The Snowball

by Alice Schroeder

  Everyone else had to scramble to avoid a place in the rafters. This year, so many requests for passes had come in that almost twenty thousand people were expected.

  A black market of scalpers had sprung up on eBay, selling meeting credentials for as much as $250 for four passes. Buffett was mildly awestruck. Who ever heard of tickets scalped to a shareholder meeting? The eBay listing said: “Possibly meet in person Warren Buffett or ask him a question at the meeting…. Winning bidder also receives the visitor’s guide. The pass also allows you employee pricing at Nebraska Furniture Mart and Borsheim’s Jewelry Store…. BBQ party…Cocktail party at Borsheim’s…Shareholder party at Buffett’s favorite steak house…View displays from many of the Berkshire companies.”

  As much as the P. T. Buffett loved it, Howard Buffett’s son wanted the scalping stopped. He couldn’t allow people to be gouged by scalpers just to attend the shareholder meeting. The man who, a year or two earlier, had professed (for good reason) ignorance of technology set up his own e-tailer on eBay, hawking meeting credentials at $5 a pair. People e-mailed anxiously. Would these credentials be “real,” or would they look different, stigmatizing the buyer as not a “real” shareholder? The question implied that this would be awful, labeling them as not a member of the “club.”

  But, no, the credentials would be real, however obtained. And with that, Berkshire Hathaway—once a cozy club made up of rich partners whom Buffett considered friends—suddenly became a fan club. Buffett had opened up the tent and invited everybody in.

  Omaha’s brand-new Qwest Center rose like a great silver circus tent near the Missouri River. Its facade reflected like a mirror on the grimy old Civic Auditorium across town, scene of the last four meetings. Kelly Muchemore strode around the floor for days ahead of time with her walkie-talkie, overseeing forklifts filled with bales of hay and crates of flowers, lampposts, and tons of mulch that would be landscaped into garden and seating areas in the exhibition hall. Construction crews built neighborhoods of booths to display awnings, air compressors, blocks of knives, encyclopedias, vacuum cleaners, and picture frames. Workers installed signage marking the “Berkyville” streets and avenues that snaked in between the furniture showroom, the kitchenware store, the Western boot–fitting area, the Bookworm book shop, the candy store, the insurance sales counter, and the women’s shoe store. Upstairs in the arena, the stage crew set up the white-covered table with microphones backed by oversize screens where Buffett and Munger would sit, while the lighting crew tested the panel that created the orchestrated light show that would open the event. A “star” private dressing room was outfitted backstage so that Susie would have a place to rest. An armored truck pulled in with a $250,000 pair of jeweled cowboy boots destined for the Justin exhibit. A movie projector and screen and giant pillows waited in a casbah party room, where the hundreds of exhausted Berkshire Hathaway employees who would be working free of charge could drag themselves to collapse after the event.

  Buffett bounced around the office like a teenager. Visitors, including a group of college students, dropped in to see him. His voice grew hoarser as the week wore on and the number of visitors kept increasing. Everyone nagged at him to save his voice for the presentations, but he ignored them, sprayed his throat, and kept talking anyway. Requests for more than a thousand tickets had come from Texas, two thousand from California, and another fifteen hundred from outside the United States. A group of seventy-seven people had chartered a plane to fly from Australia.

  By Friday Buffett’s voice sounded like someone recovering from a bad cold. Still, he refused to stop talking. But Buffett never had stopped talking, never once in his life. Since he was a little boy and astonished his parents’ friends with his precocity; since he gave his high school teachers advice on stocks; since the Alpha Sigs gathered around to hear him lecture at fraternity parties; since he and Ben Graham held a duet around the conference table at Columbia; since he had sold GEICO as a prescriptionist; since he’d first picked up a stick of chalk and taught investing at night; since he’d bewitched people at cocktail parties in Omaha and dinner parties in New York; from the first meeting of the partners to the last; from the day he answered Conrad Taff’s questions at the original Berkshire shareholder meeting in Seabury Stanton’s old loft to the latest group of students who had shown up at his door—as long as he could be teaching something to somebody, Buffett had never ceased talking.

  On Friday night, he spoke to a small group at a dress rehearsal,5 then headed to a private dinner hosted by Charlie Munger. Before dawn the next morning, caterers arrived with food for the press box, the backstage area, and the vendors’ Beehive Café. People dressed in sport coats and polo shirts and T-shirts and shorts and big yellow foam hats were already lined up in a scene resembling Macy’s the morning after Thanksgiving. When the doors opened at seven a.m., they ran for the arena and marked out the best seats. By eight-thirty, every seat was filled. When the lights dimmed, talking ceased instantly. Nobody whispered, nobody straggled in late. The audience was waiting, rapt. The music began and the movie rolled.

  The filming of the introductory movie for this year’s meeting had consumed a large portion of Buffett’s energy in the spring, in between trips to San Francisco and long phone calls about the problems of Coca-Cola. For the first time, it had involved real Hollywood scripting, professional studio camerawork, and—to Buffett’s almost orgasmic delight—the use of a body double. His very own doppelganger! He had been watching it over and over in the office, anticipating the audience’s reaction.

  The new governor of California’s face appeared on the screen. Arnold Schwarzenegger was wearing drill-sergeant gear and sitting behind an elaborate desk in a fully stocked workout room. The movie rolled through a parody of An Officer and a Gentleman, in which Arnold, in the Lou Gossett Jr. role, browbeat Bufffett’s body double through a torturous workout, as punishment for having talked indiscriminately to the Wall Street Journal about California’s bizarre, inequitable property tax laws during the gubernatorial election. Buffett had feuded with the Journal over its selective use of his words, and won an apparently resounding victory in readers’ minds by writing a letter to the editor about his viewpoint and posting it on the Berkshire Web site. Since then, he had been simultaneously playing the incident up and trying to live it down.

  “You want to quit! Say it! Say you want to quit!” roared Arnold.

  “No sir! You can’t make me say it! No sir! I’ve got nowhere else to go!” shouted Buffett. But then he started cruising through the workout as easily as if he were sitting in his chair at home, reading the Journal.

  The scene dissolved to the governor’s office, Arnold sleeping, head on his desk.

  Aide: “Mr. Governor.”

  Arnold: “I got nowhere else to go!…Huh?”

  Aide: “Power-nap time is over, sir. Time to get to work on some more propositions to fix this mess we’re in.”

  Arnold: “What? Oh, okay. Wow. I just had the strangest dream….”

  He picked up a magazine on his desk and his face twisted. On the cover of Muscle & Fitness was Buffett’s smirking face superimposed on the bulked-up, posing, Pumping Iron Schwarzenegger body. Arnold reared back, his expression a strangled mask of fear.6

  Here it was, Buffett’s delirium dream. To pull it off had taken hanging out with the world’s best bodybuilder and a little camera magic, but he had finally done it. He had made it into the modern-day equivalent of the Big Arms book. Pudgy Stockton would be so impressed.

  The audience roared. Then the movie rolled on, featuring Warren and Charlie, but especially Warren as a superhero, in any number of guises. Most of the skits and cartoons emphasized Buffett and Munger as cheapskates.

  Afterward, the auditorium went dark for a moment. Then while the stage lights rose, Susie, in a pink sweater and skirt, looking a few pounds lighter, walked briskly out onto the floor toward the directors’ section immediately in front of the stage and sat down. Next, Buffett and Munger entered like a
couple of graying talk-show hosts and sat down at a white-cloth-covered table. Enormous screens displaying them had been positioned all around the arena, so everybody got a close-up look. Buffett was staring out at a dark arena filled with flashing lights and as many people as would show up in Nebraska to see the Rolling Stones.

  Before taking questions, Buffett kicked off the meeting with rapid efficiency to cover a normally perfunctory five-minute business agenda of electing directors, ratifying auditors, and the like. This year, almost immediately, one of the shareholders stood up at a microphone and said in a timid voice that he was withholding his vote; he offered a motion from the floor. He asked that Buffett consider using some of the CEOs of his companies as directors because they were better qualified than Susie and Howie Buffett.

  An audible ripple shuddered across the auditorium. The motion, even though presented in a respectful tone, fell like a big wet blot to mar the smooth, engraved surface of the shareholder meeting agenda. Most of the audience was shocked. Berkshire was now the fourteenth-largest business in the United States, with over 172,000 employees, $64 billion in revenues, and profits of $8 billion a year. But it remained at heart a family corporation; as the largest shareholder, Buffett had the votes to elect a couple of board seats for family members if he wanted. He saw his family’s role in Berkshire as similar to the Walton family’s at Wal-Mart, a nexus between the Buffett Foundation and the company. Unquestionably, the way he chose his board was purely personal, although some board members happened to be successful businessmen.

  “Thank you,” said Buffett. “Charlie, do you have any thoughts on that?”

  This punting to Munger—no quick comeback or pithy comment—was a measure of Buffett’s complete discomfiture. However, it also put Munger on the spot, since anything he said might imply that he had some influence on how Buffett chose his board. He had none whatsoever, so Munger simply said, “I think we should go on to the next item.”

  Another motion came to the floor. Tom Strobhar, on behalf of Human Life International, one of the organizations that had boycotted Berkshire Hathaway and successfully forced the company to end its charitable-contributions program, gave a speech about abortion that was, as he later wrote, “ostensively [sic]” disguised as a proposal that Berkshire publish a list of its political donations.7

  Buffett merely said in response that Berkshire hadn’t made any political donations. The motion was voted down.

  The business section of the meeting had now consumed half an hour instead of its usual five minutes and for the first time had borne a vaguely unpleasant resemblance to the Coca-Cola meeting. All this time, shareholders holding written-out questions had been patiently lined up at the numbered platforms equipped with microphones stationed all around the arena. Now Buffett opened the questioning by asking to hear from “microphone number one.” As the questions began, his wheels churned on the issue that was bothering him. He used a question on another topic as an opportunity to address the issue of his family as board members. His wife and son, he said, were on the board as “guardians of the culture. They’re not there to profit themselves.”

  It was a remarkable moment. For the first time, he had to defend in public the way he ran his company. Afterward, however, nobody else asked anything related to this topic. The shareholders of Berkshire Hathaway were content with things as they were. Buffett had earned the license to run his company any way he damn well pleased, as far as they were concerned; they were a happy lot. How was the investing climate? they asked. Our capital is underutilized now, he said. It’s a painful condition to be in, but not as painful as doing something stupid.

  Somebody asked Buffett about ISS recommending a vote against him on the Coca-Cola board. The issue still lingered. “I think it was Bertrand Russell,” he said, “who said that most men would rather die than think. Many do.”

  “The cause of reform is hurt, not helped,” Munger added in a tart voice, “when an activist makes an idiotic suggestion like the one that having Warren on the board of the Coca-Cola Company is counter to the interest of the Coca-Cola Company. Nutty activities do not help the cause for which the person speaks.”8

  As happened every year, someone asked what Buffett was doing with all those warehouses of silver he had bought a few years ago. He paused for a minute, then said he couldn’t comment. Munger made some unintelligible noises in the background and the shareholder sat down, unenlightened. In fact, the silver had been sold.

  Buffett and Munger started eating peanut brittle, and people went downstairs to the basement exhibition hall, where thirty-seven Berkshire Hathaway subsidiaries were selling products, and bought out all the peanut brittle in the See’s Candies shop. When Buffett and Munger started eating Dairy Queen Dilly Bars, the Dilly Bars sold out. Many people bought boxes of candy and took them back to the meeting upstairs, where they sat listening to Buffett and bingeing on sweets.

  In the course of answering the many repetitious questions he was asked in between the new and insightful ones, Buffett managed to work many of the items he wanted to discuss into his responses. This year he used the meeting to expound on his “Why I’m Down on the Dollar” theme. The U.S., he said, was like a family that spent more than it earned. Americans were buying huge amounts of products from other countries and didn’t have the income to pay for them, because we weren’t selling as much to other countries as they were selling to us. To make up the difference, we were borrowing money. Those who were lending it to us might be less willing to do so in the future.

  Now, Buffett said, we were spending more than two percent of all our income just to pay the interest on our national debt, and that meant the situation would be hard to turn around. Most likely, he thought, at some point foreign investors would decide they liked our real estate and businesses and other “real assets” better than our paper bonds. We would start selling off pieces of America, like office buildings and companies.

  “We think that over time the U.S. dollar is likely to decline in value against some of the major currencies,” he said. Therefore, the economy—which had been pretty wonderful over the past twenty years, with both low interest rates and low inflation—could at some point reverse. Interest rates probably would be higher, as would inflation, which would be an unhappy situation. As always when he made predictions, he couldn’t say when. In the meantime, however, he had bought $12 billion of foreign currency to hedge Berkshire’s dollar risks.

  While Buffett and Munger were talking about the perils of debt, people rolled down the ramps and escalators to the shoe department and waited in lines to pull out their credit cards. Fitters from Tony Lama and Justin sold a pair of boots a minute: workaday plain Westerns to fancy lizard models. Over at Borsheim’s, on the west side of town, more than a thousand watches and 187 engagement rings were being sold. The Furniture Mart was doing a record $17 million of business.

  The convention center had many of the elements of a carnival; a GEICO gecko waved at passersby next to a NASCAR race car. A character dressed as a foam Acme brick hooked up with a foam ice-cream-cone character. A rodeo clown stalked the floor on stilts among the air compressors and boat anchor winches. At the south end of the exhibition hall, rising above the crowd, just as Buffett had pictured it, stood a full-size Clayton Home, clad in beige siding with a tidy front porch, sand-colored shutters, and a real grass lawn and brick foundation bedecked with shrubs. And just as he had foreseen, a queue snaked back and forth behind a zigzag rope, as if it were Space Mountain at Disneyland.9

  But it was the Fruit of the Loom booth that epitomized Berkshiredom. The Fruit of the Loom booth never had to hand out key chains or free playing cards. People stood waiting in long lines to buy a five-dollar pack of men’s briefs and have their picture taken with the guys wearing grape and apple suits. By the end of the day, nearly every pack of underwear would be sold.

  The black-and-white See’s Candies store, conveniently positioned in the middle of the exhibition hall, also had jammed aisles—so jammed th
at it ran out of lollipops, salted nuts, and peanut brittle in less than three hours. Many of the customers did not bother to pay. Those taking the five-finger discount hooked huge amounts of candy as well as dozens of pairs of shoes from the shoe store, while, above their heads, Buffett and Munger talked about honesty and the ethical way of life.

  As yet unaware of the thievery taking place beneath their feet that might force them to consider installing a Berkyville jail by the bookstore next year, Buffett and Munger ambled on, answering questions and chomping on sweets as they talked their way through the entire six hours.

  Any normal person would be exhausted after putting on a six-hour live, unscripted performance, but when the meeting ended, Buffett and Munger went upstairs to a large room and parked themselves at a desk, signing autographs so that shareholders who had come from foreign countries could get closer to them. This was a recent idea of Buffett’s. Munger sat through it patiently, but he was getting tired and sometimes talked with bemusement of this circus that Warren had created. He, too, enjoyed being worshipped, but never would have gone to the trouble to stage-manage and encourage it, the way his partner did.

  Susie had left to go lie down after the first couple hours of the meeting. She skipped the Sunday brunch, but flew to New York with Warren on Monday. She stayed in bed in her hotel room until one in the afternoon, mashing up pills in room-service ice cream. Susie Jr. watched over her to make sure she didn’t get trapped into overextending herself. She wanted her mother to limit her outings to one thing a day—one visitor, one shopping trip, one fifteen-minute visit to the hotel lobby.10

  Susie did attend the traditional dinner party that Sandy and Ruth Gottesman held in their honor every year. Since the mid-1990s, this had become the one time that many of the people in the Buffett Group could count on seeing their old friends during the annual New York trip. Now Susie Jr. said to Ruth Gottesman, “She’s going to try to do more than she should. She’s going to say she’s fine. She’s going to lie to you,” and she asked for help in protecting her mother. Most of those who gathered at the Gottesmans’ had not seen Susie at all during the past year, except perhaps at the shareholder meeting, and then only briefly. She sat in one room and Warren in another, while people came in to greet them and chat. Many people would later recall the event as emotional. Susie declared that she was glad she had gone. But afterward, she was exhausted.