1. The expected profit on the deal was 90%; i.e., the premium covered odds that the lottery would hit 1 out of 10 times whereas in fact it was expected to hit less than 1 out of 100 times.
2. Every 10% change in KO was equivalent to 2.5% of BRK (a percentage that is representative over time), but the stocks often traded almost in tandem—especially when there was bad news at Coca-Cola—as if BRK and KO were one and the same.
3. Beth Kwon, “Buffett Health Scrape Illustrates Power—or Myth—of Message Boards,” TheStreet.com, February 11, 2000. The story made the Financial Times say, “Warren Buffett may not be sick, but his share price is,” in the “Lex” column, February 12, 2000. Financial Times described the rap on Buffett not buying tech stocks as a “serious charge.”
4. Ed Anderson, “Thesis vs. Antithesis: Hegel, Bagels, and Market Theories,” Computer Reseller News, March 13, 2000.
5. Warren Buffett and Charlie Munger, “We Don’t Get Paid for Activity, Just for Being Right. As to How Long We’ll Wait, We’ll Wait Indefinitely,” Outstanding Investor Digest, Vol. XIII, Nos. 3 & 4, September 24, 1998, and “We Should All Have Lower Expectations—In Fact, Make That Dramatically Lower.…,” Outstanding Investor Digest, Vol. XIV, Nos. 2 & 3, December 10, 1999.
6. “Focus: Warren Buffett,” Guardian, March 15, 2000 (emphasis added).
7. E. S. Browning and Aaron Lucchetti, “The New Chips: Conservative Investors Finally Are Saying: Maybe Tech Isn’t a Fad,” Wall Street Journal, March 10, 2000. The Journal cited another investor as saying, “It’s like when the railroads started up and were changing the whole face of the nation.” Yes, it was much like that. Speculation in railroad stocks led directly to the financial panics of 1869, 1873, and 1901. The Erie railroad and Northern Pacific stock corners were only two episodes in the long history of colorful financial chicanery surrounding railroad stocks.
8. Gretchen Morgenson, “If You Think Last Week Was Wild,” New York Times, March 19, 2000. Another sign that the game was up: On March 20, Fortune ran a cover story by Jeremy Garcia and Feliciano Kahn, “Presto Chango: Sales Are HUGE!” accusing many dotcoms of using accounting legerdemain to inflate sales—counting marketing expenses as sales, treating barter revenues as sales, and booking revenues before contracts were signed.
9. Interview with Sue James Stewart.
10. Buffett, who usually dealt with uncomfortable issues by joking about them, ended the 1999 Berkshire annual report (written winter 2000) by saying that he loved running Berkshire, and “if enjoying life promotes longevity, Methuselah’s record is in jeopardy.”
11. This is sort of an inside joke at Berkshire Hathaway.
12. David Henry, “Buffett Still Wary of Tech Stocks—Berkshire Hathaway Chief Happy to Skip ‘Manias,’ ” USA Today, May 1, 2000.
13. Buffett measures his performance not by the company’s stock price, which he didn’t control, but by increase in net worth per share, which he did. There is a link between these two measures over long periods of time. In 1999, book value per share had grown only ½ of 1%. But for the acquisition of General Re, book value per share would have shrunk. Meanwhile, the stock market as a whole was up 21%. Buffett called it a fluke that book value had increased at all, pointing out that in some years it will inevitably decrease. Yet only 4 times in 35 years under Buffett, and not once since 1980, had Berkshire done worse than the market by this measure.
14. James P. Miller, “Buffett Scoffs at Tech Sector’s High Valuation,” Wall Street Journal, May 1, 2000.
15. David Henry, “Buffett Still Wary of Tech Stocks.”
16. Interviews with Joseph Brandon, Tad Montross.
17. Interviews with Bill Gates, Sharon Osberg.
18. Amy Kover, “Warren Buffett: Revivalist,” Fortune, May 29, 2000.
19. Interview with Bill Gates.
20. Berkshire Hathaway press release, June 21, 2000.