Showing posts with label Snowball. Show all posts
Showing posts with label Snowball. Show all posts

Saturday 18 April 2015

Seven surprising things you may not know about Warren Buffett

by THE INVESTOR on DECEMBER 4, 2008


Ihave just finished the The Snowball, the first biography Warren Buffett has cooperated with. It’s full of surprises, such as how Buffett had three leading ladies for two decades, and how his 1960s home was an accidental outpost of the counterculture.
But I’m more interested in how Buffett made his money. And while there’s few new facts about Buffett’s deals in The Snowball, the biographical format does put them into context. You get to see what makes him tick.
Here are seven interesting things I learned about Warren Buffettfrom The Snowball, and some ideas on how they can help your investing:

1. Buffett set goals young. (He really started, really young)

Buffet began obsessing over numbers as a child. He raced marbles with a stopwatch and calculated the lifespan of hymn composers when six-years old. He sold chewing gum at seven and Coca Cola when he was eight: the same year he began wearing a money-changer on his belt.
  • His dad was a stockbroker. This gave him an early view of the markets
  • At ten he was chalking stock prices at a local broker’s office
  • The same year he visited the New York Stock Exchange, and was asked for a tip by senior Goldman Sachs partner Sidney Weinberg – an experience he never forgot
  • His favourite childhood book was One Thousand Ways to Make $1,000
  • At 11 he announced he was going to be a millionaire at 35, a seemingly crazy goal in 1941 (when a million really was a million)
  • He filed his first tax return aged 14, having already made $1,000 (equivalent to around $12,500 in today’s money)
The takeaway: The power of compound interest takes years to work its magic. None of us has a time machine, so the main lesson is not to delay a day when investing for the future.

2. Buffett bought his first stock when he was 12-years old

Warren put everything his schemes had earned him into a stock, Cities Service Preferred, when he was 12. He also enrolled his sister, Doris.
Buffet was already learning how to hold shares through a slump
He paid $114.75 dollars for three shares, and watched the stock price fall from $38.25 to $27 a share. His sister Doris was not happy. When Cities Service went back up to $40, he sold. He made $5 a share profit, and got Doris off his back. After he sold, the stock rose to $202 a share.
Takeaway: We all learn the same lessons. Buffett’s business partner Charlie Munger says that because Warren started thinking about odds, stocks, and goals before he was a teenager, he’s years ahead of the rest of us.
I used to watch share prices rise and fall on the Teletext TV service when I was 11 or 12. At the same age Buffett was learning real-world lessons on holding shares through a slump and selling too soon.
You’ll only discover whether you have the stomach to invest through a bear market or whether you’ll be sucked up by the next property bubble by being an active investor. Start with small sums, sure, but don’t delay that start.

3. Buffet lied, shoplifted, and played truant as a kid

This one was a real surprise. As a teenager Buffett revealed a wild streak. He says:
“We’d steal stuff for which we had no use. We’d steal golf bags and golf clubs. I walked out of the lower level where the sporting goods were, up the stairway to the street, carrying a golf bag and golf clubs, and the club was stolen and so were the bags. I stole hundreds of golf balls.
“I made up this crazy story for my parents – I told them I had this friend, and his father had died. He kept finding more of these golf balls that his father had bought. Who knows what my parents talked about at night.”
Takeaway: Even Buffett had to learn to be Buffett. I don’t know about you, but I found this heartening to read. Together with discovering that Buffett was a shy child who enrolled himself in Dale Carnegie’s public speaking course, it made him seem more human.
It’s easy to feel you haven’t got what it takes to make money. Some are born special, you might conclude. But Buffett’s history shows that even the world’s richest and most admired investor had to iron out his kinks.
Buffett’s history also makes me proud to be an outsider. Many of my college classmates entered the city or became management consultants, and have earned six-figure salaries for a decade. When property prices were booming, I’d sometimes wonder if I’d made the wrong decision by deciding to go it alone – even though I know that working a nine-to-five in an office and answering to some buffoon of a manager would kill me.
Discovering Buffett made being his own boss a top priority puts me in good company. I also suspect the unusual structure of Berkshire Hathaway grew out of Buffett’s non-confirming mentality.

4. Buffett is a businessman first, investor second

You’ll often read that Buffett evaluates stocks as if he’s buying the whole business. What I realised after reading The Snowball was Buffett doesn’t do this because he’s an investor who thinks like a businessman. Buffett is a businessman who is also an investor.
  • Buffett ran multiple businesses while still a student: He sold refurbished golf balls, peddled stamps to collectors, ran a network of pinball machines when he was 17, owned a tenanted farm, and managed a 50-strong paperboy route
  • He dealt hands-on with strikes and turf wars at newspapers from The Washington Post to the Omaha Sun
  • Buffett didn’t just buy, hold and drink Coca-Cola – he engineered the replacement of its CEO
  • With all the new businesses, from See’s Candies to GEICO, he added everything from their stock level reports to weekly sales projections to his endless daily reading
  • Berkshire Hathaway is far from a simple holding pen for Buffett’s investments. He’s used his business acumen to produce an intricate money-making machine which takes cash from its subsidiaries and the float from its insurance businesses and reinvests it at higher rates of return, multiplying his returns
Takeway: Buffett’s success will never boil down to filters or ratios. Investors who try to ape him simply by reducing his methods to dubious cashflow projections or buying any old listed household name when its stock price falls 20 per cent will never replicate Buffett’s success. (Okay, rounding down roughly nobody is ever going to replicate Buffett’s success, but you know what I mean).
Buffett’s record suggests investors should spend as much time reading about business and management as they do calculating P/E ratios. The trouble is, all manner of financial ratios are available at a touch of a button. Buffett’s sense of business value is far harder to emulate.

5. Buffet makes mistakes

He really does! I was even more heartened by Buffett’s stinkers than by his golf ball robbery.
Some classic Buffett cock-ups include:
  • Him and his friends spending $25,000 in 1957 on four-cent Blue Eagle stamps that the US government was about to take out of circulation. By securing and controlling the supply, they destroyed any chance of the stamps becoming valuable. His partners in the caper were still mailing him with postage paid for by sheets of the stamps decades later.
  • He bought The Buffalo Evening News in 1977 and had lost $10 million within three years by becoming embroiled in a price war and a fight with the unions (though it later became very profitable)
  • Buffett’s firm Berkshire Hathaway is living testament to his biggest mistake – spending millions to gain control of a doomed textile manufacturer
  • Buying into Salomon Brothers in 1987 for $700 million eventually plunged him neck-deep into the Wall Street culture he so despised, when its rogue traders and poor management threatened his reputation and fortune
Takeaway: Mistakes happen even to the best of us. Sadly, having read The Snowball cover-to-cover I haven’t found a Buffett blunder to rank with my own worst investment (an iffy company called Homebuy that went bust overnight). But I saw plenty of examples where Buffett dusted himself down after an investment misfired and tried to learn from what went wrong.
Virtually all Buffett’s purchases of major insurance companies seem to have gone awry in the early years, for instance, and yet it’s by reinvesting all the cash thrown off by these companies that Buffett has maintained Berkshire Hathaway’s incredible growth rate.
The moral is to not despair when an investment turns out badly, but try to figure out what you can takeaway from it, as well as what you can salvage the situation.

6. Buffett considered quitting investing in his early 30s

In 1969 Buffett wrote to his investors that he was going to close their partnerships:
“I know I don’t want to be totally occupied with outpacing an investment rabbit all my life. The only way to slow down is to stop. I am not attuned to this market environment, and I don’t want to spoil a decent record by trying to play a game I don’t understand just so I can go out a hero.
“I do know that when I am sixty, I should be attempting to achieve different personals goals than those which had priority at twenty.”
Takeaway: What can anyone learn from this but humility? I already knew before reading The Snowball that Buffett wound down his partnerships in 1970 because he thought the market too over-valued to deliver an adequate return for his investors. That move alone would seal Buffett’s place in history among value investors, even if he had retired.
Of course, Buffett didn’t retire. He is still compounding his investments at an average rate of over 20% a year, nearly four decades later.

7. Buffett treats becoming the world’s richest man as a game

I couldn’t even begin to quote examples from The Snowball showing how Warren Buffett is in it for the scorecard, not for the payday: the entire biography is a testament to it.
No sports cars or private islands for Warren Buffett – even when he eventually bought a corporate jet he called it ‘The Indefensible’. For decades he bought suits from the everyman outfitter nearest his office, and his biography frequently mentions (and has photographic evidence of) his favourite threadbare jumper. And famously, his main residence is the first house he bought in 1961.
From setting that goal aged 11 of becoming a millionaire by 35, Buffett seems to treat investing as an intellectual challenge. He probably learned this from his great mentor Benjaman Graham, who seemed more bothered by being right than being rich, and for whom investing was just one of several high-end hobbies.
Buffett’s ‘inner scorecard’ helped him save and reinvest his money early on
Unlike Graham, however, Buffett really cares about every penny. From ‘Buffetting’ a few cents off the price he paid for stocks to demanding his friends sell him shares they’d bought in companies he was interested in, right up to his close personal friendship with his rival for the title of world’s richest man, Bill Gates, Buffett really wants to have the biggest snowball.
If you were to say there’s something rather peculiar about chasing money as a means to an end, I could certainly see your point. But when the recipient chooses to leave virtually all $62 billion of his winnings to charity, it’s hard to complain. I’d rather have Buffett as the world’s richest man than the Salomon traders who almost destroyed his reputation.
Takeaway: Spend less than you earn and reinvest the difference in the stock market. Buffett may have lived a remarkable life, but that central practice is something we can all aspire to.
Beyond that, I don’t want to get too moral. I’m happy to live below my means, but can I honestly say I’d be happy with Cherry Coke and a steak from the local shop if my means were sufficient to buy up The Maldives or launch me into space? Unfortunately I’m not qualified to comment.
I do think my attitude is closer to Buffett’s than to the more visible of the cityboys I’ve seen in London over the past few years, for whom cash is flash. Also, Buffett’s self-containment from materialism – he calls it his ‘inner scorecard’– undoubtedly helped him save and reinvest his money early on, and got his investing career off to a flying start in his 20s. You have to accumulate before you can speculate. Good luck rolling your own snowball.
I can’t recommend The Snowball enough for anyone interested in business and investing. Obviously, anyone interested in Warren Buffett should buy it too, but I imagine you’ve all got two copies already (one for your library and one for your bathroom). The book is seemingly always discounted at Amazon (click through for the latest price at Amazon US or at Amazon UK) so there’s no excuse. Except, perhaps, it weighs a tonne, so you might put your back out while reading it.


Saturday 21 August 2010

The Snowball: Warren Buffett and the Business of Life. ‘Buffett is not a simple person, but he has simple tastes.’

The Snowball: Warren Buffett and the Business of Life

9 Oct 08 | Issue 259
By Gareth Brown
Value investors the world over have been waiting years for this book. Finally, Christmas has arrived.
I discovered my hero when I was 20 years old. It’s all a bit tragic really. When my mates were talking about Andrew Johns, ‘Plugger’ Lockett, Warnie and Axl Rose, I bit my lip because I knew no one wanted to hear about a retirement-aged Nebraskan investor. After several years of wandering aimlessly through the investing wilderness, discovering value investing was like a club to my head full of ignorance, and joining the Warren Buffett cult changed everything.
Since then, I’ve read every one of Buffett’s Berkshire Hathaway chairman’s letters, every one of his partnership letters from before that, and every decent book ever written on him. I’ve attended the Berkshire annual meeting in Omaha four times, and I have a book, a dollar bill and a one hundred dollar bill signed by Buffett and partner Charlie Munger. OK, it’s more than a bit tragic.

From Passion Pop to pinot noir

Like many other Buffett fans, after a few years hoovering up everything ever written about him I found another hero – Charlie Munger. A Buffett fan becomes a Mungerophile much like a wine connoisseur progresses from Passion Pop to pinot noir.
Where Buffett offers insightful homespun wisdoms and words of encouragement digestible to all, Munger offers long speeches on The Psychology of Human Misjudgement and A Lesson on Elementary, Worldly Wisdom. At age 20, I didn’t appreciate pinot noir or Charlie Munger. But with a bit of ageing, I've been drawn to the depth, complexity, and lack of sweetness.
Not that I’ve ever given up on Buffett, of course. I knew there was a lot more going on behind that simple façade. As Forbes once wrote: ‘Buffett is not a simple person, but he has simple tastes.’ Unfortunately, though, the world’s yearning for easy answers had it focusing on whatever could be condensed into five golden rules. And Buffett’s compulsion to offer something for everybody effectively stonewalled those wanting more.
That’s why I was so excited by the release of Buffett’s authorised biography,The Snowball: Warren Buffett and the Business of Life. Alice Schroeder was a financial analyst who covered Berkshire Hathaway and obviously made a significant impression on him. All previous biographies have been unauthorised and unassisted, but when Schroeder tried to convince Buffett to write an autobiography, he ended up convincing her to write this book.

A simple instruction

He gave her seemingly unfettered access to both himself and his family and friends over a five-year period, with one instruction: ‘Whenever my version is different from somebody else’s, Alice, use the less flattering version.’
The result is extraordinary. As our company pre-ordered many copies of the book, I received a pre-release sample copy and set about trying to be one of the first Aussies to read it cover to cover. I’m sure someone beat me to the punch but, for the record, I was done by the evening of 6 October. The book’s 838 pages and my slow reading turned the event into a 30-hour readathon. But I came away with a very different, more complete picture of my hero. This is a very personal account that attempts to discover why Warren Buffett is who he is.
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.
Warren Buffett.

Not that there isn’t plenty of investment gold in the book. It goes into considerable detail on the key investments he’s made over the decades, and fleshes out those choices in a way that adds something to the thousands of pages already inked on Buffett’s approach to investment. We learn how he turned the first few snowflakes – money earned selling gum at age six – into a giant, ever-growing snowball.

Hoard and compound

Influenced by his Depression-scarred parents, and perhaps his own experience with war-time rationing, Buffett had a burning desire to collect and hoard from an early age. At first it manifested itself in a stamp collection, but pretty soon he switched his attention to cash, realising that wealth tends to increase one’s freedom. Aged 11, he declared that he would be a millionaire by the time he reached 35. In fact he got there by 30, and his many early business ventures make fascinating reading. Later in life, of course, he moved on to hoarding companies ... and managers ... and friends and admirers.
This tendency, combined with a freakish mathematical talent, competitive spirit and single-mindedness, makes Buffett the compounding machine that he is. It enabled him to save $10,000 by the end of high school, and to compound his nest egg at the freakish rate of 61% per year in the first half of the 1950s. It explains how investors in the Buffett Partnership compounded their money at rates of 31% per year from 1956 up until 1969, and that’s after the deduction of Buffett’s hefty profit share. And he then parlayed everything into the snowball that is Berkshire Hathaway.

Tough times

We learn about the tough times in the mid-1970s, when Buffett’s portfolio was down nearly a third. Not unlike today, many investors were questioning their very involvement with the stockmarket, but Buffett famously quipped that he ‘felt like an oversexed man in a harem’.
The economy is definitely tanking. It’s not my game, but if I had to bet one way or another – everybody else says a recession will be short and shallow, but I would say long and deep.
Warren Buffett, early 2008.

And the book continues all the way up to the Bear Stearns collapse in March 2008, and offers Buffett’s thoughts on the current credit crisis.
Buffett the ‘implacable acquirer’ – as Munger called him – is a big part of the story. But the real gold in this book is the way it cracks open the man’s personality. Readers of The Snowball, especially those that thought they knew Warren Buffett, are likely to spend a lot of time with jaws dropped. He comes across as rather fragile and very human.
Buffett hero-worshipped his father but had a tremendously strained relationship with his mother, Leila. It turns out she was rather devoid of love for her son and, prompted by Schroeder, we wonder whether this led to his complete reliance on the kindness of other women. To this day, the many women in his life seem to have all slotted into a motherly role.
The strong moral example set by his father, a highly principled Congressman, obviously influenced the man he became. But I found it reassuring to see that, like many of us, in adolescence he came to a fork in the road and nearly took the wrong path. Actually, he started off down that wrong path before turning things around.
In those early teen years he was a nightmare for his teachers, and despite his obviously prodigious talents, he was racking up Cs and Ds in the classroom, even in mathematics. And he led a life of petty crime, filling up his closets with ‘hundreds of golf balls’ stolen from a Sears department store.

A study in contradiction

Buffett is brave and fiercely independent when it comes to financial decisions. And yet we learn that he habitually craves the praise of others and is deeply wounded by criticism. He’s obsessed with weight, putting himself on a 1,000 calorie a day diet in the lead up to the Berkshire annual meeting, yet typically eating nothing but hamburgers, french fries, ice cream and Cherry Coke.
He reads and files away the thousands of letters sent to him by fans across the world, seeking an affirmation he’s unable to find within. Yet we learn about his ‘Inner Scorecard’, a wonderful concept at odds with his need for praise: ‘In teaching your kids, I think the lesson they’re learning at a very, very early age is what their parents put the emphasis on. If all the emphasis is on what the world’s going to think about you, forgetting about how you really behave, you’ll wind up with an Outer Scorecard ... It helps if you can be satisfied with an Inner Scorecard’.
Perceived as a technophobe, by 1994 Buffett had grasped ‘how the internet was going to affect the auto-insurance industry in the coming decades – better than the auto-insurance industry itself had’. While the general public assumed technology was beyond him, he was pushing change within Berkshire’s auto-insurance subsidiary GEICO, proclaiming: ‘He who wins the internet, wins the war’.

Coldly rational

Buffett is able to empathise with the underdog, campaigning for the rights of Jews and African Americans in a segregated America and, more recently, committing his entire wealth to charity, mostly to the Bill & Melinda Gates Foundation to help solve difficult problems like AIDS and malaria in the poorest parts of the world.
Yet he struggles to empathise with his own children, viewing them as winners of the ‘ovarian lottery’ and perhaps therefore already spoiled. And while we’re obviously not privy to the full story, I was astounded by his coldly rational approach to his son’s adopted daughters. He hasn’t embraced them as his own granddaughters, despite the issue being very much outside their control.
Basically, when you get to my age, you’ll really measure your success in life by how many of the people you want to have love you actually do love you.
‘I know people who have a lot of money, and they get testimonial dinners and they get hospital wings named after them. But the truth is that nobody in the world loves them. If you get to my age in life and nobody thinks well of you, I don’t care how big your bank account is, your life is a disaster.
Warren Buffett.

We learn of his fear of death and illness. When Buffett’s beloved father, Howard, was in hospital dying, his wife made sure he visited regularly, but he struggled to come to terms with it all and was totally unable to grieve after he passed away. We then share a tender moment in 2003–04 when he put that all aside to be there for his wife, Susan, through her illness and eventual death.
Ultimately, this book is about the character of Warren Buffett, flawed and human like the rest of us, and yet able to inspire an urge for greatness and goodness in people who’ve never even met him.

The inside scoop

In 2005 I got the sort of inside scoop others might kill for. My friend and alleged boss Greg Hoffman and I were queuing with perhaps 1,500 other Berkshire shareholders in the ‘international meet and greet’ session at the Berkshire annual meeting. It’s a chance for shareholders who’ve travelled from outside of North America to briefly meet the duo and get some memorabilia autographed.
We aimed to be dead last in the queue, plotting to hog a little more than the necessarily short periods granted to others. In front of us was a young Asian couple:
Buffett (loosely paraphrased from my leaky memory): Howdy, where you from?
Young couple: Korea
Buffett: Oh, I’ve been looking at stocks over there; they seem very cheap.
At least a year before the rest of the world, we got a very clear signal that Buffett was looking at and likely buying Korean stocks. Over the next week, we thought about how we might do the same. We looked at funds and direct shares, and wondered how we might get our heads around Korean accounting.
After a little work, we decided it was too much like learning a foreign language, and our attention floated off elsewhere despite the fact that we were struggling to find outstanding ideas in the Australian market at the time.

A different approach

We now know that Buffett, already fabulously wealthy, was spending ‘night after night’ thumbing through a Korean stockmarket almanac, and digesting a book on Korean accounting to ‘reduce the odds of getting hornswoggled by the numbers’.
Working through a list of thousands of Korean stocks, he narrowed it down to a shorter list of potential gems and got to know them better. He set up a special account with a bank in Korea, and apparently ‘that’s not easy to do’.
He then put $100m of his own money into a portfolio of about 20 securities. That’s probably the equivalent of a few hundred dollars to you or I, but where we saw difficult hurdles he saw a puzzle to be solved. That’s why he’s Warren Buffett and why we’re not.
Thank you Alice Schroeder for writing this wonderful book, for putting five years work into it and for resisting the urge to sugar coat. Honest biographies of living legends are all too rare, and it must take a lot of courage to write one.
And thank you Warren Buffett for encouraging the development of this book and, as Schroeder put it, ‘for not meddling with the book for more than five years – right up until the day it went to the printer’. I could never imagine what it’s like to have my whole life laid bare like that. You’ve inspired a great many to become better, and not just at investing. That’s why you’re my hero, and I look forward to getting my copy of The Snowball signed at next year’s meeting.

Sunday 19 April 2009

Alice Schroeder, author of "The Snowball: Warren Buffett and the Business of Life".



Value Investing Conference 2008 #5
Keynote: Alice Schroeder, author of "The Snowball: Warren Buffett and the Business of Life". Introductory remarks by John Macfarlane.

Saturday 21 February 2009

Warren Buffett Cancels Annual Event Hosted By His Biographer




Tuesday, 3 Feb 2009
Warren Buffett Cancels Annual Event Hosted By His Biographer
Posted By: Alex Crippen
Topics:Publishing Warren Buffett
Companies:Berkshire Hathaway Inc.



Marion Ettlinger
Alice Schroeder, author of Bantam Dell's The Snowball: Warren Buffett and the Business of Life


Warren Buffett's authorized biographer will not be hosting a "sage advice" dinner featuring the Omaha billionaire at this year's Berkshire Hathaway annual meeting in May, bringing a decade-long tradition to an end.
Since 1998, Snowball author Alice Schroeder has invited up to several hundred guests to hear Buffett answer questions questions in an informal, off-the-record, event.
The New York Times reports that Buffett has canceled this year's dinner, "apparently because of his displeasure with some aspects" of Schroeder's book.
The newspaper cites "two people with knowledge of the situation who declined to be identified by name."
According to the Times, "there has been a cooling of relations" but not a "total falling out" between Buffett and Schroeder. "Those who are aware of Mr. Buffett's reaction to the book said that seeing his complicated personal life laid out in black and white left him with mixed feelings, particularly over the portrayal of his late wife, Susan."
Over five years of researching and writing, Schroeder spent thousands of hours with Buffett and had access to his personal records. She first met him in the late '90s when she was a Wall Street analyst.
She tells the Times, "We're still in touch with each other. But now that the book is finished, it is not as frequent as before. You can conjecture what you want from that. I will not stop the conjecture."
The Omaha World-Herald quotes Schroeder as saying, "All good things come to an end. It wasn't going to go on forever. It was great."
Buffett's office tells the Times, "Mr. Buffett likes Alice, likes her book and has received a number of glowing letters from friends about it." Even so, "at some point, like the charity golf outing he once hosted, an event runs its course."