The Snowball

by Alice Schroeder

  Warren may not have been aware of the depths or dimensions of his pain, but describes the powerful role she played in his life. “Susie was as big an influence on me as my dad, or bigger probably, in a different way. I had all these defense mechanisms that she could explain, but I can’t. She probably saw things in me that other people couldn’t see. But she knew it would take time and a lot of nourishment to bring it out. She made me feel that I had somebody with a little sprinkling can who was going to make sure that the flowers grew.”

  Susie recognized Warren’s vulnerability, how much he needed to be soothed and comforted and reassured. More and more, she could see the effect his mother had had on her children. Doris was the more badly damaged, but Leila had convinced both Warren and Doris that deep down they were worthless. In every area of life except business, Susie was discovering, her husband was riddled with self-doubt. He had never felt loved, and she saw that he did not feel lovable.12

  “I needed her like crazy,” he says. “I was happy in my work, but I wasn’t happy with myself. She literally saved my life. She resurrected me.13 She put me together. It was the same kind of unconditional love you would get from a parent.”

  Warren wanted a lot of things from his wife that you would ordinarily get from a parent. Not only that, he had grown up with a mother who did everything for him. Now Susie took over. Although their basic model of wedded life was typical of the time—he made the money, she took care of him and covered the domestic front—their arrangement was extreme. Everything in the Buffett household revolved around Warren and his business. Susie understood her husband was special; she willingly became the cocoon for his embryonic ambitions. He spent his days working and his nights hunched over the Moody’s Manual. He also arranged his schedule to give himself leisure time to play golf and Ping-Pong, even signing up as a junior member of the Omaha Country Club.

  Susie, barely twenty years old, was no Betty Crocker, but she had taken up rudimentary cooking and basic housekeeping like any 1950s wife—at a time when Omaha women were auditioning to appear on the show Typical Housewife on local television station KTMV. She devoted herself to fulfilling her husband’s few but specific requirements: Pepsi in the refrigerator, a lightbulb in his reading lamp, some indifferently cooked version of meat and potatoes for dinner, a shaker full of salt, popcorn in the cupboard, ice cream in the freezer. He also needed help getting dressed, assistance in dealing with people, tenderness, head rubs, cuddling, and hugs. She even cut his hair, because he claimed he was afraid to go to the barber.14

  Warren was “nuts about Susie, and she felt things” that were inside him, he says. He describes her role as the giver, his as the receiver. “She was absorbing more about me and sensing much more about me than I was sensing about her.” They were always seen kissing and cuddling, Susie often in Warren’s lap; she frequently said this reminded her of her father.

  Six months after the wedding, Susie was pregnant and had dropped out of the University of Omaha. Her sister, Dottie, was pregnant, too, with her second baby. She and Susie had remained particularly close. A dark-haired beauty, Dottie resembled her father in intelligence, and, according to family lore, she had possessed the highest IQ in the school when she attended Central High. But in both looks and domesticity, she was more like her mother.15 She had married Homer Rogers, a pilot and war hero with a big baritone voice whom everybody called Buck Rogers, although he was modest about his war exploits. Homer was a convivial, energetic cattleman, as beefy as the oversize steers he bought and sold. The Rogerses always had a crowd at their house, Dottie playing piano while Homer sang something like “Katie, Katie, get off the table, the money’s for the beer.” Susie and Warren did not take part in the Rogerses’ active social life, since they tended to be more serious-minded and they did not drink, but the sisters spent a lot of time together on their own. Dottie had always had difficulty making decisions, and since having her first son, Billy, she seemed dazed at the demands of motherhood. Susie, naturally, took charge and helped her.

  Susie had also become close to her sister-in-law Doris, who was working in Omaha as a schoolteacher now that she was married. Her husband, Truman Wood, was a handsome man with a pleasant personality who came from a prominent Omaha family, but Doris was starting to wonder if she was a racing filly hitched to a Clydesdale. A girl of action, Doris told Truman to giddyup. He ambled along a little faster, but not much.

  Susie’s protectiveness toward Warren and his sister ticked up a notch in January 1953 after Eisenhower was sworn in, when Howard’s final congressional term ended and he and Leila returned to Nebraska for good. Doris and Warren felt the strain of having Leila back in town. Warren could hardly bear to be in the same room with his mother, and she still turned on Doris periodically.

  Howard was at loose ends back in Omaha. Warren set up a partnership, Buffett & Buffett, that formalized the way they had occasionally bought stocks together. Howard contributed some capital, and Warren’s contribution was a token amount of money, but mostly ideas and labor. But Howard looked at going back into the stockbroking business for the third time with dismay. Warren had been tending his old accounts while he served in Congress, but Howard knew that Warren hated it, had never stopped trying to get Ben Graham to hire him, and would leave in an instant if he could go to New York. For his part, Howard missed his true love, politics. He harbored a desire to enter the Senate, especially now that there was a Republican in the White House. Yet his ambitions conflicted with his extreme political views.

  On July 30, 1953—Alice Buffett’s birthday—Susie and Warren’s first child, a daughter, was born. They named her Susan Alice and called her Little Susie, sometimes Little Sooz. And Susie became a passionate, playful, and devoted mother.

  Little Susie was Howard and Leila’s first grandchild. A week later, Susie’s sister, Dottie, gave birth to her second son, Tommy. Within months, Doris became pregnant with her first child, a daughter, Robin Wood. By the spring of 1954, Susie was pregnant with her second child. Now the Buffetts and Thompsons had a new focus—grandchildren.

  A few months later, a moment came when it looked as though Howard’s time might have arrived. On the morning of July 1, 1954, news came from Washington that Nebraska’s senior Senator, Hugh Butler, had been rushed to the hospital with a stroke and was not expected to live. The deadline for entering the primary election that would fill his Senate seat was that very night. Howard’s sense of propriety was such that he refused to file the papers to run until Butler had actually died, so the Buffetts waited anxiously all day for news. They knew that Howard’s name recognition in Douglas County meant that if he ran in a special election without having to go through the party nominating process, even though the party bigwigs were disenchanted with him, the odds were excellent that he could win.

  Word of Butler’s death came in the early evening, after Secretary of State Frank Marsh’s office had closed at its usual five p.m. Howard threw his candidacy filing in the car and he and Leila drove to Lincoln, assuming that they had plenty of time because the deadline was midnight. They tried to file the papers at Marsh’s home, but he refused them, even though Howard had paid the filing fee earlier in the day. Infuriated, they returned to Omaha.

  The state Republican convention was in session at the time, and on the news of Butler’s death, delegates on the floor elected a temporary successor to serve out his term.16 Anyone serving would more or less automatically be elected to Butler’s job in November. As the ranking Republican in the state, Howard was an obvious choice. But he was seen as a zealot, as a guy who tilted at windmills, unyielding on trivial ethical matters and disloyal to his own party for not supporting Eisenhower. Instead, the convention elected Roman Hruska, the well-liked Congressman who had taken Howard’s seat when he retired. Howard and Leila sped back to Lincoln and quickly filed suit with the State Supreme Court to force the party to accept his nomination. But twenty-four hours later, they gave up the futile fight and dropped the lawsuit.

  Warren
was furious when he heard the news about Hruska. “They slit Daddy’s throat from ear to ear,” he said. How dare the party repay Howard’s decades of loyalty this way?

  At fifty-one years of age, Howard had just seen his future disappear. As his anger ebbed, his depression grew. Until now, a retired senior party politician like him would have had a role to play, but he had been shut out of the arena that was the center of his life, that made him feel useful in the world. He tried to get a teaching position at the University of Omaha, which the family felt was reasonable given his business experience and tenure as a Congressman. But Howard was considered such an oddball locally that the school would not hire him, even though his own son taught there and Doc Thompson was dean of the College of Arts and Sciences. He ended up going back to work at Buffett-Falk. Eventually, he found a part-time teaching job as a lecturer at Midland Lutheran College, thirty miles from Omaha.17 The family harbored bitter feelings toward the local establishment, which it felt had essentially run Howard out of town.

  Leila dissolved in a pool of misery. Through the reflected glory it bestowed on her, Howard’s position in the world may have meant even more to her than it did to him. Her sister Edie was now living in Brazil, Bertie lived in Chicago, and her relationships with Doris and Warren were unsettled at best, so she had only twenty-two-year-old Susie to lean on. But Susie was a busy, pregnant young mother, who had her hands full caring for Warren as well.

  And soon, Susie would no longer be in Omaha. For two years, Warren had kept corresponding with Ben Graham. He suggested stock ideas like Greif Bros. Cooperage, a company he and his father had bought for their partnership. He traveled to New York periodically and dropped in on Graham-Newman.

  “I would always try to see Mr. Graham.”

  Surely it wasn’t typical for former students to hang about at Graham-Newman.

  “No, well, I was persistent.”

  By the time the local Republican Party slammed the door to the Senate nomination in his father’s face, Warren was already on his way to New York. “Ben wrote and said, ‘Come on back.’ His partner, Jerry Newman, explained it by saying, ‘You know, we just checked you out a little further.’ I felt I’d struck the mother lode.” Whether he would accept the position was never in question. And this time, the National Guard said yes.

  Warren was so excited about being hired that he arrived in New York on August 1, 1954, and showed up at his new job at Graham-Newman on August 2, a month before his official starting date. There, he discovered that a week earlier, tragedy had struck Ben Graham. Four weeks shy of his own twenty-fourth birthday, Warren wrote his father: “Ben Graham’s son Newton (26) who was in the Army in France committed suicide last week. He had always been a little unbalanced. However Graham didn’t know it had been a suicide til he read it in the New York Times on an Army release, which of course is really tough.”18 When he went to France to collect his son’s remains, Ben met Newton’s girlfriend, Marie Louise Amingues, known as Malou, who was several years older than Newton. He returned a few weeks later but was never quite the same afterward. He also began to correspond with Malou and made periodic visits back to France. But in those days Warren knew nothing of his idol’s personal life.

  Instead, he had to attend to his own, for one of his first tasks was to find his family a place to live. Susie and Little Susie had remained in Omaha during his first month in New York City. “I tried to live at Peter Cooper Village first, one of two big projects built by Metropolitan Life immediately after World War Two. My friend Fred Kuhlken from Columbia lived in Peter Cooper. Walter Schloss lived in Peter Cooper. Everybody wanted to get into Peter Cooper. Under some kind of special section of the law, it was really reasonable, seventy or eighty bucks a month, and very nice. I applied before I went and got a postcard about two years later saying I’d been accepted. If I had been accepted earlier I would have lived in the city.”

  Instead, Warren searched far and wide for a cheap apartment. Discounting the impersonal location and long commute, he finally settled on a three-bedroom apartment in a white-brick building in the middle-class suburb of White Plains, about thirty miles away in Westchester County, New York. When Susie and Little Susie arrived a few weeks later, the apartment was still not ready, so the family moved into a room in a house in Westchester that was so cramped they had to devise a makeshift crib from a dresser drawer. The Buffetts stayed there only a day or two.

  But such were the tales that would later be told about Warren’s frugal habits that this story grew arms and legs and scuttled into the legend that he was too cheap to buy Little Susie a crib, and she therefore slept in a drawer throughout much of her White Plains infancy.19

  As the pregnant Susie unpacked and arranged her new household while taking care of their baby and getting to know the neighbors, Warren rose every morning and took the New York Central train to Grand Central. In that first month, he had parked himself in the file room at Graham-Newman and, eager to know everything about how the company worked, begun to read through every single piece of paper in every single drawer in an entire room filled with big wooden files.

  Only eight people worked there: Ben Graham; Jerry Newman; his son Mickey Newman; Bernie Warner, who was the treasurer; Walter Schloss; two women secretaries; and now Warren. The thin gray laboratory-style jacket Warren had coveted was at last his. “It was a big moment when they gave me my jacket. We all wore them. Ben wore it, Jerry Newman wore it. We were all equal in our jackets.”

  Well, not quite. Warren and Walter sat at desks in a windowless room that contained the ticker machine, the direct lines to the brokerage houses, some reference books and files. Walter sat next to the direct lines and made most of the calls to brokers. Ben, Mickey Newman, or, most commonly, Jerry Newman appeared periodically from their private offices to check a quote on the ticker machine. “We would look up stuff and read. We would go through Standard & Poor’s or a Moody’s Manual and look at companies selling below working capital. There were a lot then,” recalls Schloss.

  These companies were what Graham called “cigar butts”: cheap and unloved stocks that had been cast aside like the sticky, mashed stub of a stogie one might find on the sidewalk. Graham specialized in spotting these unappetizing remnants that everyone else overlooked. He coaxed them alight and sucked out one last free puff.

  Graham knew that a certain number of cigar butts would turn out foul, and thought it futile to spend time examining any individual cigar butt’s quality. The law of averages said most of them were good for a puff. He was always thinking in terms of how much companies would be worth dead—what their assets would be worth if liquidated. Buying at a discount to that value was his “margin of safety”—his backstop against the percentage that presumably would go bankrupt. As a further backstop, he bought tiny positions in a huge number of stocks—the principle of diversification. Graham’s idea of diversification was extreme; some of his positions were as small as $1,000.

  Warren, who had such confidence in his own judgment, saw no reason to hedge his bets this way and inwardly rolled his eyes at diversification. He and Walter collected numbers from the Moody’s Manuals and filled out hundreds of the simple forms that Graham-Newman used to make decisions. Warren wanted to know all the basic information about every company. Once he had looked over the field, he narrowed it down to a handful of stocks worth even more careful study, then concentrated his money on what he considered the best bets. He was willing to put most of his eggs in one basket, as he had done with GEICO. By that time, however, he had sold his GEICO shares, because he never seemed to have enough money to invest. Every decision had an opportunity cost—he had to compare each investing opportunity with the next best one. As much as he liked GEICO, he had made the wrenching decision to sell it after finding another stock that he coveted even more, called Western Insurance. This company was earning $29 a share, and its stock was selling for as little as three bucks.

  This was like finding a slot machine that would come up cherries every time
you played. If you put in twenty-five cents and pulled the handle, the Western Insurance machine was virtually guaranteed to pay at least two bucks.20 Anyone sane would play that slot as long as she could stay awake. It was the cheapest stock with the highest margin of safety he’d ever seen in his life. He bought as much of it as he could, and he cut his friends in on the deal.21

  Warren was a bloodhound for anything free or cheap. With his prodigious ability to absorb numbers and to analyze them, he quickly became the fair-haired boy of Graham-Newman. It came so naturally to him; Ben Graham’s cigar butts resembled his old hobby of stooping at the racetrack for cast-off winning tickets.

  He paid close attention to what was going on in the back where the partners—Ben, Jerry, and Mickey—worked. Ben Graham was on the board of Philadelphia and Reading Coal & Iron Company, and Graham-Newman controlled the company. Warren had discovered this stock on his own, and by the end of 1954 he had put $35,000 into it. His boss would have been appalled, but Warren was confident—and eavesdropped with fascination.22 Philadelphia and Reading—which sold anthracite coal and owned the supposedly valuable culm banks—actually wasn’t worth much as a business. Over time, it was going nowhere. But it was throwing off extra cash, which it could use to transform itself into a better business by buying another company.

  “I was just a peon sitting in the outer office. A guy named Jack Goldfarb came in to the office to see Graham-Newman. He negotiated with them and they bought the Union Underwear Company from him for Philadelphia and Reading Coal and Iron, creating what became Philadelphia and Reading Corporation.23 That was the beginning of the company’s transformation into something more diversified. I was not in the inner circle, but I was terribly interested, knowing something was going on.”