Review: “Warren Buffett and the business of life”

Review: “The Snowball: Warren Buffett and the business of life” by Alice Schroeder

 

“The Snowball” is an enjoyably thorough journey through the life and times of Warren Buffett, the man who Schroeder gloriously deems the “All American, Pepsi quaffing, investing fundamentalist, one who plied his trade in glorious solitude, far from the Lucifer’s of Wall Street”. The idea that Buffett is a class apart from the Wall Street crowd, with avarice dripping down their walls, is a central theme throughout, and a huge part of his appeal. He loves the battle of business. Buffett is a principled man, always sticking to his rules. He constantly espouses the value of the “inner scorecard” that his father taught him and he religiously sticks to his “circle of competence”. He uses these tools to guide him ethically and financially through life. Schroeder’s 2008 biography  details how he made his fortune, his interest in politics and much more. “The Snowball” takes us behind the scenes of the greatest investor the world has ever seen. Although he would be too humble to see it that way. All he wanted was to emulate his mentor Ben Graham, author of the investing bible “The intelligent investor”.

 

Snowflake to Snowball:

 

  • Aged 12: buys his first stock. 12. Makes a profit but is disappointed that he did not sell later for a higher value.
  • Aged 14: Fills out his first-year end tax return. He had $1,000 at this point. Money he saved from doing his paper run. In the run up to the 2016 presidential election campaign, he released every tax return from this year on when Trump indirectly accused him of being economical with the truth of his tax returns.
  • Aged 15: he buys a farm and has $2,000.
  • Aged 16: he has $5,000. This is equivalent to approx. $55k by 2016 numbers.
  • Aged 21: he has almost $19k saved.
  • Aged 26: he has $126k and considers retiring.
  • Aged 34: $1.8m.
  • Aged 39: $24m.
  • Aged 47: $77m.
  • Aged 55: Becomes a billionaire.
  • Aged 63: $8.5 billion.
  • Aged 78: becomes the richest man in the world.

 

Ethics:

 

Buffett’s ethics are critical to understanding the man and Schroeder reflects this from the outset. He warned about the dangers of selling equities as far back as 1982, writing to Congress to highlight how dangerous they were. No regulation or action was taken.

He foresaw the 2007 financial crisis and spoke to numerous senators about the risks the markets were taking by not regulating the sales of derivatives, dubbing them “financial weapons of mass destruction”. Again, nobody heeded his advice.

His legendary frugality is dissected in comprehensive detail. Schroeder had extensive access to interview Buffett and separates the myth from reality. He used to purchase second hand magazines – – just as they were going out of date to save money on subscription fees! When he began turning around the corrupt Salomon company, he set about changing the culture, primarily through leading by example. Out went the exorbitant stretched limousines and expensive restaurants for their executives to be replaced by the coke and hamburgers for dinner and taking the subway to work.

Maybe the best example of Buffett’s morals was when he told his traders, “lose money for the firm and I will be understanding. Lose a shred of reputation for the firm and I will be ruthless”.

His wife Susie did lots of important charity work. She always pushed him to give away more. However, Buffett knew if he kept increasing his Snowball exponentially, he would be able to bequeath a much larger fortune and help more people. His 2006 announcement that he would give most his fortune to the Bill & Melinda Gates foundation is wonderful news for the world. He may just end up saving a lot of lives and creating opportunity in the world.

His work ethic is inspiring. He says that 80% of his day is spent reading. Anything and everything. Newspapers, Science journals, books, sales information for any industry. He would toil in libraries to learn as much as he could about a certain company. Frequently he would ensure that he had more information, more of an edge, before making an investment. He constantly tried to better himself, to learn more. I find this more inspirational than the amount of money he makes. His vaguely meliorist philosophy makes appeal.

 

Politics:

 

It was wholly natural that his zeal for doing the right thing in life and in business meant that he took a deep interest in politics. Not that he got into that sphere because of his burgeoning wealth. His father Howard was a Republican Senator who firmly believed that Communism was the root of all evil. Warren started out being the captain of the Young Republicans. His father was such a deep believer in the aims of the Republican Party that Warren was afraid to tell him that he had switched to becoming a democrat before he died! He would avoid conflict at any cost. It was the Democratic parties embrace of the civil rights movement that made Warren switch allegiances. He could not abide by the racism embedded in his Fathers party. He shunned Reagonomics as his economic strategy was based on borrowing and increasing debt. Something Warren could not justify in his personal life.

He is a believer in a progressive tax system where the highest earners should pay more, warning of the dangers of Neoliberalist economics. In 2001, he went to the Hill and spoke to 38 senators about what he saw as the increasing economic policy of “government by the wealthy for the wealthy”. He recognises plainly that capitalism does not work for all and tried to offset its effect as best he could.

 

Rejection and improvement:

 

Buffett was spurned by Harvard Business School. They did not see him as a “leader”. He persevered and graduated from Columbia. In typical Buffett fashion, the connections he made in Columbia ended up being more valuable in the long term.

He made it his mission to learn from his lecturer and mentor Ben Graham, thinking him the best in the business. He was determined to work for him, even offering to go unpaid. His offer was turned down multiple times before Graham finally relented.

His first wife Susie did not see him as suitable at first. Intuitively knowing how brilliant she was, he was relentless in his wooing of her.   Like Graham, she eventually succumbed.  Failure was not an option.

 

Wisdom:

 

Some nuggets of advice from the book that I had to share:

  • “Quickened pulses and self-delusion were the major causes of mistakes”.
  • He was a firm believer in having a “circle of competence”. Do not try to be an expert in more than 3 areas. Master these areas and success will come easier.
  • Save your credit. It says a lot about you.
  • “Be content with moderate gain” when doing business.
  • “Spend less than you make and don’t got into debt”.
  • Learn to float upwards with intelligent people to better yourself. This will improve you. “It just works this way” he advises.
  • Buffett and Gates both said their number one rule for being successful is “Focus”.
  • Looking after, yourself mentally and physically. Buffett gives a great analogy in the book. You are 16 and must choose one car for the rest of your life. You don’t know which one it will be but you can never get a new one. How would you look after it? With great care. Same with us as people. So many do not look after ourselves though.
  • Always have two income streams.

 

Conclusion:

 

Buffett is a hardworking, intelligent, meticulous, moral, compassionate and loyal person. He is not someone who “spent his whole life at the withdrawal bank”. Schroeder: “He’s the master of the win win but never does anything that isn’t win for him”. When he released all his tax returns since the age of 14 during last year’s US Presidential election, it was impossible not to contrast his integrity and candour with the dishonesty of the current President. Reading about his life made me revaluate my own. Am I being smart with my money? What can I do better? Should I read more widely? Like all truly great people, there is a lot to learn…

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About Mick Gilbride

@orbital80
This entry was posted in Biography, Book, Book review, Books, Business, Investing, The Snowball, Warren Buffett. Bookmark the permalink.

One Response to Review: “Warren Buffett and the business of life”

  1. tiggyt says:

    So inspirational!

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