The Snowball_ Warren Buffett and the Business of Life - Alice Schroeder [17]
Through the late 1990s, BRK (Berkshire Hathaway’s stock symbol) had boosted his profile by outpacing the market, until it peaked at $80,900 per share in June 1998. That a single share of Berkshire stock cost enough to buy a small condo was unique among American businesses. To Buffett, the stock price represented an uncomplicated measure of his success. It had grown in an ascending line since the day he first bought BRK for $7.50 a share. Even though the market had rocked through the late 1990s, until 1999 an investor who bought BRK and held on to it would have been better off.
Annual Stock Price Appreciation
1993
1994
1995
1996
1997
1998
BRK
39%
25%
57%
6%
35%
52%
S&P2
10%
1%
38%
23%
33%
29%
But now, Buffett found himself standing on the sinking platform of an unloved stock, watching the “T&T”(tech and telecommunications) stocks ascend. By August 1999, BRK had slumped to $65,000. How much should someone pay for a large, established business that returned $400 million to them in profits every year? How much for a small, new business that was losing money?
• Toys “R” Us was earning $400 million a year and had sales of $11 billion.
• eToys was losing $123 million a year and had sales of $100 million.
The market’s voting machine said that eToys was worth $4.9 billion, and Toys “R” Us was worth about a billion less than that. The presumption was that eToys was going to crush Toys “R” Us through the Internet.3
The one cloud of doubt that hung over the market concerned the calendar. Experts were predicting that disaster might strike at midnight, December 31, 1999, because the world’s computers were not programmed to handle dates beginning with a “2.” Fearing panic, the Federal Reserve began to increase the supply of money rapidly to prevent cash shortages in case all the country’s ATMs froze at once. Thus turbocharged, shortly after Sun Valley the market had spiraled upward like a Fourth of July firecracker. If you had invested a dollar in January in the NASDAQ, an index full of technology stocks, your bet was now worth a buck twenty-five. The same bet in BRK was worth only eighty cents. By December, the Dow Jones Industrial Average closed the year up twenty-five percent. The NASDAQ blasted through the 4,000-point level, up an incredible eighty-six percent. BRK fell to $56,100. In just a few months BRK’s lead for the past five years had been tsunamied.
For more than a year, financial pundits had made sport of Buffett, a has-been, an emblem of the past. Now, on the eve of the millennium, Barron’s, a weekly must-read on Wall Street, put Buffett on its cover with the headline “Warren, What’s Wrong?” The accompanying article said Berkshire had “stumbled” badly. He was running a Pamplona of negative press like nothing he had ever experienced. “I know it’s going to change,” he repeated over and over, “I just don’t know when.”4 His shrilling nerves were urging him to fight back. Instead, he did nothing. He did not respond.
Near the end of 1999, even many longtime “value investors” who followed Buffett’s style had either shuttered their businesses or given in and bought technology stocks. Buffett did not. What he called his Inner Scorecard—a toughness about financial decisions that had infused him for as long as anyone could remember—kept him from wavering.
“I feel like I’m on my back, and there’s the Sistine Chapel, and I’m painting away. I like it when people say, ‘Gee, that’s a pretty good-looking painting.’ But it’s my painting, and when somebody says, ‘Why don’t you use more red instead of blue?’ Good-bye. It’s my painting. And I don’t care what they sell it for. The painting