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Bill Ruane’s Sequoia Fund was also in trouble. It had started with $50 million from Buffett’s former partners and invested its money well by taking large positions in undervalued stocks like Tom Murphy’s Capital Cities Communications. This was not the kind of stock that money managers who had piled into glamour television and electronics stocks a few years earlier were buying now. They had galloped all at the same time straight the other way, into the arms of the “Nifty Fifty,” a small group of the largest, best-known companies.11

“In this business,” Ruane said, “you have the innovators, the imitators, and the swarming incompetents.” The imitators and the swarming incompetents were now at the wheel, and the stocks that Ruane and his partner Rick Cunniff had bought in 1970 had been cut in half. Compounding their problems, they had bought a seat on the New York Stock Exchange just before prices for seats fell over a cliff.12 The timing of Sequoia’s opening was obviously inauspicious—Ruane had agreed to start up just as Buffett was shutting down due to lack of opportunities. Sequoia had underperformed the market every year—cumulatively by a dramatic amount.13 The Sequoia Fund’s worst year yet was 1973; it had lost twenty-five percent, compared to the market’s loss of fifteen percent. It was on its way to another terrible year in 1974. Ruane’s largest backer, Bob Malott, was incensed. He was already known as a “ballbuster” around the halls of Ruane, Cunniff for his habit of calling to complain about minor discrepancies in his family’s accounts. Now, he berated Ruane for buying a seat on the exchange and for his poor performance with such persistence that Ruane feared he would pull his capital out of the firm.14 Buffett, however, remained serene in the knowledge that Mr. Market’s opinion of a stock’s price at any time had no bearing on its intrinsic value. He knew which stocks Ruane and his partners had bought and was confident that they had made good decisions.

If not exactly an ego booster, because of the snooty staff, Buffett’s 1969 meeting of the Grahamites at the Colony Club had at least provided mutual support in a challenging market. Since then Buffett had named them the Graham Group; Ed Anderson had planned the third outing in Williamsburg; Charlie Munger the fourth in Carmel, California. In 1971, Buffett made the meetings biennial. Out of loyalty, he let Ruane invite Malott—a favor normally verboten—and Malott and his wife, Ibby, became members for the next meeting in Sun Valley in 1973, planned by Rick Guerin.

Malott, mightily impressed by the whole affair, stayed in Ruane’s fold, even though his complaints continued at a frequency and volume that still made Ruane fear his defection. By the end of 1974, however, while the market was down by more than twenty-five percent, the Sequoia Fund had at least managed to produce a smaller loss than the market’s.

Nonetheless, the market’s cumulative toll on the Sequoia Fund was such that Henry Brandt and John Loomis, Carol’s husband, both of whom had gone to work there, feared the worst and cast off from what seemed a sinking ship.15

Forbes captured Buffett’s attitude in an interview that November, which opened with a juicy quote: Asked how he felt about the market, “Like an over-sexed man in a harem,” Buffett replied. “This is the time to start investing.”16 He went on to say, “This is the first time I can remember that you could buy Phil Fisher [growth] stocks at Ben Graham [cigar butt] prices.” He felt this was the most significant statement that he could make, but Forbes didn’t include it; a general audience wouldn’t understand the references to Fisher and Graham.17 When Forbes asked for specific stock ideas, instead of mentioning what he was buying or had bought, Buffett turned impish and did one of his little experiments to see how well the reporter had researched him via other Forbes articles. “A water company is pretty simple,” he said, adding that Blue Chip owned five percent of…San Jose Water Works. The reporter took