rediff.com

NewsApp (Free)

Read news as it happens
Download NewsApp

Available on  

Rediff News  All News 
Rediff.com  » Business » 8 things you don't know about Buffett

8 things you don't know about Buffett

October 10, 2008 15:51 IST

The Snowball: Warren Buffett and the Business of Life is the mandatory book to read in these treacherous times of financial crisis. Alice Schroeder, formerly an astute insurance analyst with Morgan Stanley, has written a thoughtful and intimate biography of the globe's wisest investor.

Buffett has shown himself to be a J.P. Morgan figure during this current panic, using Berkshire Hathaway's storehouse of billions to rescue Goldman Sachs and General Electric from potential meltdowns. Many believe the model of Buffett's investments in Goldman and GE--high-yielding preferred stock, plus warrants to buy common shares later--should have been used by the Treasury in the just-enacted $700 billion financial rescue package.

In pictures:
Eight things you didn't know about Warren Buffett
12 stocks for Ken Fisher

Certainly Buffett's storied success at value investing and his half-century record of successfully growing other people's money, as well as his own, is the model of stewardship that our nation could use now. It is the opposite of the casino-like atmosphere that has dominated Wall Street these past several years.

As Schroeder says in her pungent manner, the 78-year-old Oracle of Omaha represents "the triumph of straight thinking and high standards over flapdoodle, folly and flimflam." Buffett is reported to see today's crisis as a calamity that will require more than just this imperfect government intervention--one which seems to fail to pass money through to the places in the economy where it is instantly required.

In pictures:
CEOs who lose millions in minutes
Bets of the billionaires

Knowing Buffett, I'm sure he sees this calamity as being caused by "flapdoodle, folly and flimflam" and the knaves who wanted to pile up their fortunes in record time. They were not patient value investors, and they have now put the nation at a precipice, from which no single investor can stop everyone and all the banks from diving.

What Schroeder has achieved by dint of 300 hours with Buffett, access to his private papers, his family and cronies, is the sensitively layered story, warts and all, of this complex genius. The beauty of it is that Buffett's voice is on almost every page, describing frankly and boldly his innermost thoughts about all things professional and personal.

In pictures:
Gurus buy like Buffett

Here's Buffett on the crucial role played by his late wife, Susie, from whom he was largely separated for the last quarter century. "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. She put me together. It was the same kind of unconditional love you would get from a parent." Even before Susie, Warren was so without confidence he could not get up and speak publicly. He enrolled in a Dale Carnegie course to be able to show confidence externally even if he didn't feel it inside.

Compare that sensibility with the author's belief that Buffett wanted to be the wealthiest American from the age of 7. Incredibly, at that age, Buffett was already reading books about the bond market and building a vast collection of bottle caps that he counted over and over again.

His first business venture, at age 6, was selling packs of chewing gum from a little green tray in his Omaha neighborhood. He earned two cents a pack. Later, he broke up cartons of Coca-Cola, which he sold door-to-door on summer nights. These ventures would become "the first snowflakes in a snowball of money to come," writes Schroeder. Thus, the title, Snowball.

Later on, Buffett would grow to understand the concept of compounding returns. Contemplating the value of weight scales, Buffett told the author, "The weighing machine was easy to understand. I'd buy a weighing machine and use the profits to buy more weighing machines. Pretty soon I'd have 20 weighing machines and everybody would weigh themselves 50 times a day. I thought--that's what money is. The compounding of it--what could be better than that?"

At 21, the self-described wise guy did what no one else has ever done. In fact, I'm sure. "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."

No wonder he is the greatest investor we have ever seen. He has insatiable thirst for information; he is enormously focused on being right and racking up a fortune; he is fundamentally honest, and he has a brilliant and authentic sense of humor that is beguiling and disarming. Schroeder writes that the key to Buffett's success was "having more information than the other guy--then analyzing it right and using it rationally."

In Snowball (Random House, $35.00, 979 pages), Schroeder had Buffett's explicit approval to portray his ruthless side in business. For example, when Buffett was getting control of Berkshire Hathaway in the 1960s when it sold for next to nothing, she describes him buying shares "from sellers who had been his former partners, although perfectly legal, it was not exactly sporting conduct." In retrospect, those who sold missed out on the creation of their own great fortunes, which many who held, can claim today.

A weakness of the book is that it's difficult to follow the trail of the investments over 40 years to absorb how Buffett precisely became the nation's richest man. Schroeder should add a table that guides the reader through the massing of the fortune and underscore the key turning points.

What is precious about Snowball is that Buffett wanted all his weaknesses, all his clay feet, to be disclosed. It is as if all the hagiographic articles written about him needed to be put into a true perspective.

Incredibly, Buffett could not deal with anyone's serious medical problems and was unable in some cases to even speak at close friends' funerals, so overcome was he the loss of someone dear and the proximity of death. The richest man in the world has amazing foibles.

Buffett has always been a tightwad, unable to give much money to his children, his wife, or to charity, until after Susie's death when he decided to hand over the bulk of his fortune to the Gates Foundation (his pal-ship with Bill Gates is a fascinating sidelight) and to his children's foundations.

Then, there is his relationship with Kay Graham, the publisher of the Washington Post, which he flaunted on the Washington social scene even before his wife Susie left for California with her tennis instructor boyfriend. It is fascinating to read how Buffett--younger than Graham by 16 years, was able to pass on the nurturing and supportive techniques he had learned from Susie.

This insight is so much more instructive than another investment that he finds of an unloved company selling below its intrinsic value. Or his unwillingness to use his own money to bail out his sister, Doris, when she unwisely speculated on the market and lost her net worth. Rather, he convinced the managers of his father's trust to free funds for his sister--which was money coming to her anyway.

This is the multi-faceted Buffett, the man who can invest money in a patient, utterly rational way, taking advantage of the disasters befalling others, waiting in the wings with buckets of cash from the "float"--the accumulated insurance premiums that were almost cost-free capital and for decades the secret weapon in Buffett's arsenal.

Buffett, whom Schroeder says is really driven to teach us values about investing and life, is someone who teaches us a great deal by making his life an open book. Read Snowball and you'll be the wiser for it.

Robert Lenzner, Forbes
Source: