The Snowball: Warren Buffett and the Business of Life

by Alice Schroeder

When someone observed, “That’s an interesting pair of shoes,” Graham looked down at the brown oxford on one foot and the black one on the other and said, without blinking, “Yes, as a matter of fact, I’ve got another pair just like them at home.”

Warren was in awe of Ben Graham, but nonetheless he was preoccupied with money. He wanted to amass a lot of it, and saw it as a competitive game. If asked to give up some of his money, Warren responded like a dog fiercely guarding its bone, or even as though he had been attacked. His struggle to let go of the smallest amounts of money was so apparent that it was as if the money possessed him, rather than the other way around.

He had no car, and when he borrowed that of a neighbor, he never filled up the tank. (When he finally got a car, he washed it only when it was raining, so the rain could do the manual labor of rinsing.)

“Give a man a fish and you feed him for a day. Teach a man to arbitrage and you feed him forever.”

$34 (G-N’s cost for a share of Rockwood—which it turns in to Pritzker) $36 (Pritzker gives G-N a warehouse receipt—which it sells at this price) $ 2 (Profit on each share of Rockwood stock)

Virtually no risk, however, means there is at least some risk. What if the price of cocoa beans dropped, and the warehouse receipt was suddenly worth only $30? Instead of making two dollars, Graham-Newman would lose four bucks for every share of stock. To lock in its profit and eliminate that risk, Graham-Newman sold cocoa “futures.” It was a good thing, too—for cocoa prices were about to drop.

“I told Jerry Newman, ‘It’s the old story—you hire one gentile, they take over the place,’ ” Buffett says.

The partners quickly split into two camps: the teetotalers and the rest. From his end of the table, Doc Thompson suggested, in a paternal way, that the other faction was going to hell. It was Warren, however, who was the preacher that night; they were there for him to hold forth.

Ping-Pong, bridge, poker, golf all absorbed him and took his mind off money temporarily. But he never lazed around a swimming pool, stargazed, or simply went for a walk in the woods. A stargazing Warren would have looked at the Big Dipper and seen a dollar sign.

“And all they would have had to run it was this kid named Warren Buffett. He’s the best they could come up with. And who’d want to ride with him?”

During the day, he went to the library and read newspapers and industry trade magazines. He typed his own letters on an IBM typewriter, carefully lining up his letterhead sheet on the carriage.

The brainstorm behind Warren’s National American coup had been more than just the price. He had learned the value of gathering as much as possible of something scarce. From license plates to nuns’ fingerprints to coins and stamps, to the Union Street Railway, and National American, he had always thought this way, a born collector.

The kidney infection did not concern her as much as shielding Warren from dealing with it; his discomfort around illness was so great that she had trained the family to pay attention to him whenever somebody got sick, as if he, too, were ill and required care.

The $15,000 decorating bill totaled almost half of what the house itself had cost, which “just about killed Warren,” according to Bob Billig, a golfing pal.42 Since he was indifferent to visual aesthetics, all he saw was the outrageous bill. “Do I really want to spend $300,000 for this haircut?” was his attitude.

With their large new house, Warren and Susie began to play host for the families. But at family gatherings when his mother was present, as soon as he could get away with it, Warren disappeared upstairs to work.

People thought it was nervy of him to ask for money to invest without telling them what he would be buying. “There were people in Omaha who thought what I was doing was some sort of Ponzi scheme,”

And all the while that Warren was investing during these early years of the partnerships, he never deviated from the principles of Ben Graham. Everything he bought was extraordinarily cheap, cigar butts all, soggy stogies containing one free puff. But that was before he met Charlie Munger.

“You should never, when facing some unbelievable tragedy, let one tragedy increase into two or three through your failure of will,” he would later say.

Later, thirty-one-year-old Charlie spent much of his son’s final weeks sitting by Teddy’s bedside. By the time Teddy died in 1955 at age nine, Charlie had lost between ten and fifteen pounds. “I can’t imagine any experience in life worse than losing a child inch by inch,” he said later.15

He became known to his children as a “book with legs,” constantly studying science and the achievements of great men. Meanwhile, he continued seeking his fortune at the law firm of Musick, Peeler & Garrett, but realized that the law would not make him rich. He began to develop some profitable sidelines. “Charlie, as a very young lawyer, was probably getting $20 an hour. He thought to himself, ‘Who’s my most valuable client?’ And he decided it was himself. So he decided to sell himself an hour each day. He did it early in the morning, working on these construction projects and real estate deals. Everybody should do this, be the client, and then work for other people, too, and sell yourself an hour a day.”

A few nights later, the two men took their wives to Johnny’s Café, a red-velvet steak joint, where Munger became so self-intoxicated at one of his own jokes that he slipped out of the booth and began rolling on the floor with laughter. When the Mungers returned to Los Angeles, the conversation continued in installments, the two men talking on the phone for an hour or two with increasing frequency. Buffett, once obsessed with Ping-Pong, had found something far more interesting. “Why are you paying so much attention to him?” Nancy asked her husband. “You don’t understand,” said Charlie. “That is no ordinary human being.”

As Susie added stop after stop to her local schedule, Warren headed out on a nonstop trip to Dollar Mountain.

“Anyone can be a father, but you have to be a daddy too.”

On vacation once in California, he took a bunch of kids to Disneyland one night and sat on a bench reading while the kids ran wild and had a grand time.

“Be fearful when others are greedy, and greedy when others are fearful.” This was the time to be greedy.

“The more sure money tends to be made on the obvious quantitative decisions.” But the method had a couple of drawbacks. The number of statistical bargains had shrunk to virtually nil, and since cigar butts tended to be small companies, it did not work when large sums of money were involved.

Harding had hoped to learn investing, but that ambition was soon destroyed. “Any idea that I wanted to handle investments on my own disappeared when I saw how good Warren was,” he says. Instead, Harding simply put most of his money into the partnership.

Each of the Grahamites in Buffett’s network was always looking for ideas, and Dan Cowin had brought Buffett a textile maker in New Bedford, Massachusetts, that was selling at a discount to the value of its assets.8 His idea was to buy it and liquidate it, to sell it off piecemeal, and to shut it down. Its name was Berkshire Hathaway. By the time the hair had grown back on Warren’s head from the shock of his father’s loss, he was in full pursuit of this new idea.