Warren Buffett: Billionaire’s tell-all bio

The cloud of arrogance hung heaviest over the presentations that were the conference’s centerpiece. Heads of companies, high government officials, and other people of note gave talks unlike those they delivered anywhere else, because hardly a word of what was said was ever whispered beyond the flower boxes hanging by the doors of the Sun Valley Inn. Reporters were banned, and the celebrity journalists and the media barons who owned the television networks and newspapers sat in the audience but honored a code of silence. Thus freed to perform only for their peers, the speakers said important and often true things that could never be articulated in front of the press because they were too blunt, too nuanced, too alarming, too easily satirized, or too likely to be misinterpreted. The workaday journalists lurked outside, hoping for crumbs that were rarely thrown.

This year the new moguls of the Internet had been strutting, showing off their soaring expectations, trumpeting their latest mergers and looking to raise cash from the money managers sitting in the audience. The money people, who stewarded other people’s pensions and savings, together commanded so much wealth that it could hardly be comprehended: more than a trillion dollars. With a trillion dollars in 1999, you could pay the income tax of every single individual in the United States. You could give a brand-new Bentley automobile to every household in more than nine states. You could buy every single piece of real estate in Chicago, New York City, and Los Angeles — combined. Some of the companies making presentations needed that money, and they wanted this audience to give it to them.

Early in the week, Tom Brokaw’s panel, called “The Internet and Our Lives,” had drum-majored a procession of presentations about how the Internet would reshape the communications business. Priceline’s Jay Walker took the audience through a dizzying vision of the Internet that compared the information superhighway to the advent of the railroad in 1869. One after another, executives laid out the glittering prospects for their companies, filling the room with the intoxicating vapor of a future unlimited by storage space and geography, so slick and visionary that while some were convinced that a whole new world was unfolding, others were reminded of snake-oil salesmen. The folks who ran technology companies saw themselves as Promethean geniuses bringing fire to lesser mortals. Other businesses that grubbed in the ashes to make the dull necessities of life — auto parts, lawn furniture — were now of interest mostly for how much technology they could buy. Some Internet stocks traded at infinite multiples of their nonexistent earnings, while “real companies” that made real things had declined in value. As technology stocks overtook the “old economy,” the Dow Jones Industrial Average had burst through the once-distant 10,000-point barrier only four months before, doubling in less than three and a half years.

Many of the recently enriched congregated between speeches at a cordoned-off dining terrace by the Duck Pond, where a pair of captive swans paddled around a pool. There, any guest — but not a reporter — could edge through the masses of people in khaki pants and cashmere cable sweaters to ask a question of Bill Gates or Andy Grove. Meanwhile, the journalists chased after the Internet moguls as they moved between the Inn and their condos, amplifying the atmosphere of inflated self-importance that permeated Sun Valley this year.

Some of the new Internet czars spent Friday afternoon lobbying Herbert Allen to get them into celebrity photographer Annie Leibovitz’s Saturday afternoon shoot of the Media All-Star Team for Vanity Fair. They felt they had been invited to Sun Valley because they were the people of the moment, and they had trouble believing that Leibovitz had made her own choices about who to photograph. Why, for example, would she include Buffett? His role in media had come mostly secondhand — through board memberships, a large network of personal influence, and a history of media investments large and small. Besides, he was old media. They found it hard to believe that his face in a photograph still sold magazines.

Video   Life and career of Warren Buffett Sept. 29: Alice Schroeder, a Wall Street analyst and managing director at Morgan Stanley, discusses the biography she wrote about the billionaire. Today show

These would-be all-stars felt slighted because they knew perfectly well that the balance in media had shifted toward the Internet. That was so even though Herbert Allen himself thought the “new paradigm” for valuing technology and media stocks — based on clicks and eyeballs and projections of far-off growth rather than a company’s ability to earn cold hard cash — was bunk. “New paradigm,” he sniffed. “It’s like new sex. There just isn’t any such thing."

The next morning, Buffett, emblem of the old paradigm, rose early, for he would be the closing speaker of the year. Invariably, he turned down requests to speak at conferences sponsored by other companies, but when Herbert Allen asked him to speak at Sun Valley, he always said yes. The Saturday morning closing talk was the keynote event of the conference, so instead of heading straight to the golf course or grabbing a fishing rod, almost everyone went to the breakfast buffet at the Sun Valley Inn, then settled into a seat. Today Buffett would be talking about the stock market.

In private, he had been critical of the gunslinging, promoter-driven market that had sent technology stocks galloping toward delirious heights all year. The stock of his company, Berkshire Hathaway, languished in their dust, and his rigid rule of not buying technology stocks seemed outmoded. But the criticism had no influence on how he invested, and to date, the only statement he had made in public was that he never made market predictions. So his decision to get up at the podium in Sun Valley and do just that was unprecedented. Perhaps it was the times. Buffett had a firm conviction and an overwhelming urge to preach.

He had spent weeks preparing for this speech. He understood that the market was not just people trading stocks as though they were chips in a casino. The chips represented businesses. Buffett thought about the total value of the chips. What were they worth? Next he reviewed history, pulling from an exhaustive mental file. This was not the first time that world-changing new technologies had come along and shaken up the stock market. Business history was replete with new technologies — railroads, telegraph, telephone, automobiles, airplanes, television: all revolutionary ways to connect things faster — but how many had made investors rich? He was about to explain.

After the breakfast buffet, Clarke Keough walked to the podium. Buffett had known the Keough family for many years; they had been neighbors back in Omaha. It was through Clarke’s father, Don, that Buffett had made the connections that led him to Sun Valley. Don Keough, now chairman of Allen & Co. and former president of Coca-Cola, had met Herbert Allen when he bought Columbia Pictures from Allen & Co. for Coca-Cola in 1982. Keough and his boss, Coca-Cola’s CEO, Roberto Goizueta, had been so impressed by Herbert Allen’s unsalesmanlike approach to selling that they had convinced him to join their board.

Keough, a Sioux City cattleman’s son and former altar boy, had now technically retired from Coca-Cola but he still lived and breathed the Real Thing, so powerful he was sometimes called the company’s shadow chief executive.

When the Keoughs were his neighbors in Omaha in the 1950s, Warren had asked Don how he was going to pay for his kids’ college and suggested that he invest $10,000 in Buffett’s partnership. But Don was putting six kids through parochial school on $200 a week as a Butter-Nut coffee salesman. “We didn’t have the money,” his son Clarke now told the audience. “This is part of my family’s past that we will never forget.”

Buffett joined Clarke at the podium, wearing his favorite Nebraska red sweater over a plaid shirt. He finished the story.

“The Keoughs were wonderful neighbors,” he said. “It’s true that occasionally Don would mention that, unlike me, he had a job, but the relationship was terrific.

One time my wife, Susie, went over and did the proverbial Midwestern bit of asking to borrow a cup of sugar, and Don’s wife, Mickie, gave her a whole sack. When I heard about that, I decided to go over to the Keoughs’ that night myself. I said to Don, ‘Why don’t you give me twenty-five thousand dollars for the partnership to invest?’ And the Keough family stiffened a little bit at that point, and I was rejected.

“I came back sometime later and asked for the ten thousand dollars Clarke referred to and got a similar result. But I wasn’t proud. So I returned at a later time and asked for five thousand dollars. And at that point, I got rejected again.

“So one night, in the summer of 1962, I started heading over to the Keough house. I don’t know whether I would have dropped it to twenty-five hundred dollars or not, but by the time I got to the Keough household, the whole place was dark, silent. There wasn’t a thing to see. But I knew what was going on. I knew that Don and Mickie were hiding upstairs, so I didn’t leave.

“I rang that doorbell. I knocked. Nothing happened. But Don and Mickie were upstairs, and it was pitch-black.

“Too dark to read, and too early to go to sleep. And I remember that day as if it were yesterday. That was June twenty-first, 1962.

“Clarke, when were you born?”

“March twenty-first, 1963.”

“It’s little things like that that history turns on. So you should be glad they didn’t give me the ten thousand dollars.”

Having charmed the audience with this little piece of give and take, Buffett turned to the matter at hand. “Now, I’m going to attempt to multitask today. Herb told me to include a few slides. ‘Show you’re with it,’ he said. When Herb says something, it’s practically an order in the Buffett household.” Speeding past exactly what comprised “the Buffett household” — for Buffett thought of his household as being like any other family’s — he launched into a joke about Allen. The secretary to the President of the U.S. rushed into the Oval Office, apologizing for accidentally scheduling two meetings at once. The President had to choose between seeing the Pope and seeing Herbert Allen. Buffett paused for effect. “ ‘Send in the Pope,’ said the President. ‘At least I only have to kiss his ring.’

“To all you fellow ring-kissers, I would like to talk today about the stock market,” he said. “I will be talking about pricing stocks, but I will not be talking about predicting their course of action next month or next year. Valuing is not the same as predicting.

“In the short run, the market is a voting machine. In the long run, it’s a weighing machine.

“Weight counts eventually. But votes count in the short term. And it’s a very undemocratic way of voting. Unfortunately, they have no literacy tests in terms of voting qualifications, as you’ve all learned.”

Buffett clicked a button, which illuminated a PowerPoint slide on a huge screen to his right. Bill Gates, sitting in the audience, caught his breath for a second, until the notoriously fumble-fingered Buffett managed to get the first slide up.

DOW JONES
INDUSTRIAL AVERAGE

December 31, 1964 — 874.12
December 31, 1981 — 875.00

He walked over to the screen and started explaining.

“During these seventeen years, the size of the economy grew fivefold. The sales of the Fortune five hundred companies grew more than fivefold. Yet, during these seventeen years, the stock market went exactly nowhere.”

He backed up a step or two. “What you’re doing when you invest is deferring consumption and laying money out now to get more money back at a later time. And there are really only two questions. One is how much you’re going to get back, and the other is when.

“Now, Aesop was not much of a finance major, because he said something like, ‘A bird in the hand is worth two in the bush.’ But he doesn’t say when.” Interest rates — the cost of borrowing — Buffett explained, are the price of “when.” They are to finance as gravity is to physics. As interest rates vary, the value of all financial assets — houses, stocks, bonds — changes, as if the price of birds had fluctuated. “And that’s why sometimes a bird in the hand is better than two birds in the bush and sometimes two in the bush are better than one in the hand.”

MORE FROM TODAY BOOKS: BIOGRAPHY/MEMOIRS

Brother West: ‘Being true to the funk of living’

Brother West: ‘Being true to the funk of living’ Andre Agassi: I have the body of an old man Former Miss California: I was smeared How dog poop led to love for Paula Deen After having 15 abortions, motherhood saved her Book excerpt: Testimony of an abortion addict Alan Thicke on raising kids who won’t hate you ‘Full House’ star writes about meth, coke binges Parents share diary of child’s cancer battle How America can get 'Smart on Crime'   Add Today Books: Biography/Memoirs headlines to your news reader: