Buffett said no. It was all or nothing.39
Otis Stanton’s two thousand shares pushed Warren’s ownership to forty-nine percent of Berkshire Hathaway—enough to give him effective control. With the prize within his grasp, he met Ken Chace one April afternoon in New York and walked him out to the teeming plaza at Fifth Avenue and Central Park South, where he sprang for two bars of ice cream on a stick. Within a bite or two he got to the point, saying, “Ken, I’d like to have you become president of Berkshire Hathaway. How do you feel about that?” Now that he controlled the company, he said, he could change the management at the next directors’ meeting.40 Chace, who was stunned to be selected despite the hints Rubin had given him when he convinced him not to take another job, agreed to keep quiet until the board meeting.
Not realizing that his fate had been decided, Jack Stanton and his wife raced down from New Bedford to meet Warren and Susie at the Plaza Hotel for breakfast. Kitty Stanton, more aggressive than her husband, pled Jack’s case. Reaching for an argument that would appeal to the Buffetts, Kitty threw in what she must have thought was the clincher. Buffett surely would not overturn New England’s hereditary mill aristocracy, who had overseen the business for generations, to put a mill rat like Ken Chace in charge. She and Jack fit in at the Wamsutta Club. Kitty, after all, was a Junior Leaguer, like Susie.41
“She was a nice enough person. But I also got the impression that she felt Jack was entitled to it because of his dad. Part of her appeal was that Ken Chace really wasn’t in the same class as Jack Stanton and she and Susie and I were.”
Poor Kitty, making this pitch to a man who so disdained hierarchy that he had refused to join Ak-Sar-Ben and thumbed his nose at the establishment of Omaha.
It was too late for Jack. It was too late for Seabury, who ruled by autocracy and had no friends on the board. Even his own chairman, Malcolm Chace, did not like him. Thus, when backers of Buffett arranged for him to be nominated to the board at a special meeting, on April 14, 1965, he was swiftly elected a director with much of the board’s support.42
A few weeks later, Buffett flew into New Bedford, where he was greeted by a headline in the New Bedford Standard-Times about “outside interests” taking over the company.43 The planted story infuriated him. The one lesson that had stuck with him from Dempster was to never, ever let himself be branded a liquidator—and wind up with a whole town hating him. Buffett vowed to the press that he would carry on business as usual. He denied that mill closings would result from the takeover—and saddled himself publicly with this commitment.
On May 10, 1965, the board convened at Berkshire’s headquarters in New Bedford. It presented a silver tray to the retiring vice president of sales, approved the minutes of the last meeting, and agreed to increase wages five percent. Then the meeting turned surreal.
Seabury, his nearly bald seventy-year-old head speckled with age spots, claimed that he had planned to retire in December to let Jack succeed him. But, he said, he could not continue as president “of an organization over which he would not have complete authority.”44 With as much hauteur as his character allowed him—which was considerable, despite the mutineers having taken over the ship—Seabury made a little speech, commending himself for his accomplishments. Then he tendered his resignation, and the board accepted it. Jack Stanton added a bitter little coda, saying that, had he become president in December, he was certain that it would have meant “continued success and profitable operations.” The board listened patiently, then accepted his resignation as well.
At that point, Jack Stanton put down his pen and stopped taking the minutes in which these two speeches had been recorded, and the two Stantons stalked out of the room. The board paused, and sighed with relief.
Moving quickly on, the board elected Buffett chairman and confirmed Ken Chace in his new job running the doomed company that Buffett—in a moment of folly—had exerted such strenuous effort to acquire. A few days later, he explained his thinking on textiles in a newspaper interview. “We’re neither pro nor con. It’s a business decision. We try to assess a business. Price is the big factor in investment. It determines the decision. We bought Berkshire Hathaway at a good price.”45
He would later come to revise that opinion.
“So I bought my own cigar butt, and I tried to smoke it. You walk down the street and you see a cigar butt, and it’s kind of soggy and disgusting and repels you, but it’s free…and there may be one puff left in it. Berkshire didn’t have any more puffs. So all you had was a soggy cigar butt in your mouth. That was Berkshire Hathaway in 1965. I had a lot of money tied up in the cigar butt.46
“I would have been better off if I’d never heard of Berkshire Hathaway.”
28
Dry Tinder
Omaha • 1965–1966
The dynamics changed one hundred percent when my father died,” says Doris. “Everything went flying into space. My father was the linchpin of our family. The center was gone.”
Leila had endured multiple losses over recent years. Her mother, Stella, had died in 1960 in Norfolk State Hospital, and her sister Bernice had died a year later of bone cancer. Without Howard, she had to find a new sense of purpose, and she became dependent on Warren and Susie and their family. The grandchildren went to her house on Sundays, where she gave them bags of candy to eat during church, then took them to lunch afterward and gave them money if they could add up the bill correctly. In the afternoons, she took them to Woolworth’s to buy a toy to play with at her house. Like Howard, who had once paid his children to go to church, she found a Buffettesque solution to the problem of her loneliness—making deals with the grandchildren so that they would stay with her as long as possible.
Howard’s presence was what had always made being with Leila tolerable to Doris and Warren. Without him, both found visits with their mother unbearable. Warren trembled when forced to be in proximity to her. At Thanksgiving, he took a plate, went upstairs, and ate dinner by himself. Leila continued to erupt in occasional fits of rage. For decades, her bizarre behavior had been aimed only at family members, though once she leaped out of the car in a parking lot and spent an hour screaming at an acquaintance over some trivial matter, as Big Susie and Howie looked on in astonishment. But Doris, who had idolized her father even more than her brother had, was still her main victim. Doris had always felt she had let the whole family down with her divorce from Truman. The contrast between Warren and Susie’s successes and her own life as a divorcée at a time when divorce was still rare only reinforced her lingering feelings of worthlessness. Shortly before his death, Howard had told her that she must remarry to provide a father for her children. So she did, to George Lear, the first person who asked her.1 He was a lovable man; but Doris felt coerced into remarrying, which augured poorly for the union’s prospects.
Bertie, always the least troubled by her mother’s behavior and the least dependent on her father, now found her life the least changed by her father’s death. Like Warren, however, her relationship with money both triggered her anxieties and gave her a sense of control. She kept records of every dollar she spent, and when she felt stressed she paid bills to relax.
All of the Buffetts had “issues” with money that ran so deep none of them really noticed what an unusual family they were. After Howard’s death, Warren and Susie naturally assumed leadership of the family—partly because of their money, but also through the force of their personalities. Leila and Doris and Bertie looked to Warren and Susie for support, and so did virtually everyone else. Warren’s uncle Fred Buffett and his wife, Katie, who now owned the grocery store, gave Warren a run for his money in the family’s cheapskate contest. They were especially attached to Warren and Susie, and grew more so as their nephew’s stature and wealth increased. Leila, who had always been jealous of her sister-in-law, fixated on an incident many years before in which Ernest had danced with the vivacious Katie and not her at a Rotary Club dance. Now she grew even more jealous of Katie, and Susie—who was trust
ed by everyone—had to juggle visits to separate them. Given all the work to separate Leila from Warren and from Katie, Susie was an expert juggler by the time she had nursed Howard through his final illness. Perhaps it was not surprising, therefore, that Warren’s aunt Alice, his favorite relative since childhood, had grown to trust Susie more than anyone else in the family except him.
So it was Susie, not Leila, whom Alice tracked down one Monday in late 1965. Susie was at the beauty parlor with Doris when the call came. She got out from under the dryer to go to the phone at the front desk; Alice explained that she was concerned about Leila’s sister Edie, who had called her on Sunday to say she was feeling extremely depressed. Alice, a fellow teacher, had taken Edie for a drive and talked to her, and they had stopped for ice cream. Edie idolized Warren and Susie and Alice, indeed all the Buffetts; she confided that she felt she had disgraced the perfect family with her imperfect life.2 Her impulsive, high-spirited marriage had not worked out; the husband she had followed to Brazil had turned out to be a philandering embezzler who left her there for someone else. Since returning from Brazil, she had found it hard adjusting to life as a divorced single mother of two daughters in Omaha.
Alice told Susie that today Edie hadn’t shown up at Technical High School to teach her home economics classes. Worried, Alice had gone over to Edie’s apartment. Nobody answered when she rang and knocked. Alice told Susie that she feared that something had happened.
So Susie raced out the door to her gold Cadillac convertible, with her rollers still in her hair, drove over to the garage apartment where Edie lived, and started knocking and ringing herself. When nobody answered, she got inside somehow and began to search. She found no sign of anybody; the place was immaculate. There were no notes or messages and Edie’s car was there. Susie continued searching until she reached the basement of the house, and there she found Edie. She had slit her wrists, and was already dead.3
Susie called an ambulance, then had to break the news to the family. No one had known that Edie was this depressed, and nobody had seriously considered her a possible victim of the Stahl family’s history of mental instability until now.
Those whom Edie had left behind worked through a complex web of feelings: guilt that she had been so desperate without their realizing it; pity that she may have seen herself as so inferior to the Buffetts; grief at the loss. Warren, Doris, and Bertie were shaken and sad at the loss of a kind, loving aunt whom they had been extremely fond of since childhood.
There is no telling what Leila, sixty-two years old, felt at her sister’s death. But why should Leila—who always did feel put upon—feel any different than other survivors of those who commit suicide, who normally experience anger and abandonment, along with other emotions? At the very least, Edie’s death meant that Leila was the last remaining member of her immediate family; Edie had also taken away the opportunity to repair their strained relationship. And yet another of the Stahls had embarrassed the Buffetts, this time by stigmatizing the family with suicide. Whatever Leila did feel, less than a month later she abruptly married Roy Ralph, a pleasant man twenty years her senior who had been pursuing her since Howard’s death. Until now she had refused his proposals. Her relatives had listened with numb boredom throughout her widowhood as she ceaselessly invoked the past and the 38½ wonderful years with Howard. Thus she stunned them all when she reversed herself—and changed her name to Leila Ralph. Some of them thought she was out of her mind, and conceivably she was, at least temporarily. Howard, who had remained an invisible but constant presence since his death less than two years before, now went unmentioned at family gatherings for the sake of politeness, while his children adapted uneasily to a new stepfather who was in his eighties.
Susie, meanwhile, was taking on more obligations than ever, not just in the family but in the community. She began to press Warren to call a halt to his continuing obsession. The Buffett Partnership was stuffed like a Thanksgiving turkey by American Express. It ended 1965 with assets of $37 million, including more than $3.5 million in profit on this one stock, which had risen to $50, then $60, then $70 per share. Warren had earned more than $2.5 million in fees, bringing his and Susie’s stake in the partnership to $6.8 million. He was thirty-five years old. The Buffetts were among the very rich by the standards of 1966. How much money did they need? How long did he have to keep going at this pace? Now that they were so rich, Susie thought they should do more for Omaha.
In 1966 she glowed with the fire of a woman who had found her cause in life. She had become close to leaders of the black community and was all over Omaha, brainstorming, coordinating, cajoling, publicizing, working on behind-the-scenes relationships in a town where racial tensions were reaching the point of violence. Every summer now in the nation’s major cities, race riots flared after minor incidents involving the police. Martin Luther King Jr. had issued a call the previous year: Desegregating workplaces and public facilities wasn’t enough; segregated housing had to be eliminated. The idea terrified many whites, especially after riots in the Watts neighborhood of Los Angeles, which had turned into a war zone of arson, sniping, and looting in which thirty-four people were killed. Similar uprisings had taken place in Cleveland; Chicago; Brooklyn; Jacksonville, Florida; and other smaller towns.4 During a fifteen-day heat wave in July 1966, riots erupted in Omaha; the governor called out the National Guard, blaming the riots on “an environment unfit for human habitation.”5 Susie now made the elimination of segregated housing in Omaha her central cause. She tried to involve Warren in some of her community and civil-rights work, and he complied, but he was not much for committees. In the 1960s Buffett generally rolled over sapheads without even commenting. “I got involved in half a dozen of these things. It’s just the nature of it; if people focus their whole lives on one thing, they get a little obsessed after a while. And Susie would always see it coming with me—I would be sitting with these guys and she could see the look on my face as they went off into the wild blue yonder.”
Committee meetings also gave him a “splitting headache,” according to Munger; his way, therefore, was to let other people sit on the committees while he fed them ideas. Warren was far from indifferent to social and political causes, however. He had become deeply concerned about the potential for nuclear war—a vivid and seemingly impending threat in the early 1960s, since President Kennedy had urged families to build fallout shelters in order to survive a nuclear attack and the United States had barely averted a nuclear war after a standoff between Kennedy and Khrushchev over the removal of Soviet missiles from Cuba. When Buffett discovered philosopher Bertrand Russell’s 1962 antinuclear treatise, Has Man a Future?, it affected him powerfully.6 He identified with Russell, admired his philosophical rigor, and frequently cited his opinions and aphorisms. He even kept a small plaque on his desk quoting a phrase from an influential antinuclear “manifesto” on which Russell had collaborated with Albert Einstein: “Remember your humanity, and forget the rest.”7
But it was the antiwar movement that had taken on more urgency in Buffett’s mind after Congress passed the Gulf of Tonkin Resolution in 1964, authorizing President Johnson to use military force in Southeast Asia without formally declaring war, using an alleged but unproven naval attack against a U.S. destroyer as the pretext to attack North Vietnam. Young men were burning their draft cards, going to jail, and fleeing to Canada to avoid the draft. Hundreds of thousands took to the streets all over the world to protest the war escalation; they marched in New York City on Fifth Avenue, in Times Square, and at the New York Stock Exchange; in Tokyo, London, Rome, Philadelphia, San Francisco, Los Angeles, and elsewhere.
Warren was not an ideological pacifist like many of those who were marching, nor an extreme isolationist like his father, but he did feel strongly that the war was wrong, and that U.S. involvement in it was based on deception—especially troubling for a man who placed such a high value on honesty.
He started asking speakers over to the house to talk to his friends about it. On
ce he brought an antiwar speaker from as far away as Pennsylvania.8 He himself, however, was not going to march against the war.
Warren had strong views about specialization; he defined his special skills as thinking and making money. When asked to donate, his first choice, always, was to donate ideas, including ideas that would get other people to give money. But he would also give money himself—not a lot, but some—to politicians and to Susie’s causes. He never labored in the trenches stuffing envelopes; volunteering directly for causes, no matter how urgent and important, would consume time he felt was more efficiently spent thinking of ideas and making more money to write bigger checks.
Many people in the 1960s felt a burning desire to tear down the Establishment that had created the war and operated the “military-industrial complex”—a desire to avoid “selling out” to “the Man.” For some, therefore, social consciousness clashed with the need to make a living. Warren, however, saw himself as working for his partners, not for “The Man,” and as someone whose business acumen and money helped the civil rights and antiwar causes. So he could focus on his business with a sense of dual purpose, and felt no inner conflict about how he spent his time.
The conflict he was beginning to feel was a struggle to find investments for the partnership. During the past year he had put money into safe but increasingly scarce cigar butts like his old favorite Philadelphia and Reading, and Consolidation Coal. He had managed to find some of the few undervalued stocks that still paraded through the Standard & Poor’s weekly report: Employers Reinsurance, F. W. Woolworth, and First Lincoln Financial. He’d also bought some stock in Disney after meeting Walt Disney and seeing the entertainment showman’s singular focus, his love of his work, and the way these had translated into a priceless catalog of entertainment. But the concept of “great businesses” had not entirely sunk in, and he didn’t load up. Of course, he’d continued to cobble together a bigger and bigger stake in Berkshire Hathaway. But he had also built a $7 million “short” position in stocks like Alcoa, Montgomery Ward, Travelers Insurance, and Caterpillar Tractor—borrowing the shares and selling them as a hedge against the risk that the market would plunge.9 When investors changed their minds, stocks often dropped like doves thwacked full of bird shot in midflight. He wanted the protection for the partners’ portfolio.
The Snowball Page 36