The Snowball_ Warren Buffett and the Business of Life - Alice Schroeder [411]
Likewise, Buffett was “not unhappy with” diluting his stock portfolio in the same Sun Valley speech, where he faced an audience filled with Internet CEOs at a time when Internet stocks were parthenogizing faster than naked mole rats. He accompanied his “not unhappy with” remark with the same warnings as in his letter: that interest rates must stay well below average and the economy stay unusually hot for the market to meet investors’ expectations. This was also the same Sun Valley speech where Buffett had used his place at the pulpit to explain that investing is laying out money today to get money back tomorrow, like Aesop’s bird in the hand versus the birds in the bush; that interest rates are the price of waiting for the birds in the bush; that for periods sometimes as long as seventeen years the market had gone exactly nowhere; and that at other times—such as the present—the value of stocks grows much faster than the economy. And, of course, he had closed this speech by comparing investors to a bunch of oil prospectors who were going to hell.
Thus, if Buffett was reshuffling his portfolio and focusing on bonds, perhaps it meant that he thought that it was now easier to make a living in bonds than stocks, and it was going to get easier still.22
The following October, he made another move that was just the opposite of what most people were doing—strikingly conservative by the standards of the market. He bought MidAmerican Energy Holding Company, an Iowa-based utility company with some international operations and a presence in alternative energy. He put in enough capital to buy just over seventy-five percent of MidAmerican for about $2 billion plus $7 billion of assumed debt, with the other twenty-five percent owned by his friend Walter Scott; MidAmerican’s CEO, Scott’s protégé David Sokol; and Sokol’s number two, Greg Abel.
Investors were mystified. Why would Buffett want to buy a regulated electric company? Admittedly, the business was growing moderately, was well-managed, and had attractive embedded returns that were relatively certain and would be so for as long as could reasonably be imagined.
Buffett saw this as a second cornerstone for Berkshire alongside the insurance business. He felt that he was working with excellent managers who could potentially put a lot of money to work in utilities and energy at predictable rates of return, which compensated for the limited growth. However, Buffett was already being ridiculed for his refusal to buy technology stocks. Now he had bought the light company. How dull!
But this was not how he thought. When it came to investing, the kind of electricity he sought was not the thrill of trading, but rather, kilowatts.
Buying MidAmerican and General Re significantly diluted the impact of Coca-Cola on Berkshire’s shareholders, but Berkshire still owned 200 million shares of Coke. Buffett never stopped thinking about Coca-Cola, where matters continued to go awry. By late 1999, the value of his KO stock was down to $9.5 billion, dragging down the price of BRK with it. A short-term wobble didn’t worry him—it never did—but thanks in large part to Coca-Cola, one share of BRK stock could no longer buy a top-of-the-line luxury sports car. Buffett kept turning over and over in his mind an incident back in June. Reports had trickled in that Coke products were poisoning children in Belgium and France. It was not hard to figure out what to do. The late Goizueta would have let “Mr. Coca-Cola,” Don Keough, handle it: Fly over right away, visit the kids, shower the parents with free soft drinks, make compassionately clever remarks to the