20. Over long periods the U.S. economy has grown at a real rate of 3% and a nominal rate (after inflation) of 5%. Other than a postwar boom or recovery from severe recession, this level is rarely exceeded.
21. American Motors, smallest of the “Big Four” automakers, sold out to Chrysler in 1987.
22. Buffett is speaking metaphorically here. He admits to investing in things with wings a time or two, and not with good results.
23. Buffett first used this story in his 1985 chairman’s letter, citing Ben Graham, who told the story at his tenth lecture in the series Current Problems in Security Analysis at the New York Institute of Finance. The transcripts of these lectures, given between September 1946 and February 1947, can be found at http://www.wiley.com//legacy/products/subject/finance/bgraham/ or in Benjamin Graham and Janet Lowe, The Rediscovered Benjamin Graham: Selected Writings of the Wall Street Legend. New York: Wiley, 1999.
24. A condensed and edited version of this speech was published as “Mr. Buffett on the Stock Market,” Fortune, November 22, 1999.
25. PaineWebber-Gallup poll, July 1999.
26. Fred Schwed Jr., Where Are the Customers’ Yachts? or, A Good Hard Look at Wall Street. New York, Simon & Schuster, 1940.
27. Interview with Bill Gates.
28. Keynes wrote: “It is dangerous…to apply to the future inductive arguments based on past experience, unless one can distinguish the broad reasons why past experience was what it was,” in a book review for Smith’s Common Stocks as Long-Term Investments in Nation and Athenaeum in 1925 that later became the preface for Keynes, The Collected Writings of John Maynard Keynes. Vol. 12, Economic Articles and Correspondence; Investment and Editorial. Cambridge: Cambridge University Press, 1983.
29. The comedian Mort Sahl used to end his routine by asking, “Is there anyone I haven’t offended?”
30. According to a source who overheard them and would rather remain nameless.
31. Interview with Don Keough.
Chapter 3
1. Interview with Charlie Munger.
2. Parts of Munger’s explanation are taken from three lectures on the psychology of human misjudgment, and his commencement address to the Harvard School on June 13, 1986, both as found in Poor Charlie’s Almanac, The Wit and Wisdom of Charles T. Munger, edited by Peter D. Kaufman. Virginia Beach, Va.: Donning Company Publishers, 2005. The rest is from interviews with the author. Remarks have been edited for brevity and clarity.
3. Interview with Charlie Munger.
4. Munger’s driving habits are described in Janet Lowe, Damn Right! Behind the Scenes with Berkshire Hathaway Billionaire Charlie Munger. New York: John Wiley & Sons, 2000.
5. Required to produce a doctor’s note to prove he was blind in one eye and qualified for a special license at the California Department of Motor Vehicles, Munger refused and offered to take out his glass eye instead.
6. Munger’s doctor used an older type of surgery that had a higher complication rate. Rather than blame the doctor, Munger claims he should have done more research on doctors and types of surgery himself.
7. Buffett’s interest in such products as pig stalls and egg counters is limited; he reviews some of these statistics in a summarized form.
8. Despite the complaints of passengers, Buffett has never, to the author’s knowledge, been responsible for an accident, only near heart attacks.
9. Beth Botts, Elizabeth Edwardsen, Bob Jensen, Stephen Kofe, and Richard T. Stout, “The Cornfed Capitalist,” Regardie’s, February 1986.
Chapter 4
1. Buffett predicted up to 6% growth in the market per year, but gave historical ranges of no growth, and the underlying math suggested that figure could be high. The 6% was a hedged bet.
2. S&P is Standard & Poor’s Industrial Average, the most widely used measure of the overall stock market’s performance. S&P includes reinvested dividends. Berkshire does not pay a dividend. All numbers are rounded.
3. “Toys ‘R’ Us vs. eToys, Value vs. Euphoria,” Century Management, http://www.centman.com/Library/Articles/Aug99/ToysRUsvsEtoys.htm. In March 2005, Toys “R” Us agreed to a takeover offer from private equity firms Kohlberg Kravis Roberts & Co., Bain Capital, and real estate group Vornado Realty Trust in a deal valued at $6.6 billion.
4. Interview with Sharon Osberg.
5. Buffett, speaking to the Oquirrh Club, “An Evening with Warren Buffett,” October 2003.
Chapter 5
1. Warren’s sister Doris Buffett, the family genealogist, has done extensive research on the Buffett family tree. This abbreviated account of the early ancestors is drawn from her research.
2. Either Nathaniel or Joseph.
3. This was the largest and finest of the livery stables in town, with seventy horses at its peak, boasting sleighs, buggies, a circus bateau, and even a hearse. It prospered for a number of years but disappeared sometime around the early days of the automobile. “Six Generations Prove That Buffett Family Is Really Here to Remain,” Omaha World-Herald, June 16, 1950.
4. Orville D. Menard, “Tom Dennison…The Rogue Who Ruled Omaha,” Omaha, March 1978. John Kyle Davis, “The Gray Wolf: Tom Dennison of Omaha,” Nebraska History, Vol. 58, No. 1, Spring 1977.
5. “Dry Law Introduced as Legislators Sing,” Omaha World-Herald, February 1, 1917.
6. “Omaha’s Most Historic Grocery Store Still at 50th and Underwood,” Dundee and West Omaha Sun, April 25, 1963.
7. Zebulon Buffett, letter to Sidney Buffett, December 21, 1869.
8. Sidney’s store was originally named Sidney H. Buffett and Sons, where both brothers, Ernest and Frank, worked. The store originally sat at 315 South 14th Street downtown, where it stayed until its closing in 1935. Frank took over as sole proprietor after Sidney’s death in 1927. In 1915, Ernest opened a branch store, which moved west to 5015 Underwood Avenue in Dundee in 1918. (At the time Dundee was a separate town, eventually annexed by Omaha.)
9. A third child, named Grace, died in 1926. Three more, George, Nellie, and Nettie, died at young ages in the nineteenth century.
10. Warren Buffett quoting Charlie Munger.
11. According to Doris Buffett, she was born Daisy Henrietta Duvall and began to call herself Henrietta (after her mother) rather than Daisy by the time she arrived in Omaha.
12. Charles T. Munger letter to Katharine Graham, November 13, 1974.
13. Ernest Buffett letter to Barnhart & Son, February 12, 1924.
14. Interview with Charlie Munger. His mother told him this story, although, he notes, “she may have been garnishing it just a bit.” But others recall the notebook.
15. In letters like one to his son Clarence in January 1931, he analyzed the effect of railroad automation on unemployment and suggested that the best solution for the Great Depression was a great public-works project. It seems ironic that he and his son Howard became such foes of Roosevelt when he initiated the Works Progress Administration after the next election.
16. Ernest Buffett letter to Fred and Katherine Buffett, undated, “ten years after you were married,” circa June 1939.
17. He died young, in 1937, in an auto accident in Texas.
18. Coffee with Congress, radio interview with Howard, Leila, Doris, and Roberta Buffett, WRC Radio, October 18, 1947, Bill Herson, moderator. (Note: This description is based on a tape of the broadcast.)
19. Interview with Doris Buffett.
20. Based primarily on family files.
21. Bryan’s “Cross of Gold” speech, delivered on July 9, 1896, has been called the most famous political speech in American history. Bryan is best remembered for opposing the gold standard and for getting involved in the Scopes case, where the famous lawyer Clarence Darrow made him look foolish for testifying against teaching evolution in schools. In fact his interests were broader and less extreme and his contemporary influence greater than he is generally remembered for today.
22. Family files. Bernice blamed her father for marrying into a family with genetic mental de
fects, begetting children who would suffer the result.
23. Leila was a freshman at Nebraska during the 1923–24 academic year, according to the Cornhusker yearbook, when Howard was a junior. On Coffee with Congress, Howard noted that they met in the fall of 1923, when Leila was 19. Because students usually entered college at 17, this suggests she worked for about two years before starting. She pledged Alpha Chi Omega as a freshman in the 1923–24 school year, but was still classified as a freshman in 1925, suggesting she went home to work on the newspaper and returned in the spring of 1925.
24. Probably in fall 1923.
25. Howard was secretary of the Innocents (Daily Nebraskan, September 27, 1923). This group persisted for many more years, until, as Buffett puts it, “the day came when they couldn’t find thirteen who were innocent.”
26. Coffee with Congress.
27. Interview with Roberta Buffett Bialek.
28. At Harry A. Koch Co., whose motto was “Pays the Claim First.” He made $125 a month.
29. Receipt from Beebe & Runyan, December 21, 1926, annotated by Leila.
30. They were married December 26, 1925.
31. February 12, 1928.
32. Howard became a deacon in 1928 at the age of 25.
33. Address to the American Society of Newspaper Editors, Washington, D.C., January 25, 1925.
Chapter 6
1. Even so, only three in a hundred Americans owned stocks. Many had borrowed heavily to play the market, entranced by John J. Raskob’s article, “Everybody Ought to Be Rich” in the August 1929 Ladies’ Home Journal and Edgar Lawrence Smith’s proof that stocks outperform bonds (Common Stocks as Long-Term Investments. New York: The MacMillan Company, 1925).
2. “Stock Prices Slump $14,000,000,000 in Nation-Wide Stampede to Unload; Bankers to Support Market Today,” New York Times, October 29, 1929; David M. Kennedy, Freedom from Fear, The American People in Depression and War, 1929–1945. New York: Oxford University Press, 1999; John Brooks, Once in Golconda, A True Drama of Wall Street; 1920–1938. New York: Harper & Row, 1969. Roger Babson’s famous warning, “I repeat what I said at this time last year and the year before, that sooner or later a crash is coming,” was useless.
3. Kennedy, Freedom from Fear. Kennedy notes that interest payment on the national debt rose from $25 million annually in 1914 to $1 billion annually in the 1920s due to World War I, accounting for one-third of the federal budget. The actual budget in 1929 was $3.127 billion a year (Budget of the U.S. Government, Fiscal Year 1999—Historical Tables, Table 1.1—Summary of Receipts, Outlays, and Surpluses or Deficits: 1789–2003. Washington, D.C.: Government Printing Office).
4. By the bottom tick on November 13, the market had lost $26 to $30 billion of its roughly $80 billion precrash value (Kennedy, op. cit., Brooks, op. cit.). World War I cost approximately $32 billion (Robert McElvaine, The Great Depression: America, 1929–1941. New York: Three Rivers Press, 1993; also Hugh Rockoff, It’s Over, Over There: The U.S. Economy in World War I, National Bureau of Economic Research Working Paper No. 10580).
5. Charlie Munger reported that all the Buffetts, including those employed elsewhere, worked at the store, in a letter to Katharine Graham dated November 13, 1974.
6. Coffee with Congress.
7. Roger Lowenstein, Buffett: The Making of an American Capitalist. New York: Doubleday, 1996.
8. Roger Lowenstein, in Buffett, cites Leila Buffett’s memoirs for this fact.
9. Ernest Buffett letter to Mr. and Mrs. Clarence Buffett and Marjorie Bailey, August 17, 1931.
10. “Union State Bank Closes Doors Today: Reports Assets in Good Condition; Reopening Planned,” Omaha World-Herald, August 15, 1931. Characteristically, the story understated the bank’s dire situation. It went into reorganization under regulatory supervision and filed for bankruptcy.
11. Howard had borrowed $9,000 to buy $10,000 of stock in the bank. The stock was now worthless. The house and mortgage were in Leila’s name. Standard Accident Insurance Company, Howard Homan Buffett application for fidelity bond.
12. “Buffett, Sklenicka and Falk Form New Firm,” Omaha Bee News, September 8, 1931. Statement of Buffett, Sklenicka & Co. for the month ending September 30, 1931.
13. The wave crested in December 1931 with the failure of the Bank of the United States, an official-sounding institution that had nothing to do with the government. The $286 million collapse broke a record, took down 400,000 depositors, and was understood by everyone—in one sense or another—as a failure of public trust (Kennedy, Freedom from Fear). It kicked the quivering legs out from under the banking system and sent the already battered economy into collapse.
14. Although its return on revenues was low, the firm by then was consistently profitable and would remain so, with the exception of a couple of months.
15. By the end of 1932, Howard Buffett was averaging 40–50% more in commissions than in 1931, based on financial statements of Buffett, Sklenicka & Co.
16. Charles Lindbergh Jr., “The Little Eaglet,” was kidnapped on March 1, 1932. His body was found on May 12, 1932. Many parents in the 1920s and 1930s were preoccupied with kidnapping, a fear that actually began with the Leopold and Loeb case in 1924 but peaked with the Lindbergh baby. An Omaha country-club groundskeeper claimed he was kidnapped and robbed of $7. In Dallas a minister faked his own kidnapping, trussing himself to his church’s electric fan (Omaha World-Herald, August 4, 1931, and June 20, 1931).
17. According to Roberta Buffett Bialek, Howard once had rheumatic fever, which may have weakened his heart.
18. Interview with Doris Buffett.
19. Interview with Doris Buffett. Warren also remembers this.
20. Interview with Roberta Buffett Bialek.
21. Interviews with Jack Frost, Norma Thurston-Perna, Stu Erikson, Lou Battistone.
22. The correct clinical term for Leila’s condition is unknown, but it may have boiled down to a literal pain in the neck: occipital neuralgia, a chronic pain disorder caused by irritation or injury to the occipital nerve, which is located in the back of the scalp. This disorder causes throbbing, migrainelike pain, which originates at the nape of the neck and spreads up and around the forehead and scalp. Occipital neuralgia can result from physical stress, trauma, or repeated contraction of the neck muscles.
23. Interview with Katie Buffett. This may have been while pregnant with either Warren or Bertie.
24. Interview with Katie Buffett.
25. “Beer Is Back! Omaha to Have Belated Party,” Omaha World-Herald, August 9, 1933; “Nebraska Would Have Voted Down Ten Commandments, Dry Head Says,” Omaha World-Herald, November 15, 1944; “Roosevelt Issues Plea for Repeal of Prohibition,” Associated Press, July 8, 1933, as printed in Omaha World-Herald.
26. U.S. and Nebraska Division of Agricultural Statistics, Nebraska Agricultural Statistics, Historical Record 1866–1954. Lincoln: Government Printing Office, 1957; Almanac for Nebraskans 1939, The Federal Writers’ Project Works Progress Administration, State of Nebraska; Clinton Warne, “Some Effects of the Introduction of the Automobile on Highways and Land Values in Nebraska,” Nebraska History quarterly, The Nebraska State Historical Society, Vol. 38, Number 1, March 1957, page 4.
27. In Kansas, a banker sent to foreclose on a farm turned up dead, shot full of .22-and .38-caliber bullets and dragged by his own car. “Forecloser on Farm Found Fatally Shot,” Omaha World-Herald, January 31, 1933. See also “‘Nickel Bidders’ Halted by Use of Injunctions,” Omaha World-Herald, January 27, 1933; “Tax Sales Blocked by 300 Farmers in Council Bluffs,” Omaha World-Herald, February 27, 1933; “Penny Sale Turned into Real Auction,” Omaha World-Herald, March 12, 1933; “Neighbors Bid $8.05 at Sale When Man with Son, Ill, Asks Note Money,” Omaha World-Herald, January 28, 1933, for examples of the mortgage crisis.
28. “The Dust Storm of November 12 and 13, 1933,” Bulletin of the American Meteorological Society, February 1934; “60 Miles an Hour in Iowa,” special to the New York Times, November 13, 1933; Waudemar K
aempffert, “The Week in Science: Storms of Dust,” New York Times, November 19,1933.
29. Also cited from Leila’s memoirs in Roger Lowenstein’s Buffett.
30. From the Almanac for Nebraskans 1939. Sponsored by the Nebraska State Historical Society, which also contained some tall tales such as the idea of scouring pots by holding them up to a keyhole.
31. “Hot Weather and the Drought of 1934,” Bulletin of the American Meteorological Society, June–July 1934.
32. Grasshoppers are the informal state mascot; Nebraska terms itself the “Bugeater State.” Long before the Cornhuskers name, the University of Nebraska football team called itself the “Bugeaters” in 1892 in honor of its flying guests. Nebraska football fans still informally call themselves Bugeaters. Grasshoppers love drought conditions and contribute to soil erosion by devouring every living plant down to the black earth. From 1934–1938 the estimated national cost of grasshopper destruction was $315.8 million (about $4.7 billion in 2007 dollars). The region encompassing Nebraska, the Dakotas, Kansas, and Iowa was the epicenter of grasshopper infestation. See Almanac for Nebraskans 1939; also Ivan Ray Tannehill, Drought: Its Causes and Effects. Princeton: University Press, 1947.
33. “Farmers Harvest Hoppers for Fish Bait,” Omaha World-Herald, August 1, 1931.
34. As asserted in Franklin Delano Roosevelt’s inaugural address (March 4, 1933)—he was speaking, however, of economic paralysis.
35. Lacking electronic security and thoughtful cash controls, banks were more vulnerable to robbery in those days, and an epidemic of bank robberies took place in the 1930s.
36. Several Buffetts, including Howard and Bertie, contracted polio. Another epidemic took place in the mid-1940s. People born after the vaccine became available in the 1950s and ’60s may find the chronic anxiety this disease engendered difficult to comprehend, but it was very real at the time.
37. In 1912, twenty-five people were injured when a howling wind derailed a train near North Loup, Nebraska, according to the Almanac for Nebraskans 1939.
38. Ted Keitch letter to Warren Buffett, May 29, 2003. Keitch’s father worked at the Buffett store.
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