The Snowball_ Warren Buffett and the Business of Life - Alice Schroeder [419]
The announcement was useless. BRK plunged eleven percent that week and didn’t recover.
On March 9, Newsday hit the stands quoting Harry Newton, publisher of Technology Investor Magazine: “I’ll tell you what Warren Buffett should say when he releases his statement to shareholders: ‘I’m sorry!’ that’s what.” The next day, BRK hit a low of $41,300 per share, trading at scarcely more than the value at which its pieces were carried on its books. The legendary “Buffett premium”—the high price the stock supposedly traded at just because of Buffett—was gone. The day before, the NASDAQ index had bounded up the Andes to reach 5,000. Since January 1999 it had doubled, its component stocks increasing more than $3 trillion in value.
The contrast was too sharp to leave alone. A money manager wrote that investors like Buffett were “fallen angels, disgraced with poor rankings…made obsolete in 1999 by mavericks who say the old laws of investing have been repealed and backed up their theories with eye-popping numbers.”6
Buffett was miserable about the bad publicity, though he never considered changing his investment strategy. Owners of BRK apparently would have been better off investing in an index of the market over the past five years—the most prolonged drought in Berkshire’s history. His Coke investment, once valued at a frothy $17.5 billion, would now fetch only $8.75 billion. His determination not to give up his margin of safety meant that Berkshire had piled up billions in unused capital, which was loafing in low-yielding bonds. Buffett understood the basics of computers perfectly well. But he would not consider buying a technology stock at any price. “When it comes to Microsoft and Intel,” he said, “I don’t know what that world will look like ten years from now. And I don’t want to play in a game where the other guy has an advantage…. The software business is not within my circle of competence…. We understand Dilly Bars and not software.”7
In February 2000, the SEC had denied Berkshire Hathaway’s request to keep some of its stockholdings confidential. It weighed the various interests of investors in a stable market versus the right to know, and ruled in favor of the right to know. Instead of accumulating a huge block of stock like American Express or Coca-Cola, he would only have time to tweezer up stocks in little bits before people could ride his coattails. Although he would continue to fight back, the SEC had turned him into Ben Graham, who opened up his books for the whole world to see. From now on, acquiring entire businesses—which had always been his favorite way to use capital, anyway—would be the main use of money at Berkshire. It was going to become much harder to put large amounts of money to work in stocks. That stung at a time when the media referred to Buffett as “formerly the world’s greatest investor.”8
On March 10, the day after Harry Newton said that Buffett should apologize, the Wall Street Journal wrote that almost everyone was making money in tech except the stubborn, curmudgeonly Buffett, whose stock was down forty-eight percent from its high.9 The Journal compared his performance to a retired AT&T employee whose portfolio was up thirty-five percent, saying that this technology-stock dabbler “isn’t exactly Warren Buffett—thank goodness.”10
Never in Buffett’s career had resolution and clear thinking been put to the kind of test that he had endured for the past three years. Every indication in the market said that he was wrong. Because of his determined clinging to a set of moldy ideas, the public, the media, and even some of his own shareholders thought he was corked. He had only his inner conviction to steer him straight. And this was the needy man who over the years had grown habituated to a stream of accolades as steady as his daily dose of Cherry Coke; who was so sensitive to public criticism that he ran from anything that