11. Interview with Peter Buffett.
12. Interview with Howie Buffett.
13. Ibid.
14. Gateway, May 26, 1961.
15. “Paul Revere’s Ride,” Henry Wadsworth Longfellow. Listen my children, and you shall hear of the multitudes rescued by Susan Buffett.
16. From remarks made by Eisenberg at Susie’s funeral.
17. According to his autobiography, Stranger to the Game (written with Lonnie Wheeler, New York: Penguin, 1994), Bob Gibson lived in Omaha in the off season. He talks about playing basketball in Omaha with a white team in 1964, traveling to Iowa for games, and hanging out at a bar on North 30th Street. The bartender wouldn’t serve him.
18. Howard Buffett quoted in Paul Williams, “Buffett Tells Why He Joined Birch Society,” Benson Sun, April 6, 1961.
19. The Christian Anti-Communist Crusade was founded in 1953 by “a crisp, energetic, self-confident Austrian,” Fred Schwarz, who was a physician, psychiatrist, and lay preacher. It used media to spread its anti-Communist philosophy. Cabell Phillips, “Physician Leads Anti-Red Drive with ‘Poor Man’s Birch Society,’” New York Times, April 30, 1961. See the CACC website, http://www.schwarzreport.org/.
20. Leila Buffett letter to Dr. Hills, December 10, 1958.
21. Leila Buffett to Mrs. Kray, May 23, 1960.
22. Interview with Susie Buffett Jr. and Howie Buffett. They recall their father’s behavior during this period as routine and, with hindsight, as a form of denial.
23. Interview with Howie Buffett.
24. Interview with Chuck Peterson.
25. According to Chuck Peterson, Carol Angle “did not hear well.” This is a example of Buffett’s raconteuring. She says she had progressive hearing loss.
26. Interview with Lee Seeman.
27. Interview with Dick Holland.
28. Interviews with Frank Matthews Jr. and Walter Schloss, who agree that Schloss introduced them on the street corner.
29. This is how hedge funds are commonly managed to stay within the legal investor limit today.
30. George Payne was also a founding member of this partnership. By then, B-C had been folded into Underwood. Along with the ten partnerships, Warren and his father were still operating Buffett & Buffett.
31. The Dow’s results include dividends received. Note that this was the performance for the partnership before Warren’s fees.
32. Interview with Chuck Peterson.
33. Interviews with Kelsey Flower, Meg Mueller.
34. Interview with Stan Lipsey.
35. Buffett was 31 on January 1, 1962, but his personal investments and gains in the partnership had taken him past the million-dollar mark months earlier, when he was still 30.
36. Interview with Bill Scott.
37. Buffett waived his fee for Scott, one of the two most lucrative arrangements he ever made with an employee. (See Henry Brandt in “Haystacks of Gold” and “Folly” for the other.)
38. He put in everything except his investment in Data Documents, a personal investment in a private company.
39. Letter to partners, July 6, 1962. In the second quarter of 1962, the Dow fell from 723.5 to 561.3, or 23%. In the first half of that year, the partnership saw a loss before payments to partners of 7.5%, compared with a loss of 21.7% including dividends for the Dow—the partners had a14.2% outperformance.
40. Buffett’s phrase is a clever reworking of Graham’s original. In The Intelligent Investor: “The sovereign virtue of all formula plans lies in the compulsion they bring upon the investor to sell when the crowd is buying and to buy when the crowd lacks confidence” (Intelligent Investor, Part I: General Approaches to Investment VI: Portfolio Policy for the Enterprising Investor: The Positive Side, 1949 edition). And in Security Analysis: “It would require bond investors to act with especial caution when things are booming and with greater confidence when times are hard” (Security Analysis, Part II: Fixed-Value Investments, XI: Specific Standards for Bond Investment, 1940 edition).
Chapter 25
1. Warren Buffett typewritten file memo, undated.
2. Warren Buffett letter to Bob Dunn, June 27, 1958.
3. Note from Jack Thomsen to Warren Buffett, March 8, 1958: “I think we have to be realistic and reorganize on a basis that has a reasonable chance of working…the only thing that Clyde is concerned about is prestige…. Hale received a letter from Clyde yesterday to notify him that he was being removed as trustee of his estate. I am certain the same rancor is and will be held for all of us who have dared to oppose him…. I do feel sorry for him in his present predicament but I do not think we can correct our problems with sympathy.”
4. Interview with Verne McKenzie, who says Buffett explained this to him when he hired him. Without a public exit strategy, this is one of only two ways to realize the value of the assets. Buffett had not yet figured out the other one, as the reader will see.
5. Interview with Walter Schloss.
6. Warren Buffett letter to Clyde Dempster, April 11, 1960.
7. Warren Buffett note to Bob Dunn, June 27, 1958: “…has become increasingly less active in the business and it appeared the company was just drifting with him not interested and no one else having the authority to do anything…. We finally got the job accomplished by letting Clyde stay as president.” He gave Jack Thomsen, executive vice president, temporary operating authority.
8. Interview with Walter Schloss.
9. At $30.25 per share. Warren Buffett letter to Dempster shareholders, September 7, 1961.
10. Warren Buffett letter to partners, July 22, 1961.
11. “Dempster had earned good money in the past, but was currently only breaking even. “We continued to buy the stock in small quantities for five years. During most of this period I was a director and was becoming consistently less impressed with the earnings prospects under existing management. However, I also became more familiar with the assets and operations and my evaluation of the quantitative factors remained very favorable,” thus leading him to continue buying stock. Letter to partners, January 24, 1962.
12. And water-system parts—as the demand for windmills was waning.
13. “We had parts for windmills and certain farm equipment,” says Scott, “where we had a lock on the business and by repricing it could stop losing money down there. And we were successful to some degree.”
14. January 18, 1963.
15. Interview with Bill Scott.
16. “Still a Chance City Can Keep Dempster,” Beatrice Daily Sun, September 1, 1963; “Drive to Keep Dempster Rolls,” Omaha World-Herald, September 30, 1963.
17. As Buffett’s successor, Dempster’s chairman W. B. McCarthy, put it, “We understand, as I am sure you do, that a number of the people in Beatrice do not recognize the fine, necessary job that you and Harry accomplished with Dempster.” W. B. McCarthy letter to Warren Buffett, November 19, 1963.
18. Of the $2.8 million total financing, $1.75 million went to pay the sellers and the remainder to expand the operation. “Launch 11th Hour Effort to Keep Dempster Plant Here,” Beatrice Daily Sun, August 29, 1963.
19. “Beatrice Raises $500,000,” Lincoln Evening Journal, September 3, 1963; “Fire Sirens Hail Victory, Beatrice Gets Funds to Keep Dempster,” Omaha World-Herald, September 4, 1963; “Contracts for Dempster Sale Get Signatures,” Beatrice Daily Sun, September 12, 1963.
20. The partnership made $2.3 million, almost three times its investment. Buffett changed the name of the holding company to First Beatrice Corp. and moved its headquarters to Kiewit Plaza.
Chapter 26
1. The speakers appeared as individuals who happened to belong to different groups rather than “representatives” of their races and faiths. All went well, except once, says Doris Buffett, when a Protestant panelist started telling the Catholic and the Jew that they were going to hell.
2. The black workers were squeezed out of jobs as Omaha’s packinghouse industry shrank. Marginalized into a ghetto north of downtown called
the Near North Side, they lived in dilapidated, aging tenements for which unscrupulous landlords charged high rents. In 1957, the Omaha Plan, a communitywide study, proposed redevelopment of the Near North Side, but bond issues were defeated. A budding civil-rights movement led by college students at Creighton University, the Urban League, and other civic groups had worked to improve black employment and end segregation of teachers in the public schools since 1959.
3. Interview with Susie Buffett Jr., who wondered what good the police whistle was going to do.
4. Interview with Peter Buffett.
5. Interview with Doris Buffett. Viktor E. Frankl, Man’s Search for Meaning. Boston: Beacon Press, 1962.
6. Interview with Sue James Stewart.
7. Alton Eltiste, “Miss Khafagy Gives Views on Homeland,” Gateway, October 5, 1962.
8. This image of the crossing guard may surprise modern readers, but in the United States until the latter part of the twentieth century, children were traditionally given significant freedom and responsibility.
9. Interview with Howie Buffett.
10. Howie and Susie Jr. describe themselves and their relationship this way in interviews.
11. This composite picture of the Buffett household is based on interviews with Susie Buffett Jr., Howie Buffett, and Peter Buffett.
12. Interview with Meg Mueller. “My mom has commented on that several times over the years,” she says.
13. Interview with Bill Ruane.
14. Interview with Dick Espenshade. One of the founding lawyers, Jamie Wood, joined from another firm.
15. Interview with Ed Anderson.
16. The example has been simplified for ease of understanding the concept of leverage. Obviously the exact return on capital depends on how long it took to make the profit, and on the funding rate.
17. Interview with Rick Guerin in Janet Lowe, Damn Right!: Behind the Scenes with Berkshire Hathaway Billionaire Charlie Munger. New York: John Wiley & Sons, 2000.
18. This description is from Ed Anderson.
19. Interview with Ed Anderson.
20. Interview with Charlie Munger. Guerin’s seamstress mother died when he was a teenager.
21. Interviews with Rick Guerin, Ed Anderson.
22. Janet Lowe, Damn Right!
23. Interview with Ed Anderson. Guerin doesn’t remember this specific incident but says it sounds likely.
24. Anderson takes the blame for being too obtuse to read Munger’s mind, rather than blaming Munger for not explaining things to him.
25. Interview with Ed Anderson.
26. Along with Munger, Ed Anderson recalls this extraordinary trade. Munger says the story is true in substance. Buffett also recalled the reasoning.
27. Interview with Ed Anderson, who suggested the word “pretender” because, as he put it, “Charlie would never feel like he was an ‘apprentice.’”
28. Ira Marshall relates Munger’s confusion with names in Damn Right!
29. Interview with Ed Anderson. This term was commonly used among Buffett’s friends. He referred to “coattail riding” in his partnership letter of January 18, 1963.
30. Buffett also recalls Munger hyperventilating at his own jokes.
31. Charles T. Munger letter to Katharine Graham, December 9, 1974.
32. Ibid.
33. In 1953, Buffett sold copies of this report for $5.
34. Buffett had also let Brandt in on one lucrative private investment, the Mid-Continental Tab Card Company. While Buffett gave up his override on Brandt’s money, the deal was a win/win.
35. “There’s got to be a warehouse full of these somewhere,” said Bill Ruane in an interview, but the author never saw it.
36. Bill Ruane introduced Buffett to Fisher’s ideas. Philip A. Fisher, Common Stocks and Uncommon Profits. New York, Evanston, and London: Harper & Row, 1958. (“Scuttlebutt” is a nautical term for a barrel with a hole in it used to hold the sailors’ drinking water.)
37. The market for soybean oil was not large, a key element in the scheme. It would be impossible for a single individual to amass enough capital to corner the market for, say, oil or treasury bills.
38. Most accounts published about the scandal incorrectly refer to oil floating on top of water in the tanks.
39. Mark I. Weinstein, “Don’t Leave Home Without It: Limited Liability and American Express,” Working paper, American Law & Economics Association Annual Meetings, Paper 17, Berkeley Electronic Press, 2005, p. 14–15, is the source that American Express was certifying more warehouse receipts than the Department of Agriculture said existed in salad oil.
40. Haupt was a securities dealer who traded both stocks and commodities and was a member of the NYSE; thus, he was required to meet the exchange’s net capital rules (which state that capital must be ½0 of its total liabilities). SEC Rule 15c3-1 regulates broker-dealer net capital. Under the Aggregate Indebtedness Standard, 2% of net capital is required today, compared to 5% in the 1960s. The New York Stock Exchange paid $10 million to cover its customers’ losses. H. J. Maidenberg, “Lost Soybean Oil Puzzles Wall St.,” Wall Street Journal, November 20, 1963.
41. Equivalent to 2.9% of its value.
42. The Stock Exchange had closed mid-session on August 4, 1933, due to a tear-gas prank. Some consider the Kennedy assassination closing to be the first “real” closing of the market.
43. John M. Lee, “Financial and Commodities Markets Shaken; Federal Reserve Acts to Avert Panic,” New York Times, November 23, 1963.
44. H. J. Maidenberg, “Big Board Ends Ban on Williston, Walston and Merrill Lynch Are Instrumental in the Broker’s Reinstatement, Haupt Remains Shut, Effect of Move Is Swept Aside by Assassination of President Kennedy,” November 24, 1963. The soybean-oil drama, including the American Express role, peaked during a period of about a week following the assassination.
45. American Express at the time was the only major U.S. public company to be capitalized as a joint stock company rather than a limited liability corporation. This meant its shareholders could be assessed for deficiencies in capital. “So every trust department in the United States panicked,” recalls Buffett. “I remember the Continental Bank held over 5 percent of the company, and all of a sudden not only do they see that the trust accounts were going to have stock worth zero, but they could get assessed. The stock just poured out, of course, and the market got slightly inefficient for a short period of time.”
46. The Travelers Cheque was American Express’s main product. The company introduced the card defensively when banks developed credit cards as a countermeasure to the Travelers Cheque.
47. Warren Buffett letter to Howard L. Clark, American Express Company, June 16, 1964. Brandt sent Buffett a foot-high stack of material, according to Jim Robinson, former CEO of American Express, who saw it. “I remember seeing Henry’s stuff on American Express, just reams of it,” said Bill Ruane in an interview.
48. At the end of it all, De Angelis pleaded guilty to four federal counts of fraud and conspiracy, and was sentenced to ten years in prison. “The Man Who Fooled Everybody,” Time, June 4, 1965.
49. Howard Buffett, August 6, 1953, last will and testament.
50. Interviews with Patricia Dunn, Susie Buffett Jr., Warren Buffett.
51. In Grand Old Party (New York: Random House, 2003), Lewis L. Gould describes the way being a Republican became identified with racism in the minds of many people who changed parties during the civil-rights era.
52. Buffett cannot recall whether he initially registered as an independent or a Democrat. His preference would have been to register as an independent, but that would have precluded him from voting in primaries. Either immediately or within a few years, he did register as a Democrat.
53. Interview with Susie Buffett Jr.
54. Susan Goodwillie Stedman, recalling personal interview with Susan T. Buffett conducted November 2001, courtesy of Susan Goodwillie Stedman and Elizabeth Wheeler.
55. Dan Monen as quoted in Roger Lowenstein, Buff
ett: The Making of an American Capitalist. New York: Doubleday, 1996. Monen is now deceased.
56. Warren’s inability to deal with Howard’s death is the incident most widely cited by family members as indicative of his inner state during this period.
Chapter 27
1. Warren Buffett letter to Howard L. Clark, American Express Company, June 16, 1964.
2. L. J. Davis, “Buffett Takes Stock,” New York Times, April 1, 1990.
3. “I’m not a hundred percent sure of that. I’ve been told that by other people, so it’s hard to remember. But I’m pretty sure it was Howard Clark.”
4. In July 1964, Buffett’s letter to partners said, “…our General category now includes three companies where B.P.L. is the largest single stockholder.” Readers could infer from this a fairly concentrated portfolio.
5. Letter from Warren Buffett to partners, November 1, 1965.
6. Letter from Warren Buffett to partners, October 9, 1967.
7. Letter from Warren Buffett to partners, January 20, 1966.
8. The author studied Buffett’s written work and interview material in reaching this conclusion. Charlie Munger, on the other hand, often uses the terms “dishonor” and “disgrace” (referring to others and not himself).
9. Interview with John Harding.
10. In 1962, according to an interview with Joyce Cowin.
11. Per capita. According to Everett Allen in Children of the Light: The Rise and Fall of New Bedford Whaling and the Death of the Arctic Fleet (Boston: Little, Brown, 1983), yearly income from whaling amounted to $12 million by 1854, making New Bedford probably the richest city per capita in the world before the Civil War.
12. More than thirty ships were lost in the disaster of 1871, most from New Bedford. The devastating cost of 1871 in financial and human terms laid waste to the industry. Whalers began building metal boats that could break through the ice in a futile quest to save what remained of the whaling industry.
13. Baleen is the “teeth” through which whales sieve plankton. The use of spring steel also reduced baleen demand.
14. Horatio Hathaway, A New Bedford Merchant. Boston: D. B. Updike, the Merrymount Press, 1930.
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