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The Snowball: Warren Buffett and the Business of Life Paperback – 16 Sep 2009
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`A reliable and perceptive account of stock market history through the prism of the world's most successful investor, Warren Buffett' --The Times
`As well as the minutiae of his deals, what emerges is a sympathetic yet realistic portrait of a single-minded man. ****' --Sunday Telegraph
About the Author
Alice Schroeder began her career as a certified public accountant, working for Ernst & Young before being appointed as a managing director at Morgan Stanley in the equities division. She was the number 1-ranked Institutional Investor All-America Research analyst in 2001 and 2002, and a member of the All-America Research team for seven years. Schroeder first met Warren Buffett in 1998. By 2001, Buffett began to suggest that Alice shift from the business of following stocks in order to write full-time.
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The heft of Schroeder's biography may discourage some people from obtaining a copy. To them I presume to suggest that they not be deterred by that factor. Schroeder has a lively, often entertaining writing style that drives the narrative through just about every period and (yes) interlude of Warren Buffett's life and career thus far. There is much more information provided than most readers either need or desire. However, she had unprecedented access not only to Buffett but to just about everyone else with whom he is (or once was) associated as well as to previously inaccessible research resources. It is possible but highly unlikely that anyone else will write a more comprehensive biography than Schroeder has, at least for the next several years, if not decades. Also, her opinion of Buffett seems to me to be balanced and circumspect. No doubt he wishes that certain details about his life and career were not included. However, there has been no indication from him or those authorized to represent him that any of the material in this biography (however unflattering) is either inaccurate or unfair. Both halos and warts are included.
Others have shared their reasons for holding this book in high regard. Here are two of mine. First, although I had already read various Buffett's chairman's letters that first appeared in a series of Berkshire Hathaway's annual reports, I did not understand (nor could I have understood) the context for observations he shared, especially his comments about especially important 12-month periods throughout BRK's history. Schroeder provides the context or frame-of-reference I needed but previously lacked. For example, whereas in previous letters, Buffett merely offered brief updates on how each BRK company was doing, in 1978 he began to share his thoughts about major business topics such as performance measurement for management and why short-term earnings were a poor criterion for investment decisions. With the help of Carol Loomis, especially since 1977, his chairman's letters "had grown more personal and entertaining by the year; they amounted to crash courses in business, written in clear language that ranged from biblical quotations to references to Alice in Wonderland, and princesses kissing toads." As Schroeder explains, these gradual but significant changes of subject and tone reflect changes in Buffett's personal life as he became more reflective about business principles and more appreciative of personal relationships. His children were growing up and departing the "nest" in Omaha. His wife Susie decided to relocate to San Francisco. Meanwhile, his personal net worth continued to increase substantially. His national and then international recognition also increased. The "Oracle of Omaha" had finally become sufficiently confident of himself to reveal to others "a sense of him as a man."
I also appreciate how carefully Schroeder develops several separate but related themes that help her reader to manage the wealth of information she provides. The biography's title suggests one of these themes: the "snowball" effect that compounded interest can have. From childhood when he began to sell packs of gum (but not single sticks) and bottles of soda, and a money changer was his favorite toy, Buffett was fascinated by the way that numbers "exploded as they grew at a constant rate over time was how a small sum could be turned into a fortune. He could picture the numbers compounding as vividly as the way a snowball grew when he rolled it across the lawn. Warren began to think about it a different way. Compounding married the present to the future. If a dollar today was going to be worth ten some years from now, then in his mind the two were the same." Early in life, Buffett avoided making any purchases unless they were almost certain to generate compound interest. This theme is central to understanding Buffett's investment principles and to his own leadership of BRK. It also helps to explain why he could become physically ill when an investment cost others the funds they had entrusted to his care. Other themes include his determination to simplify his life to the extent he could (e.g. eating hamburgers and wearing threadbare sweaters, minimizing participation in family activities) so that he could concentrate almost entirely on business matters; his dependence on a series of women, beginning with his mother and two sisters (especially Doris) that continued with his first wife Susie (and their daughter "Susie Jr.") and then companion Astrid Menks whom he married in 2006; and his passion for helping others to understand the business principles to which he has been committed since childhood.
There is one other theme of special interest and importance to me: over the years, how Buffett has interacted with various associates, notably with Jerome Newman and Benjamin Graham, Sandy Gottesman, Charlie Munger, Bill Ruane, Katherine Graham, and Bill Gates. By all accounts, Buffett is a superb business associate once he agrees to become involved. He cares deeply about each relationship, does whatever may be necessary to protect and defend the best interests of his associates, and is extraordinarily generous with material rewards as well as recognition. Here is an especially revealing excerpt from Cunningham's Introduction to The Essays of Warren Buffett: "The CEOs at Berkshire's operating companies enjoy a unique position in corporate America. They are given a simple set of commands: to run the business as if (1) they are its sole owner, (2) it is the only asset they hold, and (3) they can never sell or merge it for one hundred years." These three "commands" are wholly consistent with what Lawrence explains earlier in the same Introduction: "The central theme uniting Buffett's lucid essays is that the principles of fundamental business analysis, first formulated by his teachers Ben Graham and David Dodd, should guide investment practice. Linked to that theme are management principles that define the proper role of corporate managers as the stewards of investment capital and the proper role of shareholders as the suppliers and owners of capital. Radiating from these main themes are practical and sensible lessons on the entire range of important business issues, from accounting to mergers to valuation." Those who shared Buffett's same core values of honesty and integrity, and who are also committed to the same basic principles, cherish their relationship with him.
To me, Alice Schroeder's rigorous and eloquent analysis of this theme of mutually productive and beneficial collaboration is her single greatest achievement among many in this definitive biography of one of the most important and yet least understood business leaders in recent years. Bravo!
People in financial markets often have the reputation of being greedy, predatory or incompetent. In its review of Alice Schroeder’s The Snowball: Warren Buffett and the Business of Life, the Houston Chronicle says that Buffett is an exception. He is entirely rational. The book gives us a glimpse of how Buffett made his fortune, and describes how Buffett operates through his Berkshire Hathaway investment vehicle. He rigorously analyses a company's fundamentals, and once he determines a company’s intrinsic value and understands exactly how it makes money, he develops a view on the business's future prospects. He looks for companies that have a "moat" that creates high barriers to entry for would-be competition.
We shouldn’t put our eggs in many baskets.
We shouldn’t place small amounts in each basket.
We shouldn’t switch holdings frequently.
We shouldn’t avoid holding cash.
We shouldn’t rely on outside analysis.
We shouldn’t follow the crowd.
We shouldn’t watch the market obsessively.
We should adhere to fixed investment principles.
We should invest in no more than five or 10 shares.
We should only buy if we’re prepared to put at least 10 per cent of our net worth into the stock.
We should expect to hold our investments for ever.
We should only invest our cash when we find something worth buying.
We should do our own research - and do it thoroughly.
We should always have sound, well-argued, well-researched reasons for our investments.
We should ignore the market, the crowd, and its fashions.
Buffett believes that the most important quality for an investor is temperament, not intellect. You need a temperament that neither derives great pleasure from being with the crowd or against the crowd. Most people get interested in stocks when everyone else is. The time to get interested is when no one else is. You can't buy what is popular and do well.
Some choice Buffett quotes:
• If you are in the investment business and have an IQ of 150, sell 30 points to someone else.
• It takes 20 years to build a reputation and five minutes to ruin it. If you think about that, you'll do things differently.
• Of the billionaires I have known, money just brings out the basic traits in them. If they were jerks before they had money, they are simply jerks with a billion dollars.
One of the most revealing parts of the book is where the author traces the formation of Buffett’s operating principles from early childhood. Having more information than the other guy, and analysing that information and using it rationally, became a key principle for Buffett. He held very clear views about the benefits of being an entrepreneur over being an employee. “If you go to work every morning with your stomach churning, you’re in the wrong business.” Buffett always knew that he had to work for himself. “I didn’t want other people directing me. The idea of doing what I wanted to do every day was important to me.”
In the heyday of his activity, John D. Rockefeller said that "the ability to deal with people is as purchasable a commodity as sugar or coffee." "And I will pay more for that ability," said John D., "than for any other under the sun." Buffett’s biographer tells us that all his life, Buffett’s role model was Dale Carnegie. Buffett has read and reread How to Make Friends and Influence People every year since the age of eight. Buffett decided to test the statistical validity of Carnegie’s admonitions. Once he had proved them to his satisfaction, he adopted them as cast-iron life principles. Buffett was greatly impressed by such admonitions as:
• Flaming enthusiasm, backed up by horse sense and persistence, is the quality that most frequently makes for success.
• Let the winds of enthusiasm sweep through you.
• Live today with gusto.
• Remember that a person's name is to that person the sweetest and most important sound in any language.
• Talk in terms of the other person's interests. Make the other person feel important - and do it sincerely.
• Financial success is 85 percent due to the ability to express ideas, to assume leadership, and to arouse enthusiasm among people.
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