Buffett acknowledged his contrasting sentiments, quite comically, one summer when the family was touring San Simeon, the William Randolph Hearst mansion in California. The guide was giving a blow-by-blow account of how much Hearst had paid for every item—the drapes, carpets, antiques, and so on. Bored to tears, Buffett protested, “Don’t tell us how he spent it. Tell us how he made it!”31
Buffett’s money seems to have affected him politically—but not in the manner one would expect. As he became independently wealthy—roughly during the early and middle sixties—he finally asserted his political autonomy from his father. Warren based his evolving politics not on his personal economic interests, as most millionaires—and most people—do, but on his fears for society writ large. In the turbulent 1960s, several issues awakened him. The Cuban missile crisis mortified him, just as Hiroshima had. According to his friend Dick Holland:
Warren was afraid. He was interested in studying the attitudes that led to extreme nationalism, and how wars could be prevented. He was always trying to calculate the odds of the world’s blowing up.
Buffett read Bertrand Russell, the pacifist philosopher and mathematician, extensively during this period, and adopted much of Russell’s internationalist outlook.32 An agnostic like Russell, and deeply aware of his mortality, Buffett thought it was up to society, collectively, to protect the planet from dangers such as nuclear war. Unlike his isolationist and antigovernment father, Warren recognized a need for government.
This was also true on the burning issue of civil rights. Omaha had a substantial black population, and strict segregation in housing and many jobs. Howard Buffett did not have a public record on civil rights, but as an avid member of the John Birch Society,33 he presumably did not lose sleep over it.
Warren was emphatically on the other side. He quit the Omaha Rotary Club specifically because he objected to its racist and elitist policies.34 Discrimination collided with his belief in merit and his faith in neutral yardsticks, which lay at the heart of his investing. In the same vein, he thought it was wrong that rich kids got a big head start over everyone else.
Buffett was also being exposed to the idealism of his wife. Susie was an organizer and an active member of the Panel of Americans, a group of Omaha women of various religions and races who would speak to churches, schools, and clubs about their experiences with ethnic prejudice. The panel included a refugee from Nazi camps, a Mississippi-born black, and so on. Susie would give the Wasp perspective. In the Omaha of the early and mid-sixties, the Panel of Americans was rather daring.35 Women of Susie’s caste were expected to go to Junior League meetings. The Buffetts, though, were one of the few families in the lily-white Happy Hollow area—for a while, probably the only family—that regularly and routinely entertained blacks at home.
Repelled by the Republicans’ indifference to civil rights, Warren decided to break from his father’s party and become a Democrat. This was a major step for him. His father, his best friend, was fighting a protracted battle with cancer, and the GOP had been a huge part of his life.
In the winter of 1964, Howard was suffering greatly and stoically. Warren would go to the hospital every night. One evening, he had “a difficult conversation with him about changing parties.”36 As he explained to Charlie Munger, he wasn’t sure that his father was wrong on a lot of issues, but he didn’t want to be “consumed by ideology” as Howard had been. (Perhaps to spare his father anguish, Warren didn’t change parties or publicly acknowledge the switch until Howard’s death.)
In the spring, his father took a turn for the worse. After learning of his condition, Buffett showed up for a table tennis game at Dick Holland’s looking clearly out of sorts. But he kept the awful news to himself. Not many days later, Buffett arrived home looking glummer than his daughter had ever seen him. “He was very withdrawn and sad,” she recalled. “I think I asked him why he wasn’t going to the hospital. He said, ‘Grandpa died today.’ Then he went upstairs.”
Five hundred mourners attended Howard’s funeral. Colleagues from both parties saluted his integrity and warmth. Warren sat through it silently. Then, he left town, without telling friends of his where-abouts.37 When Buffett returned to Kiewit Plaza, he hung a large-size likeness of his father on the wall facing his desk. But his best friend was gone.
As his father had been with him, Warren was a moral exemplar to his own children. But Warren was the same unsentimental analyst with his kids as he was with his partners. He was a concerned parent, and a supportive one—but not demonstrative. He took Susie to the office on Saturdays, as his father had taken him; he threw a football with Howie and helped Pete with his math. But he rarely if ever talked to them about subjects—such as his own parents—that might have exposed his feelings.
He and little Susie shared a certain tenderness. But Warren’s sons felt emotionally neglected by him. Howie, the second child, was a bit of a troublemaker, and was repeatedly frustrated by his dad’s lack of outward feeling.38 “I used to misinterpret his tone to mean that he didn’t care about me,” he said. “It’s the exact same quality that makes him so good as an investor. There was no emotion in it.”
Most people—high-powered executives perhaps especially—tend to compartmentalize their lives. They may be tigers at the office and kittens at home. But Buffett was all of a remarkably consistent piece. To young Peter, his father ran on an inner clock whose springs and gears never ceased to turn. Day to day, Buffett was in his own solar system.39 “I remember I gave him a birthday card once,” Peter said. “He just sort of opened it and closed it—he read it that fast. I guess I was waiting for some response.” Warren was expressive in his letters, but mute with his son.
A bit later, when Peter was in a drugstore with his mother, he saw a book called The Father’s Handbook. He said rather flippantly, “You should get that for Dad.” So she did. When Warren got the book, he called Peter up to his study and said, “Hey, what’s going on? What do you mean?” Peter meant there was nothing that he could tell his dad that his father wanted to know—or such was Peter’s impression then. Buffett, obviously, was concerned. But he couldn’t show it. He made efforts to reach out, but they struck Peter as halfhearted.
The Buffett house was like a storm center with Warren at its eye. As little Susie said, her father was always reading. The house was a hub of comings and goings: friends, relatives, lonely-hearts talking to Susie. Susie herself went around the house singing. The kids would climb from the attic onto the Dutch gambrel roof, or go trooping into the family room. And Warren was just up there, buried in his work. He would dart out of his study just long enough to grab a Pepsi with syrupy cherry flavoring or to entreat his wife to calm the kids. “Susan-O—tell them to quiet down.”
His abstractedness was a running joke. One time he came downstairs and asked what had happened to the greenback wallpaper in the study. Susie had changed it a couple of years before.
Susie tolerated him perhaps because Warren, in his absentminded way, was unfailingly good-natured. As she said to her sister, “You can’t get mad at someone who is so funny.” Moreover, she, and even the children, understood that Warren was on a sort of spiritual mission that diverted him from the more routine aspects of family living. They referred to his office, only half-jokingly, as the “temple.” His work was a “canvas”—a work of art. Susie, referring to Buffett’s maestrolike self-absorption, once remarked to Marshall Weinberg, their Manhattan stockbroker chum, “Let’s face it—I’m married to Artur Rubinstein.”40
Weinberg, a music lover, knew full well. Buffett could hum the chords, and the concertinos, and even the entire symphonies of Wall Street in his sleep. Once in a while, Weinberg would play a few bars for his friend, hoping—just once—to show him something new. One time, for instance, he told Buffett about a certain cement stock that was cheap relative to its book value. Buffett shot back, “Yeah, but the book isn’t worth anything. Look at the record of selling cement plants in the last seven years.”41
As
Weinberg also knew, the explanation, or part of it, lay in Buffett’s relentless focusing on his craft. In 1965, after Weinberg had returned from a trip to Egypt, Warren and Susie visited him at his Manhattan apartment. Few Americans had been to Egypt, and Weinberg, who was so often impressed with Buffett, was eager to show his genius friend his slides of the pyramids.
Buffett said easily, “I have a better idea. Why don’t you show the slides to Susie and I’ll go into your bedroom and read an annual report.” The pyramids were out of his zone, like the wallpaper.
The report that Buffett had with him may well have been Walt Disney Productions’. At around the time of his visit to Weinberg, he went to see the company’s latest film, Mary Poppins, in Times Square. Needless to say, Buffett was not so interested in Julie Andrews, the show’s star, but in Disney’s stock.
Settling into a seat, with his tweeds, briefcase, and popcorn, he noticed that the other patrons were staring at him. He suddenly realized that he was the only adult unaccompanied by a child, and must have looked rather odd.42
But when the theater went dark, the other moviegoers forgot him. Buffett saw that they were riveted to the picture, and he asked himself, in effect, what it would be worth to own a tiny bit of each of those people’s ticket revenues—for today and tomorrow and as many tomorrows as they kept coming back to Disney.
In the summer, when the Buffetts were in California, they went with the Mungers to Disneyland. While the kids did the park, Buffett and Munger dissected it financially, ride for ride, a kind of Fellini fantasy version of a corporate balance sheet.43
Subsequently, Buffett visited Walt Disney himself on the Disney lot. The animator, meeting him in shirtsleeves, was as enthusiastic as ever. Buffett was struck by his childlike enchantment with his work—so similar to Buffett’s own.44
Disney’s stock, meanwhile, was trading at only about ten times earnings. Buffett tried to analyze it not as a stock, but as a whole company, perhaps as a business down the street in Omaha that was willing to sell him a part ownership.45 In Buffett’s view, its most valuable feature was its library of old cartoons and films, such as Snow White and Bambi. A Ben Graham would not have been interested in such an imprecise asset. However, Buffett estimated that, on a proportional basis, the library alone was worth the price of a share.46 Plus, he would own a slice of Disneyland, and he would have the unpretentious Mr. Disney as his partner. With such thoughts in mind, Buffett bought 5 percent of Disney for $4 million.47 Disney himself would be dead within the year.
Buffett, it should be understood, was not abandoning the Graham credo of hunting for securities that were well below “intrinsic value.” But his definition of value was changing, or rather, broadening. To Buffett, the value of Disney’s film library, even though imprecise and mostly off the books, was no less real than a tangible asset such as a factory.
He was no doubt encouraged by his similar bet on American Express, which had begun to see its way clear of the salad-oil scandal. By 1965, the stock had hit 73½, double its recent low. And Buffett Partnership beat the Dow that year by a phenomenal 33 percentage points.
Buffett warned his partners not to expect a repeat.48 In the following year he would top the Dow by 36 percentage points. But then, his doleful forecasts had long been sounding like a broken record. Fearful that success would sow the seeds of disappointment, he had repeatedly prophesied his own fall.
[January 1962:] If my performance is poor, I expect partners to withdraw.… [January 1963:] It is a certainty that we will have years when … we deserve the tomatoes.… [January 1964:] I believe our margin over the Dow cannot be maintained.… [January 1965:] We do not consider it possible on an extended basis to maintain the 16.6 percentage point advantage over the Dow.… [January 1966:] Those who believe 1965 results can be achieved with any frequency are probably attending weekly meetings of the Halley’s Comet Observers Club. We are going to have loss years and are going to have years inferior to the Dow—no doubt about it.… [July 1966:] Such results should be regarded as decidedly abnormal.
That is what he said. But his wings refused to melt. Over the partnership’s second five years, Buffett’s record was off the charts:
PARTNERSHIPS DOW
1962: +13.9% –7.6%
1963: +38.7 +20.6
1964: +27.8 +18.7
1965: +47.2 +14.2
1966: +20.4 –15.6
And the cumulative record, over ten years:
PARTNERSHIP DOW
+1,156% +122 .9%49
After deducting for Buffett’s share of the profits, his limited partners’ investment had risen by 704.2%—six times the gain in the Dow. For an original investor, such as the Edwin Davis family, each $100,000 had grown to $804,000. (The Davises, like others, had continued to put in more money along the way.)
Buffett Partnership’s total assets, as of the start of 1966, had swelled to $44 million. Buffett, in other words, was running a fair-sized enterprise (though still far smaller than the big mutual funds). And at age thirty-five, he was a very rich man. He wrote to his partners in January 1966, “Susie and I have an investment of $6,849,936, which should keep me from slipping away to the movies in the afternoon.”50
He also got a first taste of the limelight. In May, readers of the Omaha World-Herald awoke to Buffett’s toothy, chipmunkish grin at the top of the second section. Buffett was pictured with an ear to the phone, unstylishly short hair, and a look of unmistakable eagerness. According to the hometown World-Herald:
One of the most successful investment businesses in the United States is operated in Omaha by a young man who bought his first stock at age 11.51
A more probing interviewer, reporting on the changes at Berkshire Hathaway for a textile-industry trade paper, zeroed in on Buffett’s seeming contradictions:
While his approach is informal, he never gives the impression of being offhand. If his manner is casual, he is obviously a man with his facts well in hand.… Buffett doesn’t dodge questions … but sometimes he’s a trifle oblique.52
The general financial press and the broader business public had not heard a word of him. But to investors such as the Davises, Buffett’s stature was rising to mythological proportions. This one man—this kid-was making them rich. Lee Seemann, Edwin Davis’s son-in-law, who was a salesman for International Harvester, who liked to hunt ducks and go to football games, who had big Lyndon Johnson ears and had no business dreaming of money, was getting rich. He felt he was living in a fairy tale.53 The investors began to think of themselves as a privileged tribe—as blessed.
Buffett invited groups of them to the house once a year. The partners looked forward to these dinners with the oracle. Susie had the place spiffed up, and she would sidle up to each guest in turn and draw him or her out. And Buffett would recount his coups of the past year and spin little stories, stressing how he had gotten himself into a jam or a comical situation, such as how, when he had been trying to save Dempster, he had had to walk a very fine line because the yokels in Beatrice were convinced that he was out to destroy the company, or, going back to Wilson Coin Op, he had had to put on an act for the barbers to keep the pinball mafia from running him out of town. The hero of these cracker-barrel tales seemed to be a sort of middlingly talented but plucky Huck Finn, a modest sort who triumphed almost despite himself. And his guests hung on his words. Leland Olson, an investor, remembered the stories for years. “They would fascinate you. And he didn’t talk down to you,” Olson said.
The investors, in fact, were starting to worship Buffett. Roxanne Brandt, wife of the broker Henry, wrote in her daughter’s baby book under “Three greatest minds of the era”: Schweitzer, Einstein, and Warren Buffett. He was the unassuming genius who drank nothing but Pepsi-Cola and could beat the pants off Wall Street year after year.
Buffett encouraged it as only a confident and successful man may do, with modesty. The self-deprecating quips, like the humble prognostications of his own decline, merely confirmed his investors’ awe of him. Th
e worship surely delighted him, but it also made him edgy. With each successful vault, the bar of expectations climbed. The brighter his star, the darker was the shadow of a looming burnout. Buffett had been saying all along that it could not go on forever. On Wall Street, nothing does.
* He was convicted and sentenced to ten years. In 1992, De Angelis resurfaced—charged with using a fraudulent letter of credit to obtain $1.1 million worth of meat. He was convicted again.
† Mark Twain, though a poor investor, had a similar strategy: “Put all your eggs in the one basket and—watch that basket.”
‡ There was one exception. According to Kay Koetter, an insurance agent, some of Buffett’s partners were so concerned about losing their investment if Buffett dropped dead that Buffett bought a policy and named them as the beneficiary.
Chapter 6
GO-GO
I am out of step with present conditions.
WARREN BUFFETT,
LETTER TO PARTNERS, OCTOBER 1967
Graham’s generation had retired, taking its grim Depression memories with it. Wall Street had reawakened to a younger breed, many of whom had not been alive in 1929, and who were bored with their elders’ endless recitations. More important, they had no memory of the heady years before the Crash. For them, speculation bore no curse; the bull market of the sixties was as fresh as first love. Even the stocks that they traded were new—electronics issues, big conglomerates, small growth stocks. These all required a faith, but faith there was aplenty. Stocks were going up.
This had hardly bothered Buffett when his fund was small. But as his capital swelled, he grew increasingly antsy. The combination of more cash to invest and fewer bargains had him trapped. He complained of being pressed for ideas and, bit by bit, of a strain. Indeed, his letters of the later sixties read like an inverted chronicle of the age. Wall Street waxed ever more euphoric, Buffett, more doubting.
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