saying he was fine, he must not be. A second rumor began to circulate that he was taking advantage of the situation to buy Berkshire's own stock cheap. That hit him on the tender spot where his reputation for personal integrity collided with his reputation for ruthless rapacity.

For two days the siege continued while BRK traded down more than five percent. By presuming his indispensability, the rumor paid Buffett a sort of inverted compliment. But he was outraged that anyone would think he would cheat his own shareholders by buying back stock at their expense under false pretenses. And he hated being blackmailed by some jerk who manipulated the stock price through the Internet. He couldn't stand being a dog on anyone's leash. He was appalled at the thought that responding to manipulation would reward and encourage more rumors-and thereby set a precedent.

Eventually, he reasoned, the rumors would die under their own demonstrated falsity. But "eventually" could take a long time. A new reality had dawned: In the age of the Internet time was compressed, and he had less and less control over public perception of him. Finally, he capitulated and issued an extraordinary press release.

Recently certain rumors have surfaced on the Internet regarding share repurchases and Mr. Buffett's health. While it has been a long-standing Berkshire policy to not comment on rumors, we are making an exception with respect to these recent rumors. All rumors regarding share repurchases and Mr. Buffett's health are "100 percent false."5 The announcement was useless. BRK plunged eleven percent that week and didn't recover.

On March 9, Newsday hit the stands quoting Harry Newton, publisher of Technology Investor Magazine: "I'll tell you what Warren Buffett should say when he releases his statement to shareholders: 'I'm sorry!' that's what." The next day, BRK hit a low of $41,300 per share, trading at scarcely more than the value at which its pieces were carried on its books. The legendary "Buffett premium"-the high price the stock supposedly traded at just because of Buffett-was gone. The day before, the NASDAQ index had bounded up the Andes to reach 5,000. Since January 1999 it had doubled, its component stocks increasing more than $3 trillion in value.

The contrast was too sharp to leave alone. A money manager wrote that investors like Buffett were "fallen angels, disgraced with poor rankings...made obsolete in 1999 by mavericks who say the old laws of investing have been repealed and backed up their theories with eye-popping numbers."6 Buffett was miserable about the bad publicity, though he never considered changing his investment strategy. Owners of BRK apparently would have been better off investing in an index of the market over the past five years-the most prolonged drought in Berkshire's history. His Coke investment, once valued at a frothy $17.5 billion, would now fetch only $8.75 billion. His determination not to give up his margin of safety meant that Berkshire had piled up billions in unused capital, which was loafing in low-yielding bonds. Buffett understood the basics of computers perfectly well. But he would not consider buying a technology stock at any price. "When it comes to Microsoft and Intel," he said, "I don't know what that world will look like ten years from now. And I don't want to play in a game where the other guy has an advantage.... The software business is not within my circle of competence.... We understand Dilly Bars and not software."7 In February 2000, the SEC had denied Berkshire Hathaway's request to keep some of its stockholdings confidential. It weighed the various interests of investors in a stable market versus the right to know, and ruled in favor of the right to know. Instead of accumulating a huge block of stock like American Express or Coca-Cola, he would only have time to tweezer up stocks in little bits before people could ride his coattails. Although he would continue to fight back, the SEC had turned him into Ben Graham, who opened up his books for the whole world to see. From now on, acquiring entire businesses-which had always been his favorite way to use capital, anyway-would be the main use of money at Berkshire. It was going to become much harder to put large amounts of money to work in stocks. That stung at a time when the media referred to Buffett as "formerly the world's greatest investor."8 On March 10, the day after Harry Newton said that Buffett should apologize, the Wall Street Journal wrote that almost everyone was making money in tech except the stubborn, curmudgeonly Buffett, whose stock was down forty-eight percent from its high.9 The Journal compared his performance to a retired AT&T employee whose portfolio was up thirty-five percent, saying that this technology-stock dabbler "isn't exactly Warren Buffett-thank goodness."10 Never in Buffett's career had resolution and clear thinking been put to the kind of test that he had endured for the past three years. Every indication in the market said that he was wrong. Because of his determined clinging to a set of moldy ideas, the public, the media, and even some of his own shareholders thought he was corked. He had only his inner conviction to steer him straight. And this was the needy man who over the years had grown habituated to a stream of accolades as steady as his daily dose of Cherry Coke; who was so sensitive to public criticism that he ran from anything that would expose him to it; who had sculpted his life around managing his reputation; and who fought like a tiger against anything that could sully it.

Yet, even under siege to his reputation, this time, Buffett never fought back. He neither wrote editorials, nor testified before Congress about the dangers of the market, nor dueled in the press, nor gave television interviews to defend himself, nor arranged that his proxies do so on his behalf. He and Munger carried on their regular dialogue with Berkshire's shareholders, saying that while the market was overvalued, they could not predict how long it would last. Finally, not for the record but as a warning and a way of teaching, Buffett explained his views once and for all and predicted that the market would fall far short of investors' hopes for two decades in a tour de force of a speech to the elite at Sun Valley that he shortly afterward turned into a Fortune article for Joe and Jane Investor on the street.

It had taken one great surge of courage to burst past his fears and beg for help from Nick Brady to save Salomon. But to show such restraint, then commit himself to such a forecast in the face of years of criticism and ridicule, took a different kind of courage, making the Internet bubble one of the greatest personal challenges of his career.

On March 11, twenty-four hours after the Wall Street Journal said thank goodness the retired AT&T employee was a better investor than Warren Buffett, Berkshire Hathaway issued its annual report, and Buffett graded himself a "D" for failing to invest Berkshire's capital. He did not say, however, that he considered avoiding technology stocks to have been a mistake. He simply reframed investors' expectations, writing that, because of its enormous size, Berkshire was now likely to grow in value only "modestly" better than the market. This, he knew, would set off debates about what "modestly" meant. But he felt it had to be said.

Separately, Buffett announced that BRK was so cheap that Berkshire would now entertain offers from investors to buy its own stock. To do so-to give money back to shareholders to whom he hadn't paid a dividend in decades; to even contemplate it-was as if Buffett, a glutton for capital all his life, had suddenly turned ascetic.

And for the second time, Buffett was publicly announcing what he wanted to buy in advance. Not since the Great Unwinding of the partnership in 1970 had he said, "I will buy Berkshire Hathaway." Once again, investors had to ask themselves which side to play. This time, many people understood the message. His willingness to put up money for Berkshire stock made such a statement that, before he could buy a single share, BRK rose twenty-four percent.

The following week, the NASDAQ, full of technology stocks, sent up a warning plume of ash.11 By late April, it had cratered thirty-one percent, among the largest losses in historic terms.

By Easter, Buffett did not care; he was doubled over in pain. He could not believe it. Right before his all-important shareholder meeting, the critical performance of his year, the rumors about his health had come true. Susie Jr. rushed him to the hospital at three o'clock in the morning, where he spent the next several days trying to pass a kidney stone. The nurses kept wandering in and out, addressing him as Bill. Although he was in such agony that he never asked, he wondered what the hell was going on. He phoned Big Susie repeatedly in panic. She was away in Grand Lake, Colorado, with her group of "hen" friends from high school; there was nothing she could do.12 Finally, he felt somewhat better, so his doctor sent him home. When his daughter picked him up, she explained that the nurses had been calling him "Bill" because he'd been registered under Doc Thompson's name.

Almost immediately, however, Buffett had to rush back to the hospital, still trying to pass the damn kidney stone. Once again he sat up all night drinking tumblers of water until, finally, the water torture worked. But from then on he had to worry about a part of his anatomy that had not previously concerned him, because kidney stones recur. "The plumbing thing-I hate it. Basically that's what goes wrong as you get older," he said.

He took inventory of his problems. The stock was in such disrepute that only his offer to buy it himself had saved it. General Re, his largest deal, seemed cursed. Coca-Cola was nagging at his thoughts. How could so much damage have happened so quickly in a business with such a bulletproof brand? Could it really all be poor old Ivester's fault? And now a problem with his health had reared up to stare him in the face.

The fact of mortality dwelled beneath the surface of Buffett's bathtub memory, periodically sliding its way back up into the tub.13 He had still never come to terms with his father's death. He had never decided on a suitable memorial to Howard. He had moved the large portrait of Howard so that it hung on the wall behind his desk, floating above his own head. Howard's papers sat in the basement of his house, untouched. Warren could not bring himself to go through them. He teared up if he even thought about it, obviously terrified to let the emotions that had been held back all these thirty-five years erupt.

He'd warned that trees don't grow to the sky; someday everything must end. Yet he himself couldn't face the day he would have to draw the line under his career and say: "This is it. I'm done. The Sistine Chapel is finished. No further brushstroke will improve it-any further effort will produce an ordinary result."

He was sixty-nine years old. He couldn't believe that he was sixty-nine years old; he still felt like a young man. He comforted himself with the knowledge that decades remained until he reached the age at which his mother had died. General Re would be fixed, and Coca-Cola, as he knew, could be run by a ham sandwich. The kidney stone...Whoosh! The bathtub memory went to work. He returned to preparing for his shareholder meeting, which had become the happiest week of his year.

For several days at the end of April, the town grew more crowded, the airport grew busier than usual, a rivulet, then a stream of people arrived in the hotel lobbies to check in, and tables in the outdoor cafes of restaurants downtown started to fill. The rental car companies ran out of cars. The bar at the Marriott Regency-at the time a sort of unofficial headquarters for meeting "insiders"-was packed. People wearing Berkshire Hathaway meeting credentials strolled through Omaha as if identifying themselves as members of a club. In Buffett's office, the phone rang with urgent last-minute requests for press credentials, meeting passes, and requests from guests to bring their own guests to the most exclusive event of the year in Omaha-Buffett's private Sunday brunch. With outward patience but increasing irritation at the more brazen requests, Buffett's secretary, Debbie Bosanek, unsnarled the bottleneck and told people no.

On Friday night, Buffett made the rounds from public events to private parties. Some of his disciples, dressed in gigantic yellow foam cowboy-style hats like members of a cult, mingled with longtime shareholders and big-time money managers at the Borsheim's cocktail party, where much of Omaha joined the out-of-town shareholders to scarf down free drinks and food. Susan Jacques of Borsheim's staged this event, which Buffett supported because it increased turnover, despite his suspicions that a lot of freeloaders showed up.

Over at the Civic Auditorium, the shareholder meeting itself-which had multiplied to include thousands of staff, vendors, and volunteer employees; acres of exhibits, flowers, and displays; truckloads of turkey sandwiches, hot dogs, and Coke; signage, exhibits, security, media, sound, video, lighting, and private parties for the vendors and helpers-was designed, choreographed, and overseen by just one employee, Kelly Muchemore, whom Buffett called the "Flo Ziegfeld" of Berkshire Hathaway. Kelly did not even have a secretary. Technically, she was a secretary. It would take four people to replace Kelly, Buffett pointed out with pride. One side effect of this kind of praise was that it sometimes caused people to wonder whether they were getting paid a quarter of what they were worth.14 Buffett, however, was skilled at paying people with more praise than cash. Those who sat closest to the sun, Muchemore, Bosanek, and the receptionist, Deb Ray, were the most Carnegized of all Buffett's employees; every shareholder had heard all about how wonderful they were. The Carnegizing seemed to work like a sort of sunscreen helping protect them from Rickershauser's Law of Thermodynamics. Thus, they threw themselves into the fray, while keeping their boss sheltered in his private cocoon down at the end of the hallway, separate from everybody else. In the weeks leading up to the meeting, they all pulled double duty. On meeting day, Deb and Debbie handled the most important VIPs and the press room, while Muchemore ran around with a walkie-talkie, field-marshaling.

By four o'clock in the morning on Saturday, several hundred restless people wearing laminated meeting credentials on lanyards around their necks lined up outside the Civic Auditorium, waiting for the doors to open. Three hours later, people stampeded past the guards who checked their credentials to claim the prime seats on the floor. After hanging their jackets and sweaters over the backs of their chairs to save seats, they made their way to the concession stands for the free breakfast of sugary sweet rolls, juice, and coffee. By eight o'clock it became clear that they needn't have bothered to show up before dawn. Half the seats in the house were empty. Thirty minutes later, the auditorium held nine thousand people.15 While most CEOs would be thrilled (or horrified) at such a turnout, it didn't compare to the fifteen thousand who had come the year before. Attendance was down by forty percent.

On schedule, the auditorium darkened and the film rolled for the premeeting movie, which had been growing longer with each year. It opened with a cartoon featuring Warren as a superhero, with Charlie in a supporting role, shilling for Berkshire products. Next, Judge Judy adjudicated a mock dispute over a two-dollar bet between Buffett and Bill Gates. Comedy videos and commercials for Berkshire products followed; finally Susie Buffett sang a Berkshire-ized version of the Coca-Cola theme song, "What the world wants today...is Berkshire Hathaway."

Around nine-thirty Buffett and Munger walked onto the stage in suits and ties and looked out over the shrunken crowd of the faithful, clad in everything from business garb to shorts. Yellow foam hats bobbed here and there in the audience. After a five-minute business meeting, the question-and-answer session opened as usual, with shareholders lined up at microphones positioned around the auditorium, lobbing questions on how to value stocks. Somebody asked about technology stocks. "I don't want to speculate about high-tech," Buffett said. "Anytime there have been real bursts of speculation, it eventually gets corrected." He compared the market to the phony riches of chain letters and Ponzi schemes. "Investors may feel richer, but they're not." Pause. "Charlie?"

Munger opened his mouth. The audience perked up slightly. Munger often said, "Nothing to add." But whenever Buffett handed the microphone to him, the auditorium hummed with the subtlest sensation of danger. It was like watching an experienced lion tamer working with a chair and a whip.

"The reason we use the phrase 'wretched excess,'" Munger said, "is because it produces wretched consequences. It's irrational. If you mix raisins with turds, they're still turds."

The crowd gasped. Did he say turds? Did Charlie just compare Internet stocks to turds in front of children who had come with their parents, not to mention in front of the press? He said turds! It took some time for the meeting to settle back into its normal rhythm.

Somebody asked "the silver question." Around then, people started heading down into the basement to shop for shoes and Ginsu knives and See's Candies. An annual question about Buffett's silver position had become a tedious ritual. In 1997, he had announced he'd bought almost a third of the world's silver supply. Instead of bringing up recollections of Blue Eagle stamps, this announcement had sent metals enthusiasts into a frenzy over the Oracle's sudden liking for their niche.16 More attention was paid to this single transaction than any in Berkshire's history. Buffett was not a metals bug; he followed metals as a business, based on their supply and demand, not to speculate on them or use them as a hedge against inflation. He thought stocks of companies that could raise prices were the better hedge, even though inflation eroded their gains. He had bought the silver as a good investment, but what he really wanted was to go and visit the silver. He pictured himself in the secret London vault, smiling as he counted the gleaming bars.17 The silver question sent Buffett's and Munger's eyes rolling heavenward a fraction of an inch, although Buffett responded politely that owning the silver had been a dull ride. He refrained from mentioning that a visit to the silver would have livened up the ride considerably.

The questions droned on as Buffett and Munger listened, unwrapping Dilly Bars with much rustling. Shareholders began to voice complaints. They didn't like the stock price.18 One said she was going to look into correspondence schools, since her Berkshire stock would no longer pay for college.19 Gaylord Hanson of Santa Barbara, California, stood at the microphone to harangue that he had bought BRK near its highs in 1998 because of Buffett's track record and had come out okay only because the money he'd lost had been made up by four technology stocks.20 He urged Buffett to invest at least ten percent of Berkshire's assets in technology, "the only game in town. Isn't there enough left in your brain power to maybe pick a few?"

The questions kept veering along these lines. What about famous money managers like Stanley Druckenmiller, who had given in and bought technology at Soros? Given Berkshire's disappointing performance, couldn't Buffett find something new to do? If not technology, couldn't he make some international investments?

It was worse than humiliating. Looking out into the audience, Buffett saw that, for the first time, some of them assumed that he was letting them down: the effort of nearly fifty years rolled backward, undone, his own shareholders turned against him. His age suddenly signified not experience but obsolescence. In the press, people now referred to him as an old man. It seemed that the world today did not want Berkshire Hathaway.

Afterward, Buffett guzzled Cherry Coke while signing autographs, then donned a baseball uniform to throw out the first pitch at the Omaha Royals game. He made another round of parties with Astrid, still wearing his baseball uniform, Dilly Bars dripping in his wake. He held court at Gorat's with the family on Sunday night, then oversaw the board meeting-another teaching exercise-on Monday morning. Afterward, he, Susie, and the kids and their families flew to New York. By the time he was catching up with friends, eating out and seeing shows with the family, and dutifully checking off his list the unloved annual chore of buying suits at Bergdorf's, the bathtub memory had done its work. While in New York, he also taught a session of the modern version of the Ben Graham course at Columbia and met with half a dozen journalists attending Columbia's business-journalism program.21 Saturday morning he summoned three members of General Re's management to his suite at the Plaza Hotel. Ron Ferguson brought a series of PowerPoint handouts and began to pace through General Re's string of terrible results. Buffett listened for a few minutes, frowning and fidgeting. Finally he said, Why don't we just jump to the end. Results had to improve. The lines of authority must be reinforced. Clients were dictating terms to General Re, not the other way around. This must end. Somebody had to be accountable.22 He stopped short of telling Ferguson to retire, betrayed by his weakness for older managers. He sympathized with Ferguson, who'd suffered a subarachnoid hemorrhage in late 1999. Ferguson, who had seemed just slightly off-kilter for some time afterward, had offered to step down then. Buffett had told him no. He didn't believe in putting people out to pasture; some of his best managers had been elderly, including Mrs. B, who had worked until age 103 and died a year later. He missed her caustic little soul, but felt great relief that she had not outwitted the terms of her noncompete. His own goal was to outlive Mrs. B, not by just a few years but by five years beyond forever, as he had once feared that she would outlast him. He bragged all the time about Berkshire's geriatric crew, and his board of directors was beginning to resemble the elderly U.S. Supreme Court.

Imagine, therefore, if Buffett's genie had been watching over his shoulder a few weeks later, as he played bridge after dinner at Bill and Melinda Gates's house. He was answering questions in the raspy voice that meant he hadn't been sleeping, repeating that he was "just fine," but clearly not enjoying himself. Sharon Osberg, who knew how to read the signs that meant Buffett was in real distress, conferred with the Gateses, who immediately summoned a doctor, over Buffett's protests.23 The doctor was surprised that Buffett had never had a colonoscopy. He gave him a painkiller to get him home in comfort. But, he said, you really should go in and have a complete examination and a colonoscopy when you get back to Omaha.

The genie would have been less tactful. Howard Buffett had had colon cancer and died of complications from it. What was Buffett thinking, at age sixty-nine, never having had a colonoscopy? This was certainly not treating your body like the only car you'd ever own.

A month later, BRK had recovered by nearly $5,000 a share to $60,000. Fortune magazine noticed that even though he "lost his heavenly touch" in 1999, Berkshire's recent forty-seven percent recovery from its March low made him a "good revivalist."24 He would need some reviving in other ways, however.

Buffett had scheduled the dread procedure at last.25 So much medical attention at once-only a month after the kidney stone. But a colonoscopy could be considered "routine." He distracted himself by talking on the phone and playing bridge. He played helicopter on the computer. When people asked him about the upcoming procedure, he said, "I'm not the least bit worried."

But he woke up from the colonoscopy to a nasty shock. A sizable benign polyp was nesting in his gut. The polyp had taken over so much real estate that removing it would require demolishing a good chunk of the surrounding neighborhood. It had a few small friends nearby as well. This was not something to trifle with. Buffett decided to have surgery in late July, after Sun Valley. "Oh, I'm not worried at all," he said, making jokes and stressing the good results from his cardiology tests. "I never worry about my health. Unless you'd brought it up, I never would have even thought about it."

But Buffett now seemed cornered into issuing press releases about his health, this one blaring in embarrassing detail: Warren E. Buffett, Chairman of Berkshire Hathaway Inc. (NYSE: BRK.A, BRK.B), expects to enter an Omaha hospital in the next month to undergo surgery to remove several benign polyps in his colon. The polyps were discovered on Monday when Mr. Buffett underwent a routine physical examination, which otherwise found him to be in excellent health. The surgery is expected to keep Mr. Buffett in the hospital for several days, after which he expects to return quickly to work. Berkshire Hathaway is releasing these facts to forestall the kind of false rumors about Mr. Buffett's health that disrupted the market for its stock earlier this year.26 The surgery took several hours, during which fifteen inches of Buffett's innards were removed, and left him marked with a seven-inch scar. He spent a week recovering at home. He also grew a beard for the first time in his life. Deprived of Berkshire Hathaway, he talked a lot on the phone. He sounded weak.

"Oh, no, I'm not tired at all, I'm perfectly fine," he said. "I've lost a few pounds I needed to lose. Astrid's taking good care of me. The doctor says I can eat anything I want. By the way, did I tell you that I went into the hospital with a colon, but I came out with a semicolon?" Asked if he was concerned about a recurrence: "Oh, no, I'm not worried at all about that. I never worry about anything, you know. Incidentally, did I tell you that the anesthesiologist used to be my caddy at the country club? I told him before he put me under that I sure hope I tipped him well."

Berkshire Hathaway's press release simply noted that the polyp was confirmed benign and no further treatment was required. Despite the announcement, rumors raced over the Internet and around Wall Street again. Some insisted that Buffett must have had cancer; polyps did not require surgery. But Warren was not sick and certainly did not feel old. He still felt like the "Firebolt."

Yet after tolerating cavalier treatment all his life, his health was beginning to set limits. Someday, his wrestling match with infinity would end; the questions he was avoiding must be faced. Since Berkshire and Buffett were interchangeable in his mind, everything in his nature rebelled against this task. Many of the questions hinged on Big Susie, who was going to outlive him. He told people that she would take care of everything.

55.

The Last Kay Party Omaha * September 2000July 2001 By the time Buffett got his semicolon, the Internet boom had boomeranged. The dotcoms were dying at the pace of one a day: Arzoo.com, Boo.com, Dash.com, eToys.com, Flooz.com, FooDoo.com, Hookt.com, Lipstream.com, PaperFly.com, Pets.com, Wwwwrrrr.com, Xuma.com, Zing.com.1 The NASDAQ was trading at less than half the value of its peak; the old economy stocks were still swooning. The Federal Reserve had started to cut interest rates once again. Buffett's reputation, however, began to revive.

Berkshire dipped its soup ladle into a huge stockpot of capital for Buffett to buy private companies, bankrupt companies, under-the-radar companies as the window to invest began to open again. He bought U.S. Liability, an insurer of unusual risks; Ben Bridge, another jeweler;2 and Justin Industries, parent of Acme Brick and Tony Lama and Nocona Boots;3 Shaw, the world's largest carpet maker;4 and Benjamin Moore Paint.5 He bought Johns Manville, a home-building-products maker,6 and Mitek, a high-tech steel component fabricator.7 Even so, by the end of 2000 Berkshire still had billions of unused capital: a baled-in-the-basement, batched-to-the-rafters, wadded-to-the-walls, stashed-up-the-chimney, thatched-to-the-rooftop mass of money that continued to pour out from the self-perpetuating cash-spinning machine.8 Buffett's foreboding prediction about the market in his 1999 Sun Valley speech had proven right so far. Now he sermonized in his letter-which had become a global media event, released on the Internet and awaited by so many thousands of people that the Berkshire Web site nearly crashed on the appointed Saturday morning-that the birth of the Internet was a chance for cynical financiers to "monetize the hopes" of the credulous. He alluded again to the Aesop's fable he had invoked in his Sun Valley speech: Investing in the Internet is laying out the bird in the hand-money today-to get birds in the bush. The resulting "wealth transfer on a massive scale" was going to benefit only the very few.

"By shamelessly merchandising birdless bushes, promoters have in recent years moved billions of dollars from the pockets of the public to their own purses (and to those of their friends and associates).... Speculation is most dangerous when it looks easiest."9 The audience listened, and at the 2001 shareholder meeting, the crowds started coming back.

A small part of Berkshire's good fortune came from a turnaround at Gillette, where Buffett had been instrumental in replacing its CEO, Mike Hawley, with Jim Kilts.10 Shortly before that, near the end of 2000, he had thrown off his torpor as a Coca-Cola board member once again when Doug Daft, the new CEO, tried to make a deal to buy Quaker Oats. Buffett was one of several board members whose lack of support spiked the deal. But it remained to be seen whether the changes at Coca-Cola would make a difference. Certainly replacing one ham sandwich with another had not helped the stock.

Buffett's return to Sun Valley in 2001 was another opportunity to table-thump. But as the Gulfstream jets glided their way down the mountain wave to Hailey, the corporate chiefs heading to the Sun Valley Lodge had deals on their mind and rumors were flying. Most of the rumors concerned AT&T fighting off an unfriendly offer for its cable assets from Comcast.

For the first time, an archipelago of television news tents filled the lawn in front of the Sun Valley Inn. Equipped as though for a movie shoot with distracting lights, silver reflecting sheets, producers, cameramen, assistants, makeup people, and reporters, all waiting to wrestle CEOs into giving interviews, they fueled the rumor mill. TV cameras hovered around the Duck Pond; reporters pounced on the willing and unwilling after their speeches. They chased after people from companies that were supposedly involved in the deals.

On Friday afternoon, after playing bridge, Katharine Graham, who was now left in relative peace at age eighty-four, rode back to her condo in the little golf cart she used to get around in Sun Valley. Tall and still on the slender side, she had had both hips replaced, and one worked better than the other. People noticed that she seemed worn out and "fading," but she had been saying what a marvelous time she was having this year. The company that she and her son Don had created, with much help from Buffett's advice, was now regarded almost as iconic for its financial and journalistic success at a time when newspaper profits were slipping badly. Graham took obvious pleasure in the way the Allen conference brought together so many of the people she enjoyed. She had been assigned an assistant to escort her everywhere, but she had the grit to resist handling, so for much of the conference she was seen on the arm of either Don or Barry Diller, chairman of USA Networks and a close friend. At the moment, however, she was alone.

Susie Buffett Jr. and her mother, in their car, spotted Graham and drove into the employee parking lot where Graham could not see them, so that they could watch her climb the four steps to her condominium. She was taking the anticoagulant Coumadin, which greatly increased the risk of serious hemorrhage should she fall. She clung to the handrail and looked shaky but made it inside without incident.11 Later, outside on the deck of the Wildflower condos, overlooking the golf course and mountains, where Graham often sat reading the Washington Post in the afternoons, fashion designer Diane von Furstenberg threw her annual women's cocktail party for Kay, a Sun Valley tradition. Susie Buffett brought See's lollipops, and they all gathered around Graham for a picture, with lollipops in their mouths.12 After a while, Don Keough, Diane's husband Barry Diller, News Corporation CEO Rupert Murdoch, and several of the other men crashed the party and joined Don Graham.

Saturday dawned. The audience settled into its chairs to hear Andy Grove, head of Intel, kick off the morning with "Internet Interrupted." Then Diane Sawyer moderated a panel, asking Meg Whitman of eBay; Sir Howard Stringer, CEO of Sony; and AOL Time Warner's Steve Case "Pulse of America: How Do You Find It?" Sun Valley frothed and bubbled like a junior high school cafeteria being filmed for a documentary, with reporters round-robining rumors that USA Networks, or AOL Time Warner, or Disney, or Charter Communications, or some combination of them, were going to hook up with AT&T Broadband.13 Many of those present wished the television tents would disappear.

After Diane Sawyer, Buffett was once again the scheduled speaker. Since the market's peak in March 2000, over four trillion dollars of stock-market value had evaporated.14 At least 112,000 dotcom employees had been fired.15 Meanwhile, the surviving Internet businesses were entering their adolescence. Surely, some reasoned, he would no longer think Internet stocks overvalued. The audience was hoping he would relent from his previous bearishness.

Yet Buffett showed them a graph indicating that the value of the market was still one-third larger than the economy. That was far higher than the level at which Buffett said he would buy stocks. It was considerably higher than the market had ever stood in modern history-higher, even, than the peak of the Great Bubble of 1929. In fact, the graph suggested that the economy would have to nearly double, or the value of the market would have to fall by nearly half, before he would get really excited about it.16 He told them that despite two years of keelhauling, even with the NASDAQ down by more than half, he would still not buy. He expected the stock market (with dividends included) to grow at no better than about seven percent a year, on average, for possibly as long as the next twenty years.17 That was only about one percent higher than he had said two years before. It was a dispiriting message, most of all to Buffett himself-who was about to celebrate his seventy-first birthday-and to the track record he wanted to maintain.

"That shouldn't be the way markets work," he said, "but that is the way markets work. And in the end, that's what you should remember." He put up a slide.