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More reviews by Wayne E. Yang
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The Snowball: Warren Buffet and the Business of Life by Alice Schroeder
Despite his international renown, Warren Buffet has largely made his reputation by investing in the United States. He has occasionally strayed into global stocks (his notable Asian investments have been in companies like China Petroleum and Korea's Posco), but he has amassed most of his billions by sticking to quintessentially American stocks like Coca Cola, The Washington Post and American Express. With global investors wondering if such faith in the United States remains warranted, Buffet has stayed loyal. In a Fall 2008 editorial, during the throes of the global market meltdown, Buffet urged investors to buy American stocks.
A shrewd observer might have noticed that Buffet was somewhat open-ended as to the best timing for accumulating such investments, and that, though he argued for buying equities, he himself was being opportunistic. His rescue financing of General Electric and Goldman Sachs last Fall were in attractively priced preferred stock with warrants that were not available to the general investing public. His late February letter to shareholders showed little net increase in his common equity investments in 2008. His company Berkshire Hathaway recently reported one of its worst annual performances ever, but suggestions of a decline in his investment abilities are probably as premature as they were when twenty-somethings were mocking him during the dot.com era. In THE SNOWBALL: WARREN BUFFET AND THE BUSINESS OF LIFE, ALICE SCHROEDER attempts to reconcile the "apple pie", seemingly simple American, with the calculating, shrewd-eyed investor. As she notes in this painstaking biography, there is a complicated life surrounding the man known for his monotonous diet of cheeseburgers and cherry cokes.
Though Buffet says he remains committed to the U.S. markets, in recent years he has voiced concern over the U.S. dollar. In 2004 he wrote about his concern over America's trade deficit. In response, he famously invested -- and lost money -- in various foreign currencies, causing him to recalibrate. Buffet has long been willing to buck conventional wisdom. Years ago, he correctly warned that derivatives were "weapons of mass destruction". He has been disdainful of hedge fund and private equity managers who earn a major part of their income through fees rather than performance. He now says that a bubble is developing in U.S. treasury bonds, and he remains negative about the U.S. dollar, though, more recently he has said that he would take that view by investing instead in overseas companies. China Petroleum represented one such investment, which he initiated when he believed that both oil and China were undervalued. In late 2007 he sold that investment for an eightfold profit, determining that the Chinese market had risen too far, too fast. Critics added that he might also have been worried over criticism that he was investing with a company that was active in Sudan, and thus implicitly supporting genocide in Darfur. Buffet's reputation as an investor is not without controversy. He was forced to temporarily take over the chairmanship of Salomon Brothers, when the investment bank got entangled in a U.S. bond auction scandal. But Buffet has long tried to cultivate an image as a benign, kindly investor.
For years, the famously frugal Buffet has thought about writing his own investment book, along the lines of those written by his former mentor and idol Benjamin Graham. Seeing that particular ambition wane, he has instead given Schroeder unprecedented access to himself, his family and acquaintances. The result is a book consumed with detail. No other book goes as deeply into exploring Buffet's relationship with his first wife Susan Buffet (who, for two decades, lived separately from him); his business and social partnership with the socialite Washington Post publisher Katherine Graham; his caretaker (later to become his second wife) Astrid Menks, and his friendship with former Microsoft chairman Bill Gates. Schroeder even looks closely at his friendship with bridge partner Sharon Osberg. (How disappointing to learn that his folksy letters to shareholders are written, in part, with the help of Fortune magazine's Carol Loomis, yet another person is his coterie of lady friends.) Out of the many books about Buffet, this one wins on heft alone. For those looking to get into the head of Buffet, however, Schroeder's book is still rewarding, even with all the excruciating detail about his marriage to Susan Buffet and the airing of some of his other dirty laundry.
What strikes you about billionaires like Buffet is that while you might try to imitate them, it is difficult to be like them. Think of the young Li Ka-shing reading books during factory breaks, while his co-workers smoked or relaxed. Buffet was similarly more driven than his peers. As a young boy, Buffet already knew that he wanted to make money. For those who have studied Buffet in books like Roger Lowenstein's Buffet: the Making of an American Capitalist, the outlines of Buffet's childhood will be familiar. From an early age, Buffet was hardwired with an affinity for numbers, a work ethic for gathering information and an interest in calculating odds. At the age of six, he was turning a profit by selling packs of chewing gum. His work as a newspaper delivery boy presaged a later interest in newspaper and publishing companies. As a young man, he installed pinball machines in barber shops. To service this urge to make money, he became "a learning machine". Buffet's ability to absorb reams of financial documents and industry magazines is generally without parallel, though he notes that his investment success has been shared by a circle of friends who are devotees of Graham's value style investing; their success has been an emphatic rebuttal to the theology of the efficient markets.
Like many successful businessmen nearing the end of their careers, Buffet over the years has come to think about his legacy beyond the money that he has so ably accumulated. While his father was a staunch Republican (in fact, a member of the John Birch Society), as a young man Buffet broke with him to become a well-known supporter of the Democratic party. Schroeder attributes this at least partly to the influence of the social-minded Susan Buffet. But for all his success, Buffet is philosophical about individual destiny and fate. He calls himself a winner of the "ovarian lottery," the idea that if he had had the bad luck of being born in an underprivileged country, the acumen that has enabled him to become a successful investor would have been for naught.
Buffet has given to charities over the years, but, historically, his giving was at a pace slower than typical for his wealth. Buffet used to explain it by saying that he thought he was the best at increasing and maximizing his wealth, and thus his ultimate impact as a donor. His June 2006 donation (at that time, around $31 billion) to the Bill and Melinda Gates Foundation thus caused a stir. (Schroeder believes it helped motivate recent donations from Li Ka-shing and even Jackie Chan.) Most ultra wealthy men start their own foundations, so that their names and reputations can continue to live after they are gone, but Buffet became convinced that his wealth could have more impact if managed by young, results-oriented people like the Gates's. It did not hurt that they were close friends. That has long been his modus operandus as an investor: place capital with capable managers and get out of their way. The move was also vintage Buffet in other ways: egotistical enough to be ego-less, and plain enough to be unconventional.
Wayne E. Yang
20/03/2009
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Wayne E. Yang is based in New York, where he lives with his wife and two children. His web site is www.wayneyang.com. |
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