“We thought it had uncapped pricing power. See’s was selling candy for about the price of Russell Stover at the time, and the big question in my mind was, if you got another fifteen cents a pound, that was two and a half million dollars on top of four million dollars of earnings. So you really were buying something that perhaps could earn six and a half or seven million dollars at the time, if just priced a little more aggressively.”
They had to negotiate to buy the company from two people: first, Charles B. See—or “Candy Harry,” as Buffett, Munger, and Guerin called him—who was managing the estate of his recently deceased older brother, Larry See. The two brothers were partners, but Larry had run the business.
“Candy Harry really didn’t want to run See’s. He was interested in wine and girls. He wanted to chase after girls. But, of course, he got cold feet about selling at the last minute. Rick and Charlie went to see him, and Charlie gave one of the great lectures of all time on the advantages of grapes and girls, how the highest and best use of Candy Harry’s time was chasing after women.”
The other person involved was “Numbers Harry,” Harry W. Moore, the company’s finance chief and a director. Through its lawyers, Blue Chip set about courting Numbers Harry through the financial advantages of the deal, while suggesting to Candy Harry that a sale would relieve him of potential conflicts of interest that arose from serving as his brother’s executor.28
At the price Blue Chip offered, $25 million, the $4 million it was earning pretax would give Buffett and Munger payback of nine percent after-tax on their investment from the first day they bought it—not factoring in future growth. Adding in the $2 to $3 million of price increases they thought See’s could institute, the return on their capital would rise to fourteen percent: a decent level of profitability on an investment, although it wasn’t a sure thing. The key was whether the earnings would continue to grow. Buffett and Munger came close to walking. The pickings had been so easy until now, and they had such an ingrained habit of underbidding, that it was like swallowing live guppies for them to pay the asking price.
“You guys are crazy,” Munger’s employee Ira Marshall said. “There are some things you should pay up for—human quality, business quality, and so forth. You’re underestimating quality.”
“Warren and I listened to the criticism,” says Munger. “We changed our mind. In the end, they came to the exact dollar limit of what we were willing to pay.”29
While the deal was being struck, Buffett discovered that Tweedy, Browne already owned a thousand shares of See’s. Buffett ordered the firm to tender its stock to him. The Tweedy, Browne partners knew how valuable See’s was and thought the price was too low. They resisted and debated the issue briefly with Buffett. They did not see why they should give him their See’s stock. He insisted he needed the stock more than Tweedy, Browne did. Buffett won. They gave him the stock.30
The instant that the deal was inked and the trio of Buffett, Munger, and Guerin joined the board, Buffett threw himself into the candy business with an enthusiasm he had never displayed with companies like Dempster and Berkshire Hathaway, where he had appointed proxies. He sent boxes of See’s to his fellow Grahamites. Within days, he wrote a detailed letter to Chuck Huggins, executive vice president, explaining that he had been talking to shopping-center owners around the country about opening new See’s stores in locations like Colorado Springs, Fayetteville, and Galveston. He suggested that Huggins avoid Iowa, because the shopping-center executives had told him that “Iowans are generally not candy enthusiasts.”31 He gave Huggins permission to stop sending monthly boxes of candy to the long list of women whom Candy Harry had designated as his special friends. He started following sugar futures and cocoa futures, which at 58 cents a pound were approaching prices unheard of since the year of the Rockwood cocoa caper.32
Buffett suggested experimenting with prepackaged candy. He wanted to see results, budgets, and lots and lots of financial information. He wrote Huggins about a store in Las Vegas: “It’s interesting how many more dollars we can take out of a community when we get the right sort of location. You are doing a first-class job of extending our ring of preeminence.” Buffett suggested that Huggins “play around with” advertising slogans and try to come up with one along the lines of Coca-Cola’s “pause that refreshes,” or the “Rocky Mountain spring water” of Coors beer.33 It was as if, over his breakfast cornflakes, Huggins could dream up an advertising slogan as compelling as Coca-Cola’s.34 One longtime employee described Buffett’s Dale Carnegie management style this way: “He’d always praise you while he gave you more to do.”35
As the bar subtly rose an inch or two with each new accomplishment, and the hurdler was reassured that he could surely leap to ever-higher heights, the effect was like a tiny stream of water: Its gentle, unrelenting pressure felt wonderful until it finally drove its recipient mad. Thus, when Buffett’s attention broke, as it inevitably did, it could seem like a relief. Deceived by the initial gush of enthusiasm, Huggins signed up Buffett for several candy-industry trade magazines. Eventually, Buffett, turning his attention to some newer interest, asked for a cease-and-desist. “Charlie may have visions of becoming a candymaker someday,” he wrote, “but I will continue to just read the statements.”36 He had discovered that he liked owning a candy company, not running one.
It was much the same at home. Buffett would tell someone with great sincerity, “Please come visit, I really want to see you,” then bury his head in a newspaper when they arrived, apparently satisfied with their presence. But there was also the odd chance that he wanted to talk and talk, and they might go away exhausted. Susie had seen his enthusiasms come and go.
Warren was still besotted with his wife, praised her constantly in public, and cuddled her on his lap. But at home, as always, he withdrew into his private pursuits and wanted to be taken care of. Susie referred to him as an “iceberg” to one of her friends. However, nothing had really changed in their relationship since the beginning—except her feelings. He was content. He reasoned that because she loved to give, by receiving he served her. Based on their past and her behavior with people in general, and with him in particular, there was no reason for him to think otherwise. But Susie’s own desires were changing. She, the emotional vending machine, was now taking care of many more people than Warren alone; recently she had watched over Alice Buffett as she succumbed after a painful battle with cancer. Yet this time, Susie was developing a yearning to be taken care of herself.
Thus, while her husband pursued his new businesses away from Omaha or sat sunk in thought in his office, Susie spent less and less time at home, going to lunch, to dinner, or to jazz clubs in the evening with friends, and traveling more widely. She now had a number of new friends much younger than she. They admired her and returned her generosity and tenderness with openly expressed feelings that ranged from warmhearted affection to outright adoration. But they were less like adopted children and more like genuine friends, albeit friends who, like all her friends, needed her.
At home, Susie had begun paying attention to Peter, her quiet son, in a different way, treating him, too, as friend, confidant, and source of emotional support, now that he was growing up and about to enter high school.
Susie Jr. was living in Lincoln, having enrolled at the University of Nebraska. Howie, who had broken the family record for getting grounded, was in his junior year of high school and Susie now devoted herself to launching him into college; she took him to debate meets and helped him corral his energy and burnish his high school record. Warren, as usual, was happy to delegate all these responsibilities to her.
Susie did succeed in enticing Warren to really pitch in and get involved—rather than simply write checks—whenever business intersected with a cause to which he could lend his expertise. Her friend Rodney Wead and other leaders in the black community had gotten the idea of starting a minority-owned bank to enhance community pride and economic development on the North Side. Promoting “black capitalis
m,” they came to Buffett and his friend Nick Newman, the man who had sponsored Warren in local civil-rights activities.37
Wead was a respected figure in Omaha, and Buffett liked banks. He had just joined the board of Omaha National Corporation, the biggest bank in town, a long-held ambition.38 He had an automatic—and rational—predisposition toward any business where people gave money to the business faster than the company disbursed it. So he was willing to listen to Wead, but wanted to know if a minority bank was viable. Since the hope was that Community Bank would attract a diverse group of customers, he hired Peter and one of his friends to sit outside another minority bank to count how many people went inside and to classify them by race.39 Peter’s tally made Warren optimistic, so he joined an advisory board of directors for the Community Bank of Nebraska and also got John Harding from Ruane, Cunniff on the board.40 Buffett told the founders that if they could raise $250,000 in stock from the black community, the advisory board would raise money to match it.41 The bank set up its office in a trailer. “You’re really hitting bottom, Warren,” said Joe Rosenfield, “when we’re asking people to put their money into something you can drive off in the middle of the night and take the whole bank with it.”
Most of the managers and the board of directors—which included Buffett’s baseball player friend Bob Gibson—were black, and most were financial tender-foots. To stave off disaster, Buffett went into his teaching mode and tried to educate the founders on the need for strong lending standards. The bank, he stressed, was not a charity or social-services agency. He attended monthly board meetings that stretched late into the night, but, as with the companies he owned, he was never involved in the day-to-day management.42 Harding, however, spent every day at the bank, making sure its numbers balanced. “The management from the community was well-intentioned,” Harding says, “but not financially savvy.” Asked for more money to cover bad loans, Buffett said no. Wead felt Buffett “didn’t understand the cycle of poverty” and “never understood his role as a wealthy man in our beleaguered community.”43 But Buffett understood the numbers; he knew the bank wouldn’t help anyone by relaxing its lending standards and making uncollectible loans, which would only teach the wrong financial lesson. So the bank limped along for years without growing.
He got a chance to help in another way when Hallie Smith, a friend of Susie’s, began to bring her the names of black kids who needed money because they couldn’t pay for college. Susie started giving a thousand dollars here and there. “I’ve got to ask Warren,” she said over and over. “Susie, you have money; why don’t you just pay for it?” Smith asked in amazement. “No, I can’t,” Susie always said. “It has to go through Warren.” Smith found it incredible that someone as rich as Susie allowed her husband to make every decision involving money.44
Thus, while Susie was in charge of the family foundation, they worked together on funding and donations. She would have given away huge sums had Warren not put on the brakes. The foundation made small grants to education, and it didn’t have professional management. To do a proper job of managing it required thinking forward: What was going to happen to all that money someday when it ended up in the foundation? Warren felt that someday was far away. Susie had a passionate desire to help in the here and now, but someone needed to strategize for the future.
A year before, Warren had had what for many forty-year-olds would have been a wake-up call. During a dinner at the Sarnats’in California, one of his fingers started to swell. He had taken a double dose of delayed-action penicillin earlier that day for a minor infection. Bernie Sarnat, a surgeon, suspected an allergic reaction. He gave Warren antihistamines and advised him to get to a hospital.45
Buffett didn’t want to go to the hospital. He had already had enough of sickness in 1971, after a recent bout of salmonella.46 Besides, said Susie, he was a bad patient and had a palpable horror of doctors and hospitals, sickness and medicine.47 He had Susie drive him back to the house they were renting for the summer. But as he continued ballooning and grew dizzy and sick, she began an urgent search for a doctor who could see Warren in a hurry. The one she finally reached insisted that they go to an emergency room immediately instead. By then Buffett was barely conscious, and the emergency room team started working to save his life.
Three days later, he was still in the hospital. He was lucky, the doctors told him. His penicillin allergy was so severe that if he took it again, he would be dead. As he recovered, Roy and Martha Tolles tried to cheer him up by bringing him a copy of Playboy magazine, but he was too weak to hold it himself and had Susie turn the pages for him. Warren complained, however, that she flipped the pages too fast.
Yet even after this encounter with his own mortality, back home in Omaha he remained as fixated on business as ever. Retirement, in Buffett’s special sense, meant no longer acting as a fiduciary. He would be investing as long as he was breathing. He could not help but be competitive—so much so that recently, when six-year-old Jonathan Brandt, son of his friends Henry and Roxanne Brandt, had taken him on in chess, Warren couldn’t bear it when it looked as though he was losing. As the game neared its conclusion, he began Buffetting little Jonny until he won.48
By the time her husband had vanquished little Jonny Brandt, Susie had cultivated an attitude of ironic detachment about Warren’s stubbornness. “Whatever Warren wants, Warren gets,” was her way of describing the man who, as his little sister Bertie had observed all those years ago, always got his way.49 On a visit to Des Moines with a friend to hear the writer and Holocaust survivor Elie Wiesel speak at one of the local synagogues, Susie had spent hours talking to Milt Brown, who now lived there, at a dessert party at somebody’s house.50 For some time she had been filled with feelings of regret about that interrupted relationship; she now wondered openly to close friends whether it was too late to go down a different path. While she rarely talked about her problems or showed self-pity, she acknowledged being depressed about the state of her marriage. But despite her unhappiness, she made no move to address her issues directly or to leave; rather, she rekindled her relationship with Milt. And increasingly she seemed drawn to California. She had “fallen in love” with the place they had been renting at Emerald Bay in Laguna Beach, perched fifty feet above the ocean among a group of other luxury vacation homes.51
Warren particularly disliked buying houses, considering money spent on them as lying fallow, not earning its keep. Susie needled him about money. “If we were rich,” she said, “you would just go up to that house, and ask the owner how much she wants for it, and pay however much she asked. But I know we’re not rich.” In their perpetual tug-of-war, however, Susie was usually able to dislodge the cash from him in the end. Buffett eventually sent Roy Tolles’s wife, Martha, a canny bargainer, to negotiate for the house. She dickered the owner down to $150,000,52 and when Roy Tolles called to tell Warren, he said, “I have bad news. You bought it.”
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Omaha • 1971–1973
Susie set to work decorating the place in Emerald Bay with casual rattan furniture. She installed a separate telephone line for Warren, who spent most of the time when he was in California watching business news on television and talking on the phone.
The “personal concerns” and Joe Rosenfield were drawing her husband in the opposite direction from California—toward Washington, and electoral politics. The Buffetts hosted a dinner in Omaha for Senator George McGovern, the 1972 Democratic candidate for President. And Warren had given money to Allard Lowenstein, a former Congressman known as the “pied piper” of liberals, who resembled Gene McCarthy in his power to galvanize young people into activism over civil rights. He had also backed John Tunney, the “Kennedyesque” son of heavyweight boxer Gene Tunney, in his successful Senate run in California;1 Tunney’s golden-boy political career became inspiration for the movie The Candidate, about a charismatic politician who is “too young, too handsome, too liberal, too perfect” to win, so can afford to tweak the Establis
hment. “The Candidate” was the kind of politician for whom Buffett consistently fell—men with the ineffable magnetism of Hollywood stars, men whose presence stirred voters’ emotions—except that he wanted his candidates to win.
He had an idea that he thought would be helpful to politicians, about what he called the “discomfort index”—the inflation rate plus the unemployment rate—which he passed on to Harold Hughes of Iowa, to whom Rosenfield had introduced him.2
“Hughes had been a truck driver and a drunk. He was big physically, had a big voice, and was one of the most significant orators in decades. He looked a lot like Johnny Cash and had that kind of voice. He arose sort of from nowhere as a truck driver to become governor of Iowa and prominent in the Democratic Party. Joe was a good friend of his, and he had become a big force in the Senate. So we were helping him and gave modest amounts of money to a presidential exploratory effort. The war was his big issue; he was very anti-Vietnam, very eloquent.”
A college dropout, messianic Christian, and reformed alcoholic who was sometimes described as the “Iowa Populist,” Hughes would skip a scheduled meeting at the drop of an empty vodka bottle to help someone with a drinking problem through a crisis. Several times he had successfully saved colleagues from suicide, and once—to his deep regret—he had failed. With a magnetic personality, he was considered both a dark horse and a rising star, the kind of candidate who would attract the young, the blue-collar voters, and the insurgent liberals who had voted for McCarthy; in other words, he was the great hope for a populist resurgence among a field of uninspiring candidates. At the time, no other Democratic candidate was attracting significant support. McGovern, the leader of the pack, was getting only five points in national opinion polls.3
In the spring of 1971, Hughes summoned “six of his closest advisers and aides,” including Buffett and Joe Rosenfield, and directed them to present every possible argument why he should or should not seek the nomination.4
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