The Boardroom November 2004

American Everyman

Warren Buffett's billions—and the oft told tale of how he made them—have become the least interesting thing about him. It's Buffett the symbol that matters now

Lynch's exit, in 1990, left Buffett alone in the arena. He'd been raising his profile for some time by then (the business press had been raising it for him, actually), but his fame was largely limited to money mavens. He hadn't yet become a semi-official national treasure—the last honest capitalist as conceived by Frank Capra, pitting his provincial integrity against the big boys' metropolitan guile, and sharing the spoils with the folks back home.

His breakthrough into superstardom, sometime in the early nineties, was precipitated by a lucky cluster of events over which Buffett had no direct control. The economic weather was right. Growing doubts about the Social Security system, and the widespread embrace of IRAs and other tax-deductible retirement-savings plans, caused the stock-owning population to balloon just as the tech-led bull market was starting to look like a wealth-creating perpetual-motion machine. All one needed to ride it was a computer and a discount brokerage account; to monitor its movements, track its chatter, meet its VIPs, and learn its language, one had only to watch CNBC. The country was turning into one big trading desk.

In the turbulent news stream that flowed across this desk, Buffett's name was a tidal presence. Stocks rose on rumors of his interest in them, and quickly fell back when the rumors were dispelled. When he bought a company outright—any company, no matter how pedestrian or obscure), the talking heads dissected his decision and ritually concluded that it showed genius. When the nasdaq retreated for two or three days running, Buffett's disdainful statements about tech stocks were deemed prophetic; and when the index climbed to a new high, his negative comments were talked about in a way that reaffirmed his legend but set it in the past tense. America's greatest, most influential investor (almost everyone acknowledged that he'd earned the title) was said by the experts to have lost his touch and dwindled into an "old economy" has-been. All the traits that have earned him tens of billions—his long-term outlook, his midwestern probity, his practice of buying on the dips and closing his checkbook during the advances, his total lack of interest in the Next Big Thing, and, most important, his belief that the market is just a running opinion poll that prices stocks by assigning the same weight to whims, hallucinations, and wild guesses as it does to rational judgments—were now recast as crippling prejudices, or even symptoms of creeping senility. My own go-go broker told me over lunch one day (after touting a glamour stock named Nortel, whose balance sheet would have made Buffett laugh out loud, but whose price seemed to double every couple of months), "The man's defunct. He's in denial. We're living in a new age, and he can't handle it."

To be canonized, one must first die. With the Oracle of Omaha's portfolio underperforming the average Toledo schoolteacher's, Buffett was declared dead by the financial world in the late 1990s and then, after a pause for schadenfreude, fondly elevated to sainthood. The eulogies served a hidden purpose. By remembering Buffett as nearly infallible and making him the great icon of traditionalism, the children of perpetual motion affirmed their new faith. The twisted syllogism went like this: If Buffett, who knew almost everything, was wrong, then investors who know almost nothing must be right. Or: If Buffett can lose, then anyone can win.

As in Twain's case, the rumors of Buffett's death proved to be greatly exaggerated. And like Tom Sawyer, who attended his own funeral in disguise and snickered at the solemn goings-on there, Buffett probably took some secret pleasure in imagining the effect his resurrection (which his sense of history told him was inevitable) would have on the people who were just pretending to miss him.

In the meantime, he sent letters from the tomb to his true disciples: Berkshire's shareholders. In 1999, the stock's worst year ever both in absolute terms and in comparison with the S&P, Buffett assured them that his philosophy—a liberalized version of his old professor Graham's "value" approach—hadn't changed and wasn't going to change, even if the world itself did. He also reminded the panicky and the depressed that the stock represented all but one percent of his personal assets ("We eat our own cooking," Buffett and Munger often like to say). He wound up by conceding that the new technologies would probably "transform" society, but said it was his prerogative as an old codger who'd done pretty well for himself over the years to tend his own garden while others built Utopia. "We just stick with what we understand," he wrote, lumping himself with his fellow Luddite, Munger. They knew nothing about geology, either, he wrote, or about several other important industries, but it hadn't prevented them from getting rich backing businesses they did know something about.

In the hyperbolic climate of the tech boom, with the media loudly lamenting Buffett's demise while it heralded the coming wired paradise, this sensible, understated rationale for declining to join the party was a brilliant rhetorical gesture. "I would prefer not to," says Melville's Bartleby, when asked why he refuses to leave his desk even though he no longer has a job. Buffett's response to his critics was just as memorable, just as disarming. Fiber-optic switches? Waveplex multipliers? Don't understand them. (And, truthfully, who did?) Buffett's indifference to cyberspace made fools of millions of panting investors who'd staked their retirements on gear and gizmos they probably wouldn't recognize if crateloads of them were dumped on their doorsteps.

The following year, as mentioned earlier, brought a modest gain for Buffett and a beating about the head for his antagonists. The nasdaq, whose tech listings embodied the whiz kids' futuristic aspirations, crashed, got up again, fell down the stairs, and staggered around like a sloppy waterfront drunk. But aside from a pointed homily on the difference between investment and speculation, the 2000 letter went light on the I-told-you-sos. It talked business, and one business especially: the almost invisible reinsurance field, led by the obscure but mammoth Gen Re, the largest of Berkshire's wholly owned subsidiaries, the foundation of its financial structure, and the key to understanding Buffett's true character as opposed to the character the public assigns him. Buffett the straight-talking conscience of capitalism is, at bottom, a casino operator, and his casino is the whole world.

Gen Re is a vehicle for accepting bets, enormous bets, for the very highest stakes. A comparatively small bet, cited in Buffett's 2000 letter, involved, an Internet firm that hoped to draw traffic to its site by offering visitors a chance to win a billion dollars. The odds were low that anyone would take the prize, but not so low that wasn't willing to pay Gen Re to accept responsibility for paying it. Gen Re bet that it wouldn't have to, and won.

But this was a quirky, small-potatoes wager compared with the bets Gen Re is used to making on the likelihood of major earthquakes, killer hurricanes, and other shattering catastrophes, known as "mega-cats." It makes these bets with other insurance companies, which, should a mega-cat occur, might buckle from having to pay the overload of claims. To put it simply, Gen Re earns its fees by backing other gamblers' biggest gambles, and then uses these fees (the so-called "float") to bankroll yet other bets on the behavior of stocks and bonds and so on. Buffett views the float as essentially a low-cost loan, though, borrowed against the potential mega-cats—or perhaps the single super-mega-cat—that could oblige Gen Re to pay it back.

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Walter Kirn is the author of Up in the Air.

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