Buffett

by Roger Lowenstein

  Howard gently pointed out that Warren was still two months shy of his seventeenth birthday. Finally, Warren capitulated. In August, Wilson Coin Op was sold for $1,200 to a returned war veteran. Warren pocketed his share and headed for Wharton.

  This time, though, Howard had been wrong. Despite Wharton’s fine reputation, its curriculum was lacking in beef. Warren disgustedly reported that he knew more than the professors. His dissatisfaction—a forerunner of his general disaffection for business schools—was rooted in their mushy, overbroad approach. His professors had fancy theories but were ignorant of the practical details of making a profit that Warren craved.

  When Warren visited Omaha, Mary Falk warned him not to neglect his studies. He replied insouciantly, “Mary, all I need to do is open the book the night before and drink a big bottle of Pepsi-Cola and I’ll make 100.”

  In fact, he was spending a lot of his time at a brokerage office in Philadelphia, following various stocks.24 But he didn’t have a system for investing—or if he did, it was haphazard. He would study the charts, he would listen to tips. But he didn’t have a framework. He was searching.

  In his freshman year, Warren roomed with Charles Peterson, an Omaha boy (and later, among Warren’s first investors). He also made fast friends with Harry Beja, a Mexican who was as displaced on a northeastern campus as Warren was. Beja was the most serious student on campus, but Warren would kid him about living with the “Indians” in Mexico. The two of them matched A+’s in Industry 1, but Beja couldn’t help but notice how much harder he had worked in the course than Warren had. Nonetheless, though he resented Warren’s easy success, Beja had to admit that he liked Warren. Beja saw him as the type of American he had idealized: the honest and unassuming Midwesterner with a common touch.

  Warren found another kindred soul in Beja’s roommate, a Brooklyn boy named Jerry Orans. They met in the weight room, and the broad-shouldered Orans instantly decided that Warren was a “genius.” Like Warren, Orans felt a bit out of the swing; he was dreadfully homesick and spent much of the first year in tears.25 But he had a rapier wit and a warm smile, and was very bright himself. Warren and Orans became close friends.

  Unwittingly, Warren was sowing the seeds for a future pool of investors.* But at the time, he felt he was going nowhere. After a year at Penn, he wanted out, but his father insisted that he try another year. In Washington for the summer, Warren found a comical outlet for his rich-man strivings—once again with Don Danly. His pinball partner had plunked down $350 for an old Rolls-Royce. Warren went with Danly to a Baltimore junkyard to pick it up and followed him back to Washington. Just inside the District line, they were stopped by the police. Danly recounted:

  I had no plates, the taillights didn’t work. The cop was fixing to write up a ticket. Warren said, “Look, officer, we just have to get it home to my garage so we can fix it up to meet all of the safety requirements.” He was talking and talking and he just kept talking until the cop said okay.

  Danly kept the Rolls in the Buffetts’ garage. They spent the summer fixing it up—though, of course, Danly was the one who was under the chassis. Warren would sit on a stool, entertaining his friend with business stories and reading from a book they thought was a scream—How to Lose Friends and Alienate People.

  The Rolls was a 1928 Ladies’ Shopping Car. It had a single seat in front and a wide berth in back, and a hand crank for show. Danly and Norma Jean painted it dark blue. They rented it out a few times, but the real point was to be seen in it. Warren proposed that they drive downtown, posing as a rich couple with their chauffeur—but he would play the rich “aristocrat,” Danly the chauffeur. Danly put on Howard Buffett’s black overcoat and took the wheel, and Warren, wearing a muskrat coat and top hat, sidled in next to Norma Jean. As they approached the Times-Herald building, Danly, following a script, cut off the ignition and coasted to a stop. Then he got out and started tinkering under the hood, as if he were trying to figure out what was wrong. When people started to stare, Warren—the aristocrat—tapped on the windshield glass with a cane and pointed, as if indicating where the trouble might be. Danly fiddled a bit more and—behold—it was “fixed.”†

  But without a script, Warren was hardly so suave. He dated Norma Jean’s cousin, Barbara Worley, over the summer, and took her to hear Billie Holiday. But though Warren was a lively companion, he ruined any hope of romance by subjecting Worley to an unending series of riddles and “brainteasers”—presumably, an activity that relieved Warren’s awkwardness. When he finally screwed up his courage and invited her for a weekend at Penn, Worley turned him down.

  In his sophomore year, Warren lived at the Alpha Sigma Phi house, a Victorian mansion on Spruce Street with high ceilings and a stately spiral stair. He was ambivalent toward his fraternity brothers—not aloof, but not quite part of their rituals, either. After lunch, he would plop himself in a curved bridge chair by a bay window and join in a game of hearts or bridge. In a conversational setting, such as at mealtimes, Warren was very alive—loose and confident with his opinions. In those years, fraternity members were served by waiters and dressed in jackets and ties for dinner. Anthony Vecchione, recalling Warren’s table chatter, said, “When he was on he was fun—a lot of laughs.”

  He was a very funny kid, very clever. It wasn’t boffo slapstick, it was dry. He had a semicynical view of the way things worked. I remember he said if he ever got rich, he’d install steam-heated toilet seats in the bathroom. He said that had to be the ultimate.

  But Warren was aching for some sort of intellectual—or financial-stimulus. Penn was a rah-rah school; campus life in 1948 revolved around pep rallies and the top-ten football team. Ironically, Warren was portrayed on the cover of Penn Pics, a student magazine, as the model fan, decked in a derby hat and raccoon coat, one hand waving a banner, the other offering a brandy flask to his apparent date, with a cigar extending from a jaunty grin, all against a photographic montage depicting the Penn marching band and a leather-helmeted ball carrier.

  The cover was a joke; Warren’s friend Jerry Orans was one of the editors. In truth, Warren was everything that the cover boy was not. He was a nondrinker, was uncomfortable with women, and was not a big socializer. On a campus with so many older students—returned GIs—he even looked out of place. With his hair unslicked, the skinny eighteen-year-old student looked like a visiting kid brother.

  His youthfulness was especially apparent in the context of sex. Besides being inexperienced with women, he was noticeably ill-at-ease with the fellows’ locker-room humor. “I remember distinctly,” said Vecchione, the son of a Long Island subcontractor, “when people started talking about sex, he’d look at the floor. His face would get flushed.”

  On weekends, when Alpha Sigma threw beer parties, the monastic frat house was flooded with women. Warren usually did not have a date, but—of importance for a future investor—he was comfortable without being part of the crowd. While most of the guys had their arms around a date, Warren would sit on the couch and entertain the party with a little dissertation on the gold standard. He was so captivating that the fellows made a party routine of having Warren stand in a corner and peppering him with questions about economics and politics. “He’d start holding forth, and before a minute or two had gone by he’d have an audience, maybe ten to twenty people,” remembered William Wayne Jones, a fellow nondrinker and a future Methodist missionary. “He would do it so humbly you were just in thrall. He’d say, ‘I really don’t know much about this, but it looks to me …’ ”

  Warren’s fraternity mates were in awe of his intellect.26 He would read a chapter, they recalled, and recite it by rote. In class, when a graduate lecturer would parrot an answer from the text, Warren, who had it memorized, would burst out, “You forgot the comma.”27 Moreover, the way he glibly critiqued the faculty left his fellows spellbound. One of the frat brothers, Richard Kendall, said, “Warren came to the conclusion that there wasn’t anything Wharton could teach him. And he was right.”

&nb
sp; When the brothers returned to Wharton in the fall of 1949, they were stunned to find that Warren wasn’t there. Vecchione said, “He just evaporated at the end of the second year. Nobody ever heard from him again.”28 In short, he had run away once more. His father had been defeated in 1948 and had returned with the family to Omaha, leaving Warren alone in the East. In Wharton, there had been nothing to keep him—no paper route, no pinball. He transferred to the familiar University of Nebraska at Lincoln, where his parents had met. “I didn’t feel I was learning that much,” Warren explained. “Nebraska called, Wharton repelled.”29

  Among his Alpha Sigma brothers, the memory that stuck was of Warren’s playing bridge, in an alcove by the great bay window. Otherwise, he almost seemed not to have been there.

  From the time he returned to Nebraska, Buffett was a student only in name. In fact, he was launching his career. During the summer, he took a job at J.C. Penney, where he was offered (but declined) a position for after college. Feeling more comfortable on his home turf, he also began to date more. Writing to “Dear Monster” (Jerry Orans), a jocular Buffett was feeling his oats:

  The latest girl I have been dating casually mentioned to me that she played tennis so thinking I would impress the little gal with a show of cave-man masculinity I offered to give her the opportunity to see me work out from across the net. She trounced me.30

  He planned a Herculean load—five courses in the fall of 1949 and six in the spring of 1950, mostly in business and economics. But his focus was off-campus. Buffett had taken a newspaper job, he explained to Orans, that involved “50 little boys calling me ‘Mr. Buffett.’ ” He was supervising paperboys in six rural counties for the Lincoln Journal, traveling southeastern Nebraska in a 1941 Ford. The job paid seventy-five cents an hour. Mark Seacrest, the head of circulation, was dubious that a student could handle the load. But Buffett was “all charged up.” He would come in each week to get his assignments and be off in a flash. To Buffett, it was a man-sized job. In his words:

  If you have a down route in Seward or Pawnee City or Weeping Water, Nebraska, you’re looking for a kid to deliver fifteen papers a day or something of the sort and you got to find him late in the afternoon or early in evening while you’re attending college—it’s an education.31

  In Lincoln, Buffett lived with Truman Wood, then affianced to Warren’s sister Doris, in the upstairs of a Victorian house on Pepper Avenue. Buffett would come back from his newspaper work in the late afternoon, read the Wall Street Journal, and go out with Wood to a greasy spoon for a dinner such as mashed potatoes, beef, and gravy. Wood, intrigued that Buffett had read the Bible three or four times and remained agnostic, could not resist trying to convert him. They had the usual debates about faith and the afterlife, but Buffett was immovable. For every argument that Wood raised, Buffett had a deadly logical response.

  Apart from their bull sessions, Buffett was rushing to finish college in three years, working a virtually full-time job, keeping up his bridge game, and racking up A’s. Also, as he wrote to Orans in the fall, he had submitted a dozen entries in the hopes of winning a $100 Burma-Shave jingle contest,‡ and had lined up a date with “a German gal that looks all right.”

  In the winter, Buffett revived his golf-ball business—this time as a serious enterprise, with Orans as his agent in Philadelphia. In January 1950, Buffett implored his friend to get down to business.

  I don’t imagine the boys back there are playing much golf yet and I can guarantee March 1st delivery on the type of balls you want so don’t hesitate on getting orders.32

  Buffett promised to make good the losses on any “duds” and assured Orans that the quality of his golf balls was okay. Nonetheless, he added, “don’t get them near any real heat.” As an afterthought, Buffett mentioned that he had gotten through finals “pretty good” and listed his courses for the spring. In April, having sent Orans a shipment, he sent his chum a lighthearted—but pointed—reminder that “Buffett’s Golf Enterprises” was not a charitable venture.

  By this time I imagine you are bathing in luxury with the enormous profits you undoubtedly reaped from the sale of those gleaming beauties I mailed your father’s partner in crime. However, don’t forget that Philadelphia’s prosperity is not shared by Lincoln until you dispatch a check for the token sum of $65.94.33

  In the summer, Buffett continued his breakneck pace, moving in with his parents and taking three courses in Omaha so he could get the credits to graduate. By July, he had sold 220 dozen golf balls and had reaped $1,200 from them.34 From all his ventures combined, he had saved $9,800.

  That trifling grubstake would be the source of every dollar that Buffett would earn.35 He had tracked every penny—the Cities Service stock, the paper route, the golf-ball sales, the pinball—in squiggly, uneven handwriting. So prophetic was his ledger of later exploits that it called to the mind of one journalist the papers that “Horatio Alger might have donated to the Baker Library at the Harvard Business School.”36

  Buffett had in fact applied to Harvard Business School. He confidently wrote to Orans, who had opted for Columbia Law School: “Egad! Big Jerry, reconsider and join me at Harvard.”37 In the summer, Buffett took a train to Chicago to meet an alumnus. Scrawny and unpolished, and merely nineteen, he struck his interviewer as not quite Harvard. The session was over in ten minutes.38 Writing “Big Jerry” on July 19, Buffett needed five paragraphs to work up to the news. He informed his friend that he was taking a tax course and learning “all the shrewd angles that clip the dollars from the return.” There followed talk of his “famous cannonball serve,” get-well wishes for Orans’s convalescing father, and an update on golf-ball sales.

  Now for the blow. Those stuffed-shirts at Harvard didn’t see there [sic] way clear to admit me to their graduate school. They decided 19 was too young to get admitted and advised me to wait a year or two. Therefore I am now faced with the grim realities of life since I start paying room and board here in four weeks. My dad wants me to go on to some graduate school but I’m not too sold on the idea.

  Two weeks later, there was no holding back. “Dear Big Jerry,” he wrote.

  To tell you the truth, I was kind of snowed when I heard from Harvard. Presently, I am waiting for an application blank from Columbia. They have a pretty good finance department there; at least they have a couple of hot shots in Graham and Dodd that teach common stock valuation.39

  Buffett was being a bit too nonchalant. Benjamin Graham, in fact, was the dean of the securities profession; he and his colleague David Dodd had written the seminal textbook in the field, Security Analysis. And Buffett had read Graham’s new book, The Intelligent Investor, while at Lincoln, and had found it highly captivating. Wood, Buffett’s housemate, said, “It was almost like he had found a god.”40 His jocular reference to Columbia’s “hot shots” may be taken as posturing at a moment when he feared being rejected again. But in August, Buffett got some good news. He was going to New York, to study with the master.

  * Orans would be a Buffett investor and a lifelong admirer. He later suggested that Beja also invest, but Beja was determined to prove that he could do as well on his own. Thereafter, he said, Orans would call him a couple of times a year to tell him what Warren was worth. “It would just go up and up.”

  † Danly went on to have an accomplished career as a chemical engineer with Monsanto. In retirement, he bought a Jaguar.

  ‡ Buffett’s best: “If missin’ on kissin’—Hey Listen, try thissen—Burma-Shave.”

  Chapter 3

  GRAHAM

  Mr. Market is very obliging indeed.

  Every day he tells you what

  he thinks your interest is worth.

  BENJAMIN GRAHAM,

  THE INTELLIGENT INVESTOR

  Buffett had been fascinated by stocks since he had first chalked them up on the blackboard. He had traded stocks, studied the market, consulted oracles, and looked for the great epiphany—some mystical correlation in the charts, some system that would m
ake him rich. Yet he was no further, really, than when he had combed the floor of the racetrack, looking for discarded ticket stubs. Some stocks would place, but many more would not.

  Ben Graham opened the door, and in a way that spoke to Buffett personally. He gave Buffett the tools to explore the market’s manifold possibilities, and also an approach that fit his student’s temper. Armed with Graham’s techniques, Buffett could dismisss the oracles and make use of his native talents. And steeled by the example of Graham’s character, Buffett would be able to work with his trademark self-reliance—with the “sweetness” of Emersonian independence of which Buffett had heard from his father.

  Yet Graham was far more than Buffett’s tutor. It was Graham who provided the first reliable map to that wondrous and often forbidding city, the stock market. He laid out a methodological basis for picking stocks, previously a pseudoscience similar to gambling. Investing without Graham would be like communism without Marx—the discipline would scarcely exist.

  And groundbreaking as they were, Graham’s writings did not explain in full the hold he had on his disciples. Unlike other Wall Street practitioners, Graham was open with his thoughts and freely shared his ideas. Wall Street interested him merely as an abstraction—the money meant nothing to him. In a field that was filled with narrow minds, Graham was also classical scholar, a student of Latin and Greek, a translator of Spanish poetry, and the author of a Broadway play—which closed in four nights. Oddly, for one who revolutionized investing, he spent much of his time working on quirky avocations and inventions, such as a new kind of slide rule and “more practical” pieces of furniture. (That was abstract, too; it is unlikely that Graham ever held a hammer.)1 He was short, with penetrating, light blue eyes and thick lips—“a funny little guy, sort of ugly,” as an associate said—but possessed of a spark.2