Warren Buffett — The Contrarian
Just as a terroir shapes the quality and flavor of wine, it also shapes individuals. We delve into the life of Warren Buffett to show how his ‘home’ terroir had a profound impact on his character and achievement.
“I measure success by how many people love me.”
— Warren Buffett
Just as terroir shapes the characteristics of grapes and, consequently, the quality and flavor of wines, it also shapes individuals. We delve into the lives of an artist, Grandma Moses, and a famous billionaire investor, Warren Buffett to show how their ‘birth’ terroirs had a profound impact on their character and potential.
Truth be told, it wouldn’t be his first brush with a losing bet, nor would it be his last, just his most treacherous, existentially speaking. But one thing is for sure. But contrary to common sense, owning Berkshire Hathaway made Buffett very happy, and when he is happy, everyone makes a whole lot of money.
By the time he wrote the final partnership letter calling it quits so he could devote more time “for considerable non-economic activity,” by which he meant non-Wall Street, he was making a good living. But it was taking over his life. Two years earlier, he warned them he was going to pull back. Now, he saw he was no good at that.
During those years, the small “fund” had grown, and although not to the three quarter-trillion dollars it would be eventually become, it was overtaking his life. Stopping wasn’t an option because he loved the work. What he really needed was to change the scale. He needed to focus his activities in a very different business, one that gave him time to think and the cash to dream big.
The plan became an obsession like everything else he attempted from taking fingerprints of nuns (more on that later) to bottle-cap collecting to golf ball fishing (digging errant balls from the water holes). The new idea was one part scream for relief, one part instinct about the future of the stock market.
Zen Capitalist
Buffett derives great satisfaction from an inner world, which ultimately made him the wealthiest investor — or, more precisely, the world’s richest gambler of probabilities. However, the second world serves an equally important purpose — to confirm his calculations. For instance, he drives to McDonald’s every morning for breakfast. With his money, Buffett can afford the best; a Three Star French chef would be delighted to stop by and cook Oeufs Cocotte. But according to his calculations, Buffett figures the odds are better that he’ll enjoy his meal for a fraction of the price, according to the calculations in his head. All his life such mathematical models rise up to help him make decisions.
To Buffett, the world is filled with such random games of chance, but out of habit or hubris, most of us ignore the bells telling us to stop and think. Buffett sees himself merely as a referee of a game that began at age 8 when he started counting bottle caps. Young Warreny, as he was called by the family, would ride his bike to gas stations, “scooping bottle caps out of the wells beneath the ice chests where they had fallen after customers popped their sodas open,” according to his biographer, Alice Schroder.
That was Warren Buffett’s introduction to big data.
In the basement of his family’s home, lined up like Roman centurions were columns of Pepsi, Coca-Cola, root beer, and Cott’s Ginger Ale bottle caps. To Buffett they may as well have been columns on a spreadsheet. Most parents would tell their son to throw them in the garbage. Howard Buffett, gave Warren plenty of free rein, creating an unusual dichotomy for his son whose mother represented volcanic anger at the slightest infraction. In the eyes of one, he could do no wrong, while in the other, nothing was good enough. It meant he could do anything he wanted but making mistakes would wreak unspeakable havoc.
Ironically, Buffett found that he could manage the polar extremes through the power of information. Good information was sortable, countable, speculative, and, most importantly, limited only by the work he was willing to put in. You could never get in trouble by knowing too much about something everyone else ignored. To young Warren Buffett, bottle caps revealed insider knowledge of the owners’ preferences, ages, genders, and the particular season they preferred. He did not have a clue what he might do with such intel, but he knew that somehow it was important, and Buffett would remember that for the rest of his life.
Like everything else, what can be counted should count. One time while he was in the hospital recovering from a nasty case of appendicitis, as a way to pass the time, his aunt Edie purchased Buffett a fingerprinting kit. It didn’t take long for him to invite the nun nurses to stop by his room where he took their fingerprints while meticulously recording their names and whatever other information he could glean on 3x5 cards.
Most people would question why anyone would want a nun’s fingerprints. They failed to see the world as Buffett saw it: “Nothing was impossible.” He believed there were odds that “one day, a sister might commit a crime, and when that day came, I would know her identity.” The lesson Buffett learned was good information allows you to handicap the future of even the smallest of wagers, and given Buffett’s competitive streak, he imagined the caper of the crooked nun was just a matter of time. The key was good intel.
From nuns, Buffett moved on to stamps and coins before buying his first shares of stock at age 11 in the spring of 1942, with the country at war. He purchased six shares of Cities Service Preferred for $38 apiece. He was just a slot machine with legs searching for something to bet on and was beginning to understand the concept of the market.
“The year was 1942, I was 11, and I went all in, investing $114.75 I had begun saving since age 6,” Buffett wrote in his annual letter to shareholders in 2019. “What I bought was three shares of Cities Service preferred stock. I had become a capitalist, and it felt good.”
The headlines didn’t look good, he said: “We were losing the war in the Pacific.” Markets go up and down every day, but that doesn’t necessarily mean there’s significance to every move. As an investor, it helps to be patient and to accept a certain level of uncertainty.
Since buying his first stock at age 11, “Many years have gone by and I’ve never known what the market is going to do the next day,” Buffett said. “That’s not my game. My game is to decide whether I’m in the right economy, which America has definitely been ever since that time.”
Rather than trying to time your investments, buy and hold for the long term, Warren Buffett told, as per CNBC. “The money is made in investments by investing, and by owning good companies for long periods of time. If they buy good companies, buy them over time, they’re going to do fine 10, 20, 30 years from now.”
Big Game Hunting
At the time he plunged into the stock of the old-line textile company it was not a ticket to freedom. Buffett still had no desire to be involved in the textile business on a long-term basis. He decided to use Berkshire as a holding company and ultimately started to acquire insurance businesses. These could provide tons of capital to invest elsewhere and allowed Berkshire to grow into the massive conglomerate it is today.
But now with Berkshire to occupy his time, running a small portfolio was going to get in the way. He decided to quit the partnership and sat down to compose a letter informing his partners of the fact. The irony of quitting the partnership that held his sister’s funds was not lost on him. In fact, when writing his annual letter he always visualized the day they would quit on him.
Curiously, Buffett did not reveal a clue about his plan once he was free of his partnership duties, as the letter concluded ambiguously: “I am likely to limit myself to things which are reasonably easy, safe, profitable, and pleasant.” And once again, his sister would be furious.
Play Dates
Until recently, most of the people around town were vaguely aware Buffett was in the financial business but knew him better for his ukulele playing and corny jokes. He was no money-driven financier, that was for sure. He even once asked his neighbor, Don Keough, to invest in his new partnership. Keough checked with his kids who knew Mr. Buffett, “What kind of a man is he?” The kids said Mr. Buffett played with them during the daytime. That was all Keough needed to know.
He thought, “Anyone that has time to play with children during the day won’t get a nickel from me.” Years later, when Keough became president of Coca-Cola, he would tell this story, adding that the ten grand would be worth about six hundred million today.
At no time in Buffett’s life was success assured. Except perhaps in his dreams, a point we shall come back to. However, purely financial considerations never claimed primacy over Buffett’s burning desire to do something he enjoyed, in effect, to find his purpose.
Most people think that to be rich you have to want it more than anything else, not Buffett. He still lives in the same house bought over fifty years ago and drives himself to work, stopping off to pick up an Egg McMuffin for breakfast. No kale smoothies for Buffett. While he was already a millionaire at the time he ended his partnership, making more money was the last thing on his mind.
At 37, Buffett was wise beyond his years. For reasons which will be evident shortly, his brain was able to grow faster than his bulging bank account, which he attributes to a process he calls the “compounding wisdom.” It means that as we continue to learn new things in our lives, our thinking compounds the way interest accrues on top of interest. Soon, the wisdom of our thought process doubles in size, and the dividend is an ability to make savvy, often contrarian decisions about life, money, careers, and even love. In practical terms, like a fine wine, life experience turns into wisdom when aged.
Transformation
Buffett’s success depended on the cost of storms.
Most people don’t see until too late that an average career is 9000 days — 200 days a year for 45 years. Buffett’s career longevity may be unique, he’s going on 65 years, but his problem is no different than the ordinary Jill or Joe. He has to create an impact in a finite number of days. Buffett saw the only way he could achieve his goals was to minimize the things he needed to do and maximize those he wanted to do. This realization led him to rethink the Berkshire business model, and he began by acquiring an insurance company called National Indemnity in 1967 for $8.6 million (Berkshire still owns it).
The secret to the insurance business is a simple one, the return from investing the premiums in between hurricanes. The premiums must be invested, and most insurers put them into treasury bills. Buffett liked stocks better. His big epiphany was in recognizing the Great Depression had created an adverse, low-risk mentality. Buffett saw that as long as he could afford hurricanes, the float was free capital. So he changed Berkshire’s approach to risk-taking. It had to be profitable, and there should be no ordinary losses. He went on to purchase General Re and Geico for the same reason. It’s an oversimplification to conclude Buffett’s success depended on calculating the cost of storms, but that is how the model works. There would be another benefit: Owning an insurance company meant the days of traipsing off to Wall Street were over.
The problems of Berkshire Hathaway didn’t change when Buffett bought the company. They just became his. With business partner Charlie Munger, he set about to fix things as he had shareholders to worry about and began plowing the cash into diversified businesses that could lead to more lucrative investing opportunities. This is how Berkshire came to own National Indemnity Insurance, See’s Candies, and over time, shares in companies like American Express and The Washington Post, and the BNSF railroad, as well as a significant energy business.
Buffett transformed Berkshire Hathaway into a holding company that owns outright more than 65 major companies, diversified across the technology, railroad, consumer, energy, financial services, and healthcare industries. 47% of the portfolio is dedicated to financial services, and 27% to technology companies. The most substantial investments are in Apple, American Express, Bank of America, Coca-Cola, and Occidental Petroleum. Berkshire is the seventh largest component of the S&P 500 index and the top-ranked company in the Forbes Global 2000. Its class A shares have the highest per-share price of any public company in the world, reaching $500,000 in March 2022. Under his leadership, Berkshire Hathaway has become one of the most successful and respected companies in the world, with a market capitalization of over $700 billion as of February 2023.
None of this was planned either.
Bigger is Better
As his capital grew, it had a multiplier effect on deal flow, and Buffett recognized that doing one massive deal was quicker than ten smaller ones. Buffett made partners out of Mr. Quality and Mr. Quantity and became the largest shareholder of companies like American Express, Coca-Cola, and The Washington Post. Professionally managed companies did not need him to mind the store. Instead, Buffett could take time to study the numbers and the people, and along the way, he learned the business better than the experts.
Over the years, Buffett, the stock maven, turned into a C suite maestro. His transformation was modeled on his investing thesis. Instead of quality stocks, he invested in great talent; he bought companies the same way he would own an undervalued stock with headroom. Capable managers meant he avoided timewasters like endless staff meetings that are typical in a 330,000 employee company. Those tasks are in the hands of his company CEOs who thrive under the Buffett formula of hands-off, head down. Today, Buffett meets with Berkshire’s CEOs at most once or twice a year and runs headquarters with a staff of 25.
His other source of happiness is giving away 99% of his wealth to philanthropic causes through the Bill & Melinda Gates Foundation for a wide range of charitable causes, including education, health care, and poverty alleviation. causes. Buffett would be the new Rockefeller except that he’’ll give away many multiples of the oil baron’s wealth.
Warren Buffett is that rarest of double majors, a portfolio maestro whose prognostications make tons of money for many people. His results are so good that one could conclude spending the energy to build a company is a waste of time. If so, it is like discovering the actress Hedy Lamar was a scientific genius. Buffett is the exceptional investor who is a self-taught manager and a brilliant one. As he revealed in his 2015 annual letter: “Experience in business can make you a better investor, and vice versa.” He makes it sound a little simpler than it is.
The story of Berkshire Hathaway is a tale of finding under-appreciated assets and investing for the long term. The formula would produce $2.4 million today from an investment in Berkshire Hathaway in 1985 of $10,000. The same amount put into the S&P 500 is worth $227,000. It affected Buffett’s bank account, as well. Because he is Berkshire’s largest shareholder, Forbes noted that Buffett is now the third richest person in the world.
If you go back in time, you’ll learn Buffett started his private partnership in 1956, which eventually grew to have seven limited partners, including his sister. Over time, the partnership achieved outstanding investment returns, with an average annual return of 29.5% between 1956 and 1968. In 1962, he began buying shares of Berkshire Hathaway, which he believed was undervalued. Despite his efforts, the company continued to struggle, and by 1965, Buffett had accumulated a controlling stake. In 1967, Buffett made the decision to liquidate the Buffett Partnership and invested the proceeds in Berkshire Hathaway. He continued to acquire shares of the company, eventually becoming the majority shareholder and taking over as chairman of the board in 1970.
None of this was planned.
There is an interesting backstory, as his daughter Suzy told People Magazine: “It’s surprising to people that the money doesn’t matter to him. He made it by accident because he was really good at doing what he loved.” Buffett adds: “I buy everything I want in life,” Buffett said. “Would 10 homes make me happier? Possessions possess you at a point. I don’t like a $100 meal as well as a hamburger from McDonald’s. I don’t equate the amount I spend with the enjoyment I’m going to get.”
Success is chaotic, and once you go for it, there’s no telling the outcome.
May 29, 1969
On an unremarkable day, one that yearned for a glimmer of good news, Doris Buffett sat in her modest home curled up on a couch. The striking 41-year-old blonde absentmindedly flipped through catalogs from Borsheims and Nebraska Furniture Mart. They were a pleasant distraction in a life that had seen too many days with too few surprises. Out of the corner of her eyes — said to be the color of blue diamonds — she noticed a single unopened letter. Scattered haphazardly among the remnants of the morning’s mail, the nondescript envelope concealed a depth of secrets.
It was a letter from a portfolio manager, none other than her beloved brother, affectionately known by the family as Warreny. With the scent of black coffee lingering in the air, mixed with delicate wisps of cigarette smoke, Doris leaned over to pick it up. An enigmatic smile crossed her lips. Within the confines of her unassuming life in Omaha, the contents held the promise of change. But as she began reading, that first bittersweet moment turned out to be yet another detour in a life all too familiar with trapdoors.
A Matter of Principle
Less than a week ago, Warren Edward Buffett, a 39-year-old with a storied desk that once belonged to his father in a tidy home office, found himself at a crossroads. His office was identified as a place where a “Too Hard” file tray on his desk reminded him to keep things simple or be ready for unintended diversions.
His home on Farnam Street was more than just a place of business; it was a sanctuary of thought where he immersed himself in newspapers, magazines, annual reports, and even historical biographies for as much as six hours per day. Here, he absorbed knowledge across the spectrum, connected the dots, and discovered hidden values for the funds of friends and family, all the while remaining connected to the financial world through tickers and news channels.
Still, he often admitted ruefully represented the burden of responsibility for their life’s savings. This weighty obligation was never far from his thoughts, and he spent many years trying to lighten the load without much success until May 29, 1969.
Buffett’s investment education was unconventional, even though he had an MBA from Columbia Business School, where he was mentored by Ben Graham and David Dodd, luminaries of modern security analysis. Their book brought Buffett to the attention of the two world-class investors. Buffett said later, “I had just read Graham’s book, and finding that at age 19 was one of the luckiest moments of my life.”
Their shared investment philosophy wasn’t multitasking but “multi-asking,” diving deep, examining minutiae, and unraveling hidden correlations. Graham the mentor ingrained in Buffett the mate an invaluable mantra: trust nothing blindly, challenge every assumption, and approach so-called Wall Street mavens with a healthy dose of skepticism. Sometimes, the subtlest market tremor in the least expected sectors could reverberate through a portfolio. Graham was convinced that it took a discerning eye like Buffett’s to seize such opportunities, particularly when others sought shelter behind their balance sheets. Realizing Graham was a simpatico soul, Buffett reasoned that if he went to Columbia, he could act as his mentor. Recognizing a kindred spirit in Graham, Buffett decided that by enrolling at Columbia, he would be mentored by the best in the business.
After graduation and an apprenticeship at Graham’s firm, Buffett opened his family partnership, transforming himself over the next few years into a modest millionaire. Managing a small fund in the face of Wall Street’s computers and quantitative experts, however, was a monumental challenge. Buffett needed a business model that could beat the system, even when the system meant everyone else. They were bigger; he needed to be better. They had more iron, he had more metal. They spoke of performance, he deal in customer’s wealth. Still, he was finding it hard to beat the system the way he was going.
Buffett recognized life as a reliable stock picker, no matter how good, wasn’t his true calling. The title of Wall Street tycoon held little attraction. He was cut from a different cloth, however threadbare by comparison. In Omaha, business people were helmsmen, not hustlers, like the international engineering firm Peter Kiewit, run by his friend Walter Scott. These were big, essential enterprises overseen by individuals who lived and thrived doing their daily work. Most of all, they imbued their efforts with unspoken values. At that moment, Buffett chose to transition to Main Street.
But how could he make the shift when people relied on him to grow their investment accounts every quarter?
To pull off this sleight of hand, turning the dross of information into the floss of investing required time. Buffett realized he also needed patient capital. He excelled at the long game, the ‘Rip Van Winkle’ school of investing, where you buy a great stock and let it grow for decades. The key was finding investors who trusted him to do just that. It was a matter of goal alignment. He would find it on his home turf. It meant that Omaha was the secret crossroads where finance and purpose collaborated. It told him he could focus here better than anywhere, and it would lead to the most winning investment thesis in history.
As Alexander Graham Bell once said, “When one door closes, another opens.” Buffett realized his job was to beat the market. He was asking his most loyal investors to choose sides, including his sisters.
His secret to beating the market was, as he called it, the ‘Rip Van Winkle’ school of investing. Buy a great stock and go to sleep for twenty years; when you wake, it‘ll still be growing. Buffett could not — would not — be measured against the fools who traded stocks for milliseconds when he wanted to hold stock for decades. It was just a matter of probabilities.
The key was people who placed their trust in you. That would give him time to make the thesis work. He would find them on his home turf. Then, he would find others. Then, he would find capital. The program would compound like bank interest. But there were powerful naysayers. Wall Street warned him they’d do everything to stand in his way. It didn’t matter to Buffett. On May 29, 1969, he sent the letter.
“That was Warreny for you,” Doris quipped.
The Pivot
Doris was the oldest sibling in the Buffett family. She had been recently divorced, the second of four marriages ending up lemming-like, diving off a steep cliff onto the rocks. Still, she took her problems in stride. When asked what went wrong, Doris concluded, “My husband didn’t have a sense of humor.”
Her charmed life was less than it should have been, given her beauty and intelligence. Every marriage proposal held the secret to eternal bliss until it didn’t. In addition to men problems, she suffered two bouts of cancer and had to declare bankruptcy in 1987 after being taken by swindlers. She later said the experience caused her to “lose every shred of self-respect.” Yet a can-do Omaha spirit transformed her travails into a happy sainthood.
Doris also had a way of snubbing the high-stepping strutters who claim to have the answers by centering her heart around two loves. Nebraska politics and charity to those in need — making small personal donations to educate prison inmates, battered women, and low-income teenagers. Politically, she organized anti-communist women’s groups, and in 1964, she was named a Nebraska alternate to the Republican National Convention.
Doris was also known for an incredible sense of humor, telling pointed but funny stories that often skewered her subject. For example, she was fond of saying she refused to fund “S.O.B.s,” which stood for the “Symphony, Opera and Ballet.” She could level a trenchant if biting dig now and then at her dear little brother when the moment required, as it did now.
In her best theatrical baritone, Doris began reading Buffett’s partnership letter aloud to her sister Bertie across the table, “To “My partners.” Then, with a playful toss of her blonde tresses, she exchanged a knowing glance, “by which he means his two sisters.” It was an update on the Buffett Partnership Ltd. performance, also known as BPL, the humble predecessor to Berkshire Hathaway.
Warren Edward Buffett was not an average brother. He was not an average broker. He was not average anything. When Doris and Warren were given intelligence tests, she scored only two points below him. Asked how that made her feel, she replied: “Warren got a lot out of those two points,” was her response.
Warren Buffett was different from the moment you met him as he was the moment he was born. Doris and Bertie understood this. From when he was six years old, selling gum and Coke to his neighbors, they also knew that he would never stop until he was the wealthiest man in the world. It was ironic because he didn’t care about money, not in the ordinary way. Something else was driving this plan.
Bertie, the youngest of the siblings, was quietly listening as Doris continued to read the letter: ‘As long as I am on stage and assuming responsibility for the management of virtually 100% of the net worth of many partners, I will never be able to put sustained effort into any other activity.’
Two years ago, when he sounded the “I’m retiring alarm bell,” the two sisters assumed it was an idle threat. At the time, he said he wanted to focus on other interests. ‘He has no other interest than investing,’ which for the sake of his marriage would turn out to be unfortunately prophetic.
The writer’s unmistakable message was buried within the twists and turns of the letter’s investment jargon: “In 1967, I expressed a desire to be relieved of the necessity of focusing 100% on our investment partnership. I have flunked this test completely.” Now, it looked like their future was about to take a turn. But Doris had a peculiar feeling.
It’s his mind. That’s the problem,” Bertie said out loud, “he‘s always overthinking. He’s too smart for his own good,” as she blew a cooling breath on a steamy cup of coffee.
With elbows perched and a napkin holder acting as her gavel, Doris said, “He’s talking about the damned stock market. Every day, you start over again. I think he’s tired of the hustle.” It turned out that all Buffett wanted to do in his early life was make a killing, and he was damned good at it. But now it was killing him.
The thesis, which was slowly emerging, was that of a portfolio manager transforming into an entrepreneur, a magic act if there ever was one, as Buffett had laid out in a previous letter. His goal in life was to make: “An investment in a controlled business where I liked the people and the nature of the business even though alternative investments might offer a higher rate of return. Thus, I am likely to limit myself to things that are reasonably easy, safe, profitable, and pleasant.”
Bertie considered this. “What does easy and pleasant have to do with it?” She added, “He’s a stockbroker for Chrissake. What did he think life was going to be like?”
“It gets better,” Doris said and started reading again, “He writes, ‘I can’t help being competitive. I know I don’t want to be totally occupied with out-pacing an investment rabbit all my life. The only way to slow down is to stop.’”
“What the heck does that even mean?” Bertie asked. It meant finding the right business and figuring out how to run it from Omaha.
Doris gave her famous raised eyebrow look, “Bertie, it means he’s quitting.”
The reality would come to light later. Buffett wasn’t quitting.
He was changing the game.
May 29, 1969
On an unremarkable day that yearned for a glimmer of good news, Doris Buffett sat in her modest home curled up on a couch. The striking 41-year-old blonde absentmindedly flipped through catalogs from Borsheims and Nebraska Furniture Mart. They were a pleasant distraction in a life that had seen too many days with too few surprises. Out of the corner of her eyes — said to be the color of blue diamonds — she noticed a single unopened letter. Scattered haphazardly among the remnants of the morning’s mail, the nondescript envelope concealed a depth of secrets.
It was a letter from a portfolio manager, none other than her beloved brother, affectionately known by the family as Warreny. With the scent of black coffee lingering in the air, mixed with delicate wisps of cigarette smoke, Doris leaned over to pick it up. An enigmatic smile crossed her lips. Within the confines of her unassuming life in Omaha, the contents held the promise of change. But as she began reading, that first bittersweet moment turned out to be yet another detour in a life all too familiar with trapdoors.
Doris was the oldest sibling in the Buffett family. She had been recently divorced, the second of four marriages ending up lemming-like, diving off a steep cliff onto the rocks. Still, she took her problems in stride. When asked what went wrong, Doris concluded, "My husband didn't have a sense of humor.”
Her charmed life was less than it should have been, given her beauty and intelligence. Every marriage proposal held the secret to eternal bliss until it didn't. In addition to men problems, she suffered two bouts of cancer and had to declare bankruptcy in 1987 after being taken by swindlers. She later said the experience caused her to “lose every shred of self-respect.” Yet a can-do Omaha spirit transformed her travails into a happy sainthood.
Doris also had a way of snubbing the high-stepping strutters who claim to have the answers by centering her heart around two loves. Nebraska politics and charity to those in need — making small personal donations to educate prison inmates, battered women, and low-income teenagers. Politically, she organized anti-communist women's groups, and in 1964, she was named a Nebraska alternate to the Republican National Convention.
Doris was also known for an incredible sense of humor, telling pointed but funny stories that often skewered her subject. For example, she was fond of saying she refused to fund “S.O.B.s,” which stood for the “Symphony, Opera and Ballet.” She could level a trenchant if biting dig now and then at her dear little brother when the moment required, as it did now.
The Thesis
Less than a week ago, Warren Edward Buffett, a 39-year-old with a storied desk that once belonged to his father in a tidy home office, found himself at a crossroads. His office was identified as a place where a “Too Hard” file tray on his desk reminded him to keep things simple or be ready for unintended diversions.
His home on Farnam Street was more than just a place of business; it was a sanctuary of thought where he immersed himself in newspapers, magazines, annual reports, and even historical biographies for as much as six hours per day. Here, he absorbed knowledge across the spectrum, connected the dots, and discovered hidden values for the funds of friends and family, all the while remaining connected to the financial world through tickers and news channels.
Still, he often admitted ruefully represented the burden of responsibility for their life’s savings. This weighty obligation was never far from his thoughts, and he spent many years trying to lighten the load without much success until May 29, 1969.
Buffett’s investment education was unconventional, even though he had an MBA from Columbia Business School, where he was mentored by Ben Graham and David Dodd, luminaries of modern security analysis. Their book brought Buffett to the attention of the two world-class investors. Buffett said later, “I had just read Graham’s book, and finding that at age 19 was one of the luckiest moments of my life.”
Their investment philosophy wasn’t about multitasking but “multi-asking.” Scrutinize every detail, and seek connections. They taught him to question everything. A mere market blip in the most unexpected places could be linked to a portfolio. If he went to Columbia, he could convince Graham to be his mentor.
After graduation, he opened a partnership, transforming himself into a modest millionaire by the standards of the time. Managing a small fund in the face of Wall Street’s computers and quantitative experts, however, was a monumental challenge. Buffett needed a business model that could beat the system, even when the system meant everyone else. They were bigger; he needed to be better. They had more iron, he had more metal. They spoke of performance, he deal in customer’s wealth. Still, he was finding it hard to beat the system the way he was going.
Buffett recognized life as a reliable stock picker, no matter how good, wasn’t his true calling. The title of Wall Street tycoon held little attraction. He was cut from a different cloth, however threadbare by comparison. In Omaha, business people were helmsmen, not hustlers, like the international engineering firm Peter Kiewit, run by his friend Walter Scott. These were big, essential enterprises overseen by individuals who lived and thrived doing their daily work. Most of all, they imbued their efforts with unspoken values. At that moment, Buffett chose to transition to Main Street.
But how could he make the shift when people relied on him to grow their investment accounts every quarter?
To pull off this sleight of hand, turning the dross of information into the floss of investing required time. Buffett realized he also needed patient capital. He excelled at the long game, the ‘Rip Van Winkle’ school of investing, where you buy a great stock and let it grow for decades. The key was finding investors who trusted him to do just that. It was a matter of goal alignment. He would find it on his home turf. It meant that Omaha was the secret crossroads where finance and purpose collaborated. It told him he could focus here better than anywhere, and it would lead to the most winning investment thesis in history.
As Alexander Graham Bell once said, “When one door closes, another opens.” Buffett realized his job was to beat the market. He was asking his most loyal investors to choose sides, including his sisters.
His secret to beating the market was, as he called it, the ‘Rip Van Winkle’ school of investing. Buy a great stock and go to sleep for twenty years; when you wake, it‘ll still be growing. Buffett could not — would not — be measured against the fools who traded stocks for milliseconds when he wanted to hold stock for decades. It was just a matter of probabilities.
The key was people who placed their trust in you. That would give him time to make the thesis work. He would find them on his home turf. Then, he would find others. Then, he would find capital. The program would compound like bank interest. But there were powerful naysayers. Wall Street warned him they’d do everything to stand in his way.
It was May 29, 1969. He sent the letter.
“That was Warreny for you,” Doris would quip.
The Pivot
In her best theatrical baritone, Doris began reading BuffBuffett'stnership letter aloud to her sister Bertie across the table, “To "My partners.” Then, with a playful toss of her blonde tresses, she exchanged a knowing glance, “by which he means his two sisters.” It was an update on the Buffett Partnership Ltd. performance, also known as BPL, the humble predecessor to Berkshire Hathaway.
Warren Edward Buffett was not an average brother. He was not an average broker. He was not average anything. When Doris and Warren were given intelligence tests, she scored only two points below him. Asked how that made her feel, she replied: “Warren got a lot out of those two points,” was her response.
Warren Buffett was different from the moment you met him as he was the moment he was born. Doris and Bertie understood this. From when he was six years old, selling gum and Coke to his neighbors, they also knew that he would never stop until he was the wealthiest man in the world. It was ironic because he didn’t care about money, not in the ordinary way. Something else was driving this plan.
Bertie, the youngest of the siblings, was quietly listening as Doris continued to read the letter: ‘As long as I am on stage and assuming responsibility for the management of virtually 100% of the net worth of many partners, I will never be able to put sustained effort into any other activity.’
Two years ago, when he sounded the “I’m retiring alarm bell,” the two sisters assumed it was an idle threat. At the time, he said he wanted to focus on other interests. ‘He has no other interest than investing,’ which for the sake of his marriage would turn out to be unfortunately prophetic.
The writer's unmistakable message was buried within the twists and turns of the letter's investment jargon: “In 1967, I expressed a desire to be relieved of the necessity of focusing 100% on our investment partnership. I have flunked this test completely.” Now, it looked like their future was about to take a turn. But Doris had a peculiar feeling.
It’s his mind. That’s the problem,” Bertie said out loud, “he‘s always overthinking. He’s too smart for his own good,” as she blew a cooling breath on a steamy cup of coffee.
With elbows perched and a napkin holder acting as her gavel, Doris said, “He’s talking about the damned stock market. Every day, you start over again. I think he’s tired of the hustle.” It turned out that all Buffett wanted to do in his early life was make a killing, and he was damned good at it. But now it was killing him.
The thesis, which was slowly emerging, was that of a portfolio manager transforming into an entrepreneur, a magic act if there ever was one, as Buffett had laid out in a previous letter. His goal in life was to make: “An investment in a controlled business where I liked the people and the nature of the business even though alternative investments might offer a higher rate of return. Thus, I am likely to limit myself to things that are reasonably easy, safe, profitable, and pleasant.”
Bertie considered this. “What does easy and pleasant have to do with it?” She added, “He’s a stockbroker for Chrissake. What did he think life was going to be like?”
“It gets better,” Doris said and started reading again, “He writes, ‘I can’t help being competitive. I know I don’t want to be totally occupied with out-pacing an investment rabbit all my life. The only way to slow down is to stop.’”
“What the heck does that even mean?” Bertie asked. It meant finding the right business and figuring out how to run it from Omaha.
Doris gave her famous raised eyebrow look, “Bertie, it means he’s quitting.”
The reality would only come to light later. Buffett wasn’t quitting. He was changing the game.
But first, he had to fire himself.
