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Book World Live: The Snowball: Warren Buffett and the Business of Life

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Alice Schroeder
Biographer and Former Wall Street Analyst
Thursday, October 2, 2008; 11:00 AM

"The snowball just happens if you're in the right kind of snow, and that's what happened with me. I don't just mean compounding money either. It's in terms of understanding the world and what kind of friends you accumulate. You get to select over time, and you've got to be the kind of person that the snow wants to attach itself to. You've got to be your own wet snow, in effect. You'd better be picking up snow as you go along, because you're not going to be getting back up to the top of the hill again. That's the way life works." -- Warren Buffett, as quoted in The Snowball

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The economic roller coaster of recent weeks has brought renewed interest in the tactics and success of Warren Buffett, the legendary investor and world's richest man. Alice Schroeder, author of the new biography The Snowball: Warren Buffett and the Business of Life was online Thursday, October 2 at 11 a.m. ET to discuss Buffett's approach to investment and his public and private lives.

Schroeder is a former managing director at Morgan Stanley. Buffett chose her to write this authorized biography and offered her thousands of hours of interviews, as well as access to his friends, family, and business.

The transcript follows.

Join Book World Live each week for a discussion based on a story or review in Book Worldor in the weekday Style Section.

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Alice Schroeder: Good morning, this is Alice Schroeder, author of The Snowball: Warren Buffett and the Business of Life. I'm looking forward to your questions.

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Woodbridge, Va.: How large or small is the group of Mr. Buffett's trusted advisers and how long have they been with him?

Alice Schroeder: Warren Buffett has zero advisors -- in fact a famous joke about him is that advice bounces off his head. As he puts it, when he gets up in the morning he looks in the mirror and at that point, everybody's had their say. Occasionally, however, advice will penetrate if repeated multiple times with great urgency.

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Mount Airy, Md.: How do you go from being an investment analyst to writing a book about the world's most successful investor?

Alice Schroeder: I was the only analyst to follow Berkshire Hathaway. Warren decided to talk to me, and got to know me as a business person. He said he liked the way I think and write. He is never going to write a book, but he kept nudging me to write one (on an unspecified subject). I came up with the idea for The Snowball, but thought the author should be him. He thought otherwise, so I ended up volunteering, at which point he offered to cooperate with me.

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College Park, Md.: I just started reading your book and you have a statement that Buffett has had two wives for twenty years. This has been alluded to in interviews with him but hasn't been stated. How did this happen?

Alice Schroeder: Warren's wife Susie moved to San Francisco in 1977 but they remained married. The reasons are complex and detailed in the book but boil down to her desire for a broader life compared to Warren's focus on business and his neediness and wish to be constantly taken care of. He is pretty helpless when it comes to anything domestic. Susie arranged for a friend of hers, Astrid Menks, to stop in and lend a hand. They ended up striking up a relationship, at which point the three of them worked out an arrangement that was acceptable to all of them in which Susie and Astrid essentially split the role of a wife.

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San Bruno, Calif.: What has been Buffett's worst investment? USAir?

Alice Schroeder: Yep.

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Bethesda, Md.: Have you talked to Buffett in the past couple of weeks? Any insight into why he's chosen to get involved in what is amounting to a private bailout of certain companies?

Alice Schroeder: Hi, yes we have been talking although not in the past couple of days. But both Goldman and GE were in discussions with him for a couple of weeks. This is a business deal for him -- he does not do favors -- but he thinks very highly of both Goldman's management and of Jeff Immelt. Basically, both firms are renting his reputation at an exorbitant price.

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Falls Church, Va.: What are the biggest lessons you've learned from Buffett after spending all this time researching his life and interviewing him? Has your own stock portfolio thrived under his teachings?

Alice Schroeder: The biggest lessons are personal: how to manage my time and my relationships with people. There is a lot about this in the book. As to investing, I essentially set this aside when I started the book -- no time. I don't own Berkshire -- alas -- viewed it as a conflict of interest. I was very busy while writing this book and spent zero time thinking about investing. My sister gave me a Harry Potter time turner at one point and I wore it nearly every day.

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Philadelphia, Pa.: Legend has it that Warren Buffett attended the Wharton School and did not graduate, announcing he had learned enough. Is this true, and what does he seem to think of his formal business school education, or lack thereof?

Alice Schroeder: He transferred from Wharton to Nebraska and graduated, then attended Columbia. In general, however, he views a college degree, especially from competitive schools, as a "badge" that is useful in getting a good job. What he thinks is important is learning. He is largely self-taught.

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Bucks Co., Pa.: It used to be the case that the ultra-rich were vilified and disliked by the "common man". Warren Buffett, on the other hand, has achieved almost folk hero status. We love the guy. What is that all about?

Alice Schroeder: The Buffett family has an egalitarian streak that goes way back -- on both sides -- the book tells this story. The Buffetts have always been champions of the underdog.

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Alexandria, Va.: I seem to recall Buffett has already told his offspring that they'll be receiving very little in terms of an inheritance. Can you tell us what he's leaving them and if they've publicly had any reaction? I would guess there might be some bitterness there.

Alice Schroeder: His mantra has been "give them enough so they can do anything, but not so much that they can do nothing." When Susie died in 2004 she left them each $10M. Warren gives them each $1M every five years on their birthday. So they're not hurting. But the main thing he's done is to give them well over a billion dollars worth of BRK stock in their own foundations to give away.

The family has always had "issues" with money. When the kids were young, as one put it, when he took them to the movies he might not pay for popcorn. Their relationships were him were complicated by feelings about withholding of money. As he's become more generous, that has changed.

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Alexandria, Va.: Now that the book is finished, how often do you communicate with Buffett? Did he pay you to write the book or was that a deal cut solely with your publisher? For that matter, will Buffett profit from sales of the book? I've always wondered how that works.

Alice Schroeder: Hi, thanks for asking. There has been some confusion on this topic. I am the sole author, and Warren was not a participant in the writing or any aspect of the book contract. He did not pay me to write the book, and it is not an "as told to" book -- it is my perspective on him. He is not a participant in any part of the profits.

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Ann Arbor, Mich.: Hi Alice, I loved The Snowball. Does Mr. Buffett have any weaknesses as an investor?

Alice Schroeder: thank you! Yes: occasionally he has been impulsive, he does have a tendency to fall in love with people (e.g. John Gutfreund at Salomon) and invest on that basis, and he has a very high threshold for returns -- so much so that he has at times passed on really good investments because he wanted them to be highway robbery.

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Albany, Ga.: Can you give a detailed explanation of how Buffett participated with you in writing the book? Timeline, events, quote, etc. Thanks.

Alice Schroeder: Okay, for the first eighteen months I spent about half my time in Omaha doing interviews with him, going through his files and observing him at work. Thereafter I was writing and needed to be at home so mostly talked to him on the phone whenever I needed to. Probably about 2,000 hours total of which 300 were recorded interviews. I interviewed 250 people other than him, and continued to interview and research for the whole five year project. The work became more slanted toward writing and rewriting as I reached the end of the project.

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Alexandria, Va.: My husband and I listened intently to Charlie Rose's interview of Mr. Buffett last night and we look forward to purchasing your book. He has long been my husband's hero. It helped that both of our daughters (no sons) went to Creighton University in Omaha. We shopped for some of their dorm room enhancements at the Nebraska Furniture Mart and drove through the neighborhood that my husband thought was Buffett's. How did he get to be so influential to so many people? Do you think he would accept a political appointment?

Alice Schroeder: Warren would approve of your shopping habits!

He considers himself a teacher and has been teaching, formally or informally, all his adult life. At first he taught investing classes at universities; now he conveys ideas through his shareholder letters and the shareholder meeting. People find him insightful and many are inspired by what he says. Over time he's become an advisor to politicians and other CEOs behind the scenes, and his influence is far greater than is obvious on the surface. I don't think he would accept a political appointment ... he doesn't like meetings and committees; they give him a headache, literally; he is not willing to sign up to commit his time this way.

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Arlington, Va.: With all due respect, do not you think the book is too big? If Mr. Buffett wrote it, he would have focused on the key elements. It seems to me you did not want to take the extra time to distill the useful information. Thanks.

Alice Schroeder: Thank you and I appreciate your comments. It's notable that Warren did not want to write the book, and chose me to do so because he felt that I would do a better job. I believe its length and detail are appropriate for a major figure in American life who has has lived 1/3 the life of the entire United States. In writing The Snowball, I realized that many people do prefer shorter books and "how to" books. I wrote the book that I thought needed to be written, and focused on readability. I'm very proud that several reviewers have called the book "engrossing."

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Mount Airy, Md.: It seems as if Mr. Buffett has become much more of a public persona in the last couple of years. He is commonly seen on the news giving interviews. Why has he decided to be out in the public so much more?

Alice Schroeder: He is certainly much more visible these days. He does not do interviews about personal subjects, but is often on television talking about business. He views himself as a teacher, and as he's gotten older, seems to want to convey his views to an audience much more often.

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Evanston, Ill.: After being such a prescient critic of derivatives (weapons of mass destruction), why would he put a couple billion into the black hole Goldman Sachs is rapidly becoming? USAir is about to be one-upped.

Alice Schroeder: There are similarities between the Goldman deal and the Salomon deal in 1987 -- in both cases he was making the bet that the firm would not go bankrupt, and getting a fancy price to lend the firm his reputation and to take that bet. Time will tell whether he's right. The Salomon deal did work out decently, unlike USAir which was a fiasco.

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Durham, N.C.: Did you ever get a chance to discuss deep philosophical questions with Mr. Buffett? Such as the meaning of life, his purpose in this world, etc? Or, perhaps if you never discussed these directly, did you get a sense of his belief on these topics from your interactions with him?

Alice Schroeder: Hi. Yes, there's a good bit about this in the book. He is not a spiritual person but has strong philosophical beliefs about justice, how society should be ordered, and the purpose of life. See The Snowball for more!

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Washington, D.C.: I saw him on Charlie Rose last night and he struck me as a Nancy Pelosi. She pushes solar energy to boost her own portfolio of solar stocks and he cries disaster so he can swallow up assets at cut-rate prices.

Alice Schroeder: Hi there. One thing I can promise you is that he's not crying disaster to boost his portfolio. He's been cheerleading that "your children will be better off than you are" which is a position that I think is quite debatable. He is quite wary of ever saying anything that could cause a "run" on the U.S. (stock market or any other market) because he knows he's so influential. That said, of course he makes more money when things are dire.

Listen, I do have connections to Wall Street beyond just him. What is going on is terrifying. When some money market funds broke the buck investors began pulling out their cash, which is the underpinning of the banking and credit system. In other words, Main Street has pulled the rug out from Wall Street. The fact that GE had to announce intra day that it needed money from Buffett -- not wait until the market close -- tells you that this was a real desperation move. We are in the middle of a national emergency of serious proportions, folks.

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Washington, D.C.: I understand that young Warren attended Wilson High School, in the District. Did you uncover anything during his years there that would have caused him never to donate dime one to the school in the years since?

Alice Schroeder: interesting question. Warren has never donated any money to educational institutions anywhere. So it's not aimed at Woodrow Wilson. He has strong feelings about the public school system and its need for support but he will not ever do anything that would result in his money being used as a substitute for taxpayer money. If something is a collective responsibility, in other words, he wants society to step up and take care of it and won't give a donation that suggests otherwise. You can argue whether this is right, but that's his attitude.

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Philadelphia, Pa.: Warren Buffett believes there may be profit in investing in some of the current debt. Yet, the government will likely lose an enormous amount. What does he think about our system where our government rushes in to shore up debt but seldom participates in its profits?

Alice Schroeder: Warren obviously would not choose a system where we lock the barn door after the horse is long down the trail and escaped -- you are quite right about that. However, the situation is this: the house is on fire, and you can either get out the hose and extinguish the fire, or you can argue about who pays for the water and how much it should cost. He's in favor of the former, and worry later about where the water came from.

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Annapolis, Md.: What are Mr Buffett's views on abortion, gay rights, global warming, the environment?

Alice Schroeder: He's pro-choice, considers gays and lesbians equal to everyone else in society. He views global warming and the environment as a sign of a planet overburdened by too many people but it's a problem he's not in a position to solve. He's more concerned, actually, about the nuclear threat -- views it as both bigger and more immediate.

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Mt. Lebanon, Pa.: I've read about Buffett's money-making acumen as a young boy. But is there anything in his DNA to explain his unique arc through the American business and finance sphere of activity and influence?

That is, father, mother, uncle, great aunt.. anything here in the gene pool that could offer some insights? Or did this particular apple fall a long way from the tree?

Alice Schroeder: You know, I'm not a psychologist and didn't try to separate what made him who he is. But certainly, the Buffetts were all fairly thrifty, business oriented, yet none were brilliant investors or entrepreneurs. So he grew up in a family that talked business all the time, but had no special secrets of success at it.

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Alexandria, Va.: It is fair to say that most very rich investors are generally Republicans? It's in their interest to lower taxes, deregulate government oversight and be very skeptical of government programs. Buffett is a notable exception to this point of view. What in his life has led him to this contrary political point of view?

Alice Schroeder: The book covers this in some detail. It's not a simple answer but comes down to his statement "I don't like anything that contributes to a residue of society." He prefers policies that reduce inequality.

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Harrisburg, Pa.: Why did Warren Buffett contribute so heavily to Bill Gates' charity? I understand concentrating efforts, yet some (not all) of the Gates charities, such as seeing schools have computers, have some financial implications for Microsoft down the road. Does this bother Mr. Buffett?

Alice Schroeder: Warren looked at it this way: He viewed the Gates as the smartest philanthropists he knew. It is just stunning, if you are in Bill's office, to see the number of books on philanthropy all of which he has read and virtually memorized. He can talk on this subject for hours; he is fascinating to talk about on philanthropy. Second, the Gates are the only people who have ever given away such large sums. Third, he has a basic trust in Bill and Melinda and knows they will steward the money properly. Fourth, he agrees with their philosophy which is that every life is of equal value and the money should be used to save the most lives per dollar spent. Yes, you can make the computer argument, but on the other hand, what the Gates have done with the small school movement is impressive. Warren is looking at the big picture.

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Washington, D.C.: Were there some ground rules for you not to talk about the Katherine Graham affair for you being here today? Please discuss this, briefly. How was it kept so secret?

Alice Schroeder: There were no ground rules. Not sure what you mean by kept secret? Not aware of any secret. It's discussed in the book.

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Tel-Aviv, Israel: Following the acquisition of Iscar, what role does Eitan Wertheimer, Chairman of Iscar, take in Warren's business life? It seems they have become close friends. Is that really so? How often do they speak? Do they think they are somewhat similar? Thanks and good luck with the book.

Alice Schroeder: Hi there. None of the subsidiary CEOs play a big role, but Eitan has helped Warren prospect for new companies to buy, and Warren is very appreciative of that. They are both very canny businessmen, and similar in that way. I would say they have a warm working relationship.

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Washington, D.C.: Interesting answer about his not giving to educational institutions. So what does he donate to that isn't a collective responsibility?

Alice Schroeder: He's given money to Ted Turner's Nuclear Threat Initiative. This is his most important cause and he would give them very large amounts of money (or anyone else) who could solve the nuclear threat. The Buffett Foundation also supports family planning, especially in third world countries. There is very little funding for this from public sources, and, in the U.S., from private sources. As you probably know, it is controversial, but meets his criterion.

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Marseille, France: In the past, there were rumors that Mr. Buffett did not like the first version of your book (400 pages). Is it true? If not why did it take you and your helpers five years instead of three as previously forecasted?

Alice Schroeder: Hi there. First of all there was no "first version" of 400 pages ... think that must be just some rumor. And I've not heard anything from Warren about him not liking something. I did not have any helpers, although like most biographers I did have a researcher. Very early on, however, as a first-time author, I was over-optimistic about how long it would take to write this book. I am very glad I took the extra time.

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Arlington, Va.: The news today is that Warren Buffett is putting $3 billion into General Electric stock. GE owns NBC; is Buffett looking to become the next Rupert Murdoch or Ted Turner?

Alice Schroeder: Heaven forbid.

No, seriously, all he is doing is making an opportunistic investment; the terms are very lucrative. Also, it isn't unpleasant to him that he is getting enormous publicity as the savior (in effect) of these two companies. Warren is quite the showman and not averse to showcasing Berkshire as the "Ft. Knox" as he puts it, of American businesses.

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College Park, Md.: Is Buffett religious?

Alice Schroeder: He's agnostic -- essentially no spiritual beliefs. His first wife, Susie, was a "personal deist" -- i.e., believed in a generally conceptual God.

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Annapolis, Md.: Does Mr.Buffett use computers/software to analyze stocks before he buys them or does he just read stuff and make a judgment?

Alice Schroeder: He never uses a computer for investments -- if the investment is not so compelling that he can make the decision without a spreadsheet or model, he's just not interested in it.

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Alice Schroeder: Well everyone, thank you so much for joining the discussion today. I enjoyed talking to you virtually! Alice

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