15. Partnership agreement, Hathaway Manufacturing Company, 1888. Among the other partners was William W. Crapo, a longtime New Bedford associate of Hetty Green’s, who also invested $25,000. The total initial capital was $400,000.
16. With a fortune estimated at $100 million.
17. Eric Rauchway, Murdering McKinley: The Making of Theodore Roosevelt’s America. New York: Hill and Wang, 2003.
18. The North was no workers’ paradise, but in the South there were virtually no laws against child labor, excessive work hours, or unsafe work conditions. The mills owned the workers’ houses and the stores where they shopped, controlled their water supply, owned their churches, and effectively controlled the state governments and the courts. Machine-gun-bearing state militia prevented strikes. The workers were more like sharecroppers. Nearly ten thousand Northern workers had lost their jobs when the textile industry marched southward to the Carolinas in search of cheaper labor when air-conditioned plants were constructed after World War II.
19. Seabury Stanton, Berkshire Hathaway Inc., A Saga of Courage. New York: Newcomen Society of North America, 1962. Stanton made this address to the Newcomen Society in Boston on November 29, 1961.
20. Ibid.
21. In A Saga of Courage, Seabury says he conceived of the Stantons as forming part of an “unbroken thread of ownership” that stretched back to Oliver Chace, who had founded New England’s textile industry and created Berkshire Fine Spinning’s oldest predecessor company in 1806. Chace was a former apprentice of Samuel Slater, who first brought Sir Richard Arkwright’s innovative spinning-frame technology to the United States at the end of the eighteenth century.
22. Hathaway Manufacturing Corporation Open House tour brochure, September 1953. Courtesy of Mary Stanton Plowden-Wardlaw.
23. If the goal had been to save jobs, the money to modernize need not have been spent. Roger Lowenstein, in Buffett: The Making of an American Capitalist (New York: Doubleday, 1996), quotes Ken Chace (now deceased) as saying that Seabury hadn’t the slightest idea of return on investment.
24. Stanton (now deceased) is stated as having these opinions in “Berkshire Hathaway’s Brave New World,” by Jerome Campbell, Modern Textiles, December 1957.
25. Berkshire Hathaway 1994 chairman’s letter.
26. Interviews with David S. Gottesman, Marshall Weinberg.
27. Letter to Warren Buffett on May 4, 1990, from James M. Clark Jr. at Tweedy, Browne Co., noting that “Howard Browne gave various accounts code initials.”
28. Interview with Ed Anderson.
29. Interviews with Chris Browne, Ed Anderson.
30. According to Ed Anderson, this is how Buffett traded. The author is well acquainted with Buffetting in other contexts.
31. The commission sounds tiny, but at ten cents a share, Buffett later said, it was by far the highest commission he ever paid on a stock.
32. Interviews with Mary Stanton Plowden-Wardlaw, Verne McKenzie.
33. He also felt that Seabury’s strategy of trying to bypass the New York “converters”—who turned the company’s “gray goods” into finished dyed goods and sold them to customers—was a serious misjudgment.
34. “If you’re in a business that can’t take a long strike, you’re basically playing a game of chicken with your labor unions because they’re going to lose their jobs, too, if you close down…. And there’s a lot of game theory involved. To some extent, the weaker you are, the better your bargaining position is—because if you’re extremely weak, even a very short strike will put you out of business; and the people on the other side of the negotiating table understand that. On the other hand, if you have a fair amount of strength, they can push you harder. But it is no fun being in a business where you can’t take a strike.” Berkshire Hathaway’s Warren Buffett and Charlie Munger, “The Incentives in Hedge Funds Are Awesome, But Don’t Expect the Returns to Be Too Swift,” Outstanding Investor Digest, Vol. XVI, No. 4 & 5, Year End 2001 Edition.
35. Several of the Grahamites swear they saw the room. Buffett swears this story is not true. A former Plaza Hotel employee confirms that the seventeenth floor did have a few exceptionally small rooms, with bad views, and that it was possible to haggle the room prices down, especially later in the evening.
36. Interview with Ken Chace Jr.
37. According to Roger Lowenstein’s Buffett, Ken Chace was the source. Warren does not recall any of the details, including talking to Jack Stanton, but he says Ken Chace’s account is most likely correct.
38. Mary Stanton Plowden-Wardlaw, letter to Warren Buffett, June 3, 1991. Stanley Rubin set it up.
39. Interview with Mary Stanton Plowden-Wardlaw.
40. The detailed version of this story was related in Roger Lowenstein’s Buffett, with Ken Chace as the source. Buffett recalls sitting on a bench near the Plaza with Chace, eating ice cream.
41. “The Junior League is an organization of women committed to promoting voluntarism, developing the potential of women and improving the community through the effective action and leadership of trained volunteers. Its purpose is exclusively educational and charitable,” according to its mission statement. (The author is a member.)
42. He replaced the elderly Abram Berkowitz, who worked for the company’s law firm, Ropes & Gray, and had cooperatively decided to step down.
43. Stanton said he “hastened [his] retirement due to a disagreement with regard to policy with certain outside interests which have purchased sufficient stock to control the company.” “Seabury Stanton Resigns at Berkshire,” New Bedford Standard-Times, May 10, 1965.
44. Berkshire Hathaway Board of Directors’ minutes, May 10, 1965.
45. “Buffett Means Business,” Daily News Record, May 20, 1965.
46. Adapted in part from the documentary Vintage Buffett: Warren Buffett Shares His Wealth (June 2004) and in part from interviews.
Chapter 28
1. Interview with Doris Buffett.
2. Ibid.
3. November 10, 1965.
4. Report of the National Advisory Commission on Civil Disorders. New York: Bantam Books, 1968.
5. “Riot Duty Troops Gather in Omaha,” New York Times, July 5, 1966. The governor said the problem was unemployment, which ran triple that of whites. 30% of blacks were unemployed in Omaha.
6. Bertrand Russell, Has Man a Future? New York: Simon & Schuster, 1962. This powerful, absolutist book argued that unless something “radical” happened, mankind was eventually doomed by weapons of mass destruction, and predicted the development of mass chemical and biological weapons in the not-distant future.
7. The 1955 Russell-Einstein Manifesto. Russell was president of the Campaign for Nuclear Disarmament in 1958, and was cofounder with Einstein of the Pugwash Conference, a group of scientists concerned about nuclear proliferation.
8. Interview with Dick Holland.
9. Buffett and his chief administrative officer John Harding chose a set of representative large-cap stocks, in effect creating a market index. Buffett did not want to execute the trade through a brokerage firm because the broker kept the proceeds from the sale and paid no interest to him. Harding contacted university endowment funds. Buffett went personally to Chicago to get shares. The idea of lending directly to a short-seller was so novel at the time that most universities passed. However, Harding was able to borrow about $4.6 million of stock.
10. Buffett put $500,000 into treasury bills in the first quarter of 1966.
11. Interview with Susie Buffett Jr., Meg Mueller, Mayrean McDonough.
12. Interview with Kelsey Flower.
13. Interview with Susie Buffett Jr.
14. Interview with Marshall Weinberg.
Chapter 29
1. “The Raggedy Man,” by James Whitcomb Riley, a children’s poem about a handyman.
2. Interview with Chuck Peterson.
3. Buffett tells the story, which Charlie Heider recalls and found unforgettable. Parsow doesn’t recall it.
4. Both Byer-Rolnick and Oxxford w
ere acquired by Koret in 1967.
5. Interview with Sol Parsow.
6. Gottesman worked for Corvine and Company, which, he says, was going out of business. He founded his own firm, First Manhattan Co., in 1964.
7. Interview with Sandy Gottesman.
8. “That’s not negotiating,” claims Munger. “It’s just using pithy examples to steer people to what they should be doing. Sure, it’s persuasion, but it’s legitimate persuasion.”
9. The Kohns were planning to sell for a quarter less than the tangible net assets of the business. Gottesman had done a private placement of debentures for Hochschild-Kohn with Equitable Life that year and was familiar with its financial statements. His mother-in-law, her brother Martin Kohn, and another sister were equal stockholders who owned a class of preferred stock in the company. The preferred stock was in arrears, not having paid a dividend in some time. In effect, therefore, they could have controlled the business. They had not exercised this privilege, however. The common stock was owned largely by their relative Louis Kohn, from another branch of the family and second in command after Martin Kohn.
10. DRC Offering documents for 8% debentures, December 18, 1967.
11. He gave them the money anyway, partnered with National City to provide $9 million in short-term financing for the deal. Diversified Retailing Company, Inc., Prospectus, December 18, 1967. According to Gottesman and Moody’s Bank & Finance Manual, Martin Kohn was on the board of Maryland National Bank.
12. Charles T. Munger testimony, In the Matter of Blue Chip Stamps, Berkshire Hathaway Incorporated, HQ-784. Thursday, March 20, 1975, page 187.
13. Buffett mentioned the problem to the partners in his mid-1966 letter but stressed the more important question of buying a company rather than a stock. Another factor was the banks, which had also started issuing credit cards, cutting further into Hochschild-Kohn’s edge.
14. Interview with Charlie Munger. The company was purchased in April 1967.
15. Diversified Retailing Company, Inc., Prospectus, December 18, 1967.
16. Buffett says Rosner told him he got Aye Simon’s consent to sell the business by saying something along the following lines: “And to hell with you. If you’re going to second-guess it, you come down and run the store.” The relationship was irretrievably broken.
Chapter 30
1. Including Buffett’s stock in Data Documents, a separate investment, the Buffetts’ net worth was somewhere between $9.5 and $10 million.
2. Buffett’s description, in Patricia E. Bauer’s “The Convictions of a Long-Distance Investor,” Channels, November 1986, was, “One time we had a dog on the roof, and my son called to him and he jumped. It was so awful—the dog that loves you so much that he jumps off the roof…”—leaving the reader to wonder how the dog got on the roof.
3. Interview with Hallie Smith.
4. “Haight-Ashbury: The Birth of Hip,” CBC Television, March 24, 1968.
5. In 1967, over 2.5 billion shares traded, topping the previous 1966 record by one third. Thomas Mullaney, “Week in Finance: Washington Bullish,” New York Times, December 31, 1967.
6. But insurers looked undervalued and he thought they would get taken over. He bought Home Insurance and Employers Group Associates.
7. Sun Valley Conference, 2001.
8. At high rates of return, and paying no tax. If a shareholder had taken $0.06 a share—after paying a tax on the $0.10 dividend—and put it in the market earning 5% on average, he would have about $0.42. If Buffett had kept that $0.10, and compounded it at the 21% he earned over the past forty years, a shareholder, who would have been slightly diluted over the years, would be $135 richer. Looking at it on a larger scale, the tiny dividend “cost” Berkshire shareholders over $200 million as of 2007.
9. Interview with Verne McKenzie.
10. Letter to partners, July 12, 1967.
11. Interview with Verne McKenzie.
12. “Requiem for an Industry: Industry Comes Full Circle,” Providence Sunday Journal, March 3, 1968.
13. Letter to partners, January 25, 1967.
14. By September 30, 1967, the partnership had $14.2 million in treasuries and short-term debt out of a total $83.7 million invested.
15. Alice was a friend of Ringwalt’s; the family believed she may have once had some sort of “understanding” that might have led to marriage until Ernest put a stop to it. Ringwalt had a reputation as a ladies’ man, but Alice also kept house for her father, and “no one was good enough for her,” Buffett says.
16. Interview with Bill Scott.
17. Interview with Charlie Heider.
18. Robert Dorr, “‘Unusual Risk’ Ringwalt Specialty,” Omaha World-Herald, March 12, 1967, and Ringwalt’s Tales of National Indemnity and Its Founder (Omaha: National Indemnity Co., 1990) recount stories of lion tamers, circus performers, and hole-in-one contests. Buffett heard of the burlesque stars from Ringwalt.
19. Berkshire paid Heider a $140,000 fee for the transaction.
20. Interview with Bill Scott.
21. With the company closely held, it took only a week to round up the necessary 80% shareholder approvals.
22. In his book, Ringwalt says he was only driving around looking for a metered place on the street because he refused to pay a parking garage.
23. This was a reason why National Indemnity would not need reinsurance, or protection from other insurers, which was both expensive and would make it a dependent.
24. Ringwalt also was included in the shareholder register of Diversified Retailing in 1976 (he actually sold 3,032 shares back to the company in its tender offer).
Chapter 31
1. As quoted in an interview with Jose Yglesias as Dr. King prepared for the Poor People’s Campaign. Jose Yglesias, “Dr. King’s March on Washington, Part II,” New York Times, March 31, 1968.
2. Wead, who declined to be interviewed, was the director of Wesley House, a community improvement organization of the Methodist Church.
3. Interview with Racquel Newman and her son, Tom Newman. A number of other people recalled Susie and Rackie’s activities.
4. Interview with Chuck Peterson.
5. Buffett had met Rosenfield through a connection to Hochschild-Kohn.
6. Grinnell’s founder, Congregational minister Josiah Grinnell, pastor of the First Congregational church in Washington, D.C., bolted from its doors in 1852 when his Southern congregation took exception to his abolitionist views. It was Grinnell who sought advice from the famous New York Herald editor Horace Greeley and who heard the words that every schoolchild in America would subsequently learn without knowing their source: “Go West, young man, go West!” The phrase was originally written by John Soule in the Terre Haute Express in 1851.
7. Interview with Waldo “Wally” Walker, Dean of Administration at the time.
8. The luckless George Champion, chairman of the board of Chase Manhattan Bank, followed King on the program, speaking on “Our Obsolete Welfare State.”
9. This common paraphrase of Lowell was more eloquent than Lowell’s actual words: “Though her portion be the scaffold, And upon the throne be wrong.” James Russell Lowell (1819–1891), “The Present Crisis,” 1844.
10. Interview with Hallie Smith.
11. From King’s 1963 speech at Western Michigan University. King may have said something like this at the October 1967 Grinnell Convocation, but no transcript exists.
12. King first said this in Cleveland in 1963 and used variations of it in most major speeches thereafter. He called the idea that you can’t legislate morality a “half-truth.” “It may be true that the law cannot make a man love me,” he said, “but it can keep him from lynching me, and I think that is pretty important.”
13. Despite flirting briefly with the magic 1,000, it had ended down more than 15%.
14. Letter to partners, January 25, 1967.
15. Letter to partners, January 24, 1968.
16. Galbraith in an interview by Israel Shenker, “Galbrai
th: ’29 Repeats Itself Today,” published in the New York Times on May 3, 1970. “The explosion in the mutual funds is the counterpart of the old investment trusts. The public has shown extraordinary willingness to believe there are financial geniuses in the hundreds. Financial genius is a rising stock market. Financial chicanery is a falling stock market.” Galbraith reiterates this in “The Commitment to Innocent Fraud,” Challenge, Sept.–Oct. 1999: “In the world of finance, genius is a rising market.”
17. Grinnell forgave Noyce after intervention from his physics professor Grant Gale and, according to Buffett, from Rosenfield.
18. Wallace sought signatures in order to be placed on the Nebraska ballot as a candidate for the American Party.
19. Wallace hired an ex-Klansman as a speechwriter and made a number of inflammatory statements at different times, such as “I reject President Kennedy’s statement [that] the people of Birmingham have inflicted abuses on the Negroes…the President wants us to surrender this state to Martin Luther King and his group of Communists.” Yet his famous stand, blocking the University of Alabama’s Foster Auditorium to prevent the enrollment of two black students until forced by federal marshals and the National Guard to step aside, was a compromise apparently engineered with the White House to appease white supremacists and avoid violence while allowing the blacks to enroll. Wallace later apologized to the black community for his role.
20. Associated Press, “Disorder, Shooting Trail Wallace Visit,” Hartford Courant, March 6, 1968; Homer Bigart, “Omaha Negro Leader Asks U.S. Inquiry,” New York Times, March 7, 1968.
21. “Race Violence Flares in Omaha After Negro Teen-Ager Is Slain,” New York Times, March 6, 1968; Bigart, “Omaha Negro Leader Asks U.S. Inquiry.”
22. Associated Press, “Disorder, Shooting Trail Wallace Visit.”
23. UPI, “1 Wounded, 16 Held in Omaha Strike,” July 8, 1968.
24. He recovered after a lengthy hospital stay. Part of this account is from The Gate City: A History of Omaha (Lincoln: The University of Nebraska Press, 1997).
25. In a December 1981 Playboy interview, Henry Fonda, an Omaha native, recounts witnessing the same event: “It was an experience I will never forget…. My dad’s office looked down on the courthouse square and we went up and watched from the window…. It was so horrifying. When it was all over, we went home. My dad never talked about it, never lectured. He just knew the impression it would have on me.”
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