Monday, October 13, 2008

Detailed Warren Buffett bio reveals man behind fortune

Oct. 10, 2008, 11:19AM

THE SNOWBALL: Warren Buffett and the Business of Life.
By Alice Schroeder.
Bantam, 960 pp. $35.

If you've looked at your 401(k) statement and started to fear that everyone in financial markets is either greedy, predatory or incompetent, do yourself a favor. Take $35 out of the mattress and buy a copy of Alice Schroeder's The Snowball: Warren Buffett and the Business of Life. At a time like this, it's a real comfort: Buffet is living proof there's at least one wholly rational person managing money.

The Oracle of Omaha is one of the rare money men as well known on Main Street as on Wall Street. Actually, he could probably pass you on Main Street and you wouldn't notice. Despite his $50 billion-plus fortune, Buffett has rejected the Robb Report trappings of the ultra-rich. He drives himself to work (in a Lincoln Town Car), eats at McDonalds, drinks Coke and still lives in a modest house he bought in 1958. Yet, depending on who's counting, he's either the richest man in the country or second-richest, trailing only Bill Gates (a good friend and, according to Schroeder, a surrogate son).

Certainly, this part of the reputation is well-known. But what of the man behind the money?

That is what biographer Schroeder sets out to reveal. What she delivers is the portrait of a middle-American Midas with enough anxiety about parents to rival Hamlet's. Her tendency to psychologize is the one notable flaw in what is otherwise an excellent and highly enjoyable look at the business titan.

A native Texan and graduate of the University of Texas, Schroeder befriended Buffett while working for Morgan Stanley, where she covered Buffett's company, Berkshire Hathaway, as an analyst. Blessed by Buffett to write the book, she was given access to his files, friends, family and, often, himself, and has stuffed the book with anecdotes.

While readers may want to get to the icy deal-making of Buffett's adult years rather than linger with boy Warren as he sells 5-cent packs of gum, Schroeder makes clear these early experiences provided the foundation for his mature investment philosophy.

A key moment occurred in 1941 when Warren, age 11, stumbled upon the concept of compounding in a library book called One Thousand Ways to Make $1,000.

"Compounding married the present to the future. If a dollar today was going to be worth 10 some years from now, then in his mind the two were the same," writes Schroeder, suggesting he was mentally leveraging his investments even as a prepubescent.

A year later he partnered with sister Doris to buy his first stock: three shares of Cities Service Preferred, a favorite of his father's, who had started his own stockbroking business in the midst of the Depression. Buffett bought at $38.25 and sold at $40, netting a $5 profit.

Soon after, the stock rocketed to $202 a share. "Warren learned three lessons and would call this episode one of the most important of his life," Schroeder writes. "One lesson was not to overly fixate on what he had paid for a stock. The second was not to rush unthinkingly to grab a small profit."

The last lesson was that losing someone else's money would upset them and that he shouldn't manage their money until he was confident in what he was doing. Warren, we're told throughout the book, avoids confrontation and likes to be liked.

This stance, Schroeder suggests, goes back to his parents, who were "notable for their lack of warmth." His father had a "Quaker-like personality." A zealous Republican, he eventually served in Congress. His mother was prone to explosions where she would tell her children they were "worthless, ungrateful, and selfish; and should feel ashamed."

As a consequence, Schroeder says, he has spent much of his life seeking approval from surrogate mothers. That latter ranged from his two wives to the late Washington Post publisher Katharine Graham to his steady bridge partner Sharon Osberg (with whom he plays on the Internet many nights).

Personal issues aside, the core of the book chronicles how Buffett transformed Berkshire Hathaway from a virtually worthless textile business into (as of 2004) a company with 172,000 employees, $64 billion in revenues, profits of $8 billion a year and (in 2006) a valuation of more than $200 billion.

Schroeder's focus is sharpest from the years 1999 to 2004, when she offers a detailed account of his thinking and decisions, both wise, such as his canny avoidance of the dot-com bubble, to mistaken, such as his purchase of Dexter Shoe Co., which he calls the worst acquisition he ever made.

Since so much drama of business is cerebral, it helps that Schroeder can get into his head, which she does by interspersing Buffett's direct quotes, in italicized blocks, into the narrative. It's a surprisingly effective device, one that provides a kind of meta-textual commentary to the work, though it does leave the impression that Buffett is looking over Schroeder's shoulder the whole time.

Buffett isn't especially quippy, and Schroeder has to work hard to smelt aphoristic business advice from the ore of her subject's life. What she comes away with is folksy and somewhat bland: Follow your own "Inner Scorecard" and not the crowd, look for the "cigar butts," stocks discarded by others but with just enough tobacco for one more puff.

Then there is the rather strained metaphor that gives the book its title:

"The snowball just happens if you're in the right kind of snow, and that's what happened with me. I don't just mean compounding money either. It's in terms of understanding the world and what kind of friends you accumulate. You get to select over time, and you've got to be the kind of person that the snow wants to attach itself to. You've got to be your own wet snow, in effect. You'd better be picking up snow as you go along, because you're not going to be getting back up to the top of the hill again. That's the way life works."

(But don't snowballs melt easily, especially in the midst of a market meltdown like the one we're in now? Not when they are like Buffett's — his metaphorical snowball must be the size of a small moon.)

If you're looking for advice about the current financial crisis, you won't find it here: The book all but ends in 2004 with the death of his first wife Susie from cancer, with just 23 pages devoted to 2004 to the present.

Perhaps the best thing to do is consider his comment at the time of the Enron debacle: "Cash and courage in a crisis is priceless." Watching Buffett's recent market moves, which include a $5 billion investment in Goldman Sachs, you'd have to say he sees opportunity when others are trying to flee.

If Schroeder's book proves anything, it's that Buffett is one money man who follows his own advice.

1 comment:

Things That said...

I have been closely observing the Amazon best sellers, in particular the business best sellers. This book, although not at the top of the list today, has been at or near the top since it was released.

There are some fascinating and timely books on the Amazon list, and this one looks particularly interesting. The author could not have timed ther release of her book any better.