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“The prospector paused for a minute, then said, ‘No, I think I’ll go along with the rest of the boys. There might be some truth to that rumor after all.’ 23

“Well, that’s the way people feel with stocks. It’s very easy to believe that there’s some truth to that rumor after all.”

This got a mild laugh for a half second, which choked off as soon as the audience caught on to Buffett’s point, which was that, like the prospectors, they might be mindless enough to follow rumors and drill for oil in hell.

He closed by returning to the proverbial bird in the bush. There was no new paradigm, he said. Ultimately, the value of the stock market could only reflect the output of the economy.

He put up a slide to illustrate how, for several years, the market’s valuation had outstripped the economy’s growth by an enormous degree. This meant, Buffett said, that the next seventeen years might not look much better than that long stretch from 1964 to 1981 when the Dow had gone exactly nowhere—that is, unless the market plummeted. “If I had to pick the most probable return over that period,” he said, “it would probably be six percent.”24 Yet a recent PaineWebber-Gallup poll had shown that investors expected stocks to return thirteen to twenty-two percent.25

He walked over to the screen. Waggling his bushy eyebrows, he gestured at the cartoon of a naked man and woman, taken from a legendary book on the stock market, Where Are the Customers’ Yachts?26 “The man said to the woman, ‘There are certain things that cannot be adequately explained to a virgin either by words or pictures.’” The audience took his point, which was that people who bought Internet stocks were about to get screwed. They sat in stony silence. Nobody laughed. Nobody chuckled or snickered or guffawed.

Seeming not to notice, Buffett moved back to the podium and told the audience about the goody bag he had brought for them from Berkshire Hathaway. “I just bought a company that sells fractional jets, NetJets,” he said. “I thought about giving each of you a quarter share of a Gulfstream IV. But when I went to the airport, I realized that’d be a step down for most of you.” At that, they laughed. So, he continued, he was giving each of them a jeweler’s loupe instead, which he said they should use to look at one another’s wives’ rings—the third wives’ especially.

That hit its mark. The audience laughed and applauded. Then they stopped. A resentful undercurrent was washing through the room. Sermonizing on the stock market’s excesses at Sun Valley in 1999 was like preaching chastity in a house of ill repute. The speech might rivet the audience to its chairs, but that didn’t mean that they would go forth and abstain.

Yet some thought they were hearing something important. “This is great; it’s the basic tutorial on the stock market, all in one lesson,” thought Gates.27 The money managers, many of whom were hunting for cheaper stocks, found it comforting and even cathartic.

Buffett waved a book in the air. “This book was the intellectual underpinning of the 1929 stock-market mania. Edgar Lawrence Smith’s Common Stocks as Long Term Investments proved that stocks always yielded more than bonds. Smith identified five reasons, but the most novel of these was the fact that companies retained some of their earnings, which they could reinvest at the same rate of return. That was the plowback—a novel idea in 1924! But as my mentor, Ben Graham, always used to say, ‘You can get in way more trouble with a good idea than a bad idea,’ because you forget that the good idea has limits. Lord Keynes, in his preface to this book, said, ‘There is a danger of expecting the results of the future to be predicted from the past.’”28

He had worked his way back around to the same subject: that one couldn’t extrapolate from the past few years of accelerating stock prices. “Now, is there anyone I haven’t insulted?”29 He paused. The question was rhetorical; nobody raised a hand.

“Thank you,” he said, and ended.

“Praise by name, criticize by category” was Buffett