The Snowball: Warren Buffett and the Business Life

By Alice Schroeder

 

Synopsis

When a group of economists came up with the Efficient Market Hypothesis, to explain how it was impossible for multi-billionaire investor Warren Buffett to consistently outperform other investors, they didn’t count on him even outperforming them. Debunking their theory, Buffett went on to become known for his simplistic lifestyle, running his life like a business, and thinking independently. Refusing to live his life caring about what others think of him, Buffett’s life story gives us a glimpse into the mind of the man who couldn’t win in his personal life, but who won in the financial arena.

 

Summary

When looking at the lives of the most successful people in the world, there seems to be a common denominator among them; they started young and ran their lives with themselves as the brand. This is true of the infamous Warren Buffet, an investor worth $77 billion dollars, who was only six years old when he started his own business selling Coca Cola and gum to his neighbors and friends. At just 14 years old, he saved up one thousand dollars from his paper route, and filed his first tax return, deducting his bike and wristwatch as business expenses. By the age of 26, he had already banked $174,000 and formed an investment partnership for his family and friends. Today, he is known as the “Oracle of Omaha,” and is CEO, President, and Chairman of the holding company, Berkshire Hathaway, with a market cap of over $400 billion dollars.

Born in 1930, Buffet grew up during the Great Depression with a stockbroker father and a verbally abusive mother. Idolizing one parent, and loathing another shaped Buffet’s life. His mother Leila would often tongue-lash both Warren and his older sister until they were sobbing. As a result, Buffett grew up with undying need to feel loved, and to be with women who would never criticize him. When he married Susie, he finally found what was missing in his life, but Susie and their three children came second to his work.Unbeknownst to him, she secretly hoping that once he made enough money, he would spend more time at home. Fifty-two years later, Susie never got her wish, and moved out. In hindsight, his vanity plate THRIFTY, should have given her a clue.

Buffett was shattered by the separation, living alone and unable to clothe or feed himself. Susie kept in touch by phone, and eventually sent her friend Astrid Menks to check in on him. The restaurant hostess ended up moving in with the multi-billionaire and when Suzie died in 2004, the couple got married. Buffet sat by Susie’s deathbd as she battled cancer, and was so broken after her death, that he wasn’t able to attend her funeral. In his new marriage, Buffett was still unable to put anything but business first.

Other women played an integral part in Buffett’s growth and trajectory to super wealth. It was bridge player Sharon Osberg who convinced him to learn how to use a computer, and a writer from Fortune Magazine, Carol Loomis who helped him write his annual letters to his shareholders. These women were each pegs that Buffett clung to as he ascended to the pinnacle of greatness.

Another notable female influence was Rose Blumkin, a Russian immigrant who came to the USA with nothing, but who became the founder of Norther America’s biggest furniture store. Buffett eventually bought her out, but was knew her well enough to ask her to sign a non-compete, even though she was 103 years ole. One of his biggest role models, Blumkin was someone whom Buffett aspired to be like, and he wanted to live as long her, too.

It wasn’t until Buffett invested in the Washington Post that he met its publisher Katharine Graham. She was his ticket to high society, where he was least comfortable. A man of simple tastes, Buffet would rather eat a burger, fries, and Cherry Coke than sit down to a formal meal. He carried his own luggage when traveling, and was like a starstruck kid around celebrities, particularly when he met Princess Diana.

Buffett has lived his life avoiding those who would criticize him, and while he is a storied business mogul, he is not so cool, calm, and collected in his personal life. One of the only tycoons who never showed off his wealth, he even named is private jet “The Indefensible.” In line with his simplistic personal lifestyle, he applied those same principles to his business life, with four simple rules of investment; don’t invest in something you don’t understand, distrust debt, be in there for the long term, and build in a margin of safety.

Aside from those four strategies, it all comes back to Buffett living his life by his inner scorecard. Not going with the flow has saved him millions of dollars, such as when he refused to get in on the dotcom boom. He was proven right, ten fold. In 2003, he warned of the “weapons of financial mass destruction,” referring to the driving force behind the credit crunch. Again, he was proven right.

Despite his strategic rise, many people believe Buffett’s success was a result of chance. In the mid-80’s, a group of economists came up with the theory of “Efficient Market Hypothesis,” to explain the reasons why it was impossible for someone like Buffett to consistently outperform his competitors. Buffett debunked their theory by naming eight peers who had the same type of performance, and who were mentored by David Dodd and Benjamin Graham.

If Buffett cared about his outer scorecard, he would have realized many losses. His belief that inheritance tax should be increased, ruffled many feathers. Calling it the “Ovarian Lottery,” he didn’t believe that children should automatically win their family’s wealth. Not only did he alienate the business world with this campaign, but he divided his family, applying the same principle to his own children and siblings. He shunned his adopted granddaughter in a letter saying that he had “not legally or emotionally adopted” her as a grandchild.

Gifted in so many ways, and a business genius, his inner scorecard is definitely a winner, and for him, that’s all that matters.