Snowball

The SnowBall: Warren Buffett and the Business of Life, by Alice Schroeder, (New York: Bantam Dell Books, 2008), 837 pages, $35.00.

The Snowball begins in 1999 at a Sun Valley conference: an annual series of discussions and seminars. We hear a new term “elephant-bumping,” a quip defined by Buffett as getting big shots together to reassure them they are really big shots. Readers begin by meeting Buffett at retirement age and get the highlights of his conference presentation, where he confronts the big shots with some financial ideas they do not all want to hear.

Following the introduction the book chronicles Buffett’s life and career from the beginning in 1930 through September 2008. His father, Howard Buffett, was a successful stockbroker in depression era Omaha where Buffett grew up delivering papers and collecting stamps. He purchased his first stock in the spring of 1942: 3 shares of Cities Service Preferred.

Buffet graduated from Woodrow Wilson High School in Washington, DC, where he lived and spent most of his time after his father was elected to Congress in November 1942. We hear about his Washington life and go with him for his two years at the University of Pennsylvania, but then back to Nebraska where he finished college at the University of Nebraska.

It is about this time readers get the strongest whiff of the Buffett obsession with money making as a competition in itself. He was turned down at Harvard Business School but gets a special late admission to Columbia to study finance and stock analysis under Benjamin Graham and others well known in Security Analysis.

His business studies at Columbia turned out to be a transition into his lifelong career in investing. By the time he took a job on August 2, 1954 with the Graham-Newman investment partnership in New York he already had considerable knowledge and experience despite his young age of 24.

At Graham-Newman he studied Standard and Poors and Moody’s manual looking for companies his mentor, Ben Graham called Cigar butts. Cigar butts Graham defined as cheap and unloved stocks that had been cast aside like the sticky mashed stub of a stogie left on the sidewalk; a stogie that might have one last free puff.

One example turned out to be a company run as a pubic utility in New Bedford Massachusetts called the Union Street Railway. His review of the company showed it was selling for half the value of its cash in the bank. It was a real cigar butt but there would be more.

After several years Graham and Newman retired and the Graham-Newman partnership was shut down. Buffett decided to form his own partnership, which started May 1, 1956 as Buffett Associates, Ltd. It was set up as an investment partnership based in, and operated from, Omaha, Nebraska and not New York city. He had seven partners.

The author’s discussion of the partnership begins on page 201. The remaining 636 pages describe Buffett’s businesses, his investments and investment strategies over 53 years. We learn about Berkshire-Hathaway, GEICO, Kay Graham and the Washington Post and all his well known and not so well known investments, but there is much more in what is a very long book.

Business principles surface through pithy slogans and aphorisms and sometimes by example. He was one of the first to warn about, and object to, the use of derivatives and other speculations. He got to see how correct he was when he worked to rescue Salomon Brothers and Long Term Capital Management. He avoided leverage and the risk that goes with it. He was never a passive investor, but exerted his influence directly and by finding the right people to manage the companies he acquired.

Buffett sayings: Rule number one, don’t lose money. Rule number two, don’t forget rule number one. Rule number three, don’t go in to debt. There are more rules and principles.

Business issues and career decisions mix through the book with long narrative discussions of family members and their personal lives: relationships, careers and interests. Readers meet many business and personal friends, often with lengthy asides and narrative profiles. Readers go to parties and travel to many places. We learn Warren Buffet has simple tastes and the culinary habits of an eight year old, along with other personal matters.

Direct quotes from the author’s interviews run through the book and they are set in italics, an especially good feature. These interviews help the reader to understand the philosophy and strategies that brought personal and financial success. Extensive quotations from interviews let readers do more of their own interpretation unfiltered by the author.

His political views and social attitudes emerge in both the narrative and quotations. He supported civil rights when it mattered the most and progressive politics generally. He turned into a vocal opponent of the Bush tax policies and especially opposes eliminating the estate tax.

Throughout the book the author kept giving financial progress reports even from Buffett’s early years in Omaha. She wrote now Warren has $120; now Warren has $2 billion; now Warren has $7 billion and so on. It was unnecessary at least for me. I did not read the book to be counting money I wanted to learn something about a man who did something unusual that virtually no one else has ever done.

By the end of the book I felt the success of someone who is patient enough, cautious enough, hard working enough and savvy enough to do something extraordinary that he set out to do, and without losing his ethical compass. In an age of speculative failures where rogues and scoundrels are everywhere that makes him a unique success, at least in my book.