Timed to the second, organized to the hilt, crisp as Herbert Allen’s French cuffs, Buffett’s schedule was laid out hour by hour, day by day. The notebook spelled out the conference speakers and topics—until now a closely guarded secret—and the luncheons and dinners that he would attend. Unlike the other guests, Buffett knew much of this in advance, but he still wanted to see what the notebook had to say.
Herbert Allen, the so-called “Lord of Sun Valley” and the conference’s quiet choreographer, set the tone of casual luxury that pervaded the event. People always cited him for high principles, brilliance, good advice, and generosity. “You’d like to die with the respect of somebody like Herbert Allen,” a guest gushed. Afraid of being disinvited to the conference, those who voiced any criticism rarely went beyond vague hints that Herbert was “unusual,” restless, impatient, and possessed of an oversize personality. Standing in the shadow of his tall, wiry frame, one had to strain to keep up with the words that crackled forth like machine-gun fire. He barked questions, then cut off respondents mid-sentence, lest they waste a second of his time. He specialized in saying the unsayable. “Ultimately Wall Street will be eliminated,” he once told a reporter, although he ran a Wall Street bank. He referred to his competitors as “hot-dog vendors.”4
Allen kept his firm small, and his bankers staked their own money on their deals. This unconventional approach made the firm a partner rather than a mere servant to its clients, who were the elite of Hollywood and the media world. Thus, when he played host, his guests felt privileged, rather than like captives pitched by salesmen at every turn. Allen & Co. arranged a detailed social agenda every year built around each guest’s personal network of relationships—which the firm understood—and the new people that Allen’s majordomos felt each should meet. Unspoken hierarchies dictated the distances of the guests’ condominiums from the Inn (where meetings were held), which meals the guests were invited to attend, and with whom they would be seated.
Buffett’s friend Tom Murphy referred to this kind of event as “elephant-bumping.” “Anytime a bunch of big shots get together,” says Buffett, “you can get people to come, because it reassures them if they’re at an elephant-bumping that they’re an elephant too.”5
Sun Valley was always very reassuring, because unlike most elephant bumps, one could not buy one’s way in. The result was a sort of faux democracy of the elite. Part of the thrill of coming was to see who was not invited, and, more thrilling still, who was disinvited. Yet within their stratum, people did develop genuine relationships. Allen & Co. fostered conviviality through lavish entertainment, beginning on the first evening, when the guests donned Western gear, climbed into old-fashioned horse-drawn wagons, and followed cowboys up a winding trail past a natural stone spire onto Trail Creek Cabin meadow. There, Herbert Allen or one of his two sons greeted the guests as the sun began to set. Cowboys entertained the children with rope tricks near a large white tent bedecked with urns of scarlet petunias and blue sage, while the Sun Valley old guard reunited and welcomed new guests as they stood side by side in line, plate in hand, for a buffet of steaks and salmon. The Buffetts usually ended the evening sitting with friends around the bonfire beneath the star-dappled western sky.
The frolicking continued on Wednesday afternoon with an optional and very mild white-water paddle down the Salmon River. On this trip relationships blossomed, for Allen & Co. orchestrated who sat where on the bus to the embarkation point as well as on the rafts. The river guides steered through the mountain valley in silence, lest they interrupt conversations and disturb budding alliances. Spotters hired from the local population and ambulances lined the route in case someone tumbled into the freezing water. The guests were handed warm towels as soon as they put down their paddles and stepped out of the rafts, then served plates of barbecue.
Those not rafting could be found fly-fishing, horseback riding, shooting trap and skeet, mountain biking, playing bridge, learning to knit, studying nature photography, playing Frisbee with the ubiquitous canine conference guests, ice-skating on the outdoor rink, playing tennis on perfect clay courts, lounging at the pool, or golfing on immaculate greens, where they rode in carts stuffed full of Allen & Co. sunscreen, snacks, and bug spray.6 All the entertainment flowed quietly, seamlessly, whatever was needed appearing unasked, supplied by a seemingly inexhaustible staff of almost-invisible yet ever-present Allenites in SV99 polo shirts.
It was the babysitters, however, a hundred-some good-looking, mostly blond, deeply tanned teenagers in these same polo shirts and matching Allen & Co. backpacks, who were Herbert Allen’s secret weapon. As the parents and grandparents played, the sitters saw to it that each Joshua and Brittany was accompanied by his or her own playmate for whatever activity they chose—a tennis clinic, soccer, bicycling, kickball, a wagon ride, a horse show, ice-skating, relay races, rafting, fishing, an art project, or pizza and ice cream. Each babysitter was personally selected to ensure that every child always had such a wonderful time that they would beg to come back year after year—while at the same time delighting their parents with occasional glimpses of the very, very attractive young person who was allowing them to spend days of guilt-free time with other adults.
Buffett had always been one of the most appreciative of Allen’s beneficiaries. He loved Sun Valley as a family vacation, for left to his own devices at a mountain resort with his grandchildren, he would have been at a complete loss for what to do. He had no interest in outdoor activities other than golf. He never went skeet shooting or mountain biking, thought of water as “a prison of sorts,” and would rather go around handcuffed than ride on a raft. Instead, he slipped comfortably into the center of the elephant herd. He played a little golf and bridge, including a standing golf game with Jack Valenti, president of the Motion Picture Association of America, for a dollar bet, and a bridge game with Meredith Brokaw, and otherwise spent his time socializing with people like Playboy CEO Christie Hefner and computer hardware CEO Michael Dell.
Often, however, he disappeared for long periods into his condo overlooking the golf course, where he read and watched business news in the living room seated next to an enormous stone fireplace.7 He barely noticed the view of pine-covered Baldy, the mountain outside his window, or the bank of blossoms like a Persian palace rug: pastel lupines and sapphire delphiniums towering over poppies and Indian paintbrush, crisp blue salvia and veronica nestled among the stonecrop and hens-and-chicks. “The scenery is there, I guess,” he said. He came for the warm atmosphere Herbert Allen had created.8 He liked being with his closest friends: Kay Graham and her son Don; Bill and Melinda Gates; Mickie and Don Keough; Barry Diller and Diane von Furstenberg; Andy Grove and his wife, Eva.
But above all, for Buffett, Sun Valley was about reuniting with his whole family during one of the rare times most of the family spent together. “He likes us all being in the same house,” says his daughter, Susie Buffett Jr. She lived in Omaha; her younger brother, Howie, and his wife, Devon—missing this year—lived in Decatur, Illinois; while their younger sibling, Peter, and his wife, Jennifer, lived in Milwaukee.
Buffett’s wife of forty-seven years, Susan, who lived apart from him, had flown in to meet them from her home in San Francisco. And Astrid Menks, his companion for more than twenty years, remained at their home in Omaha.
On Friday night, Warren donned a Hawaiian shirt and escorted his wife to the traditional Pool Party on the tennis courts next to their condo. Most of the guests knew and liked Susie. Always the star of the Pool Party, she sang old-fashioned standards by the light of tiki torches in front of the illuminated Olympic pool.
This year, as the cocktails and camaraderie flowed, the babble of a barely comprehensible new language—B2B, B2C, banner ads, bandwidth, broadband—competed with the sounds of Al Oehrle’s band. All week long a vague sense of unease had drifted through the lunches and dinners and cocktails like a silent fog amid the handshakes, kisses, and hugs. A new group of recently minted technology executives, filled with
an unusual swagger, introduced themselves to people who had never heard of them a year before.9 Some displayed a hubris that was at odds with Sun Valley’s usual atmosphere, where a determined informality reigned and Herbert Allen enforced a sort of unwritten rule against pomposity, on penalty of banishment.
The cloud of arrogance hung heaviest over the presentations that were the conference’s centerpiece. Heads of companies, high government officials, and other people of note gave talks unlike those they delivered anywhere else, because hardly a word of what was said was ever whispered beyond the flower boxes hanging by the doors of the Sun Valley Inn. Reporters were banned, and the celebrity journalists and the media barons who owned the television networks and newspapers sat in the audience but honored a code of silence. Thus freed to perform only for their peers, the speakers said important and often true things that could never be articulated in front of the press because they were too blunt, too nuanced, too alarming, too easily satirized, or too likely to be misinterpreted. The workaday journalists lurked outside, hoping for crumbs that were rarely thrown.
This year the new moguls of the Internet had been strutting, showing off their soaring expectations, trumpeting their latest mergers and looking to raise cash from the money managers sitting in the audience. The money people, who stewarded other people’s pensions and savings, together commanded so much wealth that it could hardly be comprehended: more than a trillion dollars.10 With a trillion dollars in 1999, you could pay the income tax of every single individual in the United States. You could give a brand-new Bentley automobile to every household in more than nine states.11 You could buy every single piece of real estate in Chicago, New York City, and Los Angeles—combined. Some of the companies making presentations needed that money, and they wanted this audience to give it to them.
Early in the week, Tom Brokaw’s panel, called “The Internet and Our Lives,” had drum-majored a procession of presentations about how the Internet would reshape the communications business. Priceline’s Jay Walker took the audience through a dizzying vision of the Internet that compared the information super-highway to the advent of the railroad in 1869. One after another, executives laid out the glittering prospects for their companies, filling the room with the intoxicating vapor of a future unlimited by storage space and geography, so slick and visionary that while some were convinced that a whole new world was unfolding, others were reminded of snake-oil salesmen. The folks who ran technology companies saw themselves as Promethean geniuses bringing fire to lesser mortals. Other businesses that grubbed in the ashes to make the dull necessities of life—auto parts, lawn furniture—were now of interest mostly for how much technology they could buy. Some Internet stocks traded at infinite multiples of their nonexistent earnings, while “real companies” that made real things had declined in value. As technology stocks overtook the “old economy,” the Dow Jones Industrial Average*1 had burst through the once-distant 10,000-point barrier only four months before, doubling in less than three and a half years.
Many of the recently enriched congregated between speeches at a cordoned-off dining terrace by the Duck Pond, where a pair of captive swans paddled around a pool. There, any guest—but not a reporter—could edge through the masses of people in khaki pants and cashmere cable sweaters to ask a question of Bill Gates or Andy Grove. Meanwhile, the journalists chased after the Internet moguls as they moved between the Inn and their condos, amplifying the atmosphere of inflated self-importance that permeated Sun Valley this year.
Some of the new Internet czars spent Friday afternoon lobbying Herbert Allen to get them into celebrity photographer Annie Leibovitz’s Saturday afternoon shoot of the Media All-Star Team for Vanity Fair. They felt they had been invited to Sun Valley because they were the people of the moment, and they had trouble believing that Leibovitz had made her own choices about who to photograph. Why, for example, would she include Buffett? His role in media had come mostly secondhand—through board memberships, a large network of personal influence, and a history of media investments large and small. Besides, he was old media. They found it hard to believe that his face in a photograph still sold magazines.
These would-be all-stars felt slighted because they knew perfectly well that the balance in media had shifted toward the Internet. That was so even though Herbert Allen himself thought the “new paradigm” for valuing technology and media stocks—based on clicks and eyeballs and projections of far-off growth rather than a company’s ability to earn cold hard cash—was bunk. “New paradigm,” he sniffed. “It’s like new sex. There just isn’t any such thing.”12
The next morning, Buffett, emblem of the old paradigm, rose early, for he would be the closing speaker of the year. Invariably, he turned down requests to speak at conferences sponsored by other companies, but when Herbert Allen asked him to speak at Sun Valley, he always said yes.13 The Saturday morning closing talk was the keynote event of the conference, so instead of heading straight to the golf course or grabbing a fishing rod, almost everyone went to the breakfast buffet at the Sun Valley Inn, then settled into a seat. Today Buffett would be talking about the stock market.
In private, he had been critical of the gunslinging, promoter-driven market that had sent technology stocks galloping toward delirious heights all year. The stock of his company, Berkshire Hathaway, languished in their dust, and his rigid rule of not buying technology stocks seemed outmoded. But the criticism had no influence on how he invested, and to date, the only statement he had made in public was that he never made market predictions. So his decision to get up at the podium in Sun Valley and do just that was unprecedented. Perhaps it was the times. Buffett had a firm conviction and an overwhelming urge to preach.14
He had spent weeks preparing for this speech. He understood that the market was not just people trading stocks as though they were chips in a casino. The chips represented businesses. Buffett thought about the total value of the chips. What were they worth? Next he reviewed history, pulling from an exhaustive mental file. This was not the first time that world-changing new technologies had come along and shaken up the stock market. Business history was replete with new technologies—railroads, telegraph, telephone, automobiles, airplanes, television: all revolutionary ways to connect things faster—but how many had made investors rich? He was about to explain.
After the breakfast buffet, Clarke Keough walked to the podium. Buffett had known the Keough family for many years; they had been neighbors back in Omaha. It was through Clarke’s father, Don, that Buffett had made the connections that led him to Sun Valley. Don Keough, now chairman of Allen & Co. and former president of Coca-Cola, had met Herbert Allen when he bought Columbia Pictures from Allen & Co. for Coca-Cola in 1982. Keough and his boss, Coca-Cola’s CEO, Roberto Goizueta, had been so impressed by Herbert Allen’s unsalesmanlike approach to selling that they had convinced him to join their board.
Keough, a Sioux City cattleman’s son and former altar boy, had now technically retired from Coca-Cola but he still lived and breathed the Real Thing, so powerful he was sometimes called the company’s shadow chief executive.15
When the Keoughs were his neighbors in Omaha in the 1950s, Warren had asked Don how he was going to pay for his kids’ college and suggested that he invest $10,000 in Buffett’s partnership. But Don was putting six kids through parochial school on $200 a week as a Butter-Nut coffee salesman. “We didn’t have the money,” his son Clarke now told the audience. “This is part of my family’s past that we will never forget.”
Buffett joined Clarke at the podium, wearing his favorite Nebraska red sweater over a plaid shirt. He finished the story.16
“The Keoughs were wonderful neighbors,” he said. “It’s true that occasionally Don would mention that, unlike me, he had a job, but the relationship was terrific. One time my wife, Susie, went over and did the proverbial Midwestern bit of asking to borrow a cup of sugar, and Don’s wife, Mickie, gave her a whole sack. When I heard about that, I decided to go over to the Keoughs’ tha
t night myself. I said to Don, ‘Why don’t you give me twenty-five thousand dollars for the partnership to invest?’ And the Keough family stiffened a little bit at that point, and I was rejected.
“I came back sometime later and asked for the ten thousand dollars Clarke referred to and got a similar result. But I wasn’t proud. So I returned at a later time and asked for five thousand dollars. And at that point, I got rejected again.
“So one night, in the summer of 1962, I started heading over to the Keough house. I don’t know whether I would have dropped it to twenty-five hundred dollars or not, but by the time I got to the Keough household, the whole place was dark, silent. There wasn’t a thing to see. But I knew what was going on. I knew that Don and Mickie were hiding upstairs, so I didn’t leave.
“I rang that doorbell. I knocked. Nothing happened. But Don and Mickie were upstairs, and it was pitch-black.
“Too dark to read, and too early to go to sleep. And I remember that day as if it were yesterday. That was June twenty-first, 1962.
“Clarke, when were you born?”
“March twenty-first, 1963.”
“It’s little things like that that history turns on. So you should be glad they didn’t give me the ten thousand dollars.”
Having charmed the audience with this little piece of give and take, Buffett turned to the matter at hand. “Now, I’m going to attempt to multitask today. Herb told me to include a few slides. ‘Show you’re with it,’ he said. When Herb says something, it’s practically an order in the Buffett household.” Speeding past exactly what comprised “the Buffett household”—for Buffett thought of his household as being like any other family’s—he launched into a joke about Allen. The secretary to the President of the U.S. rushed into the Oval Office, apologizing for accidentally scheduling two meetings at once. The President had to choose between seeing the Pope and seeing Herbert Allen. Buffett paused for effect. “‘Send in the Pope,’ said the President. ‘At least I only have to kiss his ring.’