Buffett
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COURTESY HOWARD GRAHAM BUFFETT
As a youngster, Peter felt his investor-father was in his own solar system. Later, when Peter achieved success in music, he and Warren learned how to talk with each other.
COURTESY PETER BUFFETT
At American Express, the patrician Jimmy Robinson violated nearly every one of Buffett’s rules. Buffett’s friends were shocked when he invested with Robinson.
COURTESY JAMES D. ROBINSON III
John Gutfreund, the “King” of Wall Street
LARRY BARNS
Buffett loads up on his favorite cocktail at the Berkshire annual meeting.
LAVERNE D. RAMSEY
Author’s Note/Acknowledgments
I came to the study of Warren Buffett as a longtime investor in Berkshire Hathaway, the company that Buffett controls, and also as a veteran of a dozen years of financial reporting at the Wall Street Journal. Ideally, this book has the benefit of an investor’s familiarity and a reporter’s objectivity. Whether such noble hopes have been fulfilled may best be judged by the reader.
I began the project in the fall of 1991, when Buffett was engaged in the rescue of Salomon Brothers. Buffett advised me then that he would not collaborate in any way, but that neither would he attempt to interfere with the project. Specifically, he promised not to either discourage or encourage potential sources. He lived up to both pledges. However, Buffett’s voluminous writings, which he has allowed me to quote, were an invaluable source.
This book is primarily the result of interviews with people who did agree to cooperate—Buffett’s family members, his friends, his associates in business, and others—and I am grateful to every one of them. With a very few exceptions for those requesting anonymity, sources are identified in the text or in the source notes. In some cases in which the source seems obvious, I did not include a note. For instance, the source for most of the unattributed conversations or incidents involving Buffett and a second party was an interview with that other party.
A few sources deserve special mention. There were others, but Roxanne Brandt, Ken Chace, Bob Goldfarb, Stan Lipsey, Barbara Morrow, and Charlie Munger responded to my repeated pleas for help with a spirit of inquiry worthy of the best reporter. Buffett’s two sisters, Doris and Roberta, and his three children, Susie, Howie, and Peter, were at once loyal siblings and offspring and invaluable and generous guides to the Buffett family.
In a computerized age, Bruce Levy at the Wall Street Journal and Jeanne Hauser and Stephen Allard at the Omaha World-Herald proved that good librarians are as irreplaceable as ever. Also, my editors at the Wall Street Journal were unusually generous in granting me an extended leave.
I owe special thanks to my sharp-eyed but gentle readers—Neil Barsky, Robert Goodman, Andrea Lowenstein, Louis Lowenstein, and Jeffrey Tannenbaum. Melanie Jackson, my agent, had the audacity to believe in this book from the beginning, and I am grateful for it. Ann Godoff, my editor, provided unflinching but—alas—unerring criticism, without which this would have been a far lesser work. For my young children, Matthew, Zachary, and Allison, this project has occupied half a lifetime. (I have missed you, too.) Finally, I must allude to the many gifts I have gotten from my two parents, among which was the exposure to my father’s love of finance and unwavering ethics.
—ROGER LOWENSTEIN
January 1995
NOTES
In the notes that follow, names appearing without reference to any published works, public gatherings, or archival materials indicate an interview with the author.
“SEC File No. HO-784, Blue Chip Stamps, et al.” refers to a 1974–76 Securities and Exchange Commission investigation of Blue Chip, Berkshire Hathaway, and Buffett. Notes beginning with “SEC File No. HO-784” followed by a slash “/” indicate materials which, while unrelated to the case, were collected by the SEC and released to the author under the Freedom of Information Act.
INTRODUCTION
1. Figures are based on total returns, 1957–1995. The “major” averages are the Standard & Poor’s 500 and the Dow Jones Industrial Average, as calculated by S & P and Lipper Analytical Securities. Buffett Partnership had a compound annual gain of 29.5 percent for 1957–69 inclusive, before fees to Buffett. From 1970 through 1995, shares of Berkshire Hathaway advanced at a compound rate of 29.2 percent.
2. The calculation assumes that one invested $10,000 in Buffett Partnership prior to 1957, Buffett’s first full year, and that when the partnership disbanded, at the end of 1969, one used the investment (then worth $160,270) to buy 3,909 shares of Berkshire Hathaway, then priced at $41 a share, and held to December 31, 1995.
3. Berkshire Hathaway Inc., 1989 Annual Report, 21.
4. Peter Derow.
5. Berkshire Hathaway Inc., 1982 Annual Report, 11.
6. Jack Newfield, Robert Kennedy: A Memoir (New York: Dutton, 1969), 19.
7. Wyndham Robertson.
8. Peter Lynch.
Chapter 1. OMAHA
1. Doris Buffett Bryant researched the family lineage.
2. Lincoln initially designated the neighboring city of Council Bluffs, Iowa, as the terminus. However, the site was changed to Omaha. George R. Leighton, “Omaha, Nebraska: The Glory is Departed,” Harper’s Monthly, July and August, 1938; Lawrence H. Larsen and Barbara J. Cottrell, The Gate City: A History of Omaha (Boulder, Colo.: Pruett, 1982).
3. Leighton, “Omaha, Nebraska.”
4. John Taylor, “Grocery Will Close After 100 Years,” Omaha World-Herald, October 29, 1969 [italics added].
5. Robert McMorris, “Leila Buffett Basks in Value of Son’s Life, Not Fortune,” Omaha World-Herald, May 16, 1987.
6. Leila Buffett’s memoirs.
7. Ernest Buffett, letter to Clarence Buffett, March 28, 1930.
8. Leila Buffett’s memoirs.
9. L. J. Davis, “Buffett Takes Stock,” New York Times, April 1, 1990.
10. Leila Buffett’s memoirs.
11. Ibid.
12. Robert Falk.
13. “The Money Men: How Omaha Beats Wall Street,” Forbes, November 1, 1969; Davis, “Buffett Takes Stock.”
14. Bob Russell.
15. Warren’s sisters attested to his fear.
16. Carol J. Loomis, “The Inside Story of Warren Buffett,” Fortune, April 11, 1988.
17. Warren’s sisters declined to discuss their mother’s “moods” in detail, but confirmed that Leila had such outbreaks and provided background.
18. Peter Buffett.
19. Stuart Erickson.
20. Arthur W. Baum, “Omaha,” Saturday Evening Post, September 10, 1949.
21. “Omaha: A Guide to the City and Environs” (unpublished, part of the American Guide Series, Federal Writers’ Project, Works Progress Administration, 1930s). For descriptions of Depression Omaha, see also A Comprehensive Program for Historic Preservation in Omaha (Omaha: Landmarks Heritage Preservation Commission, 1980); Baum, “Omaha”; Larsen and Cottrell, The Gate City; and Leighton, “Omaha, Nebraska.”
22. “Buffett Files for Congress, Fights ‘Political Servitude,’ ” Omaha World-Herald, June 29, 1942.
23. Davis, “Buffett Takes Stock.”
24. Ibid.
25. Doris Buffett Bryant.
26. Berkshire Hathaway Inc., 1985 Annual Report, 10.
27. Ernest Buffett, letter to Clarence Buffett, March 28, 1930.
28. Gladys Mary Falk.
29. Charles Munger.
Chapter 2. RUNAWAY
1. Leila Buffett’s memoirs.
2. For an account of Warren’s time in Washington, see “The Corn-fed Capitalist,” Regardie’s, February 1986.
3. Doris Buffett Bryant.
4. Roger Bell; Doris Buffett Bryant; Roberta Buffett Bialek.
5. “Corn-fed Capitalist.”
6. Warren Buffett, speech to newspaper circulation managers, June 11, 1985.
7. Ibid.
8. Adam Smith, Supermoney (New York: Random House, 1972), 180.
9. Robert Dwyer.<
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10. “Corn-fed Capitalist.”
11. John Train, The Money Masters (New York: Harper & Row, 1980), 4.
12. “Corn-fed Capitalist.”
13. Sam Fordyce.
14. Patricia E. Bauer, “The Convictions of a Long Distance Investor,” Channels, November 1986.
15. “Buffett Asks U.S. Policy,” Omaha World-Herald, March 26, 1944.
16. On aid to Britain, Journal of the House of Representatives, 79th Congress, 1st Session (Washington: U.S. Government Printing Office, 1946), 197–98; on school lunches, Journal of the House, 79th Congress, 2nd Session, 101–3; on grain exports, Omaha World-Herald, September 11, 1947; and on Bretton Woods, Omaha World-Herald, March 10, 1945.
17. Leila Buffett’s memoirs.
18. “Buffett Lashes Marshall Plan,” Omaha World-Herald, January 28, 1948. See also “Buffett Sees Stalin Trick,” Omaha World-Herald, March 18, 1947.
19. Don Danly.
20. Warren Buffett, letter to Jerry Orans, August 4, 1950.
21. Martin Wiegand.
22. Davis, “Buffett Takes Stock.”
23. Buffett, speech to circulation managers, 1985.
24. Anthony Vecchione.
25. Harry Beja.
26. Richard Kendall; Robert Martin; Anthony Vecchione.
27. Anthony Vecchione.
28. Robert Martin and Laurence Maxwell had the same recollection.
29. Davis, “Buffett Takes Stock.”
30. Warren Buffett, letter to Jerry Orans, August 31, 1949.
31. Buffett, speech to circulation managers, 1985.
32. Warren Buffett, letter to Jerry Orans, January 30, 1950.
33. Warren Buffett, letter to Jerry Orans, April 29, 1950.
34. Warren Buffett, letter to Jerry Orans, July 19, 1950.
35. Buffett, speech to circulation managers, 1985.
36. Smith, Supermoney, 180.
37. Warren Buffett, letter to Jerry Orans, May 1, 1950.
38. Loomis, “Inside Story.”
39. Warren Buffett, letter to Jerry Orans, August 4, 1950.
40. Wood was unsure of when the conversations took place. Loomis (“Inside Story”) said Buffett read The Intelligent Investor early in 1950, or when Buffett and Wood were living in Lincoln.
Chapter 3. GRAHAM
1. Elaine Sofer Hunt [Benjamin Graham’s daughter].
2. Barbara Dodd Anderson.
3. The Germanic-sounding surname was changed during World War I.
4. This account draws on Irving Kahn and Robert D. Milne, Benjamin Graham: The Father of Financial Analysis, Occasional Paper Number 5, Financial Analysts Research Foundation.
5. Douglas W. Cray, “Benjamin Graham, Securities Expert,” New York Times, September 23, 1976.
6. Kahn and Milne, Benjamin Graham, 12–16.
7. John Kenneth Galbraith, The Great Crash (1st ed. 1954; Boston: Houghton Mifflin, 1988), 70.
8. Ibid., 108–9.
9. Howard Newman.
10. Kahn and Milne, Benjamin Graham, 22.
11. Benjamin Graham and David L. Dodd, Security Analysis (New York: McGraw-Hill, 1934), 5.
12. Benjamin Graham, “Should Rich but Losing Corporations Be Liquidated?” Forbes, July 1, 1932.
13. Lawrence Chamberlain and William W. Hay, Investment and Speculation, as cited in Graham and Dodd, Security Analysis, 8.
14. Gerald M. Loeb, The Battle for Investment Survival (1st ed. 1935; New York: Hurry House, 1955), 22, 73, 65, 23.
15. Ibid., 57; see also 64–67.
16. Ibid., 33, 61–63, 68, 75.
17. Graham and Dodd, Security Analysis, 341.
18. Ibid., 22–23.
19. Benjamin Graham, “Are Corporations Milking Their Own Stockholders?” Forbes, June 1, 1932.
20. Graham and Dodd, Security Analysis, 3.
21. Ibid., 493 [italics added].
22. Ibid., 19; see also 14,18.
23. Ibid., 22.
24. Graham, The Intelligent Investor (1st ed. 1949; 4th rev. ed., New York: Harper & Row, 1973), 277.
25. Ibid., 107.
26. Ibid., 108.
27. “How Omaha Beats Wall Street”; Robert Dorr, “Investor Warren Buffett Views Making Money as ‘Big Game,’ ” Omaha World-Herald, March 24, 1985; Smith, Supermoney, 181.
28. Janet Lowe, Benjamin Graham on Value Investing: Lessons from the Dean of Wall Street (Chicago: Dearborn Financial Publishing, 1994), 158.
29. Jack Alexander; Loomis, “Inside Story.”
30. Roger Murray.
31. Jack Alexander.
32. Kathryn M. Welling, “The Right Stuff: Why Walter Schloss Is Such a Great Investor,” Banon’s, February 25, 1985.
33. Walter Schloss; Loomis, “Inside Story.”
34. Warren Buffett, talk at Columbia Business School, October 27, 1993.
35. Ibid.
36. Warren E. Buffett, “The Security I Like Best,” Commercial and Financial Chronicle, December 6, 1951.
37. Buffett, talk at Columbia, 1993.
38. Graham, Intelligent Investor, 287.
39. “Corn-fed Capitalist.”
40. Elaine Sofer Hunt.
41. Marjorie Graham Janis; Elaine Sofer Hunt; Benjamin Graham, Jr.
42. Warren Buffett, speech to Graham and Dodd commemorative seminar, Columbia Business School, May 17, 1984.
43. Warren Buffett, 1989 Capital Cities/ABC management conference.
44. Warren Buffett, 1992 annual meeting of Berkshire Hathaway.
45. “Columbia Business School, 1986” (annual report), 21.
46. Wayne Eves; Walter Schloss; Lowe, Benjamin Graham, 160.
47. Ron Chernow, House of Morgan (1st Touchstone ed. 1991; New York: Simon & Schuster, 1990), 581.
48. Barbara Morrow.
49. Robert Berkshire.
50. Al Pagel, “Susie Sings for More Than Her Supper,” Omaha World-Herald, April 17, 1977.
51. Ibid.
52. Ibid.
53. Milton Brown; Dorothy Thompson Rogers.
54. Faith Stewart-Gordon.
55. Barbara Morrow.
56. Barbara Morrow; Marshall Weinberg.
57. Susan and Warren Buffett, eulogy for Daniel Cowin, 1992.
58. Lorimer Davidson; John J. Byrne, Government Employees Insurance Company: The First Forty Years (New York: Newcomen Society, 1981), 14 [account of Newcomen Society dinner, Washington, D.C., 1980]; Berkshire Hathaway Inc., 1995 Annual Report, 9.
59. Buffett, talk at Columbia, 1993.
60. Don Danly; Wayne Eves; Dan Monen.
61. Real estate: “2 Omaha Firms File Incorporation Papers,” Omaha World-Herald, July 30, 1952. Texaco: Warren Buffett, 1992 annual meeting of Berkshire Hathaway.
62. “Columbia Business School, 1986,” 21.
63. Robert Dorr, “Investor at 11, Warren Buffett Controls $45 Million Fund at 35,” Omaha World-Herald, May 29, 1966.
64. Dan Monen; Leland Olson.
65. Leila Buffett’s memoirs.
66. Doris Buffett Bryant.
67. Wayne Eves.
68. Lowe, Benjamin-Graham, 163.
69. Martin Mayer, Wall Street: Men and Money (1st ed. 1955; New York: Harper & Brothers, 1959), 118.
70. Torn Knapp. Graham articulated his fear in “The New Speculation in Common Stocks,” Analysts Journal, June 1958.
71. Buffett, talk at Columbia, 1993; Tom Knapp.
72. Buffett, talk at Columbia, 1993.
73. Walter Schloss. Buffett referred to a personal holding in Union Street Railway in an August 1957 letter to Jerry Orans.
74. Berkshire Hathaway Inc., 1988 Annual Report, 15.
75. Howard Newman.
76. Irving Kahn; Walter Schloss.
77. Lowe, Benjamin Graham, 169.
78. Ibid., 167.
79. Ibid.
80. Lorimer Davidson.
81. Lowe, Benjamin Graham, 162.
82. Walter Schloss.
83. Lowe, Benjamin Graham, 166.
8
4. Walter Schloss; “Walter & Edwin Schloss Associates, LP’s,” Outstanding Investor Digest, March 6, 1989.
85. U.S. Senate, Committee on Banking and Currency, 84th Congress, 1st Session, “Factors Affecting the Buying and Selling of Equity Securities,” Statement of Benjamin Graham, March 11, 1955.
86. Tom Knapp.
87. Graham-Newman letter to stockholders, February 28, 1946; Walter Schloss; Kahn and Milne, Benjamin Graham, 43, 46. Figures for Graham-Newman are net returns to stockholders. Note that as G-N generally did not allow reinvestment of dividends, the figures for G-N and the S & P are average returns, not compound returns.
88. Davis, “Buffett Takes Stock.”
89. Linda Grant, “The $4-Billion Regular Guy,” Los Angeles Times, April 7, 1991.
90. Norton Dodge; Train, Money Masters, 10.
91. Ed Anderson.
Chapter 4. BEGINNINGS
1. Warren Buffett, letter to Jerry Orans, June 19, 1957.
2. Warren Buffett, letter to Jerry Orans, May 26, 1957.
3. Wiesenberger was the principal of Wiesenberger & Co., a well-known firm that evaluated mutual funds.
4. Lee Seemann [Edwin Davis’s son-in-law].
5. Deficiencies were carried forward; thus, if the partnership earned zero in one year, it would have to make 8 percent in the next before Buffett could draw a share. Buffett’s other partnerships were structured similarly, though the precise formulas varied. After 1962, when the partnerships merged, all investors got the first 6 percent of the profits and shared any remaining profits with Buffett on a 75–25 basis.
6. Warren Buffett, letter to Jerry Orans, March 12, 1958.
7. “Sam Reynolds Home Sold to Warren Buffetts,” Omaha World-Herald, February 9, 1958.
8. Doris Buffett Bryant.
9. Jack D. Ringwalt, Tales of National Indemnity Company and Its Founder (Omaha: National Indemnity Co., 1990), 6–7.
10. William Angle.
11. Dan Monen.
12. Warren Buffett, letter to partners, January 30, 1961.
13. Ibid.
14. Train, Money Masters, 10.
15. Donald Keough.