On the Bookshelf: The Oracle of Omaha

How investing guru Warren Buffett snowballed his success. 

The success potential of Wall Street was a peculiar thing to young Warren Buffett. He already knew about money and had been pursuing it since he was old enough to count. But his infatuation with the New York Stock Exchange escalated at age 10, when he first stepped onto the trading floor gallery just one year after it was opened to the public.

Amid the shouting and scribbling, the experience was alluring. But as Buffett traipsed through the Stock Exchange floor and into the dining room, he found one compelling reason to make his home there. It was 1940, and most companies were slowly recovering from their financial losses from the Great Depression. But in the Stock Exchange’s dining room, there was a man hired for the sole duty of rolling cigars. Buffett didn’t want to smoke them, explains Alice Schroeder in The Snowball: Warren Buffett and theBusiness of Life, the first authorized biography written with Buffett’s cooperation. “But working backward, he saw what hiring a man for such a frivolous purpose implied. To justify the expense must mean that, even while most of the country wasstill mired in the Depression, the cigar man’semployer was making a great deal of money….That day, as he beheld the cigar man, a vision of his futurewas planted.”
For Buffett, now arguably the most famous and successful stockbroker in the world, the business of making money became his life’s calling. The Snowball chronicles his business deals and life experiences since before he could even remember. His father was a Republican congressman who uprooted the family from Buffett’s beloved Omaha, Neb., home to Washington, D.C., just as Buffett was starting to struggle in school.
The Buffett household was stern. “Politics, money and philosophy were acceptable topics for dinner-table discussion at the Buffett house, but feelings were not…. Nobody in the Buffett household said ‘I love you’ and nobody tucked the children into bed with a kiss,” Schroeder writes. And so, from an early age, Buffett spent his time away from home doing what he knew best—making money.
The lessons Buffett learned early extend through his business deals today. Many of his business principles were established long before he developed a “career,” depending on when you believe a career can actually start. He was an entrepreneur from the age of 6, initially as an esteemed gum seller. He sold gum in packs of five and made 2 cents on each pack. When one woman asked if she could buy one piece, Buffett told her: “We don’t break up packs of gum. I mean, I’ve got my principles.” Little Buffett started selling big from the beginning.
Chewing gum made its way into selling cartons of Coca-Cola (a stock which much later became one of Buffett’s biggest “bargain buys” in the late 1980s). At 13, Buffett filed his first income tax. His savings account had hit $1,000 from his many childhood jobs.
Two years later, in 1946, Buffett had saved about $5,000, which by 2007 numbers is equivalent to about $53,000. He had increased his paperboy business, but added to it a pinball machine business and an unethical stint in stealing golf balls from Sears and reselling them. Although he says in The Snowball, “I should have diversified my theft,” in retrospect, Buffett knew it was wrong.
He went on to start a partnership at a young age and began trading stocks. He felt that others treated him as inexperienced, but Buffett looked at every dollar as $10. He was determined to make money in the stock market.
Normally cautious and unwilling to risk his portfolio, Buffett dumped three-quarters of his portfolio into Government Employees Insurance Company (GEICO) stocks in 1950, believing the company was a win-win. Buffett scoured Moody’s Manuals and was known for his unparalleled researching before making any decision. He knew he was onto something with GEICO. Today, GEICO is a subsidiary of Berkshire Hathaway Inc., of which Buffett is chairman and CEO. In September 2008, Berkshire shares were noted as being the highest-priced shares listed on the New York Stock Exchange.
Throughout Buffett’s home life, too, money prevailed. The main message Buffett and his wife Susie presented to their children, says author Schroeder, is that money is important. Buffett was even known to write his kids checks for $10,000 with a bet that he would sign the checks if he weighed a certain amount on a certain day. They tempted him with sweets, but he never had to sign those checks
That was the extent to which Buffett interacted with his children. Susie was sometimes referred to as a single mother because Buffett was married to his job.
As he climbed the ranks to CEO of several companies, his thousands turned into millions and eventually billions. Many big-name companies then and now are businesses that Buffett either once owned or now owns large sums of stock in; Berkshire’s biggest holdings today are in Coca-Cola, American Express, Wells Fargo, Procter & Gamble and the list goes on, according to market resource Morningstar.
Buffett became friends with a young man named Bill Gates in the early 1990s. Buffett didn’t have a computer and was convinced he didn’t need one. “I don’t know what it’s going to do for me,” Buffett says in The Snowball. “I don’t care how my stock portfolio is doing every five minutes. And I can do income taxes in my head.” Later, Buffett finally bought a computer.
Gates became like a “third son” to Buffett. They were both at the top of the list for the world’s richest man, but Gates was finding a way to give back. Buffett, who never had a personal interest in charity, thought he should give his money to someone who would love giving it away. Buffett had amassed $42 billion in net worth in 2006 according to Forbes, and that same year announced that 85 percent of his Berkshire stock (then worth $37 billion) would go to several charities. Much of it went to the Bill & Melinda Gates Foundation. “He was giving away his money without leaving a trace of himself behind,” Schroeder writes.
Buffett often explained his business practices in relation to a snowball: With a little hard work as you trudge up the hill, your fortune will grow with time. But the $37 billion gift—a significant portion of his snowball—didn’t have his name on it. “He had spent all his life rolling up the snowball as if it were an extension of himself; yet he would establish no Warren Buffett Foundation, Buffett hospital wing, no college or university endowment or building with his name on it,” Schroeder writes. “No major donor had ever done such a thing before.”
But if anyone watched his snowball carefully, it was Buffett. It grew into the largest reserve of riches the world has ever seen. “You’ve got to be your own wet snow, in effect,” Buffett tells Schroeder. “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.” For now, it looks like Buffett’s at the top of his hill.
Source http://www.successmagazine.com/