Few billionaires command as much respect as Warren Buffett. His solid reputation has not been tarnished by the numerous anecdotes about his tightfistedness — like the deal he once made with a local newsstand to buy week-old magazines at a discount as they were about to be thrown away. He has also been known to wash his car when it was raining so the rain would do the necessary rinsing.
However, on June 26, 2006, he made an extraordinary announcement. He revealed his intentions of giving away 85 percent of his Berkshire Hathaway stock, worth $37 billion at the time. No gift of this amount had ever been given in the history of philanthropy. This unique gesture was greeted worldwide with a profound admiration. In retrospect, his miserliness might be seen as a supreme act of altruism: Denying himself and his family unnecessary expenses, investing the saved capital wisely to increase it and give it away, in the end, to the people who need it most.
People from all over the world have traveled to the US to attend his university lectures. Unlike most super rich people who live in their own world and discover late in life that money is not everything, Buffett has never disconnected himself from his roots. He remained a humble man with simple tastes. He drove his own car and never really cared about the way he looked. Even, in 1967, when he was managing a $50 million partnership, he wore the same old gray suit along with his favorite camel-colored sweater, although its elbows had grown thin and his shoes had holes in the soles. At that time, a potential investor is known to have refused to talk to Warren Buffett, based on the way he dressed.
These amusing details should not divert our attention from the main fact: Warren Buffett has excelled in the art of capital allocation — that is placing money where it would earn the highest return. He has also enjoyed making money: “The game of collecting it ran in his veins as his lifeblood,” writes Alice Schroeder. At the age of 11, he announced that he would be a millionaire by the time he was 35. He bought his first shares when he was 12 and started delivering newspapers to increase his income. He filed his first income tax return when he was 14, paying seven dollars in taxes. He had also already fulfilled the goal laid out in his favorite book, “One Thousand Ways to Make $1,000,” saving more than a thousand dollars. A year later, he was making so much money selling newspapers, that he had saved more than $2,000. At the age of 15, he not only invested in a hardware store but he also bought a farm for $1,200. A tenant worked the farm and they shared the profits.
This mammoth authorized biography attempts to explain how Warren Buffett became the richest man on earth in 2008. The author, Alice Schroeder, a Wall Street analyst and a managing director at Morgan Stanley was convinced by Warren Buffett to write full-time. He willingly cooperated with her on the book and, with his disarming humility, asked her to use the less flattering version whenever his version differed from somebody else’s.
Buffett’s scrupulous honesty and trustworthiness are one of the main reasons behind his success. Throughout the nearly 60 years he has been in business, Buffett has never changed his opinion about value and risk. He followed the same method which Alice Schroeder has summarized in simple words:
“...estimate an investment’s intrinsic value, handicap its risk, buy using a margin of safety, concentrate, stay in the circle of competence, let it roll as compounding does the work. Anyone can understand these simple ideas but few can execute them.”
Despite the current chaotic market, Buffett still believes that stocks are the best long-time investment as long as they are bought at the right price: “There are only a few things you can do wrong. One is to buy or sell at the wrong time. Paying high fees is the other way to get killed. The best way to avoid both of these is to buy a low-cost index fund, and buy it overtime. Be greedy when others are fearful, and fearful when others are greedy, but don’t think you can outsmart the market... Very few people should be active investors.”
His unusual business flair combined with a powerful and sound reasoning have given him a remarkable understanding of the market. He was the first to go on record, warning about the consequences of a weak dollar as well as criticizing the financial excesses that have caused today’s problems:
“It could all end on a dime if they flooded the system with enough liquidity, but there are consequences to doing that. If dramatic enough, the consequences would be the immediate expectation of huge inflation. A lot of things would happen that you might not like. The economy is definitely tanking. It’s not my game, but if I had to bet one way or another, everybody else says a recession will be short and shallow, but I would say long and deep.”
In 2003, during a meeting with students, Buffett was asked what had been his greatest success. He answered that if, at his age, nobody thought well of you, no matter how big your bank account is, your life was a disaster. The only way to get love is to be lovable. You cannot buy love but the more you give love away, the more you get!
Warren Buffett has always remained genuine and honest. He is also widely respected for his ethical approach to business, and his sense of right and wrong. His decision to donate most of his fortune to the Gates Foundation, which has revolutionized the way philanthropic work is carried out, created a tectonic effect. Following his example, Jackie Chan announced that he would give away half his wealth and Li Ka-shing, Asia’s richest man, pledged a third of his $19 billion to his own charitable foundation.
“All along, I’ve felt the money was just claim checks that should go back to society,” says Warren Buffett.
The Snowball tells us one of the most fascinating American success stories of our time, the story of a man who championed honesty as an investor, a man who stood against many of the excesses that caused the financial crisis we are currently witnessing.
