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The price of BRK swung up and down based partly on the prices of the stocks that Berkshire owned. It was especially high at that moment because Berkshire owned 200 million shares of Coca-Cola, which now traded at an astronomical price. So, if Buffett was subtly signaling through his purchase of General Re that BRK was overvalued, did that mean that its underlying stocks—like Coca-Cola—were overpriced? If so, this could have implications for the entire market. It might mean the whole market was overpriced.

The king of the soft-drink world, Coca-Cola ruled with an aggressive swagger, a fizzy-dizzy arrogance. Buffett’s stake in KO had multiplied fourteenfold over a decade, to $13 billion, and he had gone so far as to declare the company an “inevitable” to his shareholders, as if it were a stock he would never sell.16 He reasoned that Coca-Cola would send more swallows down more throats in each passing decade “for an investing lifetime,” which made it about as close to immortal, for a brand, as you could get. Berkshire now owned more than eight percent of the company. Coca-Cola stock was trading as high as forty times its estimated 2000 earnings—a multiple that said investors believed the stock would keep rising by at least twenty percent a year. But to do that, it would have to increase earnings twenty-five percent a year for five years—impossible. It would have to almost triple sales, to a number nearly as large as the entire soft-drink market in 1999—again impossible.17 No amount of bottler sales or accounting finagles could produce results like that. Buffett knew it. Nevertheless, he did not sell his Coca-Cola stock.

The reason was partly inertia. Buffett liked to say he made most of his money by “sitting on his ass.” Like the investors who kept their GEICO stock when it fell to $2 a share, inertia had protected him from many mistakes—both of commission and of omission. He also owned too much Coke to sell without creating a major headache. The symbolism of Warren Buffett—the “world’s greatest investor” and a board member—dumping Coca-Cola stock would be unmistakable. The price of Coca-Cola could plunge as a result. Besides, with its effervescent mix of profit, product, nostalgia, show business, and likable people, Coca-Cola was Buffett’s favorite stock. “The Real Thing” wasn’t a slogan to him, it was an incredible cash machine that could grind out money forever, like the mill in the old fairy tale that endlessly ground out rivers of porridge, mountains of gold, or an ocean’s-worth of salt.

Buffett carefully sidestepped these questions about the market and Coca-Cola when he used Berkshire stock to buy General Re, saying, “It is not a market call whatsoever.”18 BRK, he said, was “fairly valued” before the merger, and the combined companies would create “synergy.” When Charlie Munger was asked, he stated that Buffett had consulted him about this deal very late in the game. In effect, he disowned the deal.19 Not unexpectedly, investors began to reprice BRK as if either Berkshire and its holdings in stocks like Coca-Cola were overpriced or the deal’s synergies would prove illusory.20 Or both.

Buffett’s explanation later that summer at Sun Valley was that “we wanted to buy Gen Re, but coming with Gen Re was $22 billion dollars of investments.” Many were stocks; Buffett promptly sold them. Adding $22 billion of bonds “changed the bond/stock ratio at Berkshire, which I was not unhappy with. It did have the effect of a portfolio allocation change.”

So Buffett—who sat on the Coca-Cola board with Herbert Allen—was “not unhappy with” swamping BRK’s stocks, including Coca-Cola, in an ocean of General Re’s bonds. This statement in context made all kinds of sense. In his previous shareholder letter, Buffett had written that stocks were “not overvalued”—if interest rates stayed below average, and if businesses kept delivering “extraordinary” returns on capital—in other words, if the unlikely continued to occur. This statement was oblique enough to avoid looking