The first authorized biography provides deep—and timely—insight into the psyche of the billionaire investor
Warren Buffett and
the Business of Life
By Alice Schroeder
Bantam; 960 pp.; $35
For more than half a century Warren Buffett has shown impeccable timing. So perhaps it should come as no surprise that the first biography he has authorized was published in late September as news of the financial crisis that he had warned about dominated the front pages and just days after he had agreed to inject $5 billion into Goldman Sachs (GS).
Much of the legendary investor's story has been told, notably in Roger Lowenstein's masterful Buffett: The Making of an American Capitalist. But in The Snowball: Warren Buffett and the Business of Life, former Morgan Stanley (MS) insurance analyst Alice Schroeder provides a much more penetrating and personal look at the Oracle of Omaha.
Schroeder's portrait is the product of five years of research that included unprecedented access. She describes an obsessive man emotionally damaged by his mother's rages who nevertheless knew what he wanted and how to get there from an early age. Here readers will again encounter the burger-eating, Cherry Coke-swilling, aphorism-spouting outsider familiar from previous accounts. But The Snowball (to succeed, find wet snow and a really long hill, advises Buffett) is more perceptive than other works, getting deeply inside the head of the man who achieved such amazing long-term investment returns that some academics believe them to be a fluke.
Buffett himself has attributed his success to "focus." Schroeder writes: "He ruled out paying attention to almost anything but business—art, literature, science, travel, architecture—so that he could focus on his passion." As a child, Schroeder relates, Warren carried around a coin-changer as his prized possession, and when his dad offered him a trip at age 10, he asked to go to the New York Stock Exchange (NYX). Not long after, Buffett read a book called One Thousand Ways to Make $1,000 and announced to a friend that he was going to be a millionaire by the time he was 35. "That was an audacious, almost silly-sounding statement for a child to make in the depressed world of 1941," Schroeder writes. "But…he was sure he could do it."
And, of course, he did, and then some. After college, rejected from Harvard B-school, Buffett went to Columbia instead, where he studied under the legendary Benjamin Graham, author of The Intelligent Investor and the father of value investing. Buffett learned from Graham the perils of Mr. Market and how to know what companies were worth regardless of what the market claimed on a given day.
He started out buying "cigar butts," run-down companies with one puff left, and he ended up buying stock in some of the greatest brands in U.S. business, including Coca-Cola (KO) and Gillette (G), as well as private outfits such as the Nebraska Furniture Mart and See's Candies. At the core of Buffett's investing vehicle, Berkshire Hathaway (BRKA)—and the reason for Schroeder's first contact with him—are insurance operations, which have included GEICO and General Re. Highly profitable, these threw off more money for Buffett to invest.
Buffett's method, as learned from Graham and developed further on his own, was simple: Estimate the investment's value, handicap its risk, keep a margin of safety, and then let compounding do the real work. Through the go-go era of the '60s and the Internet bubble of the '90s, as others got caught up in mania, Buffett's philosophy didn't change. He bought only stocks that he could understand and value, and he wanted them cheap. "Anyone could understand these simple ideas," Schroeder writes, "but few could execute them."
For those who already know the Buffett story, the most impressive part of Schroeder's work will be its epic scope. She offers a vivid picture of the Buffett family, including Warren's Republican congressman father, Howard, who was as ethical as he was inflexible; his rage-filled mother, Leila, whose own mother spent much of her life institutionalized; and his wives, Susie, mother of their three kids, and Astrid, formerly Warren's live-in mistress. (Astrid and Warren married in 2006, two years after Susie's death.)
However, at 838 pages not counting footnotes and index, the book itself would have benefited from some focus. And a good editor might have cut a few of Schroeder's pet phrases, such as "elephant bumping," which she uses to refer to gatherings of the rich and powerful. But despite these quibbles, The Snowball is an astute, and at times riveting, read—especially now.
As Schroeder reminds readers, Buffett called derivatives "time bombs" as far back as Berkshire Hathaway's 2002 shareholder report and said that their unchecked expansion could, as she puts it, "cause a chain reaction of financial disaster."
It's a shame others weren't listening carefully. But as Schroeder writes: "In the midst of all the chaos of the spring of 2008, there sat Buffett, whose thinking about value and risk had not changed in the nearly sixty years of his career. There are always people who say that the rules have changed. But it only looks that way, he said, if the time horizon is too short."