The Snowball

by Alice Schroeder

  On the dingy walls above her head hung some framed newspaper clippings, reminders of the 1929 Crash. Dented metal furniture, along with an old ticker machine, furnished the offices. Down the short linoleum hallway beyond Gladys sat the other people who knew how to interpret Buffett’s signals and signs. To the left was Bill Scott’s little office, where he barked “Hurry up, I’m busy!” at the brokers to execute Buffett’s trades. Down the hallway to the right, in a workroom packed with files and the small refrigerator Gladys kept filled with Pepsi bottles, part-time bookkeeper Donna Walters plied her trade, meticulously keeping the partnership’s records and preparing its tax returns.2 Just past Walters sat John Harding, managing the partners’ and the partnership’s affairs. Straight ahead behind Gladys was Buffett’s own realm, furnished with a couple of reclining armchairs, a desk, and a litter of newspapers and magazines. Its most prominent feature was the large portrait of Howard Buffett on the wall across from his desk.

  Warren arrived every morning, hung up his hat, and disappeared into his sanctuary to read the papers. After a while he emerged and told Gladys, “Get me Charlie.” Then he shut the door, got on the phone, and spent the rest of the day swiveling between the phone and his reading, spelunking for companies and stocks to buy. Once in a while he would reappear and tell Bill Scott about a trade.

  With the stock market high, Scott was less busy these days. Buffett, his pockets full of the money that National Indemnity produced, was delving for entire businesses, since their prices were less subject to the whim of investors. He had discovered the Illinois National Bank & Trust, one of the most profitable banks he had ever seen, run by seventy-one-year-old Eugene Abegg in Rockford, Illinois. Buffett wanted the crusty Abegg as part of the deal. Abegg resembled Ben Rosner, who had counted sheets of toilet paper. Buffett talked to Abegg about a few things he wanted to change in the business, then said, “I’ve dropped all the shoes. I’m not a centipede. If you want to go ahead, fine, and if not, then we’re still friends.”

  “Gene had already made a deal to sell the bank to somebody else. But the buyer had started criticizing it, or they wanted an audit and he’d never been audited and he wanted out. He was pretty dominant, and everything he did was unbelievably conservative.

  “He carried around thousands of dollars of cash in his pocket, and he cashed checks for people on the weekends. He carried a list of the numbers of unrented safe-deposit boxes with him everywhere and would try to rent you a safe-deposit box at a cocktail party. Mind you, this is the biggest bank in the second-largest city in Illinois at the time. He set every salary and paid every employee in cash, so the head of the trust department did not know how much his own secretaries made. So I went out there, and I named a number that turned out to be about a million dollars less than the other guy. And Gene, who owned a quarter of the stock, called up his biggest shareholder, who owned more than half the stock, and said, ‘This young guy from Omaha’s come here and offered this. I’m tired of those guys at XYZ Company. If you want to sell to them, then you come run this bank, because I won’t.’”

  Sure enough, Abegg accepted his offer. And doing business with him cinched Buffett’s instinct that strong-willed and ethical entrepreneurs often cared more about how they and the companies they had built were going to be treated by the new owners than about grabbing the last nickel in a sale.

  The Illinois National Bank, which Buffett soon came to refer to by its colloquial name of Rockford Bank, had been chartered in the days before the U.S. Treasury assumed the exclusive right to coin money. Buffett was fascinated to discover that it still issued its own currency. The ten-dollar bills featured Abegg’s picture. Buffett, whose net worth was now more than $26 million, could have bought almost anything he wanted, but not this. Gene Abegg had done him one better. He and the United States Treasury had the privilege of issuing their own currency, but not the Buffett Partnership or Berkshire Hathaway.3 The idea of legal tender with your own picture on it captivated him. He began carrying a Rockford bill in his wallet.

  Heretofore, Buffett had not wanted his picture on a bill or anywhere else. He had more or less shunned the spotlight while managing the partnership. True, a few more stories and photographs of his family had found their way into the local paper than might be expected of someone who wanted privacy.4 Nevertheless, except for his letters to the partners, he had gone through the sixties with his lips sealed—he didn’t want anyone coattailing him. He didn’t talk about how he invested and he didn’t broadcast his results, in contrast to the flash and razzle-dazzle shown by other money managers of the era, whose self-promotion propelled them to nearly instant fame.

  Even when the opportunity to promote himself arrived on his doorstep, he hadn’t used it. A few years earlier, John Loomis, a securities salesman, visited Buffett at Kiewit Plaza. Loomis’s wife, Carol, wrote the investing column for Fortune magazine. She had once interviewed a money manager named Bill Ruane, who told her that the smartest investor in the United States lived in Omaha. Some time later, her husband arrived at the pale monolith of Kiewit Plaza and made his way upstairs to the 227½-square-foot space that looked nothing like the office of one of the richest men in town.

  Buffett took him over to the restaurant at the Blackstone Hotel across the street, where he downed a strawberry malt and told Loomis what he did. Loomis talked about his wife’s job as a journalist, and Buffett found that interesting. He said that if he had not become a money manager, he would have pursued journalism as a career.5

  Warren and Susie met with the Loomises when they were in New York not long after. “They got us a special little room someplace where we had lunch,” Buffett says. The well-connected young money manager from Omaha with the stellar track record and the ambitious reporter for Fortune found they shared many attributes: a zeal for unmasking the flimflam of fat cats, a magpie obsession with minutiae, and a streak of competitiveness as long as the interstate from New York to Omaha. Carol Loomis was a tall, athletic-looking, no-nonsense woman with short brown hair who tolerated shoddy journalism about as well as Buffett tolerated losing money, and she was a punctilious editor. They began to correspond and she ushered him into the world of big-league journalism. He began helping her with her story ideas. “Carol very quickly became my best friend other than Charlie,” he says.6 At first she did not publish anything about Buffett.

  By the late 1960s, however, the rising market had made investing in stocks less viable for the partnership. The advantage of a higher profile when trying to buy entire businesses began to outweigh the advantage of secrecy in buying stocks. And thus it was in the late 1960s that Buffett’s longtime interest in newspapers and publishing came together with his newly recast investing goals and his desire for personal attention in a way that would fundamentally change his world.

  Before long, Buffett was immersed in the black-and-white world of journalism. Page by page, newspapers fell to cover the litter of financial reports from the publishers of newspapers and magazines that lay scattered on his desk. When he went to sleep, more newspapers—pulled from a bundle and folded into tidy packets—flew through his dreams. On his most restless nights, he dreamed of oversleeping his childhood paper route.7

  Buffett’s fortune had grown large enough for him to afford the purchase of a newspaper or a magazine, or both. His dream was to be not just an investor but a publisher—to have the influence that went with owning the means through which the public learned the news. Around 1968, he and some friends tried to buy the entertainment newspaper Variety, but this came to naught.8 Then another acquaintanceship bore fruit. Stanford Lipsey was a friend of Susie’s who liked to go to clubs with her and listen to jazz. One day, he showed up in Warren’s office and said he wanted to sell the Omaha Sun Newspapers. Buffett was immediately interested; he had already tried to buy it once.

  The Sun was a chain of weekly neighborhood newspapers that Stan and Jeannie Blacker Lipsey had inherited from her father. It published seven editions in the Omaha suburbs; its meat-and-p
otatoes stories were the police blotter, local society news, neighborhood business doings, high school sports—and gossip about who was going steady with whom, which made it a must-read for both parents and kids. Although the Sun was the underdog in Omaha, its editor, Paul Williams, specialized in investigative journalism, and competed by publishing stories that the leading paper, the Omaha World-Herald, missed, often stories that exposed the follies and misdeeds of city bigwigs, stories that would offend major advertisers of the World-Herald. Usually these advertisers shunned the Sun.

  Despite his own elevation to the Omaha establishment, Buffett took a particular interest in the muckraking aspect of the Sun. Ever since collecting license-plate numbers to catch bank robbers, he had wanted to play the cop. And “he’d always had this huge admiration for newspapers,” Lipsey says. “I recognized intuitively that Warren understood the role of newspapers in our society. There was a new highway about to come through my plant, and I would have had to borrow a whole lot of money to buy a new press. I didn’t like the Sun’s business prospects, but I knew that Warren had enough money that the journalism wouldn’t suffer because of the economics. In twenty minutes, it was done.”

  “I figured we’d pay a million and a quarter for it and take out a hundred thousand a year,” Buffett says. This return was eight percent, about as much as a bond would provide—less, far less, than he expected to earn on a business or a stock, and the long-term outlook suggested that return would decline, not increase. But the partnership’s money was lying fallow, and he really wanted to be a publisher. “Part of my deal,” Lipsey says, “was that, even though the partnership was closed, he had to take me in.” Buffett wanted the Sun so much that he agreed even though he knew he was beginning to consider shutting the partnership down.

  Berkshire Hathaway became owner of the Omaha Sun Newspapers on January 1, 1969. But this little neighborhood newspaper was only a beginning; Buffett wanted to be a publisher on a national scale. Joe Rosenfield introduced him to West Virginia’s Secretary of State Jay Rockefeller, whom Rosenfield considered a rising political star. Soon, the Buffetts were hosting the Rockefellers for dinner in Omaha; Rockefeller, in turn, introduced Warren to Charles Peters, an idealist whose start-up magazine, the Washington Monthly, seemed like the right national voice to express viewpoints on important ideas. Buffett talked to Gilbert Kaplan, who ran Institutional Investor magazine, to get a handle on magazine publishing.9 Then he wrote to Rockefeller: “You have found my Achilles’ heel. I am a pushover for publishing deals—when I like the product…. I might mention that my enthusiasm for publishing adventures is in exact inverse proportion to my calculated assessment of their financial probabilities.”10

  Buffett introduced Fred Stanback and Rosenfield to the idea of investing in the Washington Monthly, warning them that it was unlikely to be a financial table-pounder. But the scandals it might uncover—the ideas it could promote—the minds it could awaken—the exposés it could expose! They put in a little money.11

  In short order, the Washington Monthly ran through its initial capital stake. Buffett held out the possibility of another $50,000. Then he and Peters had a fifty-minute phone conversation. And, “Oh God,” says Peters. “As an investment it reeked of the potential for failure. There was his instinct as a hard businessman, and his philanthropic, good-citizen instinct on the other side, and they were clearly at war. He was worried about his business reputation and would come within an inch of pulling out, and I would slowly try to pull him back. Warren kept finding new plausible escape routes, and I tried to block the exits. But the glorious thing was, he ended up staying in.”12 Buffett added the condition that the editors had to put in some of their own money while Peters raised some outside, which Buffett said he would match eighty percent.13

  Peters was a better journalist than an accountant. They raised the money; the checks went out; then nobody heard from the Washington Monthly for months. “They just vanished,” says Buffett. “Fred Stanback complained that he was getting IRS forms late, and had to amend his tax returns.”14 Although the Washington Monthly was indeed putting out strong stories—as Buffett had wanted—it wasn’t enough. He had known from the beginning that it would not make money, but he thought it ought to be accountable for the money that it had. He was embarrassed at having drawn Stanback and Rosenfield into a bear hunt. The investors felt they were being treated like bank tellers. Buffett wanted to be a partner in journalism, a fellow newshound, not just the guy who bankrolled idealism.

  Yet even with mixed results, Buffett was now pursuing the personal concerns of which he had spoken in his October 1967 letter to his partners. Meanwhile, the market continued to dry up and deprive him of opportunities. Spending part of his time as a publishing magnate was no help in adjusting to that reality. Whatever else occupied him, he remained wholly committed to the partnership, too, and it turned out that a “less compulsive approach” to investing was not in his nature. So he started to figure out the best way to wind down the partnership. He says he received offers from a couple of people to buy the management firm, which would have meant the opportunity to sell at a large profit, but he thought this was not right. It was unusual for a money manager to forgo a large sum of money, even in those days, and so far, Buffett had shown no inclination to avoid getting richer. But he had always stayed on the same side as his partners, harnessing his avarice to their benefit as well as his own. Around Memorial Day 1969, Buffett wrote the partners to tell them that simply lowering his goal hadn’t lessened his intensity:

  “If I am going to participate publicly, I can’t help being competitive. I know I don’t want to be totally occupied with outpacing an investment rabbit all my life. The only way to slow down is to stop.”15 And then he delivered his bombshell: He announced he would be giving his formal notice of retirement by year-end and closing down the partnership in early 1970. “I am not attuned to this market environment, and I don’t want to spoil a decent record by trying to play a game I don’t understand just so I can go out a hero.”16

  What would he do now?

  “I don’t have an answer to that question,” he wrote. “I do know that when I am sixty, I should be attempting to achieve different personal goals than those which had priority at age twenty.”17

  The partners howled with disappointment, and a few with fear. Many were naïfs, like his aunt Alice. They were ministers, rabbis, schoolteachers, grandmothers, and mothers-in-law. His announcement amounted to a market call on stocks. He did not think the game would be worth playing anytime soon. He had taught even the inexperienced to be wary of an overheated market. Some trusted no one other than him. But “he just didn’t want to operate in an environment where he didn’t feel comfortable with the opportunities,” says John Harding, “especially when it was something that he felt he had to devote all his time to.”

  Susie Buffett was happy that Warren was shutting down the partnership, at least for the kids’ sake. They cared desperately what their father thought of them. Susie Jr. had always gotten most of what little attention Warren provided, and Peter felt rewarded for being quiet and staying in the background. But fourteen-year-old Howie, who had always sought some emotional connection to his father that was never forthcoming, had grown wilder as he grew up. Susie Jr. would find a pair of mannequin legs covered with fake blood sticking out of her closet. He climbed on the roof in the gorilla costume to spy on her when she came home from dates and drenched her with the sprayer from the kitchen sink when she appeared in her prom dress. When their parents were in New York City, Howie seized the chance for an experiment in anarchy.18 Warren, still relying on Susie for everything, assumed she would take care of whatever Howie and the other kids needed. But by now, Susie herself had stopped trying to control her children. And she had long since let go of any idealistic expectations regarding her marriage. Her attention was increasingly taken up by an expanding number of “vagrants,” as one friend put it, who wandered through the house, sought her help, and occupied her time.19r />
  Since she almost always accepted people unconditionally, some of those “clients” had pasts as felons, con men, addicts, or, in one case, as the purported proprietor of a bawdy house. From time to time these people conned her out of money. She didn’t really mind. Buffett was infuriated at the thought of being cheated himself, but he had eventually come to think of this as part of Susie’s giveaway budget and even accepted it as part of her charm.

  Her large group of women friends continued to expand: Bella Eisenberg, Eunice Denenberg, Jeannie Lipsey, Rackie Newman, and others. Though Warren recognized who most of them were, this was Susie’s circle, not his. Other ties of hers, people like Rodney and Angie Wead, came from the activist community; another set of friends centered around the tennis courts at Dewey Park. And there was always the family: Leila, especially now that Roy Ralph had died and she had taken back the Buffett name; Fred and Katie Buffett and their son Fritz, who had married Warren and Susie’s former babysitter, Pam—also, of course, a friend of Susie’s now. Her nephews Tom and Billy Rogers were often around, as was another guitarist from the local music scene whom she had met through Billy, David Stryker. Like the Rogers boys and Dave Stryker, a number of Susie’s friends were younger: She was close to Renee and Annette Gibson, daughters of the baseball player Bob Gibson and his wife, Charlene. Several of the black students to whom she had given scholarships had come under her wing and wandered in from time to time: Russell McGregor, Pat Turner, and Duane Taylor, son of the jazz great Billy Taylor. And so it went.