Reviewed by James Rosen
Sunday, October 5, 2008
Warren Buffett and the Business of Life
By Alice Schroeder
Bantam. 960 pp. $35
"Manual labor is for the birds," Warren Buffett decided somewhere around the 8th grade. At this precocious age the Nebraska native had also already discovered his extraordinary facility with facts and figures, the very attribute that would transform a socially awkward misfit into "the Oracle of Omaha," the most successful investor of modern times, the world's richest man and most generous philanthropist. This quintessentially American tale about the ultimate self-made man -- and in some ways the least changed -- unfolds for the first time with Buffett's full cooperation in Alice Schroeder's gargantuan authorized biography, The Snowball.
Born in 1930 to a self-righteous Protestant stockbroker (who went on to serve four terms as a Republican U.S. congressman) and a verbally abusive mother who made him feel "worthless," Buffett divided his boyhood between Omaha and wartime Washington. He had no use for girls; instead his eyes leapt at statistics and money-making schemes. Young Buffett tabulated the numbers and letters on license plates; handicapped mortality rates; trolled discarded racetrack slips; sold used golf balls; delivered newspapers; rented pinball machines; ran numbers; printed betting sheets; shoplifted; and "Tom Sawyered" classmates into his ventures. At 14, he purchased a tenant farm and filed his first tax return; he was a millionaire at 30.
Buffett worshipped post-Depression Wall Street gurus like Ben Graham, who demystified the stock market for lay investors by explaining how publicly available data -- financial statements, news reports -- could help unlock a stock's "intrinsic value." Later, influenced by "class handicappers" like Phil Fisher, who urged speculators to look beyond a stock's price/earnings ratio, Buffett gravitated toward more qualitative judgments about companies' worth. Still, Buffett's "value investing" philosophy, even where marked by innovative cross-pollination, always remained fundamentally cautious. "He would forgo the chance of profits any day to avoid too much risk," Schroeder writes, "and viewed preserving his capital as an almost holy imperative." Buffett himself, explaining why he frowned on diversified portfolios, told partners in November 1965: "We might invest up to forty percent of our net worth in a single security under conditions coupling an extremely high probability that our facts and our reasoning are correct with a very low probability that anything could drastically change the underlying value of the investment."
There was no arguing with the results: In his first six years on his own, managing relatively modest sums invested by friends and relatives -- and operating with total, and highly unusual, autonomy -- Buffett unfailingly outperformed the market and grew his partnerships' net assets from $105,000 to $7.2 million (almost $49 million in current, inflation-adjusted figures). In later years, as Buffett's Berkshire Hathaway empire grew, ambition forced him to overcome his aversion to diversification and to expand from investing in companies to acquiring them.
A former insurance analyst at Morgan Stanley, Schroeder appears to have been hand-picked as Buffett's Boswell. Though not a trained journalist, she doggedly spent five years interviewing her subject, along with 250 friends, family members and colleagues, and made skillful use of her unfettered access to Buffett's document vaults. "Whenever my version [of events] is different from somebody else's," Buffett advised his biographer, "use the less flattering version." This Schroeder does, unflinchingly chronicling Buffett's emotional and financial withholding from his family; his romances outside his marriage (including a long affair with Katharine Graham, the late publisher of The Washington Post, on whose board he serves); and his panic during a 1975-76 brush with the Securities and Exchange Commission ("There's got to be an indictment in there somewhere," fretted one of Buffett's lawyers, though no charges were brought).
Most affecting is Schroeder's portrayal of the "triangulated" relationship between Buffett, first wife Susie -- the financier's "most powerful asset," and one whose intrinsic value he seems, uncharacteristically and cruelly, not to have recognized -- and the much younger woman who would eventually become Buffett's second wife, Astrid Wenks. "Astrid . . . accompanied Warren only to the backstage social events, just as she did in real life," Schroeder writes, "while Susie attended the 'official' public social events in the role of 'wife.' " "If you knew everybody well," Buffett would say, "you'd understand it quite well."
The Snowball, whose title is derived from one of the Oracle's homespun aphorisms -- "Life is like a snowball. The important thing is finding wet snow and a really long hill" -- marks a titanic achievement of research and reporting. It's the definitive portrait of a complex man of simple tastes, a power player who trembled from anxieties worthy of Charlie Brown, a triumphant outsider who revolutionized Wall Street from a modest office in Omaha, a money-obsessed genius who amassed unprecedented wealth and then gave it all away. To be sure, Schroeder could have used an editor; at 960 pages, her book devotes pages and pages of description, however thoroughly researched, to peripheral characters, family histories and houses that could have been sketched, no less ably or helpfully, in a few sentences. She is also prone, in scene-setting detours into political history, to embarrassing factual errors, as with her references to Richard Nixon as "a young senator on the House Un-American Activities Committee" and to "Senator Joe McCarthy's House Un-American Activities Committee." And while Schroeder is a gifted writer, her similes sometimes get away from her ("working like a woodpecker in April," "stocks often dropped like doves thwacked full of bird shot," etc., ad avium).
But if the replication of any great achievement first requires knowledge of how it was done, then The Snowball, the most detailed glimpse inside Warren Buffett and his world that we likely will ever get, should become a Bible for capitalists. ·
James Rosen is a Fox News Washington correspondent and author of "The Strong Man: John Mitchell and the Secrets of Watergate."