The Snowball

by Alice Schroeder

  “My service station was the dumbest thing—I lost two thousand dollars, and that was a lot of money for me at the time. I’d never had real damage in a loss. It was painful.”

  It seemed to Warren that nearly everything he did in Omaha reinforced his sense of youth and inexperience. He was no longer a precocious boy who was acting like a man, but a young man—about to get married—who looked and sometimes acted like a boy. Kaiser-Frazer, the stock he had shorted two years before in Bob Soener’s office, still hung stubbornly around five dollars a share instead of going to zero as he had expected. Carl Falk was always giving him funny looks and questioning his judgment. And Warren felt more and more queasy about the very nature of his job. He started to think of himself as being like “a prescriptionist.” “I had to explain to people who didn’t know enough about whether they should take aspirin or Anacin,” and people would do anything the “guy in the white coat”—the stockbroker—told them to do. The stockbroker got paid based on turnover instead of advice. In other words, “he’s getting paid based on how many pills he sells. He gets paid more for some pills than others. You wouldn’t go to a doctor whose pay was totally contingent on how many pills you took.” But that’s how the business of being a stockbroker worked at the time.

  Warren felt there was a conflict of interest inherent in the business. He’d recommend a stock like GEICO to his friends and family, and tell them that the best thing to do was to hold it for twenty years. That meant he didn’t get any more commissions from them. “You can’t make a living that way. The system pits your interests against your clients.”

  Nevertheless, he had begun to develop a small clientele of his own through his network of graduate school friends. In the spring of 1952, he went to Salisbury, North Carolina, to spend Easter with Fred Stanback. He charmed and amused Fred’s parents and entertained the family by talking stocks, quoting Ben Graham, and asking for a Pepsi-Cola and a ham sandwich for breakfast.12 Soon afterward, back in Omaha, Fred Stanback’s father gave him an order to sell some stock in a washing-machine company, Thor Corporation. Warren found a customer through another broker, Harris Upham, who wanted to buy it. Then he got another call from Stanback’s bank about the sale and thought he had two orders. He sold the Thor Corporation stock twice, the second time unwittingly selling stock he didn’t have. Now he had to find additional shares, and ended up buying them at a loss to cover the second sale.

  Mr. Stanback treated him graciously despite the mistake. He absorbed the entire loss even though it was Warren’s fault. Warren was grateful and never forgot it. He had more reason for concern about the second buyer, a man known as “Mad Dog” Baxter, who was a remnant of Omaha’s days as a major gambling layoff center*16 and an associate in some of the city’s many illegal betting parlors. Baxter had arrived at Buffett-Falk in person, strolled up to the cashier’s cage, and pulled out a wad of $100 bills, waving it around ostentatiously. Once again, “Carl Falk looked at me questioningly.” Was Buffett-Falk being used to launder illegal gambling money? Situations like this reinforced Warren’s dislike for his job. Even when he wasn’t selling stocks, he felt conflicted. He had turned Buffett-Falk into a “market maker,” a firm that acted as a middleman, buying and selling stocks as a dealer.13 The firm made a profit by selling a stock to clients at a slightly higher price than it paid, and buying stock from clients at a lower price than it sold the stock for. The difference, or “spread,” was its profit. The spread was invisible to the customers. Acting as a market maker lifted a brokerage firm from being a mere order taker to being a player in the Wall Street game. While Warren was proud that he had the know-how to set Buffett-Falk up as a market maker, the conflict bothered him.

  “I don’t want to be on the other side of the table from the customer. I never was selling anything I didn’t believe in myself or own myself. On the other hand, there was a markup that was undisclosed. If anybody asked me about it, I told them. But I don’t like anything like that. I want to be on the same side of the table with the people who are my partners, everybody knowing what’s going on. And a promoter, by his nature, doesn’t do that.”

  No matter how Warren thought about his job as a stockbroker, there was always a potential conflict of interest, and always the possibility that he would lose money for his clients and open himself up to disappointing them. He would much rather manage people’s money instead of selling them stocks, with his interest on the same side as the customer’s. The problem was, there were no such opportunities in Omaha. But in the spring of 1952, he wrote an article about GEICO that attracted the attention of a powerful man, and with that, his luck seemed about to change. The article, “The Security I Like Best,” which appeared in the Commercial and Financial Chronicle, was not just an advertisement for Warren’s favorite stock, but an explanation of his ideas about investing. It caught the attention of Bill Rosenwald, who was a son of Julius Rosenwald, a philanthropist and the longtime chairman of Sears, Roebuck & Co. The younger Rosenwald ran American Securities, a money management firm launched with family stock in Sears14 that sought high returns while minimizing risk and preserving capital. After contacting Ben Graham, who gave Warren a strong recommendation, Rosenwald offered Warren a job. Few jobs in money management were as prestigious, and Warren was dying to accept it, even though that meant moving back to New York City. To do so, however, he had to get permission from the National Guard to leave Omaha.

  “I asked my commanding officer whether it would be possible to transfer to New York to take this job. He said, ‘You’ll have to go down and see the commanding general.’ So I went down to Lincoln, sat there in the state capitol, waited awhile, went in to see General Henninger, and said, ‘Corporal Buffett reporting.’ I’d written him ahead of time explaining and asking permission.

  “And right away he said, ‘Permission denied.’

  “That was the end of it. That meant I was in Omaha as long as he wanted to keep me captive.”

  Thus Warren was stuck at Buffett-Falk, writing prescriptions for a living. The main comfort he had during the challenges of his first year back in Omaha was his fiancée. He had begun to lean on Susie. All the while, she was working at figuring Warren out. She began to understand the damage Leila Buffett’s rages had done to her son’s self-worth, and she started trying to repair it. She knew that the main thing he needed was to feel loved and never criticized. He also needed to feel that he could succeed socially. “People accepted me more when I was with her,” he says. Even though she was still at the University of Omaha while he had been working, he was like a toddler gazing up at a parent when it came to his relationship with his future wife. Both were still living in their parents’ homes. Over time, Warren had developed a way of dealing with his mother, which was to avoid being alone with her, while making use of her dutiful nature when in her presence by besieging her with demands and requests. Yet the long stretches that he had spent away from her while attending college had lowered his tolerance for Leila’s company instead of raising it. When she and Howard came back from Washington for Warren and Susie’s wedding, Susie noticed that her fiancé avoided his mother as much as he could. When forced to be in her company, he would turn his face away from her and clench his teeth.

  It was time for Warren to move out. He called Chuck Peterson, saying “Chas-o, I haven’t got a place for us to live,” and Chas-o rented him a tiny apartment a couple of miles from downtown. When Warren gave Susie, who had a strong sense of self-expression, an allowance of $1,500 to furnish their first apartment, she and her future sister-in-law Doris took off for Chicago to shop for furniture in the colorful modern style she liked.15

  As the wedding date, April 19, 1952, approached, the question arose whether the ceremony would take place at all. The week before, the Missouri River flooded upstream of Omaha. With the waters heading south, officials predicted they would crest above the riverbank and flood the city during the weekend. This made it likely that the National Guard would be called out.

  “The
whole town turned out with sandbags. I had all these buddies coming in for the wedding—Fred Stanback was going to be best man, and various ushers and guests. They were all kidding me because I was in the National Guard. They said, ‘Well, don’t worry about it, because we’ll substitute for you on the honeymoon.’ Jokes like that. This was going on all week.”

  A few days beforehand, Howard drove Warren and Fred down to the river. Thousands of volunteers were building double walls of sandbags, six feet high and four feet deep. The earth sank under the wheels of the huge trucks hauling sand and dirt, as if they were driving over rubber.16 Warren held his breath, hoping that he would not be called for duty to sandbag and that the temporary levee would hold.

  “Saturday came, and we were getting married about three in the afternoon. Around noon, the phone rang. My mother said, ‘It’s for you.’ I picked up the phone. The guy at the other end said, ‘C-C-C-Corporal Buffett?’ I had a commanding officer who had a really distinctive stutter. ‘This is C-C-C-Captain Murphy,’ he said.

  “If he hadn’t stuttered, I’d have said something that’d probably have gotten me court-martialed, because I would have thought it was the guys pulling a trick on me. But as it was, he said, ‘We’ve been activated. What time c-c-c-can you show up at the Armory?’” Warren almost had a heart attack.17 “And I said, ‘Well, I’m getting married at three o’clock.’ I said, ‘I could probably be there by five.’ He said, ‘Report for d-d-d-duty. We’re going to be p-p-p-patrolling East Omaha d-d-down by the river.’ I said, ‘Yes, sir.’

  “I got off the phone totally depressed. Then I get a call an hour later. And this guy had a perfectly normal voice. He says, ‘Corporal Buffett?’ I said, ‘Yes, sir.’ He said, ‘This is General Wood.’18 That was the commanding general of the Thirty-fourth Division, who lived way out in west Nebraska. General Wood said, ‘I’m countermanding Captain Murphy’s order. Have a good time.’”

  He had two hours left before the biggest event of his life. Warren showed up at the soaring Gothic sanctuary of Dundee Presbyterian Church well before three o’clock. The wedding of a Congressman’s son and Doc Thompson’s daughter was a major event in Omaha. Several hundred guests, including many of Omaha’s top-drawer people, were expected.19

  “Doc Thompson was so proud, he was popping buttons all over the place. I was so nervous that I just figured—well, I didn’t wear my glasses so that I wouldn’t be able to see all those people out there.” Warren also asked the normally reserved Stanback to distract him by talking so he wouldn’t have to focus on what was happening.20

  Bertie stood up for Susie as maid of honor, Susie’s sister Dottie as matron of honor. After the photographs, the guests drank nonalcoholic punch and ate wedding cake downstairs in the linoleum-floored church basement. That was the normal thing to do; the Thompsons and the Buffetts weren’t club people. Susie smiled wide as an ivory fan. Warren glowed, incandescent, and wrapped his arm around her waist as if trying to keep them both from sailing off into the air. After more photographs, they changed into their going-away clothes and ran through the crowd of cheering guests to duck into Alice Buffett’s car, which she had lent them for the honeymoon. Warren had already loaded the backseat with Moody’s Manuals and ledgers. All of a sudden, Susie saw the writing on the wall.21 And from Omaha, the newlyweds set off on their honeymoon—a cross-country automobile trip.

  “On my wedding night, I had chicken fried steak at the Wigwam Café in Wahoo, Nebraska,” Buffett says.22 The Wigwam was a tiny hole-in-the-wall less than an hour from Omaha, with a few booths and cowboy decor. From there, Warren and Susie drove thirty miles to the Cornhusker Hotel in Lincoln to spend the night, “and that’s all I’ll say on that subject,” Buffett says.

  “The next day I bought a copy of the Omaha World-Herald and it had run an article that said, ‘Only love can stop the Guard.’” 23 The 1952 flood was the worst in modern times in Omaha, the effort spent to avert it Herculean. “The other guys were sandbagging for days, patrolling in the flood, with the snakes and rats. I was the only guy that didn’t get called out.”

  The newlyweds traveled all over the western and southwestern United States. Warren had never been there, but Susie knew the West Coast well. They visited her family, took in the sights, went to the Grand Canyon, and had a wonderful time. “We did not stop to visit companies and look at investments, as has been reported,” Buffett insists. On the way back they stopped in Las Vegas, which was full of ex-Omaha people. The “layoff bookies” Eddie Barrick and Sam Ziegman had moved there shortly before and bought into the Flamingo Hotel.24 They were soon followed by another associate, Jackie Gaughan, who had invested in casinos from the Flamingo to the Barbary Coast. All these characters had shopped at the Buffett grocery store, and Fred Buffett got along well with them, even though he wasn’t a gambler. For Warren, Vegas felt almost homey, carrying echoes of the racetrack and full of people who knew his family. So he was not afraid of the house. “Susie won a jackpot on the slot machine. She was only nineteen. They wouldn’t pay her because she was underage. I said, ‘Lookit, you took her nickels.’ And they paid her.”

  After Vegas, the Buffetts headed back to Omaha. Warren could not stop chortling over his luckless colleagues in the Guard. “Oh, the honeymoon was great. It was great. Three weeks. And all the time, these guys in the Guard were sloshing it up.”

  PART THREE

  The Racetrack

  20

  Graham-Newman

  Omaha and New York City • 1952–1955

  A few months after the wedding, Susie went to Chicago with her parents and new in-laws for the Republican convention in July of 1952. The Thompsons and the Buffetts descended on Chicago, not as delegates but as part of an army. Politically speaking at least, they were now one united family, and this election year they were on a crusade to reclaim the White House for the Republicans after twenty agonizing years under the Democrats.1 Doris would be working behind the scenes alongside her father, while the much younger Bertie and Susie, innocents at the spectacle, spent their time gawking at celebrities like John Wayne, who had shown up for the Grand Old Party.2

  Warren, of course, stayed in Omaha, grinding away. Politics fascinated him, but not like money. He still hated working as a “prescriptionist,” and kept toiling at it while trying to find a way out. His old teacher David Dodd tried to help him by referring him to the Value Line Investment Survey, an investment adviser and research publisher, which was looking for “new men.” The job would have paid well—“at least $7,000 a year.”3 But Warren did not plan to be an anonymous researcher. So he carried on trying to sell GEICO to uninterested clients while reading the convention news that was being reported under inch-high headlines in the newspapers. For the first time in history, a convention was also being covered on television, and Warren watched eagerly, struck by the power of this medium to magnify and influence events.

  The front-runner going into the convention was Senator Robert Taft of Ohio.4 Known as “Mr. Integrity,” Taft headed a minority wing of the Republican Party—centered around isolationist Midwesterners—that wanted the government to be small, to stay out of everybody’s business, and above all to go after Communism more aggressively than Truman had done.5 Taft made his friend Howard Buffett head of his Nebraska presidential campaign and also head of his speakers’ bureau. To oppose Taft, the so-called Eastern Liberal Establishment6 that Howard so despised had drafted retired General Dwight D. Eisenhower—a moderate who had served as the Supreme Commander of Allied Forces in Europe during World War II and was the first Supreme Commander of NATO forces. Eisenhower, a politically adroit diplomat with excellent leadership skills, was a popular figure viewed by many as a war hero. As the convention approached, “Ike” began to catch up in the polls.

  What would prove to be the most controversial Republican convention in history unfolded in Chicago as Eisenhower backers pushed through an amendment to the convention rules, passed on a contentious vote, that handed him the delegates to win the nom
ination on the first ballot. Taft’s outraged supporters felt robbed. But Eisenhower soon made peace with them by promising to combat “creeping socialism,” and Taft insisted that his followers swallow their outrage and vote for Eisenhower for the sake of regaining the White House. The Republicans united behind him and his running mate, Richard Nixon; “I Like Ike” buttons sprouted everywhere.7 Everywhere, that is, except on Howard Buffett’s chest. He broke with the party by refusing to endorse Eisenhower.8

  This was an act of political suicide. His support within the party evaporated overnight. He was left standing on principle—alone. Warren recognized that his father had “painted himself into a corner.”9 From his earliest childhood, Warren had always tried to avoid broken promises, burned bridges, and confrontation. Now Howard’s struggles branded three principles even deeper into his son: that allies are essential; that commitments are so sacred that by nature they should be rare; and that grandstanding rarely gets anything done.

  Eisenhower defeated Adlai Stevenson in the November election, and in January Warren’s parents dragged themselves back to Washington to finish out the rest of Howard’s lame-duck term. Warren, who had for some time recognized obsessive qualities in Howard and Leila that disadvantaged them in various ways, had begun to absorb something of his in-laws’ style. Dorothy Thompson was easygoing, and her husband, though autocratic, was more personable and astute at human relations than the rigorously idealistic Howard Buffett. The more time he spent with Susie and her family, the more they influenced him.

  “Warren,” said Doc Thompson, who handed down advice with the authority of the Sermon on the Mount, “always surround yourself with women. They’re more loyal and they work harder.”10 His son-in-law hardly needed to be told that. Indeed, Warren had always craved being taken care of by women, as long as they didn’t try to order him around. Susie could see that he was eager for her to assume a motherly role. So she wrapped herself around her husband as she worked on “fixing” him, the wreck, the mess. “Oh, my God,” she said, “he was a case.”11 When they met, she recalled, “I had never seen anyone in so much pain.”