The one and only authorised biography of Buffett.
IF YOU have read a lot about Warren Buffett through the years, you would ask: What else would his biography, released last September, contain?
I just had to find out, inspired as I was after attending the Berkshire Hathaway annual general meeting (AGM) in Omaha in May where I later had an opportunity to go up to Buffett and receive his autograph on my AGM entrance pass.
Turns out that the $47 which I paid for his hardcover biography at Kinokuniya just days after its release is an investment with high returns – in the form of fascinating insights into the life and mind of not just a gifted investor and the richest man on the planet, but an icon of utter honesty and the highest moral courage in a business world filled with greed and deceit.
There is a lot packed in the 960 pages which Buffett, 78, had never revealed – and it will help contribute to his legions of admirers’ understanding of how to become rich. Be prepared to be surprised, saddened, and inspired by The Snowball: Warren Buffett and the Business of Life.
Over five years, Buffett gave the author, Alice Schroeder, a former managing director at Morgan Stanley who impressed him with her research as an analyst, unprecedented access to his recollections and private files. Interestingly, he told her that if she encountered a different version of events through interviewing people, she was to choose the one that is less flattering to him.
Schroeder is the first and only author to be authorized by Buffett to write his life story. He had turned away countless editors and authors who approached him.
Most people know him as a smiling, oh-so-confident and blessed winner – always. Never have I read of the man hailed as “The Oracle of Omaha” being troubled or wrestling with failure. The book, which traces his life in chronological order, richly serves up such intimate insights, as though Buffett had decided to be an open book in order to demolish every past portrayal of him as a demi-god.
“He was crying on the phone, great gulping sobs, choking, gasping cries that left him out of breath. The convulsion broke through the dam that had kept his grief contained,” wrote Schroeder.
Buffett was mourning over the death in 2001 of Katherine Graham, chairman and chief executive officer of the Washington Post Company, on whose board Buffett had served.
“If I had been playing bridge with her that day she might not have fallen,” Buffett reflected later, sadly. “I would have taken her back in her golf cart myself. She might not have died.”
Graham was smitten with him and had openly flirted with him after the death of her husband. Schroeder wrote that Buffett’s wife, Susie, "made it plain to several friends that she was furious and humiliated."
In his relationship with his wife, Buffett suffered lots of regrets too. After their three children grew up, he agreed to Susie leaving him in 1977 to live in San Francisco. All those years, she had desired to lead her own interesting life which, among other things, meant being part of a vibrant artistic scene and doing charity work too. Though they later lived apart, the couple stayed married. She died some 26 years later from oral cancer.
Buffett looked back on Susie’s departure with deep regret: “It was preventable. It shouldn’t have happened. It was my biggest mistake. Essentially, whatever I did in connection with Susie leaving would be the biggest mistake I ever made. I just wasn’t attuned enough to her, and she’d always been perfectly attuned to me. It had always been all in my direction, almost. You know, my job was getting more interesting and more interesting and more interesting as I went along. When Susie left, she felt less needed than I should have made her feel.”
As is long known to Buffett fans, Susie herself invited someone she knew, Astrid Menks, an attractive 31-year-old restaurant waitress, to look after Buffett who was aged 47 then. Revealed now are details of her family background, and how she settled into her new role in Buffett’s house as his companion. To be sure, there were complexities and conflicts arising from the triangle, and they sure make fascinating reading.
Buffett is starting to appear considerably less invincible. He had a close encounter with mortality when he was 69. Over his protests, friends had summoned a doctor to examine him when he seemed unwell. The doctor recommended a colonoscopy, which made Buffett recoil at the memory of his father’s own lost battle with colon cancer.
Buffett’s colonoscopy found a sizeable but benign polyp in his gut. During a surgery, 15 inches of his innards were removed, which left him marked with a seven-inch scar.
On being discharged, he laced his comments with characteristic humour: “Did I tell you that I went into the hospital with a colon, but I came out with a semicolon?”
Asked if he was concerned about a recurrence, he said: “Oh, no, I’m not worried at all about that. I never worry about anything, you know. Incidentally, did I tell you that the anesthesiologist used to be my caddy at the country club? I told him before he put me under that I sure hope I tipped him well.”
His humour on another occasion: When he and some VIPs toured the Great Wall of China, he quipped: “Boy, I sure would have liked to have been the company that got the brick contract for this thing.” Far from being fun or easy-going, Buffett’s youth was marked by a badly strained relationship with his mother, Leila, who frequently lashed out at him and his sister, Doris. As a result, even in adult life, he hardly spoke with her even when he and his wife visited her.
“I cried a lot when my mother died. It wasn’t because I was sad and missed her. It was because of the waste. She had her good parts, but the bad parts kept me from having a relationship with her. My dad and I never talked about it. But I really regret the waste of what could have been.”
For all his much-vaunted intelligence, he was irrational or just plain quirky when it came to what he ate, eschewing advice about the ill effects of over-consuming hamburgers and soft drinks. His food choices were painfully limited.
“Broccoli, asparagus, and Brussels sprouts look to me like Chinese food crawling around on a plate. Cauliflower almost makes me sick…I don't even want to be close to a rhubarb, it makes me retch... I like eating the same thing over and over and over again. I could eat a ham sandwich every day for 50 days in a row for breakfast."
Incredible as it sounds, when Buffett was invited to Sony chairman Akio Morita’s apartment for a Japanese dinner with three other guests, he sent back all 15 courses because he couldn’t stand the sight of all the foreign-looking food prepared by Morita’s chefs.
“He tried to make up for his culinary lapses with witty, self-deprecating conversation about business with Morita-san but he knew he was disgracing himself,” wrote Schroeder. “It was the worst,” Buffett later said about the meal he did not eat. Coincidentally, at that time Buffett held the view that Japanese stocks were outrageously expensive.
A hilarious anecdote is recounted about how a friend called Buffett from her guest room in Katherine Graham’s house, exclaiming that an original Picasso hung in the bathroom. Buffett, who had stayed there many times, replied that he had not noticed it. What he did notice was the free shampoo!
Buffett is clearly an unusual person, but readers will have a difficult time comprehending why Schroeder concluded that he was "nothing more than a star-struck little kid, endearingly clueless in many ways about his place in the pantheon."
Aside from personal glimpses, the book has all the juice about what went on deep behind the scenes in his business life. Coca-Cola might have been a business he has always said he loved dearly, but the book has details about the time when Buffett was outraged with the performance of the company under its new CEO, Doug Ivester.
Buffett and a fellow board member of Coca-Cola took the extraordinary step of setting up a secret meeting with Ivester to tell him he no longer had their confidence. Ivester, who served as CEO from 1997 following the death from cancer of Roberto Goizueta, resigned days later in 1999. When the rest of the board of directors later learnt how his resignation had been triggered, they were outraged as their role had been usurped.
It’s hard to imagine that Buffett could stumble badly in his investment but he did, and the book captures it in detail, including the anger that he felt over it. In 1998, Buffett had acquired General Re, a reinsurer which bought excess risks from other insurers, for US$22 billion, his largest deal ever.
From the word go, he got nothing but bad news. General Re revealed it was duped US$275 million in a fraud. Next, it reported that it had guaranteed ticket sales on Hollywood films without knowing what scripts would be filmed or who would star in them.
In its first 12 months as part of the Berkshire family, General Re lost nearly US$1.5 billion from underwriting, pricing and selection of risk. No company that Buffett had ever owned had lost even a fraction of that sum, according to Schroeder.
Post-Sept 11 of 2001, General Re lost US$1.7 billion as a result of insurance claims from the terrorist attacks. Buffett posted a critical letter on his website about General Re having broken the “basic rules of underwriting.” In the history of Berkshire, he had never publicly dressed down the management of his companies.
“Cash combined with courage in a crisis is priceless”
In the market turmoil of today, it is uplifting to read of what Buffett did when the US market melted post Sept 11 and a series of corporate implosions that subsequently took place: Enron, WorldCom, Adelphia Communications, Tyco, and Imclone.
“Cash combined with courage in a crisis is priceless,” he said and proceeded to snap up bargains. “He bought a group of junk bonds. He bought the underwear maker Fruit of the Loom, quipping, ‘We cover the asses of the masses.’ ”
He bought Larson-Juhl, which made picture frames. Berkshire’s MidAmerican energy subsidiary invested in the troubled Williams Companies, and many more. When a vacuum suddenly emerged for insuring airlines, Berkshire welcomed the business with open arms. And it provided insurance for the Rockefeller Centre, the Chrysler Building, a South American oil refinery, a North Sea oil platform, and the Sear towers of Chicago – and many more. In the current financial crisis, he has, among other things, invested US$5 billion in Goldman Sachs.
The Snowball shows Buffett-wannabes that investing is very much the same as any talent. Make it your all-consuming passion, and the rewards will compound – hence the book title Snowball. There was a Buffet recollection of a piece of conversation that went on after he first met Bill Gates and his family in 1991. “At dinner, Bill Gates Sr posed the question to the table: What factor did people feel was the most important in getting to where they'd gotten in life? And I said, 'Focus.' And Bill said the same thing.”
| "You just cannot be sure of anything. You have to think about things that have never happened before." -- Buffett |
Only in the case of Buffett, as he made more and more money, his lifestyle hardly changed. He was indifferent to luxury, and has gone on to pledge virtually all his billions to charity.
A particularly useful lesson in the current financial crisis is how Buffett eschewed risk-taking. He was a very conservative investor, who sought to fully appreciate the risks, instead of just focusing on the potential upside, of any investment idea that caught his attention.
”You absolutely never want to be in a position where tomorrow morning you have to depend on the kindness of strangers in the financial world. I spent a lot of time thinking about that. Because you just cannot be sure of anything. You have to think about things that have never happened before. You always want to have plenty of money around.”
And you never want to get rich in a hurry. To him, leverage meant high cost and being held hostage to a short time frame. Without leverage, a strong holder could afford to ride out deep downturns in the market.
That’s how the master survived and prospered. He grasped very early on the dangers of derivatives, which he called weapons of mass destruction a few years ago. Today, those weapons are raining down on financial markets and devastating them while Buffett remains well shielded.
That is the latest extraordinary turn in an extraordinary life filled with ideas, values and experiences that will enrich the lives of its readers far beyond its cover price. And as Schroder wrote: “No group of shareholders in history had ever missed their CEO as much as Berkshire’s shareholders would miss Buffett when he is finally gone.”
This article first appeared in Pulses magazine and is reproduced with permission.
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