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July 30 - November 17, 2019
Criticism is futile, said Carnegie.
Rule number one: Don’t criticize, condemn, or complain. This idea riveted Warren. Criticism was something he knew everything about.
Criticism puts people on the defensive, Carnegie said, and makes them strive to justify themselves. It is dangerous, because it wounds people’s precious pride, hurts their sense of importance, and arouses resentment. Carnegie ad...
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Everybody wants attention and admiration. Nobody wants to be criticized.
The sweetest sound in the English language is the sound of a person’s own name.
The only way to get the best of an argument is to avoid it.
If you are wrong, admit it quickly and emphatically.
Ask questions instead of giving direct orders.
Give the other person a fine reputation to live up to.
Call attention to people’s mistakes indirectly.
Let the other person save face.
Warren had discovered the miracle of capital: money that works for its owner, as if it had a job of its own.
“You had to get along with the barbers. That was crucial. I mean, these guys could all go buy these machines for twenty-five bucks themselves. So we would always convince them that it took someone with a four-hundred IQ to repair pinball machines.
Rich as he was, however, Warren meant to keep that snowball rolling.
‘Pop, there’s just one thing I want. I want you to ask the Library of Congress for every book they have on horse handicapping.’
‘Pop, who was out there at the county fairs stumping for your election? Who was down there at the packinghouses ready to get to the cops if something happened?’ I said, ‘And you’re coming up for reelection in two more years. You’re going to need me. So this is payoff time.’ And he got me hundreds of books on horse handicapping.2 “Then what I would do is read all these books.
He hadn’t bought a lot of textbooks, but he had read the ones he bought at the beginning of the semester, before classes started, the way someone else might flip through a Life magazine.
Leila was astonished when Chuck ate everything she offered him, even oatmeal. “Warren won’t eat this, he won’t eat that,” she said. “He always makes me fix something special for him.”
Then Warren had an idea for a stunt. He wanted to be seen in the car. Danly dressed up like a chauffeur, Warren put on the raccoon coat, and the two cranked and cranked to start the car, then drove downtown with platinum-blond Norma. As Danly lunged about under the hood, pretending to fix the motor, Warren directed him with a cane and Norma draped herself over the hood like a movie star. “It was Warren’s idea,” says Norma. “He was the more theatrical one.
Since Howard Buffett scratched no backs, his own back went unscratched, and his son’s as well.
Warren was naive; it did not quite sink in what this meant. When the letter arrived from Harvard refusing him admission, he was shocked. His first thought, he says, was, “What am I going to tell my dad?”
And yet Warren would later come to consider his rejection by Harvard the pivotal episode of his life.
But since Warren looked at every dollar as ten dollars someday, he wasn’t going to hand over a dollar more than he needed to spend. Every penny was another snowflake for his snowball.
Warren had read his favorite book on bonds, Townsend’s Bond Salesmanship, for the first time at the age of seven after making a special plea to Santa Claus for this tome.
Warren had even considered actuarial science—the mathematics of insurance—as a career.
In his memoir, Ben Graham describes himself as a loner who never had an intimate friend after high school: “I was cut out to be everybody’s friend but no one’s bosom pal or crony.”1 “Nobody cracked his shell. Men all admired him, they all liked him, and they all wanted to be his friend more than he wanted them to be. You came away feeling terrific about him, but you never got to be his pal.”
Ben was sure the examiner had detected a “secret deformity” in his soul: “For years I had been struggling against something the French call mauvaises habitudes [bad habits, a euphemism for masturbation], and which a combination of innate puritanism on my part and the hair-raising health tracts prevalent in those days had raised to a moral and physical issue of enormous proportions.”
During dinner parties, Graham often disappeared in the middle of a course to work on mathematical formulas, read Proust (in French), or listen to the opera, rather than suffer the dull company of his fellow man.10 “I remember the things I learn,” he wrote in his memoir, “rather than the things I live.” The one exception where living took precedence over learning was his assignations.
Most of the other students were older, some of them war veterans. Half were businessmen who were auditing the course. Once again, Warren was the youngest—yet also the most knowledgeable.
Just like people, companies have assets that they own, such as the products they make and sell, and debts—or liabilities—that they owe. If you sold all the assets to pay off the debts, what would be left was the company’s equity, or net worth.
Along with his Company A and Company B teaching method, Graham used to talk about Class 1 and Class 2 truths. Class 1 truths were absolutes. Class 2 truths became truths by conviction. If enough people thought a company’s stock was worth X, it became worth X until enough people thought otherwise. Yet that did not affect the stock’s intrinsic value—which was a Class 1 truth. Thus, Graham’s investing method was not simply about buying stocks cheap. As much as anything it was rooted in an understanding of psychology, enabling its followers to keep their emotions from influencing their
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From Graham’s class, Warren took away three main principles: • A stock is the right to own a little piece of a business. A stock is worth a certain fraction of what you would be willing to pay for the whole business. • Use a margin of safety. Investing is built on estimates and uncertainty. A wide margin of safety ensures that the effects of good decisions are not wiped out by errors. The way to advance, above all, is by not retreating. • Mr. Market is your servant, not your master. Graham postulated a moody character called Mr. Market, who offers to buy and sell stocks every day, often at
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Warren an enthusiastic follower of Graham, he disagreed with his teacher about the need to buy so many stocks. He had cast his lot with one stock: “Ben would always tell me GEICO was too high. By his standards, it wasn’t the right kind of stock to buy. Still, by the end of 1951, I had three-quarters of my net worth or close to it invested in GEICO.” And yet Warren “worshipped” his teacher, even though he had strayed so far from one of Graham’s ideas.
He haunted the Columbia library, reading old newspapers for hours on end. “I would get these papers from 1929. I couldn’t get enough of it. I read everything—not just the business and stock-market stories. History is interesting, and there is something about history in a newspaper, just seeing a place, the stories, even the ads, everything. It takes you into a different world, told by somebody who was an eyewitness, and you are really living in that time.”
Warren spent hours reading the Moody’s and Standard & Poor’s manuals, looking for stocks. But it was the weekly Graham seminar that he looked forward to more than anything else.
Where Are the Customers’ Yachts? and Security Analysis.
Books to read on stovks and business
“I don’t think there was one guy in the class that thought about whether U.S. Steel was a good business. I mean, it was a big business, but they weren’t thinking about what kind of train they were getting on.”
Graham turned him down. “He was terrific. He just said, ‘Lookit, Warren. In Wall Street still, the “white-shoe” firms, the big investment banks, they don’t hire Jews. We only have the ability to hire a very few people here. And, therefore, we only hire Jews.’ That was true of the two gals in the office and everybody. It was sort of like his version of affirmative action. And the truth is, there was a lot of prejudice against Jews in the fifties. I understood.”
“I went to Dale Carnegie because I was painfully aware of being socially maladjusted. And I went and gave them a check, but then I stopped payment on it because I lost my nerve.”
“I learned that it pays to hang around with people better than you are, because you will float upward a little bit. And if you hang around with people that behave worse than you, pretty soon you’ll start sliding down the pole. It just works that way.”
so true...
“They gave us this book of speeches—keynote speech, election speech, lieutenant governor’s speech—and we were supposed to deliver these things every week. The way it works is that you learn to get out of yourself. I mean, why should you be able to talk alone with somebody five minutes before and then freeze in front of a group? So they teach you the psychological tricks to overcome this. Some of it is just practice—just doing it and practicing. We really helped each other through. And it worked. That’s the most important degree that I have.”
Even her friends noticed the vulnerability that lay beneath his veneer of self-assurance. Susie gradually recognized how worthless he felt inside.30
All that confident chatter about stocks, the aura of a prodigy, the tinny twang of the ukulele, were wrapped around a fragile, needy core: a boy who was stumbling through his days in a shroud of desolation. “I was a mess,” he says. “It was incredible the way Susie saw through to some of that.”
“I went through the Moody’s Manuals page by page. Ten thousand pages in the Moody’s Industrial, Transportation, Banks and Finance Manuals—twice. I actually looked at every business—although I didn’t look very hard at some.”
The firm made a profit by selling a stock to clients at a slightly higher price than it paid, and buying stock from clients at a lower price than it sold the stock for. The difference, or “spread,” was its profit.
Warren had always tried to avoid broken promises, burned bridges, and confrontation. Now Howard’s struggles branded three principles even deeper into his son: that allies are essential; that commitments are so sacred that by nature they should be rare; and that grandstanding rarely gets anything done.
“Susie was as big an influence on me as my dad, or bigger probably, in a different way. I had all these defense mechanisms that she could explain, but I can’t. She probably saw things in me that other people couldn’t see. But she knew it would take time and a lot of nourishment to bring it out. She made me feel that I had somebody with a little sprinkling can who was going to make sure that the flowers grew.”
“I needed her like crazy,” he says. “I was happy in my work, but I wasn’t happy with myself. She literally saved my life. She resurrected me.10 She put me together. It was the same kind of unconditional love you would get from a parent.”
In that first month, he had parked himself in the file room at Graham-Newman and begun to read through every single piece of paper in every single drawer in an entire room filled with big wooden files.
What Warren was learning about by keeping his ears open was the art of capital allocation—placing money where it would earn the highest return.
