The Snowball

by Alice Schroeder

  “Here’s another one. If the world couldn’t see your results, would you rather be thought of as the world’s greatest investor but in reality have the world’s worst record? Or be thought of as the world’s worst investor when you were actually the best?

  “In teaching your kids, I think the lesson they’re learning at a very, very early age is what their parents put the emphasis on. If all the emphasis is on what the world’s going to think about you, forgetting about how you really behave, you’ll wind up with an Outer Scorecard. Now my dad: He was a hundred percent Inner Scorecard guy.

  “He was really a maverick. But he wasn’t a maverick for the sake of being a maverick. He just didn’t care what other people thought. My dad taught me how life should be lived. I’ve never seen anybody quite like him.”

  PART TWO

  The Inner Scorecard

  5

  The Urge to Preach

  Nebraska • 1869–1928

  John Buffett, the first known Buffett in the New World, was a serge weaver believed to be of French Huguenot descent. He fled to America in the seventeenth century to escape religious persecution and settled in Huntington, Long Island as a farmer.

  Little else is known of the earliest Buffetts in the United States, except that they were farmers.1 It is clear, however, that Warren Buffett’s urge to preach is part of a family legacy. An early example was one of John Buffett’s sons,2 remembered for sailing north across the Long Island Sound to a coastal settlement in Connecticut, where he climbed a hill and commenced to preach religion to the heathens. But it is doubtful that the outcasts, scofflaws, and unbelievers of Greenwich repented on hearing his words, since history records that lightning promptly struck him down.

  Several generations later, Zebulon Buffett, a farmer in Dix Hills, Long Island, left his trace on the family tree as the first recorded exemplar of another Buffett trait—treating one’s own relatives with extreme tightfistedness—when his grandson, Sidney Homan Buffett, quit his job working on Zebulon’s farm in disgust over the insultingly low pay.

  A gangly teenager, Sidney went west to Omaha, Nebraska, to join his maternal grandfather George Homan in his livery-stable business.3 The year was 1867; Omaha a settlement consisting mainly of a collection of wooden shacks. Since its days as a trail-outfitting center for westbound prospectors during the Gold Rush, Omaha supplied the staples to pioneers—gambling, women, and booze.4 But with the end of the Civil War, it was about to be transformed. A grand transcontinental railroad would link the coasts of the newly reunited states for the first time, and Abraham Lincoln himself decreed that Omaha would be the railroad’s headquarters. The coming of the Union Pacific filled the town with a bustling commercial spirit, as well as a sense of destiny. Nonetheless, the place retained its reputation as the Sodom of a pious state,5 and a well-known “rogue’s rookery.”

  After working at the livery stable, Sidney left to open the first grocery store in a town with no paved streets. In this respectable but modest business, he sold fruit, vegetables, and game until eleven every night: prairie chickens for a quarter, jackrabbits for a dime.6 His grandfather Zebulon feared for Sidney’s prospects and pelted him with letters containing advice, all rules that—with one significant exception—his descendents still heed.

  “Try to be punctual in all your dealings. You will find it difficult to get along with some men, deal as little as possible with such…. Save your credit, for that is better than money…. If you go on in business, be content with moderate gains. Don’t be too hasty to get too rich…. I want you to live so as to be fit to live and fit to die.” 7

  Content with moderate gains in an upward-scrambling, freewheeling place, Sidney gradually built the store into a success.8 He married Evelyn Ketchum and they had six children, several of whom died young. Two sons, Ernest and Frank, were among the survivors.9

  It has been said, “No man was ever better named than Ernest Buffett.”10 Born in 1877, he ended his formal schooling in the eighth grade, and joined his father behind the counter during the Panic of 1893. Far more eccentric than his businesslike brother, Frank Buffett became a large, stove-bellied man, the heathen among the Puritans of the family, who even enjoyed the occasional drink.

  One day, a stunning young woman appeared at the store looking for a job. Her name was Henrietta Duvall, and she had traveled to Omaha to escape an unfriendly stepmother.11 Frank and Ernest were both immediately smitten, but it was the more handsome Ernest who won Henrietta as his wife in 1898. Ernest and Henrietta’s first child, Clarence, was born within a year of their marriage, followed by three more sons and a daughter. Shortly after the quarrel, Ernest went into a partnership with his father, Sidney; eventually he left to set up another grocery store. Frank remained single for most of his life, and for the next twenty-five years, as long as Henrietta lived, he and Ernest apparently never spoke.

  Ernest set about becoming a pillar of the town. At his new store, the “hours were long, pay low, opinions cast in iron, and foolishness zero.”12 Always dressed in a dapper suit, he scowled from his desk on the mezzanine to stop his employees from idling, and penned letters demanding that suppliers “kindly speed up the celery.”13 He charmed his lady customers, but never hesitated to judge and carried a little black notebook to write down the names of people who irritated him—Democrats, and people who didn’t pay their grocery bills.14 Ernest was sure that the world needed his opinion and traveled to conferences around the country to bemoan the sorry state of the nation with like-minded businessmen.15 “Self-doubt was not his strong suit. He always spoke in exclamation points and expected you to acknowledge that he knew best,” says Buffett.

  In a letter to his son and daughter-in-law advising them to always have some ready cash, he described the Buffetts as bourgeois incarnate:

  “I might mention that there has never been a Buffett who ever left a very large estate, but there has never been one that did not leave something. They never spent all they made, but always saved part of what they made, and it has all worked out pretty well.”16

  “Spend less than you make” could, in fact, have been the Buffett family motto, if accompanied by its corollary, “Don’t go into debt.”

  Henrietta, also of French Huguenot extraction, was as thrifty, iron-willed, and teetotaling as her husband. A devout Campbellite,*4 she too felt the call to preach. While Ernest was at the store, she would harness the horses to the family’s fringed surrey and gather her children to drive out into the countryside, where she knocked on farmhouse doors to hand out tracts. Her temperament did nothing to lighten the Buffett family tendencies. In fact, by some accounts, Henrietta was the preachingest of all the preaching Buffetts who had ever lived.

  The Buffetts were tradespeople, not members of the merchant or professional class, but as pioneer settlers of Omaha, they were exceedingly conscious of their place. Henrietta’s hope was that her four sons and daughter would become the first in the family to graduate from college. To pay for their schooling, she pared her household budget—more than was strictly necessary, it is said, even by Buffett standards. All the boys toiled at the family store when they were young. Then Clarence began a career in the oil business, with a graduate degree in geology.17 George, her second, got a PhD in chemistry and wound up on the East Coast. Her three youngest, Howard, Fred, and Alice, all graduated from the University of Nebraska. Fred took up duties at the family store, and Alice became a home-economics teacher.

  Howard, the third son and Warren’s father, was born in 1903. He had unhappy memories of feeling like an outsider during his years at Central High School in the early 1920s. Omaha was run by a handful of families who owned the stockyards, banks, department stores, and had inherited fortunes from the breweries now closed under Prohibition. “My clothes were pretty much hand-me-downs from my two older brothers,” he said, “and I was a paperboy and the son of a grocery man. So the high school fraternities didn’t look my way, and I was just one of the boys from what approximated outside of the tracks.
” He felt these snubs keenly; they marked him with a deep revulsion toward rank and privilege acquired by birth.18

  At the University of Nebraska, Howard majored in journalism and worked at the college newspaper, the Daily Nebraskan, where he was able to combine the outsider’s love of reporting on the activities of the powerful with the family fascination with politics. It would not be long before he met Leila Stahl, a girl whose background mingled the same interest in newspapers with self-consciousness about social class.

  Leila’s father, John Stahl, a sweet little dumpling of a man of good German-American descent, had traveled Cuming County, Nebraska, in a horse and buggy with a buffalo robe on his lap as superintendent of schools.19 The family history says he adored his wife, Stella, who gave him three daughters—Edith, Leila, and Bernice—and one son, Marion. Of English descent, Stella was unhappy living in West Point, Nebraska, a town of German-American hausfraus, where she never felt at ease. It is said that she consoled herself by playing the pipe organ. In 1909, Stella suffered a mental breakdown. This must have seemed an ominous recurrence of family history, for her mother, Susan Barber, who was described as “maniacal,” had been an inmate of the Nebraska State Insane Asylum, where she died in 1899. After an incident in which, according to family lore, Stella went after Edie with the fireplace poker, John Stahl gave up his traveling job to care for their children. Increasingly, Stella retreated to her darkened room, where she sat twisting her hair, apparently depressed. This isolation was punctuated by occasional episodes of cruel behavior toward her husband and the girls.20 Stahl, realizing that he could not leave the children alone with their mother, bought a newspaper, the Cuming County Democrat, so he could make a living working from home. From the time Leila was five, she and her sisters essentially ran the household and helped their father put out the paper. She learned to spell by setting type. “When I was in the fourth grade,” she recounted, “we had to come home from school and set type before we could go out and play.” By age eleven she could run a jackhammer of a Linotype press, and every Friday she missed school because of the headaches she suffered after having to get out the paper on Thursday night. Living above the business in a house infested by mice, the family pinned all their hopes for the future on Marion, the brilliant brother who was studying to be a lawyer.

  During World War I the Stahls’ difficulties grew. When the Cuming County Democrat came out against Germany in a German-American town, half their subscribers dropped the paper and switched to the West Point Republican— a financial catastrophe. John Stahl himself was an ardent supporter of the Democratic political giant William Jennings Bryan. At the turn of the century, Bryan had been one of the most important politicians of his era, nearly becoming President of the United States. In his heyday, he stood for a kind of “populism” that he set forth in his most famous speech:

  “There are two ideas of government. There are those who believe that if you just legislate to make the well-to-do prosperous, that their prosperity will leak through on those below. The Democratic idea has been that if you legislate to make the masses prosperous their prosperity will find its way up and through every class that rests upon it.”21

  The Stahls viewed themselves as part of the masses, the class that the rest rested upon. Their ability to bear that load was not increasing. By 1918, Leila’s sixteen-year-old sister Bernice—considered the dullard of the sisters, with a tested IQ of 139—had apparently begun to give up on life. She was convinced she would end up mentally ill like her grandmother and mother, and die like her grandmother in the Nebraska State Insane Asylum.22 During this time, Leila’s educational schedule suggests a chaotic home life. She delayed going to college for two years to help her father. After a single semester at the University of Nebraska in Lincoln, she returned home for another year to help out again.23 Energetic and considered the brightest of the girls, Leila later portrayed this episode in a different light, describing her family as perfect and saying that she stayed out of college three years to earn her tuition.

  When she arrived at Lincoln in 1923, she had one clear and acknowledged ambition, which was to find a husband. She headed straight to the college newspaper and asked for a job.24 A small-boned girl with a soft brown bob who bustled like the robin of spring, Leila wore a charming smile that softened the expression in her arrowhead-sharp eyes. Howard Buffett, who had started at the Daily Nebraskan as a sportswriter before rising to editor, hired her straightaway.

  Good-looking in a dark-haired, professorish way, Howard was one of only thirteen in the entire student body who had been “tackled” for the Innocents, a society of outstanding men on campus modeled after the honorary societies of Harvard and Yale. Named for the thirteen Popes Innocent of Rome, the Innocents declared themselves champions against evil. They also sponsored the prom and Homecoming.25 Presented with such a big man on campus, Leila grabbed him instantly.

  “Well, I don’t know whether she worked very much on the Daily Nebraskan,” Howard said later, “but she sure worked on me. I’ve never regretted it—don’t make any mistake about it—it’s the best deal I ever made.”26 But Leila was a good student with a head for mathematics, so when she announced plans to drop out of college and marry, her calculus professor reportedly slammed down the textbook in dismay.27

  Howard, who was about to graduate, went to his father to discuss his choice of career. He had no real interest in money but, at Ernest’s insistence, gave up the high-minded, low-paying business of journalism and the possibility of law school in favor of selling insurance.28

  The newlyweds moved into a tiny white four-room bungalow in Omaha, which Ernest filled with groceries as their wedding gift. Leila furnished it top to bottom for $366—items bought, she noted, at “sort of wholesale prices.”29 From that day forward she channeled her energy, ambition, and talent for math—which by all accounts exceeded her husband’s—into boosting Howard’s career.30

  In early 1928, the Buffetts’ first child, Doris Eleanor, was born.31 Later that year, Leila’s sister Bernice suffered a mental breakdown and quit her teaching job. But Leila seemed free of the moody listlessness that oppressed her mother and sister. A whirlwind of energy, she could talk nonstop for hours (although she litanied the same stories). Howard called her the “Cyclone.”

  As the Buffetts settled into the life of a young married couple, Leila got Howard to join her own First Christian Church, and noted proudly in her “day book” when he was made a deacon.32 Still avidly interested in politics, Howard began to show signs of the family urge to preach. But when he and Ernest turned the dinner table into a forum for endless discussions of the subject, Howard’s brother Fred was so bored that he would lie down on the floor and go to sleep.

  Leila had converted to her new husband’s politics, however, and was now an enthusiastic Republican. The Buffetts applauded Calvin Coolidge, the man who proclaimed “The chief business of the American people is business,”33 and shared his belief in small government with minimal regulation. Coolidge had lowered taxes and granted citizenship to American Indians, but mostly he shut up and stayed out of the way. In 1928, his Vice President, Herbert Hoover, was elected as his successor, vowing to continue pro-business policies. The stock market had prospered under Coolidge, and the Buffetts felt Hoover was the man to keep it going.

  “When I was a kid,” Warren would later say, “I got all kinds of good things. I had the advantage of a home where people talked about interesting things, and I had intelligent parents and I went to decent schools. I don’t think I could have been raised with a better pair of parents. That was enormously important. I didn’t get money from my parents, and I really didn’t want it. But I was born at the right time and place. I won the ‘Ovarian Lottery.’”

  Buffett always credited most of his success to luck. When it came to his recollections of his family, however, he was creating some of his own reality. Few would agree he couldn’t have been raised with a better set of parents. When he talked about how important it is for parents to
have an Inner Scorecard when raising their kids, he always used his father’s Inner Scorecard as an example. He never mentioned his mother.

  6

  The Bathtub Steeplechase

  Omaha • 1930s

  In the 1920s, the champagne bubbles of a frothy stock market led ordinary people to invest for the first time.1 By 1927, Howard Buffett decided to join them and got a job as a stockbroker with the Union State Bank.

  The celebration ended two years later. On “Black Tuesday,” October 29, 1929, the market dropped $14 billion in a single day.2 Wealth worth four times the budget of the United States government evaporated in a few hours.3 The market’s losses in 1929 cost $30 billion, close to what the country had spent fighting World War I.4

  Amid the bankruptcies and suicides that followed, people began to hoard money, and nobody wanted stocks.

  “It was four months before my dad made his next sale. His first commission was five bucks. My mother used to go out with him at night on the streetcar, waiting outside when he would call on somebody, just so he wouldn’t feel so depressed when he came home.”

  Ten months after the crash, on August 30, 1930, the Buffetts’ second child, Warren Edward, was born, five weeks before his due date.

  An anxious Howard went to see his father, hoping to be hired on at the family grocery store. All the Buffetts, even those with other jobs, put in a stint at the store every week, but only his brother Fred worked there full-time, and that for meager pay. Now, Ernest told Howard that he had no money to pay another son.5

  In one sense, Howard felt relief. He’d “escaped” from working at the store and never wanted to go back.6 But he worried that his family would starve. “Don’t worry about food, Howard,” Ernest told him. “I’ll just let your bill run.”