ordinary-but-not-so-ordinary Midwesterner: President Harry
Truman. This is so even though Truman, after having been burned in a
zinc mining adventure, mostly confined his investing to Treasuries.
Many of the terms used to describe Truman describe Buffett
equally as well. Historian David McCullogh called Truman a man
“full of the zest of life.” Others talked about his “fundamental
small-town genuineness,” and his “appealing mixture of modesty
and confidence.”
Much like Buffett, Truman was known for his integrity and character,
and for being scrupulously ethical. These traits seem to have
served Buffett and Truman equally well.
Warren Edward Buffett was born in Omaha on August 30, 1930,
the son of Howard Buffett, a stockbroker and later a Republican
congressman. He was the second of three children, and the only son.
From his father Buffett learned the basic moral values, possibly
along with a deep respect for people who have money—his father’s
clients. From his mother, who was difficult and disapproving, he
may have developed a strong need to prove his worth, perhaps by
accumulating a large fortune.
In his youth Buffett displayed his intellectual gifts by memorizing
the populations of scores of U.S. cities. He displayed his commercial
instincts by selling chewing gum to passersby, setting up a lemonade
stand, selling cans of soda pop, even selling a tip sheet at the track.
He played Monopoly for hours.
When he was 11, he began working in his father’s brokerage firm,
marking prices on a blackboard. He bought his first stock when he
was 11: three shares of Cities Service Preferred, at $38 a share. The
price fell to $27, then bopped up to $40, at which point he sold. His
profit was $6, minus commissions. The stock soon rose to $200 a
share; perhaps Buffett had learned a lesson in being patient.
When his father was elected to Congress, he took his family to
Fredericksburg in Virginia. Warren, who all his life has been upset at
the prospect of change, was wretched. He was allowed to return to
Omaha and live with his grandfather, Ernest. Later, he worked in his
grandfather’s grocery store.
Buffett returned to Washington, D.C., as a teenager. He began delivering
the Washington Post and other newspapers, and in 1945, at
14, took his savings from his paper routes and bought 40 acres of Nebraska
farmland for $1,200 and leased them to a farmer. He also
made money by searching for lost golf balls on a golf course, and by
renting old, repaired pinball machines to barber shops.
In high school, he was something of a nerd; he wore the same
sneakers all the time, even in the dead of winter. But he had developed
such a reputation for stock-market wisdom that even his
teachers would ask him for advice. He graduated high school 14th
in his class of 374, and the yearbook described him this way: “Likes
math . . . a future stockbroker.”
He went on to the Wharton School of Finance, where, Warren reported,
he knew more than his professors. And, indeed, he was a
standout student. After a year, he transferred to the University of Nebraska
in Lincoln.
He himself dabbled in charting and technical analysis, but then,
while a senior at the University of Nebraska, read Benjamin Graham’s
The Intelligent Investor, advocating that investors buy good,
cheap companies and hang on—and the veils promptly fell from
his eyes.
At 19 Buffett applied to and was turned down by the Harvard Business
School, surely a blunder as egregious as the Boston Red Sox’s
selling Babe Ruth to the Yankees. He then moved to New York to
study with Ben Graham at the Columbia Business School. He was a
splendid student.
After getting his M.B.A., Buffett applied for a job with Graham’s
firm, offering to work for no pay, but was turned down. Buffett wasn’t
resentful: He joked that Graham had “made his customary calculation
of value to price and said no.”
At the same time that Howard Buffett lost his seat in Congress,
Warren received a phone call from Ben Graham. He offered Buffett a
job as an analyst with Graham–Newman in the Chanin Building on
43rd Street. There Buffett shared a room with Walter Schloss (Chapter
26), and later with Tom Knapp, who started the Tweedy, Browne
funds (Chapter 24).
Although he admired Graham, Buffett complained that he “had
this kind of shell around him.” Graham also didn’t really say yes to
Buffett’s proposed stock picks—or anyone else’s. He also discouraged
Buffett from visiting companies and talking to management. Either
a stock fit Graham’s mathematical matrix or it didn’t.
Buffett began courting Susan Thompson, and when she didn’t return
his affection, befriended her father. Susan was dating Milton
Brown, a Jew, and Susan’s parents—her father was a Protestant minister—
were disapproving. Buffett told Susan’s father that he was
Jewish enough for Susan and Christian enough for him. (“Jewish
enough for Susan” probably meant: He was unconventional and
iconoclastic.) Eventually Susan gave in to her father, and began dating
Buffett; they married in 1952.
In 1956 Graham retired to California, and Buffett—now worth
$140,000 thanks to shrewd investing—returned to Omaha.
There, Buffett began working in his father’s business. The first
stock he sold: GEICO. Then he started his own investment partnership.
He persuaded a group of investors to hand over $25,000
each; Buffett contributed $100, and he was on his way. His goal: to
beat the Dow Jones Industrial Average by an average of 10 percent
a year.
When he ended the partnership in 1969, because he couldn’t find
cheap stocks to buy, his investments had compounded at 29.5 percent
a year versus the Dow’s mere 7.4 percent a year. Ending the
partnership was a good call. The Dow plunged in 1973 and 1974.
Buffett suggested that his ex-partners invest money with his
friend Bill Ruane in a new mutual fund called Sequoia. (See Chapter
21.)
In 1962, Buffett had begun buying cheap shares of a textile mill in
New Bedford, Massachusetts, called Berkshire Hathaway. He began
buying it at less than $8 a share, then took it over completely in 1964,
when its book value was $19.46.
He had promised to hold onto the textile mill, but eventually
had to give it up because the business was eroding thanks to foreign
competition.
He then went into insurance, a wise decision because insurance
companies give their owners free money from customers to invest
for a time (until claims must be paid)—and Buffett knew how to invest
spare money.
When the markets crashed in 1973–1974, Buffett went in with a
wheelbarrow and scooped up bargains.
His wife, Susan, apparently didn’t enjoy the good, quiet life in Omaha
as much as Buffett did, and moved to San Francisco, helping him
find another housemate, Astrid Menks, a Latvian-born waitress at a
local café. Mrs. Buffett nonetheless joins him on most of his public
appearances, gets along famously with Ms. Menks, and will inherit
all his stock should he predecease her.
They have three children: Howard, Susan, and Peter.
Buffett still lives on Farnam Street in the same big, gray house he
purchased 40 years ago for $31,500. He drives his own car, does his
own taxes.
The Buffett Foundation, which he set up in the mid-1960s, helps
family-planning clinics.
His most notable purchases include the Washington Post, GEICO,
Coca-Cola, Gillette, American Express, and General Re. He
prefers buying companies outright to buying partial shares, and
he now owns a well-diversified portfolio of companies. (See Appendix
2.)
In the early 1990s, perhaps mistakenly, Buffett and Munger got involved
in the Salomon scandal over its hogging of Treasury bonds,
and Buffett took over as chairman. He tried to curtail the greediness
of Salomon bond traders, and certainly managed to rescue the company
from bankruptcy, but in retrospect it seems to have been a nowin
situation—a dragon that Buffett might have been better off
avoiding rather than trying to slay.
His annual reports are reader friendly, literate, learned, and sometimes
funny (although he mistakenly believes that St. Augustine’s
plea, “Give me chastity, but not now,” is apocryphal).
Berkshire does things differently. Both Buffett and Munger receive
only $100,000 a year in salaries. The shares were split into A and B
varieties in 1996 only to fend off sharpies, who were about to sell
small units of Berkshire for less than the $48,000 a share it was then
selling for. (Buffett never split the stock, despite its lofty price, because
he believes that low prices lead to a high turnover, attract investors
who are short-term oriented, and cause stock prices to
diverge from their intrinsic value.)
The fun-filled annual meetings, Woodstock for Capitalists, lure
thousands of contented shareholders, and every year more and more
people flock there to enjoy the Warren and Charlie Show. Celebrities
turn up, too, including Michael Eisner of Disney.
Apparently the man designated to succeed Buffett when he leaves
is Louis Simpson, GEICO’s chairman. (See Chapter 23.)
In 2001 Buffett went on what was, for him, a buying spree, purchasing
shares of such companies as H&R Block, GPU, and Johns
Manville, the company riddled with asbestos problems. He joined
with other very wealthy people in publicly opposing legislation to
eliminate the estate tax, arguing that it is simply unfair for one child
to be born with far more financial resources than another. And he
began issuing warnings that the stock market was overvalued. He is
only 70 years old as of this writing, and one can confidently expect
that he will be entertaining and enlightening us many more times
during this decade, and yes, even getting his picture in the papers.
Read More : Buffett: A Life in the Stock Market
